ovaf 497 2005

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OXL6w8qDUTfWllkJn1Qd1qVp3FY/FJD98d0n+sp+FDUfeo2e+iiU2lOixf8w0d42 HyRWIznD8ZTK4VOQQ3Fccg== 0000728889-05-000518.txt : 20050505 0000728889-05-000518.hdr.sgml : 20050505 20050505162516 ACCESSION NUMBER: 0000728889-05-000518 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20050505 DATE AS OF CHANGE: 20050505 EFFECTIVENESS DATE: 20050505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPPENHEIMER VARIABLE ACCOUNT FUNDS CENTRAL INDEX KEY: 0000752737 IRS NUMBER: 840974272 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-93177 FILM NUMBER: 05803952 BUSINESS ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 BUSINESS PHONE: 3036713200 MAIL ADDRESS: STREET 2: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER VARIABLE LIFE FUNDS DATE OF NAME CHANGE: 19860609 497 1 prosp497.htm OVAF 2005 ovaf 497 2005

Oppenheimer
Aggressive Growth Fund/VA
A series of Oppenheimer Variable Account Funds

Prospectus dated April 29, 2005

Oppenheimer Aggressive Growth Fund/VA
is a mutual fund that seeks capital
appreciation by investing in "growth
type" companies. It currently
emphasizes investments in stocks of
mid-cap companies.
Shares of the Fund are sold only
as the underlying investment for
variable life insurance policies,
variable annuity contracts and other
insurance company separate accounts. A
prospectus for the insurance product
you have selected accompanies this
Prospectus and explains how to select
shares of the Fund as an investment
under that insurance product, and
whether you are only eligible to
purchase Service shares of the Fund.
This Prospectus contains
important information about the Fund's
objective, its investment policies,
strategies and risks. Please read this
Prospectus (and your insurance product
prospectus) carefully before you
invest and keep them for future
As with all mutual funds, the reference about your account.
Securities
and Exchange Commission has not
approved or disapproved the Fund's
securities nor has it determined that
this Prospectus is accurate or
complete.
It is a criminal offense to represent
otherwise.
(OppenheimerFunds logo)

Contents

About the Fund
- ------------------------------------------------------------------------------

The Fund's Investment Objective and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

Investing in the Fund
- ------------------------------------------------------------------------------

How to Buy and Sell Shares

Dividends, Capital Gains and Taxes

Financial Highlights

ABOUT THE FUND

The Fund's Investment Objective and Principal Investment Strategies

What is the Fund's Investment Objective? The Fund seeks capital appreciation
by investing in "growth type" companies.

What Does the Fund Mainly Invest In? The Fund invests mainly in equity
securities, such as common stocks and can invest in other equity securities,
such as preferred stocks and securities convertible into common stocks. The
Fund emphasizes investments in companies believed by the investment manager,
OppenheimerFunds, Inc. (the "Manager") to have significant growth potential.
Growth companies can include established companies entering a growth cycle in
their business, as well as newer companies. The Fund can invest in securities
of issuers of all market capitalization ranges, but currently focuses on
stocks of "mid-cap" issuers (currently those issuers between $2 billion and
$11.5 billion). The Fund can invest in domestic and foreign companies,
although most of its investments are in stocks of U.S. companies.

|X| How Does the Portfolio Manager Decide What Securities to Buy or
Sell? The Fund's portfolio manager looks for high-growth companies using a
"bottom-up" stock selection process. The "bottom-up" approach focuses on
fundamental analysis of individual issuers before considering overall
economic, market or industry trends. The stock selection process includes
analysis of other business and economic factors that might contribute to the
company's stock appreciation.

The portfolio manager also looks for companies with revenues growing at
above-average rates that might support and sustain above-average earnings,
and companies whose revenue growth is primarily driven by strength in unit
volume sales. While this process and the inter-relationship of the factors
used may change over time, and its implementation may vary in particular
cases, the portfolio manager currently searches primarily for stocks of
companies having the following characteristics:
o what the portfolio manager believes to be a high rate of sustainable
earnings growth;

o undiscovered and undervalued emerging growth characteristics;
o innovative management and strong leadership positions in unique market
niches; and/or
o an expectation of better-than-anticipated earnings or positive earnings
forecasts.

If the portfolio manager discerns a slowdown in the company's internal
revenue growth or earnings growth or a negative movement in the company's
fundamental economic condition, they will consider selling that stock if
there are other investment alternatives that offer what they believe to be
better appreciation possibilities.

Who is the Fund Designed For? The Fund's shares are available only as an
investment option under certain variable annuity contracts, variable life
insurance policies and investment plans offered through insurance company
separate accounts of participating insurance companies, for investors seeking
capital growth in their investment over the long term. Those investors
should be willing to assume the greater risks of short-term share price
fluctuations that are typical for an aggressive growth fund focusing on
common stock investments. The Fund does not seek current income and it is
not designed for investors needing assured levels of current income or
preservation of capital. The Fund is not a complete investment program.

Main Risks of Investing in the Fund

All investments have some degree of risk. The Fund's investments are subject
to changes in their value from a number of factors described below. There is
also the risk that poor security selection by the Manager will cause the Fund
to underperform other funds having a similar objective.

However, changes in the overall market prices of securities can occur
at any time. The share prices of the Fund will change daily based on changes
in market prices of securities and market conditions, and in response to
other economic events.

|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. Because the Fund currently
focuses its investments primarily in common stocks and other equity
securities for capital appreciation, the value of the Fund's portfolio will
be affected by changes in the stock markets. Market risk will affect the
Fund's net asset values per share, which will fluctuate as the values of the
Fund's portfolio securities change. A variety of factors can affect the
price of a particular stock and the prices of individual stocks do not all
move in the same direction uniformly or at the same time. Different stock
markets may behave differently from each other.

Stocks of growth companies may provide greater opportunities for
capital appreciation but may be more volatile than other stocks. Securities
in the Fund's portfolio may not increase as much as the market as a whole.
Growth stocks may at times be favored by the market and at other times may be
out of favor. Some securities may be inactively traded, and therefore, may
not be readily bought or sold. Although some growth stocks may appreciate
quickly, investors should not expect that investments of the Fund will
appreciate rapidly. Some investments should be expected to decline in value.

Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the
issuer. The Fund invests primarily in securities of mid-cap companies but may
also invest in small and large-size companies. Small and mid-cap companies
may have more volatile stock prices than large companies.

|X| Industry and Sector Focus. At times the Fund may increase the relative
emphasis of its investments in a particular industry or sector. The prices of
stocks of issuers in a particular industry or sector may go up and down in
response to changes in economic conditions, government regulations,
availability of basic resources or supplies, or other events that affect that
industry or sector more than others. To the extent that the Fund increases
the relative emphasis of its investments in a particular industry or sector,
its share values may fluctuate in response to events affecting that industry
or sector. To some extent that risk may be limited by the Fund's policy of
not concentrating 25% or more of its total assets in investments in any one
industry.

|X| Risks of Growth Stocks. Stocks of growth companies, particularly newer
companies, may offer opportunities for greater capital appreciation but may
be more volatile than stocks of larger, more established companies. If the
company's earnings growth or stock price fails to increase as expected, the
stock price of a growth company may decline sharply.

How Risky is the Fund Overall? The risks described above collectively form
the overall risk profile of the Fund and can affect the value of the Fund's
investments, its investment performance and its prices per share. Particular
investments and investment strategies also have risks. These risks mean that
you can lose money by investing in the Fund. When you redeem your shares,
they may be worth more or less than what you paid for them. There is no
assurance that the Fund will achieve its investment objective.

In the short term, stock markets can be volatile, and the prices of the
Fund's shares can go up and down substantially. The Fund generally does not
use income-oriented investments to help cushion the Fund's total return from
changes in stock prices, except for defensive purposes. The Fund is an
aggressive investment vehicle, designed for investors willing to assume
greater risks in the hope of achieving greater gains. In the short-term the
Fund may be less volatile than small-cap and emerging markets stock funds,
but it may be subject to greater fluctuations in its share prices than funds
that focus on large-cap stocks or both stocks and bonds.

An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

The Fund's Past Performance

The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the performance of the Fund's non-service
shares from year to year for the last 10 calendar years and by showing how
the average annual total returns of the Fund's shares for 1, 5, and 10 years,
or life of the class, compare to a broad-based market index. The Fund's past
investment performance is not necessarily an indication of how the Fund will
perform in the future.

Annual Total Returns (as of December 31 each year)

[See appendix to prospectus for data in bar chart showing annual total
returns]

Charges imposed by the separate accounts that invest in the Fund are not
included in the calculations of return in this bar chart, and if those
charges were included, the returns would be less than those shown.

During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 45.84% (4th Q'99) and the lowest return (not
annualized) for a calendar quarter was -31.01% (4th Q'00).

- ---------------------------------------------------------------------------------
Average Annual Total
Returns for the periods 5 Years 10 Years
ended December 31, 2004 1 Year (or life of class (or life of class
if less) if less)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Oppenheimer Aggressive

Growth Fund/VA 19.78% -7.90% 9.30%
Non-Service Shares
(inception date:

8/15/86)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------

S&P 500 Index 10.87% -2.30% 12.07%

- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Oppenheimer Aggressive

Growth Fund/VA Service 19.43% -13.77%1 N/A
Shares (inception date:

10/16/00)
- ---------------------------------------------------------------------------------

1. Since Class inception (10/16/00)

The Fund's average annual total returns measure the performance of a
hypothetical account without deducting charges imposed by the separate
accounts that invest in the Fund and assume that all dividends and capital
gains distributions have been reinvested in additional shares. The Fund's
performance is compared to the S&P 500 Index, an unmanaged index of equity
securities that is a measure of the general domestic stock market. The index
performance includes the reinvestment of income but does not reflect fees,
expenses, or transaction costs. Also, the Fund may have investments that vary
from the index.
The Fund's total returns should not be expected to be the same as the returns
of other Oppenheimer funds, even if both funds have the same portfolio
managers and/or similar names.

Fees and Expenses of the Fund

The following tables are provided to help you understand the fees and
expenses you may pay if you buy and hold shares of the Fund. The Fund pays a
variety of expenses directly for management of its assets, administration,
distribution of its shares and other services. Those expenses are subtracted
from the Fund's assets to calculate the Fund's net asset values per share.
All shareholders therefore pay those expenses indirectly. The numbers below
are based on the Fund's expenses during its fiscal year ended December 31,
2004.

Shareholder Fees. The Fund does not charge any initial sales charge to buy
shares or to reinvest dividends. There are no exchange fees or redemption
fees and no contingent deferred sales charges. Please refer to the
accompanying prospectus of the participating insurance company for
information on initial or contingent deferred sales charges, exchange fees or
redemption fees for that variable life insurance policy, variable annuity or
other investment product. Those charges and fees are not reflected in either
of the tables below.

Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)

- --------------------------------------------------------------------------------
Non-Service Shares Service Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Management Fees 0.67% 0.67%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Distribution and Service (12b-1) N/A 0.25%
Fees

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Other Expenses 0.02% 0.07%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Total Annual Operating Expenses 0.69% 0.99%

- --------------------------------------------------------------------------------
Expenses may vary in future years. "Other expenses" in the table include
transfer agent fees, custodial fees, and accounting and legal expenses the
Fund pays. The Fund's transfer agent has voluntarily agreed to limit transfer
and shareholder servicing agent fees to 0.35% per fiscal year, for both
classes. That undertaking may be amended or withdrawn at any time. For the
Fund's fiscal year ended December 31, 2004, the transfer agent fees did not
exceed the expense limitation described above.

EXAMPLE. The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in shares of the Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Your actual
costs may be higher or lower, because expenses will vary over time. Based on
these assumptions your expenses would be as follows, whether or not you
redeem your investment at the end of each period:

Non-Service Shares $71 $221 $385 $861

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Service Shares $101 $317 $550 $1,219

- ------------------------------------------------------------------------------

About the Fund's Investments

The Fund's Principle Investment Policies and Risks. The allocation of the
Fund's portfolio among different types of investments will vary over time
based on the Manager's evaluation of economic and market trends. The Fund's
portfolio might not always include all of the different types of investments
described below. The Statement of Additional Information contains more
detailed information about the Fund's investment policies and risks.

The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
percentage of the stock of any one company and by not investing too great a
percentage of the Fund's assets in any one issuer. Also, the Fund does not
concentrate 25% or more of its total assets in any one industry.

|X| Stock Investments. The Fund invests in securities issued by companies
that the Manager believes have growth potential. Growth companies can be new
or established companies that may be developing new products or services,
that have relatively favorable prospects, or that are expanding into new and
growing markets. Current examples include companies in the fields of
telecommunications, healthcare, industrials, biotechnology, computer
software, and new consumer products. Growth companies may be providing new
products or services that can enable them to capture a dominant or important
market position. They may have a special area of expertise or the capability
to take advantage of changes in demographic factors in a more profitable way
than larger, more established companies. Newer growth companies tend to
retain a large part of their earnings for research, development or investment
in capital assets. Therefore, they do not tend to emphasize paying dividends,
and may not pay any dividends for some time. Stocks of growth companies are
selected for the Fund's portfolio because the Manager believes the price of
the stock will increase in value over time.

The Fund's equity investments may be exchange-traded or
over-the-counter securities. Over-the-counter securities may have less
liquidity than exchange-traded securities.

The Fund does not limit its investments to issuers in a particular
market capitalization range or ranges, although it currently focuses on
mid-cap issuers. "Market capitalization" refers to the total market value of
an issuer's common stock. The stock prices of large-cap issuers tend to be
less volatile than the prices of mid-cap and small-cap companies in the short
term, but these large-cap companies may not afford the same growth
opportunities as mid-cap and small-cap companies.

|X| Cyclical Opportunities. The Fund might also seek to take advantage of
changes in the business cycle by investing in companies that are sensitive to
those changes if the Manager believes they have growth potential. For
example, when the economy is expanding, companies in the consumer durables
and technology sectors might benefit and present long-term growth
opportunities. The Fund focuses on seeking growth over the long term, but
could seek to take tactical advantage of short-term market or economic
movements or events affecting particular issuers or industries, or invest in
companies that deliver more consistent growth in economic downturns.

Special Portfolio Diversification Requirements. To enable a variable annuity
or variable life insurance contract based on an insurance company separate
account to qualify for favorable tax treatment under the Internal Revenue
Code, the underlying investments must follow special diversification
requirements that limit the percentage of assets that can be invested in
securities of particular issuers. The Fund's investment program is managed to
meet those requirements, in addition to other diversification requirements
under the Internal Revenue Code and the Investment Company Act of 1940 that
apply to publicly-sold mutual funds.

Failure by the Fund to meet those special requirements could cause
earnings on a contract owner's interest in an insurance company separate
account to be taxable income. Those diversification requirements might also
limit, to some degree, the Fund's investment decisions in a way that could
reduce its performance.

Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus. Fundamental policies cannot be changed without the approval
of a majority of the Fund's outstanding voting shares. The Fund's investment
objective is a fundamental policy. Other investment restrictions that are
fundamental policies are listed in the Statement of Additional Information.
An investment policy is not fundamental unless this Prospectus or the
Statement of Additional Information says that it is.

Other Investment Strategies. To seek its objective, the Fund can also use
the investment techniques and strategies described below. The Fund might not
always use all of them. These techniques have risks, although some of them
are designed to help reduce overall investment or market risks.

|X| Other Equity Securities. While the Fund emphasizes investments in
common stocks, it can also buy preferred stocks, warrants and securities
convertible into common stock. The Manager considers some convertible
securities to be "equity equivalents" because of the conversion feature, and
in that case their rating has less impact on the Manager's investment
decision than in the case of other debt securities. Nevertheless, convertible
debt securities are subject to credit risk (the risk that the issuer will not
make timely payments in interest and principal) and interest rate risk (the
risk that the value of the security will fall if interest rates rise). If
the Fund buys convertible securities (or other debt securities), it will
focus primarily on investment-grade securities which pose less credit risk
than lower-grade debt securities.

|X| Investing in Small, Unseasoned Companies. The Fund can invest without
limit in small, unseasoned companies. These are companies that have been in
operation less than three years, including the operations of any
predecessors. These securities may have limited liquidity, which means that
the Fund may not be able to value them accurately or to sell them at an
acceptable price. Their prices may be very volatile, especially in the
short-term.

|X| Foreign Investing. The Fund can buy securities in any country,
including developed countries and emerging markets. The Fund limits its
investments in foreign securities to not more than 25% of its net assets, and
it normally does not expect to invest substantial amounts of its assets in
foreign stocks.

|X| Special Risks of Foreign Investing. While foreign securities offer
special investment opportunities, there are also special risks. The change
in value of a foreign currency against the U.S. dollar will result in a
change in the U.S. dollar value of securities denominated in that foreign
currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. The value of
foreign investments may be affected by exchange control regulations,
expropriation or nationalization of a company's assets, foreign taxes, delays
in settlement of transactions, changes in governmental economic or monetary
policy in the U.S. or abroad, or other political and economic factors.
Securities in underdeveloped countries may be more difficult to sell and
their prices may be more volatile than securities of issuers in developed
markets. These risks could cause the prices of foreign securities to fall and
therefore could depress the Fund's prices.

Additionally, if a fund invests a significant amount of its assets in
foreign securities, it might expose the fund to "time-zone arbitrage"
attempts by investors seeking to take advantage of the differences in value
of foreign securities that might result from events that occur after the
close of the foreign securities market on which a foreign security is traded
and the close of The New York Stock Exchange (the "Exchange") that day, when
the Fund's net asset value is calculated. If such time-zone arbitrage were
successful, it might dilute the interests of other shareholders. However, the
Fund's use of "fair value pricing" to adjust the closing market prices of
foreign securities under certain circumstances, to reflect what the Manager
and the Board believe to be their fair value may help deter those
activities.

|X| Illiquid and Restricted Securities. Investments may be illiquid because
they do not have an active trading market, making it difficult to value them
or dispose of them promptly at an acceptable price. Restricted securities may
have terms that limit their resale to other investors or may require
registration under applicable securities laws before they may be sold
publicly. The Fund will not invest more than 15% of its net assets in
illiquid or restricted securities but is not required to sell them due to
declines in the Fund's share price. Certain restricted securities that are
eligible for resale to qualified institutional purchasers may not be subject
to that limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity.

|X| Derivative Investments. The Fund can invest in a number of different
kinds of "derivative" investments. In general terms, a derivative investment
is an investment contract whose value depends on (or is derived from) the
value of an underlying asset, interest rate or index. In the broadest sense,
options, futures contracts, and other hedging instruments the Fund might use
may be considered "derivative" investments. In addition to using derivatives
for hedging, the Fund might use other derivative investments because they
offer the potential for increased value. The Fund currently does not use
derivatives to a significant degree and is not required to use them in
seeking its objective.

Derivatives have risks. If the issuer of the derivative investment
does not pay the amount due, the Fund can lose money on the investment. The
underlying security or investment on which a derivative is based, and the
derivative itself, may not perform the way the Manager expected it to. As a
result of these risks the Fund could realize less principal or income from
the investment than expected or its hedge might be unsuccessful. As a
result, the Fund's share prices could fall. Certain derivative investments
held by the Fund might be illiquid.

|X| Hedging. The Fund can buy and sell futures contracts, put and call
options, and forward contracts. These are all referred to as "hedging
instruments." The Fund does not currently use hedging extensively nor for
speculative purposes. It has limits on its use of hedging instruments and is
not required to use them in seeking its objective.

Some of these strategies would hedge the Fund's portfolio against price
fluctuations. Other hedging strategies, such as buying futures and call
options, would tend to increase the Fund's exposure to the securities market.

Options trading involves the payment of premiums and there are also
special risks in particular hedging strategies. For example, if a covered
call written by the Fund is exercised on an investment that has increased in
value, the Fund will be required to sell the investment at the call price and
will not be able to realize any profit if the investment has increased in
value above the call price. If the Manager used a hedging instrument at the
wrong time or judged market conditions incorrectly, the strategy could reduce
the Fund's return. The Fund could also experience losses if the prices of
its futures and options positions were not correlated with its other
investments or if it could not close out a position because of an illiquid
market.

|X| Repurchase Agreements. The Fund can enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security and
simultaneously sells it to the vendor for delivery at a future date.
Repurchase agreements must be fully collateralized. However, if the vendor
fails to pay the resale price on the delivery date, the Fund could incur
costs in disposing of the collateral and might experience losses if there is
any delay in its ability to do so. There is no limit on the amount of the
Fund's net assets that may be subject to repurchase agreements of seven days
or less.

|X| Temporary Defensive and Interim Investments. In times of adverse or
unstable market, economic or political conditions, the Fund can invest up to
100% of its assets in temporary investments that are inconsistent with the
Fund's principal investment strategies. Generally, they would be cash
equivalents (such as commercial paper) money market instruments, short-term
debt securities, U.S. Government securities, or repurchase agreements. They
could include other investment-grade debt securities. The Fund might also
hold these types of securities pending the investment of proceeds from the
sale of Fund share or portfolio securities or to meet anticipated redemptions
of Fund shares. To the extent the Fund invests defensively in these
securities, it might not achieve its investment objective of capital
appreciation.

|X| Portfolio Turnover. The Fund can engage in active trading to try to
achieve its objective. It might have a turnover rate in excess of 100%
annually. The Financial Highlights table at the end of this Prospectus shows
the Fund's portfolio turnover rates during prior fiscal years. Increased
portfolio turnover creates higher brokerage and transaction costs for the
Fund (and may reduce performance). For a contract owner, any increase in
realized gains will generally not be taxable directly but may affect the
owner's tax basis in the account.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
and annual reports that are distributed to shareholders of the Fund within 60
days after the close of the period for which such report is being made. The
Fund also makes disclosures of the portfolio securities holdings in Statement
of Investments under Form N-Q, which are filed with the SEC no later than 60
days after the close of the first and third fiscal quarters. These additional
quarterly filings are publicly available at the SEC. Therefore, portfolio
holdings of the Fund are made publicly available no later than 60 days after
the close of the Fund's fiscal quarter.

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.

How the Fund Is Managed

The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the
policies established by the Fund's Board of Trustees, under an investment
advisory agreement that states the Manager's responsibilities. The agreement
sets the fees paid by the Fund to the Manager and describes the expenses that
the Fund is responsible to pay to conduct its business.

The Manager has been an investment advisor since January, 1960. The
Manager and its subsidiaries and controlled affiliates managed more than $170
billion in assets as of March 31, 2005, including other Oppenheimer funds
with more than 7 million shareholder accounts. The Manager is located at Two
World Financial Center, 225 Liberty Street, 11th Floor, New York, New York
10281-1008.

|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund pays
the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual
net assets, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million, 0.60% of the next $700 million, and 0.58% of
average annual net assets over $1.5 billion. The Fund's management fee for
its last fiscal year ended December 31, 2004, was 0.67% of the Fund's average
annual net assets for each class of shares.

|X| Portfolio Manager. The Fund's portfolio is managed by John O'Hare. Mr.
O'Hare has been the person primarily responsible for the day-to-day
management of the Fund's portfolio since October 2003. Mr. O'Hare has been a
Vice President of the Manager since September 2003 and is an officer and
portfolio manager of other portfolios in the OppenheimerFunds complex. Prior
to joining the Manager, Mr. O'Hare was an Executive Vice President and
Portfolio Manager from June 2000 through August 2003 and Portfolio Manager
and Senior Vice President from August 1997 through June 2000 at Geneva
Capital Management, Ltd., an investment advisor. The Statement of Additional
Information provides additional information about the Portfolio Manager's
compensation, other accounts he manages and his ownership of Fund shares.

|X| Possible Conflicts of Interest. The Fund offers its shares to separate
accounts of different insurance companies that are not affiliated with each
other, as an investment for their variable annuity, variable life and other
investment product contracts. While the Fund does not foresee any
disadvantages to contract owners from these arrangements, it is possible that
the interests of owners of different contracts participating in the Fund
through different separate accounts might conflict. For example, a conflict
could arise because of differences in tax treatment.

The Fund's Board of Trustees has procedures to monitor the portfolio
for possible conflicts to determine what action should be taken. If a
conflict occurs, the Board might require one or more participating insurance
company separate accounts to withdraw their investments in the Fund. That
could force the Fund to sell securities at disadvantageous prices, and
orderly portfolio management could be disrupted. Also, the Board might refuse
to sell shares of the Fund to a particular separate account, or could
terminate the offering of the Fund's shares if required to do so by law or if
it would be in the best interests of the shareholders of the Fund to do so.

Pending Litigation. A consolidated amended complaint has been filed as
putative derivative and class actions against the Manager, Distributor and
Transfer Agent, as well as 51 of the Oppenheimer funds (collectively the
"funds") not including the Fund, 31 present and former Directors or Trustees
and 9 present and former officers of certain of the funds. This complaint,
initially filed in the U.S. District Court for the Southern District of New
York on January 10, 2005 and amended on March 4, 2005, consolidates into a
single action and amends six individual previously-filed putative derivative
and class action complaints. Like those prior complaints, the complaint
alleges that the Manager charged excessive fees for distribution and other
costs, improperly used assets of the funds in the form of directed brokerage
commissions and 12b-1 fees to pay brokers to promote sales of the funds, and
failed to properly disclose the use of fund assets to make those payments in
violation of the Investment Company Act and the Investment Advisers Act of
1940. Also, like those prior complaints, the complaint further alleges that
by permitting and/or participating in those actions, the Directors/Trustees
and the Officers breached their fiduciary duties to Fund shareholders under
the Investment Company Act and at common law. The complaint seeks
unspecified compensatory and punitive damages, rescission of the funds'
investment advisory agreements, an accounting of all fees paid, and an award
of attorneys' fees and litigation expenses.

The Manager and the Distributor believe the claims asserted in these
law suits to be without merit, and intend to defend the suits vigorously. The
Manager and the Distributor do not believe that the pending actions are
likely to have a material adverse effect on the Fund or on their ability to
perform their respective investment advisory or distribution agreements with
the Fund.

INVESTING IN THE FUND

How to Buy and Sell Shares

How Are Shares Purchased? Shares of the Fund may be purchased only by
separate investment accounts of participating insurance companies as an
underlying investment for variable life insurance policies, variable annuity
contracts or other investment products. Individual investors cannot buy
shares of the Fund directly. Please refer to the accompanying prospectus of
the participating insurance company for information on how to select the Fund
as an investment option for that variable life insurance policy, variable
annuity or other investment product. That prospectus will indicate whether
you are eligible to purchase Service shares of the Fund. The Fund reserves
the right to refuse any purchase order when the Manager believes it would be
in the Fund's best interests to do so.

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

Risks from Excessive Purchase and Redemption Activity. Frequent purchases and
redemptions of Fund shares may interfere with the Manager's ability to manage
the Fund's investments efficiently, increase the Fund's transaction and
administrative costs and/or affect the Fund's performance, depending on
various factors, such as the size of the Fund, the nature of its investments,
the amount of Fund assets the portfolio manager maintains in cash or cash
equivalents, the aggregate dollar amount and the number and frequency of
trades. If large dollar amounts are involved in redemption transactions, the
Fund might be required to sell portfolio securities at unfavorable times to
meet redemption requests, and the Fund's transaction or administrative
expenses might be increased.

Limits on Disruptive Activity. Therefore, the Manager and the Fund's Board of
Trustees have adopted the following policies and procedures to detect and
prevent frequent and/or excessive purchase and redemption activity, while
balancing the needs of investors. There is no guarantee that the policies and
procedures described below will be sufficient to identify and deter excessive
short-term trading.
The Transfer Agent may, in its discretion, limit or terminate trading
activity by any person, group or account that it believes would be
disruptive.
o The Transfer Agent will attempt to monitor overall purchase and
redemption activity in the accounts of participating insurance
companies to seek to identify patterns that may suggest excessive
trading by the underlying owners. If evidence of possible excessive
trading activity is observed by the Transfer Agent, the
participating insurance companies or other registered owners will be
asked to review account activity in their respective accounts, and
to confirm to the Transfer Agent and the Fund that appropriate
action has been taken to curtail any excessive trading activity.
However, the Transfer Agent's ability to monitor and deter excessive
short-term trading in "omnibus" or "street name" accounts ultimately
depends on the capability and cooperation of the participating
insurance companies controlling their respective accounts.

Monitoring the Policies. The Transfer Agent might not be able to detect
excessive short term trading activity facilitated by, or in accounts
maintained in, the omnibus or street name accounts of a participating
insurance company. The Fund has asked its participating insurance companies
for their cooperation in trying to prevent excessive short term trading
activity in their separate accounts by investors and their financial
advisors. While the Fund recognizes that some contract owners may engage in
periodic asset allocation and re-balancing of fund investments in their
accounts, making an "exchange" out of the Fund within 30 days of buying
shares (by the sale of the recently purchased Fund's shares and the purchase
of shares of another fund), or making more than four "round trip exchanges"
between funds in a year, may be considered excessive short-term trading
activity. Separate accounts under common ownership or control are combined
for calculating these limits.

Furthermore, each participating insurance company may impose its own
restrictions or limitations to discourage short-term or excessive trading.

Right to Refuse Purchase Orders. The Distributor and/or the Transfer Agent
may refuse any purchase order in their discretion and are not obligated to
provide notice before rejecting an order.

There can be no assurance that the Fund, the Transfer Agent or the
Fund's participating insurance companies will be successful in curbing
abusive short-term exchanges.

- ------------------------------------------------------------------------------

Information about your investment in the Fund through your variable
annuity contract, variable life insurance policy or other plan can be
obtained only from your participating insurance company or its servicing
agent. The Fund's Transfer Agent does not hold or have access to those
records. Instructions for buying or selling shares of the Fund should be
given to your insurance company or its servicing agent, not directly to the
Fund or its Transfer Agent.

- ------------------------------------------------------------------------------

At What Price Are Shares Sold? Shares are sold to participating insurance
companies at their offering price, which is the net asset value per share.
The Fund does not impose any sales charge on purchases of its shares. If
there are any charges imposed under the variable annuity, variable life or
other contract through which Fund shares are purchased, they are described in
the accompanying prospectus of the participating insurance company.

Net Asset Value. The Fund calculates the net asset value of each class of
shares as of the close of the Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., Eastern time, but may close earlier on
some days. All references to time in this Prospectus mean "Eastern time."

The net asset value per share for a class of shares on a "regular
business day" is determined by dividing the value of the Fund's net assets
attributable to that class by the number of shares of that class outstanding
on that day. To determine net asset values, the Fund assets are valued
primarily on the basis of current market quotations. If market quotations are
not readily available or do not accurately reflect fair value for a security
(in the Manager's judgment) or if a security's value has been materially
affected by events occurring after the close of the exchange or market on
which the security is principally traded, that security may be valued by
another method that the Board of Trustees believes accurately reflects the
fair value. Because some foreign securities trade in markets and on exchanges
that operate on weekends and U.S. holidays, the values of some of the Fund's
foreign investments may change on days when investors cannot buy or redeem
Fund shares.

The Board has adopted valuation procedures for the Fund and has
delegated the day-to-day responsibility for fair value determinations to the
Manager's Valuation Committee. Fair value determinations by the Manager are
subject to review, approval and ratification by the Board at its next
scheduled meeting after the fair valuations are determined. In determining
whether current market prices are readily available and reliable, the Manager
monitors the information it receives in the ordinary course of its investment
management responsibilities for significant events that it believes in good
faith will affect the market prices of the securities of issuers held by the
Fund. Those may include events affecting specific issuers (for example, a
halt in trading of the securities of an issuer on an exchange during the
trading day) or events affecting securities markets (for example, a foreign
securities market closes early because of a natural disaster). The Fund uses
fair value pricing procedures to reflect what the Manager and the Board
believe to be more accurate values for its portfolio securities, although it
may not always be able to do so.

If, after the close of the principal market on which a security held by
the Fund is traded and before the time as of which the Fund's net asset
values are calculated that day, a significant event occurs that the Manager
learns of and believes in the exercise of its judgment will cause a material
change in the value of that security from the closing price of the security
on the principal market on which it is traded, the Manager will use its best
judgment to determine a fair value for that security.

The Manager believes that foreign securities values may be affected by
volatility that occurs in U.S. markets on a trading day after the close of
foreign securities markets. The Manager's fair valuation procedures therefore
include a procedure whereby foreign securities prices may be "fair valued" to
take those factors into account.

The offering price that applies to an order from a participating
insurance company is based on the next calculation of the net asset value per
share that is made after the insurance company (as the Fund's designated
agent to receive purchase orders) receives a purchase order from its contract
owners to purchase Fund shares on a regular business day, provided that the
Fund receives the order from the insurance company, generally by 9:30 a.m. on
the next regular business day at the offices of its Transfer Agent in
Colorado.

|X| Classes of Shares. The Fund has four classes of shares authorized. The
Fund offers two different classes of shares. The class of shares designated
as Service shares are subject to a Distribution and Service Plan. The impact
of the expenses of the Plan on Service shares is described below. The class
of shares that are not subject to a Plan has no class "name" designation. The
different classes of shares represent investments in the same portfolio of
securities but are expected to be subject to different expenses and will
likely have different share prices.

Distribution and Service Plan for Service Shares. The Fund has adopted a
Distribution and Service Plan for Service shares to pay the Distributor, for
distribution related services, personal services and account maintenance for
the Fund's Service shares. Under the Plan, payments are made quarterly at an
annual rate of up to 0.25% of the average annual net assets of Service shares
of the Fund. Because these fees are paid out of the Fund's assets on an
on-going basis, over time these fees will increase the cost of your
investment and may cost you more than other types of fees or sales charges.
The distributor currently uses all of those fees to compensate sponsor(s) of
the insurance product that offers Fund shares, for providing personal service
and maintenance of accounts of their variable contract owners that hold
Service shares.

How Are Shares Redeemed? As with purchases, only the participating insurance
companies that hold Fund shares in their separate accounts for the benefit of
variable annuity contracts, variable life insurance policies or other
investment products can place orders to redeem shares. Contract holders and
policy holders should not directly contact the Fund or its transfer agent to
request a redemption of Fund shares. Contract owners should refer to the
withdrawal or surrender instructions in the accompanying prospectus of the
participating insurance company.

Dividends, Capital Gains and Taxes

Dividends. The Fund intends to declare dividends separately for each class
of shares from net investment income on an annual basis. Dividends and
distributions will generally be lower for Service shares, which normally have
higher expenses. The Fund has no fixed dividend rate and cannot guarantee
that it will pay any dividends.

All dividends (and any capital gains distributions) will be reinvested
automatically in additional Fund shares at net asset value for the account of
the participating insurance company (unless the insurance company elects to
have dividends or distributions paid in cash).

Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term
or long-term capital gains each year. The Fund may make supplemental
distributions of dividends and capital gains following the end of its fiscal
year. There can be no assurance that the Fund will pay any capital gains
distributions in a particular year.

Taxes. For a discussion of the tax status of a variable annuity contract, a
variable life insurance policy or other investment product of a participating
insurance company, please refer to the accompanying prospectus of your
participating insurance company. Because shares of the Fund may be purchased
only through insurance company separate accounts for variable annuity
contracts, variable life insurance policies or other investment products,
dividends paid by the Fund from net investment income and distributions (if
any) of net realized short-term and long-term capital gains will be taxable,
if at all, to the participating insurance company, although they may affect
the tax basis of certain types of distributions from those accounts.

This information is only a summary of certain federal income tax
information about an investment in Fund shares. You should consult with your
tax advisor or your participating insurance company representative about the
effect of an investment in the Fund under your contract or policy.

Financial Highlights

The Financial Highlights Table is presented to help you understand the Fund's
financial performance the past ten fiscal years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
the Fund's independent registered public accounting firm, whose report, along
with the Fund's financial statements, is included in the Statement of
Additional Information, which is available upon request.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 36.71 $ 29.23 $ 40.72 $ 70.77 $ 82.31
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.15) 1 (.15) (.10) .23 .53
Net realized and unrealized gain (loss) 7.41 7.63 (11.16) (21.38) (8.59)
------------------------------------------------------------------------------
Total from investment operations 7.26 7.48 (11.26) (21.15) (8.06)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income -- -- (.23) (.54) --
Distributions from net realized gain -- -- -- (8.36) (3.48)
------------------------------------------------------------------------------
Total dividends and/or distributions to shareholders -- -- (.23) (8.90) (3.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.97 $ 36.71 $ 29.23 $ 40.72 $ 70.77
==============================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 19.78% 25.59% (27.79)% (31.27)% (11.24)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 1,209,459 $ 1,113,743 $ 979,919 $ 1,621,550 $ 2,595,101
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 1,124,874 $ 1,041,584 $ 1,240,435 $ 1,898,088 $ 2,978,465
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income (loss) (0.39)% (0.43)% (0.29)% 0.47% 0.65%
Total expenses 0.69% 4 0.70% 4 0.68% 4 0.68% 4 0.64% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 53% 154% 54% 134% 39%

1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

13 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------

SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 2000 1
- -----------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 36.54 $ 29.13 $ 40.70 $ 70.77 $ 97.75
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.27) 2 -- 3 .16 .19 .20
Net realized and unrealized gain (loss) 7.37 7.41 (11.53) (21.36) (27.18)
---------------------------------------------------------------------------
Total from investment operations 7.10 7.41 (11.37) (21.17) (26.98)
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income -- -- (.20) (.54) --
Distributions from net realized gain -- -- -- (8.36) --
---------------------------------------------------------------------------
Total dividends and/or distributions to shareholders -- -- (.20) (8.90) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.64 $ 36.54 $ 29.13 $ 40.70 $ 70.77
===========================================================================

- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 4 19.43% 25.44% (28.05)% (31.31)% (27.60)%
- -----------------------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 24,151 $ 11,698 $ 144 $ 54 $ 1
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 17,579 $ 3,858 $ 72 $ 31 $ 1
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 5
Net investment income (loss) (0.68)% (0.72)% (0.56)% 0.09% 1.14%
Total expenses 0.99% 0.95% 1.55% 0.83% 0.64%
Expenses after payments and waivers and reduction
to custodian expenses N/A 6 N/A 6 0.98% N/A 6 N/A 6
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 53% 154% 54% 134% 39%

1. For the period from October 16, 2000 (inception of offering) to December 31,
2000.

2. Per share amounts calculated based on the average shares outstanding
during the period.

3. Less than $0.005 per share.

4. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

5. Annualized for periods of less than one full year.

6. Reduction to custodian expenses less than 0.01%.

INFORMATION AND SERVICES

For More Information on Oppenheimer Aggressive Growth Fund/VA

The following additional information about the Fund is available without
charge upon request:

STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund's investment policies, risks, and operations.
It is incorporated by reference into this Prospectus (which means it is
legally part of this Prospectus).

ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance is available in the Fund's Annual and
Semi-Annual Reports to shareholders. The Annual Report includes a
discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.

How to Get More Information

You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, the notice explaining the Fund's privacy policy:

By Telephone
- ---------------------------------------------------------------------------

Call OppenheimerFunds Services toll-free: 1.800.981.2871

- ---------------------------------------------------------------------------

By Mail
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270

On the Internet
You can request these documents by e-mail or through the OppenheimerFunds
website. You may also read or download certain documents on the
OppenheimerFunds website at: www.oppenheimerfunds.com.

Information about the Fund including the Statement of Additional
Information can be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1.202.942.8090. Reports and
other information about the Fund are available on the EDGAR database on
the SEC's Internet website at www.sec.gov. Copies may be obtained after
payment of a duplicating fee by electronic request at the SEC's e-mail
address: publicinfo@sec.gov or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102.

No one has been authorized to provide any information about the Fund or
to make any representations about the Fund other than what is contained
in this Prospectus. This Prospectus is not an offer to sell shares of the
Fund, nor a solicitation of an offer to buy shares of the Fund, to any
person in any state or other jurisdiction where it is unlawful to make
such an offer.

The Fund's SEC File No.: 811-4108 [logo] OppenheimerFunds

PR0620.001.0405

Distributor, Inc.
Printed on recycled paper.

Appendix to Prospectus of
Oppenheimer Aggressive Growth Fund/VA
(a series of Oppenheimer Variable Account Funds)

Graphic material included in the Prospectus of Oppenheimer
Aggressive Growth Fund/VA (the "Fund") under the heading "Annual Total
Return (as of 12/31 each year)":

A bar chart will be included in the Prospectus of the Fund depicting
the annual total returns of a hypothetical $10,000 investment in
non-service shares of the Fund for each of the 10 most recent calendar
years, without deducting separate account expenses. Set forth below are
the relevant data that will appear on the bar chart:

Calendar
Year
Ended Annual Total Returns
- ----- --------------------

12/31/95 32.52%
12/31/96 20.23%
12/31/97 11.67%
12/31/98 12.36%
12/31/99 83.60%
12/31/00 -11.24%
12/31/01 -31.27%
12/31/02 -27.79%
12/31/03 25.59%
12/31/04 19.78%

Oppenheimer
Balanced Fund/VA
A series of Oppenheimer Variable
Account Funds Oppenheimer Balanced Fund/VA is a
mutual fund that seeks a high total
Prospectus dated April 29, 2005 investment return, which includes
current income and capital
appreciation in the value of its
shares. The Fund allocates its
investments among common stocks, debt
securities, and "money market"
instruments.
Shares of the Fund are sold only
as the underlying investment for
variable life insurance policies,
variable annuity contracts and other
insurance company separate accounts. A
prospectus for the insurance product
you have selected accompanies this
Prospectus and explains how to select
shares of the Fund as an investment
under that insurance product, and
whether you are only eligible to
purchase Service shares of the Fund.
This Prospectus contains
important information about the Fund's
As with all mutual funds, the objective, its investment policies,
Securities strategies and risks. Please read
and Exchange Commission has not this Prospectus (and your insurance
approved or disapproved the Fund's product prospectus) carefully before
securities nor has it determined that you invest and keep them for future
this Prospectus is accurate or reference about your account.
complete.
It is a criminal offense to represent
otherwise.
(OppenheimerFunds logo)

Contents

About the Fund
- ------------------------------------------------------------------------------

The Fund's Investment Objective and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

Investing in the Fund
- ------------------------------------------------------------------------------

How to Buy and Sell Shares

Dividends, Capital Gains and Taxes

Financial Highlights

About the Fund

The Fund's Investment Objective and Principal Investment Strategies

- ------------------------------------------------------------------------------
What Is the Fund's Investment Objective? The Fund seeks a high total
investment return, which includes current income and capital appreciation in
the value of its shares.
- ------------------------------------------------------------------------------

What Does the Fund Mainly Invest In? The Fund's investment Manager,
OppenheimerFunds, Inc., uses a variety of different types of securities and
investment strategies to seek the Fund's objective:
o equity securities, such as common stocks, preferred stocks and
securities convertible into common stock, of issuers in the U.S. and
foreign countries,
o debt securities, such as bonds and notes issued by domestic and foreign
companies (which can include lower-grade, high-yield securities),
securities issued or guaranteed by the U.S. government and its
agencies and instrumentalities including mortgage-related securities
(these are referred to as "U.S. government securities"), and debt
obligations of foreign governments, and
o money market instruments, which are debt obligations that have a
maturity of 13 months or less, including short-term U.S. government
securities, corporate and bank debt obligations and commercial paper.

These investments are more fully explained in "About the Fund's
Investments", below.

|X| How Do the Portfolio Managers Decide What Securities to Buy or
Sell? In selecting securities for the Fund, the Fund's portfolio managers use
different investment styles to carry out an asset allocation strategy that
seeks broad diversification across asset classes. They normally maintain a
balanced mix of equity securities and debt securities (including money market
instruments), although the Fund is not required to weight the portfolio
holdings in a fixed proportion. Therefore, the portfolio's mix of equity
securities, debt securities and money market instruments will change over
time.

The debt securities in the portfolio normally include a mix of U.S.
government securities, agency debentures, mortgage backed securities,
corporate debt, and asset backed securities to achieve a balance between
total return and current income. The relative amounts of those types of debt
securities in the portfolio will change over time, because those sectors of
the bond markets generally react differently to changing economic
environments.

The portfolio managers employ both "growth" and "value" styles in
selecting equity securities. They use fundamental analysis of a company's
financial statements and management structure, analysis of the company's
operations and product development, as well as the industry of which the
issuer is part. Value investing seeks issuers that are temporarily out of
favor or undervalued in the market by various measures, such as the stock's
price/earnings ratio. Growth investing seeks issuers that the Manager
believes have possibilities for increases in their stock prices because of
strong earnings growth compared to the market, the development of new
products or services or other favorable economic factors.

Who Is the Fund Designed For? The Fund's shares are available only as an
investment option under certain variable annuity contracts, variable life
insurance policies and investment plans offered through insurance company
separate accounts of participating insurance companies, for investors seeking
high total return from their investment over the long term, from a fund
employing a variety of investments and investment styles in a diversified
portfolio. Those investors should be willing to assume the risks of
short-term share price fluctuations that are typical for a fund with
significant investments in stocks and foreign securities. Since the Fund's
income level will fluctuate, it is not designed for investors needing an
assured level of current income, and the Fund is not a complete investment
program.

Main Risks of Investing in the Fund

All investments carry risks to some degree. The Fund's investments are
subject to changes in their value from a number of factors, described below.
There is also the risk that the value of your investment could be eroded over
time by the effects of inflation and that poor security selection by the
Manager will cause the Fund to underperform other funds having similar
objectives.

However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share price of the Fund will
change daily based on changes in market prices of securities and market
conditions and in response to other economic events.

|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times can be great. The value of the Fund's
portfolio therefore will be affected by changes in the stock markets. Market
risk will affect the Fund's net asset value per share, which will fluctuate
as the values of the Fund's portfolio securities change. A variety of
factors can affect the price of a particular stock, and the prices of
individual stocks do not all move in the same direction uniformly or at the
same time. Different stock markets may behave differently from each other.

Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more
than others, or by changes in government regulations, availability of basic
resources or supplies, or other events. Other factors can affect a particular
stock's price, such as poor earnings reports by the issuer, loss of major
customers, major litigation against the issuer, or changes in government
regulations affecting the issuer. The Fund can invest in securities of large
companies and also small and medium-size companies, which may have more
volatile stock prices than large companies.

|X| Risks of Foreign Investing. The Fund can buy securities issued by
companies or governments in any country, including developed and
underdeveloped countries. Although there are no limits on the amounts it can
invest in foreign securities, normally the Fund does not expect to invest
more than 35% of its total assets in foreign securities.

While foreign securities offer special investment opportunities, there
are also special risks that can reduce the Fund's share prices and returns.
The change in value of a foreign currency against the U.S. dollar will result
in a change in the U.S. dollar value of securities denominated in that
foreign currency. Currency rate changes can also affect the distributions the
Fund makes from the income it receives from foreign securities as foreign
currency values change against the U.S. dollar. Foreign investing can result
in higher transaction and operating costs for the Fund. Foreign issuers are
not subject to the same accounting and disclosure requirements that U.S.
companies are subject to. The value of foreign investments may be affected
by exchange control regulations, currency devaluation, expropriation or
nationalization of a company's assets, foreign taxes, delays in settlement of
transactions, changes in governmental economic or monetary policy in the U.S.
or abroad, or other political and economic factors. These risks could cause
the prices of foreign securities to fall and therefore could depress the
Fund's share prices.

Additionally, if a fund invests a significant amount of its assets in
foreign securities, it might expose the fund to "time-zone arbitrage"
attempts by investors seeking to take advantage of the differences in value
of foreign securities that might result from events that occur after the
close of the foreign securities market on which a foreign security is traded
and the close of The New York Stock Exchange that day, when the Fund's net
asset value is calculated. If such time-zone arbitrage were successful, it
might dilute the interests of other shareholders. However, the Fund's use of
"fair value pricing" to adjust the closing market prices of foreign
securities under certain circumstances, to reflect what the Manager and the
Board believe to be their fair value may help deter those activities.

|_| Special Risks of Emerging Markets. Securities of issuers in
emerging and developing markets may offer special investment opportunities,
but present risks not found in more mature markets. Those securities may be
more difficult to sell at an acceptable price and their prices may be more
volatile than securities of issuers in more developed markets. Settlements of
trades may be subject to greater delays so that the Fund might not receive
the proceeds of a sale of a security on a timely basis.

Emerging markets might have less developed trading markets and
exchanges. Emerging market countries may have less developed legal and
accounting systems and investments may be subject to greater risks of
government restrictions on withdrawing the sales proceeds of securities from
the country. Economies of developing countries may be more dependent on
relatively few industries that may be highly vulnerable to local and global
changes. Governments may be more unstable and present greater risks of
nationalization or restrictions on foreign ownership of stocks of local
companies. These investments may be substantially more volatile than
securities of issuers in the U.S. and other developed countries and may be
very speculative.

|_| Special Risks of Lower-Grade Securities. Because the Fund can
invest in securities below investment-grade to seek high income, the Fund's
credit risks are greater than those of funds that buy only investment-grade
bonds. Lower-grade debt securities (commonly called "junk bonds") may be
subject to greater market fluctuations and greater risks of loss of income
and principal than investment-grade debt securities. Securities that are (or
that have fallen) below investment grade are exposed to a greater risk that
the issuers of those securities might not meet their debt obligations. These
risks can reduce the Fund's share price and the income it earns.

To the extent that a fund invests significantly in high yield bonds or
small-cap equity securities, because those types of securities may be traded
infrequently, investors may seek to trade fund shares based on their
knowledge or understanding of the value of those types of securities (this is
sometimes referred to as "price arbitrage"). Such price arbitrage, if
otherwise successful, might interfere with the efficient management of a
fund's portfolio to a greater degree than would be the case for funds that
invest in more liquid securities, because the fund may have difficulty
selling those securities at advantageous times or prices to satisfy the
liquidity requirements created by large and/or frequent trading activity.
Successful price arbitrage activities might also dilute the value of fund
shares held by other shareholders.

|X| Interest Rate Risks. The values of debt securities, including U.S.
government securities prior to maturity, are subject to change when
prevailing interest rates change. When interest rates fall, the values of
already-issued debt securities generally rise. When interest rates rise, the
values of already-issued debt securities generally fall and they may sell at
a discount from their face amount. The magnitude of these fluctuations will
often be greater for longer-term debt securities than shorter-term debt
securities. The Fund's share price can go up or down when interest rates
change because of the effect of the changes on the value of the Fund's
investments in debt securities.

|X| Prepayment Risk. Prepayment risk occurs when the mortgages
underlying a mortgage-related security are prepaid at a rate faster than
anticipated (usually when interest rates fall) and the issuer of a security
can prepay the principal prior to the security's maturity. Mortgage-related
securities that are subject to prepayment risk, including the CMOs and other
mortgage-related securities that the Fund buys, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss than other debt securities when interest rates rise.

The impact of prepayments on the price of a security may be difficult
to predict and may increase the volatility of the price. The Fund might have
to reinvest the proceeds of prepaid securities in new securities offering
lower yields. Additionally, the Fund can buy mortgage-related securities at
a premium. Accelerated prepayments on those securities could cause the Fund
to lose the portion of its principal investment represented by the premium
the Fund paid.

If interest rates rise rapidly, prepayments might occur at slower rates
than expected, which could have the effect of lengthening the expected
maturity of a short or medium-term security. That could cause its value to
fluctuate more widely in response to changes in interest rates. In turn, this
could cause the value of the Fund's shares to fluctuate more.

|X| There Are Special Risks in Using Derivative Investments. The Fund
can use derivatives to seek increased returns or to try to hedge investment
risks. In general terms, a derivative investment is an investment contract
whose value depends on (or is derived from) the value of an underlying asset,
interest rate or index. Options, futures, CMOs, and structured notes are
examples of derivatives the Fund can use.

If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or investment
on which the derivative is based, and the derivative itself, might not
perform the way the Manager expected it to perform. If that happens, the
Fund's share price could decline or the Fund could get less income than
expected. The Fund has limits on the amount of particular types of
derivatives it can hold. However, using derivatives can cause the Fund to
lose money on its investment and/or increase the volatility of its share
price.

How Risky is the Fund Overall? The risks described above collectively form
the overall risk profile of the Fund, and can affect the value of the Fund's
investments, its investment performance and its price per share. Particular
investments and investment strategies also have risks. These risks mean that
you can lose money by investing in the Fund. When you redeem your shares,
they may be worth more or less than what you paid for them. There is no
assurance that the Fund will achieve its investment objective.

In the short term, domestic and foreign stock markets can be volatile,
and the price of the Fund's shares will go up and down in response to those
changes. The Fund's income-oriented investments may help cushion the Fund's
total return from changes in stock prices, but debt securities are subject to
credit and interest rate risks. The Fund may be less volatile than funds that
focus only on stock investments, but has more risks than funds that focus
solely on investment grade bonds.

- ------------------------------------------------------------------------------
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
- ------------------------------------------------------------------------------

The Fund's Past Performance

The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the performance of the Fund's
non-service shares from year to year for the last 10 calendar years and by
showing how the average annual total returns of the Fund's shares for 1, 5
and 10 years, or life of class, compare to a broad-based market index. The
Fund's past investment performance is not necessarily an indication of how
the Fund will perform in the future.

Annual Total Returns (as of December 31 each year)

[See appendix to prospectus for data in bar chart showing annual total
returns]

During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 12.53% (2nd Q `03) and the lowest return (not
annualized) for a calendar quarter was -10.96% (3rd Q `01).

- ---------------------------------------------------------------------------------
5 Years 10 Years
Average Annual Total Returns for the (or life of (or life of
periods ended December 31, 2004 class if class if
1 Year less) less)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Oppenheimer Balanced Fund/VA Non-Service

Shares 10.10% 6.05% 10.14%
(inception date: 2/9/87)

- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------

S&P 500 Index 10.87% -2.30% 12.07%1

- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------

Lehman Bros. Aggregate Bond Index 4.34% 7.71% 7.72%1

Shares 9.79% 8.39% N/A
(inception date: 5/1/02)

- ---------------------------------------------------------------------------------

1. From 12/31/94.

The Fund's average annual total returns measure the performance of a
hypothetical account without deducting charges imposed by the separate
accounts that invest in the Fund and assume that all dividends and capital
gains distributions have been reinvested in additional shares. The Fund's
performance is compared to the Standard & Poor's 500 Index, an unmanaged
index of U.S. equity securities that is a measure of the general domestic
stock market. The Fund also compares its performance to the Lehman Brothers
Aggregate Bond Index, an unmanaged index of U.S. corporate, government and
mortgage-backed securities that is a measure of the domestic bond market. The
index performance includes the reinvestment of income but does not reflect
fees, expenses, or transaction costs. Also, the Fund may have investments
that vary from the indices.

The Fund's total returns should not be expected to be the same as the returns
of other Oppenheimer funds, even if both funds have the same portfolio
managers and/or similar names.

Fees and Expenses of the Fund

Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)

Management Fees 0.72% 0.72%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Distribution and Service None 0.25%
(12b-1) Fees

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Other Expenses 0.02% 0.05%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Total Annual Operating Expenses 0.74% 1.02%

EXAMPLE. The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

Non-Service Shares $76 $237 $413 $922

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Service Shares $105 $326 $566 $1,254

- ------------------------------------------------------------------------------

About the Fund's Investments

The Fund's Principal Investment Policies and Risks. The allocation of the
Fund's portfolio among different types of investments will vary over time
based upon the Manager's evaluation of economic and market trends. At times
the Fund may focus more on investing for capital appreciation with less
emphasis on income. At other times, for example when stock markets are less
stable, the Fund may increase the relative emphasis of its portfolio in
income-seeking investments, such as bonds and money market instruments.

In seeking broad diversification of the Fund's portfolio over asset
classes, issuers and economies, the portfolio managers consider overall and
relative economic conditions in U.S. and foreign markets. They seek broad
diversification by investing in different countries to help moderate the
special risks of investing in foreign securities and lower-grade, high-yield
debt securities. The Fund's portfolio might not always include all of the
different types of investments described below. The Statement of Additional
Information contains more detailed information about the Fund's investment
policies and risks.

|X| Stock and Other Equity Investments. The Fund can invest in equity
securities of issuers that may be of small, medium or large size, to seek
capital growth. Equity securities include common stocks, preferred stocks and
securities convertible into common stock. Although some convertible
securities are a type of debt security, the Manager considers some of those
convertible securities to be "equity equivalents" because of the conversion
feature. In that case, their rating has less impact on the investment
decision than in the case of other debt securities. The Fund invests in
securities issued by domestic or foreign companies that the Manager believes
have appreciation potential or that are undervalued.

The Fund's equity investments may be exchange-traded or
over-the-counter securities. Over-the-counter securities may have less
liquidity than exchange-traded securities, and stocks of companies with
smaller capitalization have greater risk of volatility than stocks of larger
companies. The Fund limits its investments in securities of small, unseasoned
issuers to not more than 5% of its net assets.

The debt securities the Fund buys may be rated by nationally recognized
rating organizations or they may be unrated securities assigned a rating by
the Manager. The Fund's investments may be investment grade or below
investment grade in credit quality. The Manager does not rely solely on
ratings by rating organizations in selecting debt securities, but evaluates
business and economic factors affecting an issuer as well.

The Fund's foreign debt investments can be denominated in U.S. dollars
or in foreign currencies and can include "Brady Bonds." Those are U.S.
dollar-denominated debt securities collateralized by zero-coupon U.S.
Treasury securities. They are typically issued by governments of emerging
market countries and are considered speculative securities with higher risks
of default. The Fund will buy foreign currency only in connection with the
purchase and sale of foreign securities and not for speculation.

|X| U.S. Government Securities. The Fund can invest in securities
issued or guaranteed by the U.S. Treasury or other U.S. government agencies
or federally-chartered corporate entities referred to as
"instrumentalities." These are referred to as "U.S. government securities"
in this Prospectus. They can include collateralized mortgage obligations
(CMOs) and other mortgage-related securities. Mortgage-related securities
are subject to additional risks of unanticipated changes in the rate of
payment of the underlying mortgages, which can affect the income stream to
the Fund from those securities as well as their values.

|X| U.S. Treasury Obligations. These include Treasury bills (having
maturities of one year or less when issued), Treasury notes (having
maturities of from one to 10 years), and Treasury bonds (having maturities of
more than 10 years when issued). Treasury securities are backed by the full
faith and credit of the United States as to timely payments of interest and
repayment of principal. The Fund can buy U. S. Treasury securities that have
been "stripped" of their interest coupons by a Federal Reserve Bank,
zero-coupon U.S. Treasury securities described below, and Treasury
Inflation-Protection Securities ("TIPS"). Although not rated, Treasury
obligations have little credit risk but prior to their maturity are subject
to interest rate risk.

|_| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the
right of the issuer to borrow from the U.S. Treasury under certain
circumstances, such as Federal National Mortgage Association bonds ("Fannie
Maes"). Others are supported only by the credit of the entity that issued
them, such as Federal Home Loan Mortgage Corporation obligations ("Freddie
Macs"). These have relatively little credit risk.

|_| Mortgage-Related U.S. Government Securities. The Fund can buy
interests in pools of residential or commercial mortgages, in the form of
collateralized mortgage obligations ("CMOs") and other "pass-through"
mortgage securities. CMOs that are U.S. government securities have collateral
to secure payment of interest and principal. They may be issued in different
series each having different interest rates and maturities. The collateral is
either in the form of mortgage pass-through certificates issued or guaranteed
by a U.S. agency or instrumentality or mortgage loans insured by a U.S.
government agency.

The prices and yields of CMOs are determined, in part, by assumptions
about the cash flows from the rate of payments of the underlying mortgages.
Changes in interest rates may cause the rate of expected prepayments of those
mortgages to change. In general, prepayments increase when general interest
rates fall and decrease when interest rates rise.

If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. Additionally, the Fund may have to reinvest the prepayment proceeds
in other securities paying interest at lower rates, which could reduce the
Fund's yield.

When interest rates rise rapidly and if prepayments occur more slowly
than expected, a short- or medium-term CMO can in effect become a long-term
security, subject to greater fluctuations in value. These prepayment risks
can make the prices of CMOs very volatile when interest rates change. The
prices of longer-term debt securities tend to fluctuate more than those of
shorter-term debt securities. That volatility will affect the Fund's share
price.

|X| Private-Issuer Mortgage-Backed Securities. The Fund can invest in
mortgage-backed securities issued by private issuers, which do not offer the
credit backing of U.S. government securities. Primarily these would include
multi-class debt or pass-through certificates secured by mortgage loans. They
may be issued by banks, savings and loans, mortgage bankers and other
non-governmental issuers. Private issuer mortgage-backed securities are
subject to the credit risks of the issuers (as well as the interest rate
risks and prepayment risks of CMOs, discussed above), although in some cases
they may be supported by insurance or guarantees.

|X| High-Yield, Lower-Grade Debt Securities. The Fund can invest
without limit in lower-grade, high-yield debt securities, including bonds,
debentures, notes, preferred stocks, loan participation interests, structured
notes and, asset-backed securities, among others, to seek current income.
These securities are sometimes called "junk bonds." The Fund has no
requirements as to the maturity of the debt securities it can buy, or as to
the market capitalization range of the issuers of those securities.

Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service, Inc. or lower than "BBB" by Standard & Poor's Rating
Service or that have similar ratings by other nationally-recognized rating
organizations. The Fund can invest in securities rated as low as "C" or "D"
or which are in default at the time the Fund buys them. While securities
rated "Baa" by Moody's or "BBB" by S&P are considered "investment grade,"
they have some speculative characteristics.

While investment-grade securities are subject to risks of non-payment
of interest and principal, in general high-yield lower-grade bonds, whether
rated or unrated, have greater risks than investment-grade securities. There
may be less of a market for them and therefore they may
be harder to sell at an acceptable price. The special risks these securities
are subject to mean that the Fund may not achieve the expected income from
them and that the Fund's net asset value per share may be affected by
declines in value of these securities.

|X| Money Market Instruments. The Fund can invest in money market
instruments, which are debt obligations having a remaining maturity of 13
months or less. They include short-term certificates of deposit, bankers'
acceptances, commercial paper (including variable amount master demand
notes), U.S. government obligations, and other debt instruments (including
bonds) issued by corporations. These securities may have variable or
floating interest rates. The Fund's investments in commercial paper in
general will be limited to paper in the top two rating categories of Standard
& Poor's, Moody's or other national rating organizations.

|X| Credit Derivatives. The Fund may enter into credit default swaps,
both (i) directly and (ii) indirectly in the form of a swap embedded within a
structured note, to protect against the risk that a security will default.
The Fund pays a fee to enter into the trade and receives a fixed payment
during the life of the swap. If there is a credit event (for example, the
security fails to timely pay interest or principal), the Fund either delivers
the defaulted bond (if the Fund has taken the short position in the credit
default swap, also known as "buying credit protection") or pays the par
amount of the defaulted bond (if the Fund has taken the long position in the
credit default swap note, also known as "selling credit protection"). Risks
of credit default swaps include the cost of paying for credit protection if
there are no credit events, and adverse pricing when purchasing bonds to
satisfy its delivery obligation where the Fund took a short position in the
swap and there has been a credit event.

|X| Foreign Investing. The Fund typically invests a portion of its
assets in foreign debt securities. The Fund can buy debt securities issued by
foreign governments or companies. The Fund can buy securities of governments
and companies in under-developed and developed markets. However, the Fund
may not invest more than 10% of its net assets in the securities of
governments and companies in emerging markets. Debt securities issued or
guaranteed by a foreign government or its agencies might not be backed by the
"full faith and credit" of the government.

The Fund's foreign debt investments can be denominated in U.S. dollars
or in foreign currencies. However, the Fund may not invest more than 20% of
its net assets in foreign debt securities. The Fund will buy and sell
foreign currency only in connection with the purchase and sale of foreign
securities and not for speculation.

|X| Loans and Portfolio Securities. The Fund has entered into a
Securities Lending Agreement with JP Morgan Chase. Under that agreement
portfolio securities of the Fund may be loaned to brokers, dealers and other
financial institutions. The Securities Lending Agreement provides that loans
must be adequately collateralized and may be made only in conformity with
Fund's Securities Lending Guidelines, adopted by the Fund's Board of
Trustees. The value of the securities loaned may not exceed 25% of the value
of the Fund's net assets.

Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus. Fundamental policies cannot be changed without the approval
of a majority of the Fund's outstanding voting shares. The Fund's objective
is a fundamental policy. Investment restrictions that are fundamental
policies are listed in the Statement of Additional Information. An investment
policy is not fundamental unless this Prospectus or the Statement of
Additional Information says that it is.

Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Fund might not
always use all of them. These techniques have risks, although some of them
are designed to help reduce overall investment or market risks.

|X| Forward Rolls. The Fund can enter into "forward roll" transactions
with respect to mortgage-related securities. In this type of transaction, the
Fund sells a mortgage-related security to a buyer and simultaneously agrees
to repurchase a similar security at a later date at a set price.

During the period between the sale and the repurchase, the Fund will not be
entitled to receive interest and principal payments on the securities that
have been sold. It is possible that the market value of the securities the
Fund sells may decline below the price at which the Fund is obligated to
repurchase securities, or that the counterparty might default in its
obligation.

|X| Bank Loan Participation Agreements. The Fund can invest in bank
loan participation agreements. They provide the Fund an undivided interest in
a loan made by the issuing bank in the proportion the Fund's interest bears
to the total principal amount of the loan. In evaluating the risk of these
investments, the Manager looks to the creditworthiness of the borrower that
is obligated to make principal and interest payments on the loan. Not more
than 5% of the Fund's net assets can be invested in participation interests
of any one borrower.

|X| Zero-Coupon and "Stripped" Securities. Some of the U.S. government
and private company debt securities the Fund buys are zero-coupon bonds that
pay no interest. They are issued at a substantial discount from their face
value. "Stripped" securities are the separate income or principal components
of a debt security. Some CMOs or other mortgage-related securities may be
stripped, with each component having a different proportion of principal or
interest payments. One class might receive all the interest and the other all
the principal payments.
Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than conventional interest-bearing
securities. The Fund may have to pay out the imputed income on zero-coupon
securities without receiving the actual cash currently. Interest-only
securities are particularly sensitive to changes in interest rates.

The values of interest-only mortgage related securities are also very
sensitive to prepayments of underlying mortgages. Principal-only securities
are also sensitive to changes in interest rates. When prepayments tend to
fall, the timing of the cash flows to these securities increases, making them
more sensitive to changes in interest rates. The market for some of these
securities may be limited, making it difficult for the Fund to dispose of its
holdings at an acceptable price.

|X| Asset-Backed Securities. The Fund can buy asset-backed securities,
which are fractional interests in pools of loans collateralized by loans or
other assets or receivables. They are typically issued by trusts and special
purpose corporations that pass the income from the underlying pool to the
buyer of the interest. These securities are subject to prepayment risks and
the risk of default by the issuer as well as by the borrowers of the
underlying loans in the pool.

|X| Illiquid and Restricted Securities. Investments may be illiquid
because they do not have an active trading market, making it difficult to
value them or dispose of them promptly at an acceptable price. Restricted
securities may have terms that limit their resale to other investors or may
require registration under applicable securities laws before they may be sold
publicly. The Fund will not invest more than 15% of its net assets in
illiquid or restricted securities but is not required to sell them due to
declines in the Fund's share price. Certain restricted securities that are
eligible for resale to qualified institutional purchasers may not be subject
to that limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity.

|X| "Structured" Notes. The Fund can buy "structured" notes, which are
specially-designed derivative debt investments whose payments of principal or
interest payments are linked to the value of an index (such as a currency or
securities index) or commodity, including financial commodities. The terms of
the instrument may be "structured" by the purchaser (the Fund) and the
borrower issuing the note.

The principal and/or interest payments depend on the performance of one
or more other securities or indices, and the values of these notes will
therefore fall or rise in response to the changes in the values of the
underlying security or index. They are subject to both credit and interest
rate risks and therefore the Fund could receive more or less than it
originally invested when the notes mature, or it might receive less interest
than the stated coupon payment if the underlying investment or index does not
perform as anticipated. Their values may be very volatile and they may have a
limited trading market, making it difficult for the Fund to sell its
investment at an acceptable price.

|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, mortgage-related securities and
other hedging instruments the Fund can use may be considered "derivative
investments." In addition to using hedging instruments, the Fund may use
other derivative investments because they offer the potential for increased
income and principal value.

Markets underlying securities and indices may move in a direction not
anticipated by the Manager. Interest rate and stock market changes in the
U.S. and abroad may also influence the performance of derivatives. As a
result of these risks the Fund could realize less principal or income from
the investment than expected. Certain derivative investments held by the
Fund may be illiquid.

|X| Hedging. The Fund can buy and sell futures contracts, forward
contracts and put and call options, including options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund is not required to use hedging instruments to seek
its objective. The Fund does not use hedging instruments for speculative
purposes, and has limits on its use of them.

The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or to
establish a position in the securities market as a temporary substitute for
purchasing individual securities. It might do so to try to manage its
exposure to changing interest rates. Forward contracts can be used to try to
manage foreign currency risks on the Fund's foreign investments.

If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the strategy could reduce the Fund's return.
The Fund could also experience losses if the prices of its futures and
options positions were not correlated with its other investments or if it
could not close out a position because of an illiquid market.

|X| Short-Term Debt Securities. The Fund can buy high-quality,
short-term money market instruments, including obligations of the U.S.
Government and its agencies, short-term corporate debt obligations, bank
certificates of deposit and bankers' acceptances, and commercial paper, which
are short-term, negotiable promissory notes of companies.

|X| Temporary Defensive and Interim Investments. In times of adverse or
unstable market, economic or political conditions, the Fund can invest up to
100% of its total assets in temporary defensive investments that are
inconsistent with the Fund's principal investment strategies. Generally they
would be highly-rated commercial paper and money market instruments, U.S.
government securities and repurchase agreements. The Fund might also hold
these types of securities pending the investment of proceeds from the sale of
Fund shares or portfolio securities or to meet anticipated redemptions of
Fund shares. To the extent the Fund invests defensively in these securities,
it may not achieve its investment objective.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
and annual reports that are distributed to shareholders of the Fund within 60
days after the close of the period for which such report is being made. The
Fund also makes disclosures of its portfolio securities holdings in its
Statements of Investments on Form N-Q, which are filed with the SEC no later
than 60 days after the close of the first and third fiscal quarters. These
additional quarterly filings are publicly available at the SEC. Therefore,
portfolio holdings of the Fund are made publicly available no later than 60
days after the close of the Fund's fiscal quarter.

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.

How the Fund Is Managed

The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the
policies established by the Fund's Board of Trustees, under an investment
advisory agreement that states the Manager's responsibilities. The agreement
sets the fees the Fund pays to the Manager and describes the expenses that
the Fund is responsible to pay to conduct its business.

The Manager has been an investment adviser since 1960. The Manager and
its subsidiaries and controlled affiliates managed more than $170 billion in
assets as of March 31, 2005, including other Oppenheimer funds with more than
7 million shareholder accounts. The Manager is located at Two World Financial
Center, 225 Liberty Street, 11th Floor, New York, New York 10281-1008.

|X| Advisory Fees. Under the investment advisory agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on
additional assets as the Fund grows: 0.75% of the first $200 million of
average annual net assets, 0.72% of the next $200 million, 0.69% of the next
$200 million, 0.66% of the next $200 million, and 0.60% of average annual net
assets over $800 million. The Fund's management fee for its last fiscal year
ended December 31, 2004, was 0.72% of the Fund's average annual net assets
for each class of shares.

|X| Portfolio Managers. The Fund's portfolio is managed by Emmanuel
Ferreira, Christopher Leavy, Angelo Manioudakis and a team of investment
professionals including Benjamin J. Gord, Geoffrey Caan, Charles Moon and
Antulio Bomfim who are primarily responsible for the day-to-day management of
the Fund's investments. Messrs. Ferreira, Leavy and Manioudakis have been
portfolio managers of the Fund since 2003.

Mr. Ferreira has been a Vice President of the Manager since January
2003 and is a portfolio manager and officer of other portfolios in the
OppenheimerFunds complex. He was formerly Portfolio Manager at Lashire
Investments from July 1999 through December 2002.

Mr. Leavy has been a Senior Vice President of the Manager since
September 2000 and is a portfolio manager and officer of other portfolios in
the OppenheimerFunds complex. Mr. Leavy was a portfolio manager at Morgan
Stanley Dean Witter Investment Management from 1997 through September 2000.

Since April 2002, the Fund's fixed-income component has been managed by
a portfolio management team comprised of Angelo Manioudakis, Benjamin Gord,
Charles Moon, Geoffrey Caan, and Antulio Bomfim. This portfolio management
team is primarily responsible for the day-to-day management of the
fixed-income component of the Fund. Mr. Manioudakis has been a Senior Vice
President of the Manager and of HarbourView Asset Management Corporation
since April 2002. He has been a Senior Vice President of OFI Institutional
Asset Management, Inc. since June 2002. He is also a portfolio manager and
officer of other portfolios in the OppenheimerFunds complex. Mr. Manioudakis
was Executive Director and portfolio manager for Miller, Anderson & Sherrerd,
a division of Morgan Stanley Investment Management from August 1993 through
April 2002.

Mr. Gord has been a portfolio manager of the Fund since 2003 and a Vice
President of the Manager since April 2002. He is also a portfolio manager of
other portfolios in the OppenheimerFunds complex. Mr. Gord was an Executive
Director and a senior fixed income analyst at Miller Anderson & Sherrerd, a
division of Morgan Stanley Investment Management from April 1992 through
March 2002.

Mr. Caan has been a portfolio manager of the Fund since 2003 and a Vice
President of the Manager since August 2003. He is also a portfolio manager of
other portfolios in the OppenheimerFunds complex. Mr. Caan was a Vice
President of ABN AMRO N.A., Inc. from June 2002 through August 2003, and a
Vice President of Zurich Scudder Investments from January 1999 through June
2002.

Mr. Moon has been a portfolio manager of the Fund since 2003 and a Vice
President of the Manager since April 2002. He is also a portfolio manager of
other portfolios in the OppenheimerFunds complex. Mr. Moon was an Executive
Director and a portfolio manager at Miller Anderson & Sherrerd, a division of
Morgan Stanley Investment Management from June 1999 through March 2002.

Mr. Bomfim has been a portfolio manager of the Fund since 2003 and a
Vice President of the Manager since October 2003. He is also a portfolio
manager of other portfolios in the OppenheimerFunds complex. Mr. Bomfim was
a Senior Economist at the Board of Governors of the Federal Reserve System
from June 1992 to October 2003.

The Statement of Additional Information provides additional information
about the portfolio management team's compensation, other accounts they
manage and their ownership of Fund shares.

|X| Pending Litigation. A consolidated amended complaint has been filed as
putative derivative and class actions against the Manager, Distributor and
Transfer Agent, as well as 51 of the Oppenheimer funds (collectively the
"funds") not including the Fund, 31 present and former Directors or Trustees
and 9 present and former officers of certain of the funds. This complaint,
initially filed in the U.S. District Court for the Southern District of New
York on January 10, 2005 and amended on March 4, 2005, consolidates into a
single action and amends six individual previously-filed putative derivative
and class action complaints. Like those prior complaints, the complaint
alleges that the Manager charged excessive fees for distribution and other
costs, improperly used assets of the funds in the form of directed brokerage
commissions and 12b-1 fees to pay brokers to promote sales of the funds, and
failed to properly disclose the use of fund assets to make those payments in
violation of the Investment Company Act and the Investment Advisers Act of
1940. Also, like those prior complaints, the complaint further alleges that
by permitting and/or participating in those actions, the Directors/Trustees
and the Officers breached their fiduciary duties to Fund shareholders under
the Investment Company Act and at common law. The complaint seeks unspecified
compensatory and punitive damages, rescission of the funds' investment
advisory agreements, an accounting of all fees paid, and an award of
attorneys' fees and litigation expenses.

INVESTING IN THE FUND

How to Buy and Sell Shares

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

Furthermore, each participating insurance company may impose its own
restrictions or limitations to discourage short-term or excessive trading.

Right to Refuse Purchase Orders. The Distributor and/or the Transfer Agent
may refuse any purchase order in their discretion and are not obligated to
provide notice before rejecting an order.

There can be no assurance that the Fund, the Transfer Agent or the
Fund's participating insurance companies will be successful in curbing
abusive short-term exchanges.

- ------------------------------------------------------------------------------
Information about your investment in the Fund through your variable annuity
contract, variable life insurance policy or other plan can be obtained only
from your participating insurance company or its servicing agent. The Fund's
Transfer Agent does not hold or have access to those records. Instructions
for buying or selling shares of the Fund should be given to your insurance
company or its servicing agent, not directly to the Fund or its Transfer
Agent.
- ------------------------------------------------------------------------------

Net Asset Value. The Fund calculates the net asset value of each class of
shares as of the close of The New York Stock Exchange (the "Exchange"), on
each day the Exchange is open for trading (referred to in this Prospectus as
a "regular business day"). The Exchange normally closes at 4:00 p.m., Eastern
time, but may close earlier on some days. All references to time in this
Prospectus mean "Eastern time".

The Board has adopted valuation procedures for the Fund and has delegated the
day-to-day responsibility for fair value determinations to the Manager's
Valuation Committee. Fair value determinations by the Manager are subject to
review, approval and ratification by the Board at its next scheduled meeting
after the fair valuations are determined. In determining whether current
market prices are readily available and reliable, the Manager monitors the
information it receives in the ordinary course of its investment management
responsibilities for significant events that it believes in good faith will
affect the market prices of the securities of issuers held by the Fund. Those
may include events affecting specific issuers (for example, a halt in trading
of the securities of an issuer on an exchange during the trading day) or
events affecting securities markets (for example, a foreign securities market
closes early because of a natural disaster). The Fund uses fair value pricing
procedures to reflect what the Manager and the Board believe to be more
accurate values for its portfolio securities, although it may not always be
able to do so.

|X| Classes of Shares. The Fund has four classes of shares authorized. The
Fund offers only two different classes of shares. The class of shares
designated as Service shares are subject to a Distribution and Service Plan.
The impact of the expenses of the Plan on Service shares is described below.
The class of shares that are not subject to a Plan has no class "name"
designation. The different classes of shares represent investments in the
same portfolio of securities but are expected to be subject to different
expenses and will likely have different share prices.

Distribution and Service Plan for Service Shares. The Fund has adopted a
Distribution and Service Plan for Service shares to pay the distributor, for
distribution related services, personal services and account maintenance for
the Fund's Service shares. Under the Plan, payments are made quarterly at an
annual rate of up to 0.25% of the average annual net assets of Service shares
of the Fund. Because these fees are paid out of the Fund's assets on an
on-going basis, over time these fees will increase the cost of your
investment and may cost you more than other types of fees or sales charges.
The Distributor currently uses all of those fees to compensate sponsor(s) of
the insurance product that offers Fund shares, for providing personal service
and maintenance of accounts of their variable contract owners that hold
Service shares.

Dividends, Capital Gains and Taxes

Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis. Dividends and
distributions will generally be lower for Service shares, which normally have
higher expenses. The Fund has no fixed dividend rate and cannot guarantee
that it will pay any dividends.

Financial Highlights

The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
the Fund's independent registered public accounting firm, whose report, along
with the Fund's financial statements, is included in the Statement of
Additional Information, which is available upon request.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.92 $ 13.16 $ 15.40 $ 16.55 $ 17.46
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .26 1 .27 .50 .53 .72
Net realized and unrealized gain (loss) 1.33 2.90 (2.02) (.19) .38
----------------------------------------------------------------------------
Total from investment operations 1.59 3.17 (1.52) .34 1.10
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.16) (.41) (.51) (.64) (.82)
Distributions from net realized gain -- -- (.21) (.85) (1.19)
----------------------------------------------------------------------------
Total dividends and/or distributions to shareholders (.16) (.41) (.72) (1.49) (2.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.35 $ 15.92 $ 13.16 $ 15.40 $ 16.55
============================================================================

- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 10.10% 24.96% (10.40)% 2.22% 6.44%
- -----------------------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 547,290 $ 533,710 $ 458,848 $ 593,033 $ 589,298
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 528,655 $ 475,389 $ 517,516 $ 599,324 $ 566,724
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.59% 1.82% 3.31% 3.42% 4.36%
Total expenses 0.74% 4 0.76% 4 0.74% 4 0.76% 4 0.76% 4
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 68% 5 248% 42% 30% 42%

1. Per share amounts calculated based on the average shares outstanding during
the period.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$1,460,076,994 and $1,473,590,963, respectively.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 1
- --------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.87 $ 13.14 $ 14.51
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .23 2 .39 .13
Net realized and unrealized gain (loss) 1.31 2.74 (1.50)
-------------------------------------------
Total from investment operations 1.54 3.13 (1.37)
- --------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.15) (.40) --
Distributions from net realized gain -- -- --
-------------------------------------------
Total dividends and/or distributions to shareholders (.15) (.40) --
- --------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.26 $ 15.87 $ 13.14
===========================================

- --------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value 3 9.79% 24.69% (9.44)%
- --------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 59,650 $ 25,302 $ 2,306
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 39,851 $ 9,908 $ 1,037
- --------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 1.41% 1.37% 3.30%
Total expenses 1.02% 5 1.01% 5 0.99% 5
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate 68% 6 248% 42%

1. For the period from May 1, 2002 (inception of offering) to December 31, 2002.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$1,460,076,994 and $1,473,590,963, respectively.

INFORMATION AND SERVICES

For More Information on Oppenheimer Balanced Fund/VA

The following additional information about the Fund is available without
charge upon request:

STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund's investment policies, risks, and operations. It
is incorporated by reference into this Prospectus (which means it is legally
part of this Prospectus).

ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.

How to Get More Information
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports and the notice explaining the Fund's privacy policy:

- ------------------------------------------------------------------------------

By Telephone: Call OppenheimerFunds Services toll-free:
1.800.981.2871

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

On the Internet: You can request these documents by e-mail or
through the OppenheimerFunds website. You may
also read or download certain documents on the
OppenheimerFunds website at:
www.oppenheimerfunds.com.

- ------------------------------------------------------------------------------

Information about the Fund including the Statement of Additional Information
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1.202.942.8090. Reports and other information
about the Fund are available on the EDGAR database on the SEC's Internet
website at www.sec.gov. Copies may be obtained after payment of a duplicating
fee by electronic request at the SEC's e-mail address: publicinfo@sec.gov or
by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.

No one has been authorized to provide any information about the Fund or to
make any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any
state or other jurisdiction where it is unlawful to make such an offer.

[logo] OppenheimerFunds
Distributor, Inc.
The Fund's SEC File No.: 811-4108
PR0670.001.0405
Printed on recycled paper

Appendix to Prospectus of
Oppenheimer Balanced Fund/VA
(a series of Oppenheimer Variable Account Funds)

Graphic material included in the Prospectus of Oppenheimer Balanced
Fund/VA (the "Fund") under the heading "Annual Total Return (as of December
31 each year)":

A bar chart will be included in the Prospectus of the Fund depicting
the annual total returns of a hypothetical $10,000 investment in Non-Service
shares of the Fund for each of the ten most recent calendar years, without
deducting separate account expenses. Set forth below are the relevant data
that will appear on the bar chart:

Calendar
Year
Ended Annual Total Returns
- ----- --------------------

12/31/95 21.36%
12/31/96 15.50%
12/31/97 17.22%
12/31/98 6.66%
12/31/99 11.80%
12/31/00 6.44%
12/31/01 2.22%
12/31/02 -10.40%
12/31/03 24.96%
12/31/04 10.10%

- ------------------------------------------------------------------------------

Oppenheimer
Capital Appreciation Fund/VA
A series of Oppenheimer Variable Account Funds

Prospectus dated April 29, 2005

Oppenheimer Capital Appreciation
Fund/VA is a mutual fund that seeks
capital appreciation by investing in
securities of well-known, established
companies.
Shares of the Fund are sold only
as the underlying investment for
variable life insurance policies,
variable annuity contracts and other
insurance company separate accounts. A
prospectus for the insurance product
you have selected accompanies this
Prospectus and explains how to select
shares of the Fund as an investment
under that insurance product, and
whether you are only eligible to
purchase Service shares of the Fund.
This Prospectus contains
important information about the Fund's
objective, its investment policies,
strategies and risks. Please read this
Prospectus (and your insurance product
prospectus) carefully before you
invest and keep them for future

As with all mutual funds, the reference about your account.
Securities
and Exchange Commission has not
approved or disapproved the Fund's
securities nor has it determined that
this Prospectus is accurate or
complete.

It is a criminal offense to represent
otherwise.
(OppenheimerFunds logo)

Contents

About the Fund
- ------------------------------------------------------------------------------

The Fund's Investment Objective and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

Investing in the Fund
- ------------------------------------------------------------------------------

How to Buy and Sell Shares

Dividends, Capital Gains and Taxes

Financial Highlights

ABOUT THE FUND

The Fund's Investment Objective and Principal Investment Strategies

What Is the Fund's Investment Objective? The Fund seeks capital appreciation
by investing in securities of well-known, established companies.

What Does the Fund Mainly Invest In? The Fund invests mainly in common stocks
of "growth companies." These may be established companies of any
capitalization range that the portfolio manager believes may appreciate in
value over the long term. The Fund currently focuses mainly on mid-cap and
large-cap domestic companies, but can buy foreign stocks as well.

How Does the Portfolio Manager Decide What Securities to Buy or Sell? The
Fund's portfolio manager looks primarily for growth companies that she
believes have reasonably priced stock in relation to overall stock market
valuations. The portfolio manager focuses on factors that may vary in
particular cases and over time in seeking broad diversification of the Fund's
portfolio among industries and market sectors. Currently the portfolio
manager looks for:
o companies with above-average growth potential,
o stocks with reasonable valuations relative to their growth potential,
o companies with the potential for positive earnings surprises, or
o growth rates that the portfolio manager believes are sustainable over
time.

Who Is the Fund Designed For? The Fund's shares are available only as an
investment option under certain variable annuity contracts, variable life
insurance policies and investment plans offered through insurance company
separate accounts of participating insurance companies, for investors seeking
capital appreciation in their investment over the long term, from investments
in common stocks of well-known companies. Those investors should be willing
to assume the risks of short-term share price fluctuations that are typical
for a fund focusing on stock investments. Since the Fund's income level will
fluctuate and will likely be small, it is not designed for investors needing
an assured level of current income. The Fund is not a complete investment
program.

Main Risks of Investing in the Fund

All investments have some degree of risk. The Fund's investments are
subject to changes in their value from a number of factors described below.
There is also the risk that poor security selection by the Fund's investment
Manager, OppenheimerFunds, Inc., will cause the Fund to underperform other
funds having a similar objective.

Changes in the overall market prices of securities and the income they
pay can occur at any time. The share price of the Fund will change daily
based on changes in market conditions, market prices of securities and in
response to other economic events.

|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. Because the Fund currently
invests primarily in common stocks of U. S. companies, the value of the
Fund's portfolio will be affected by changes in the stock markets. Market
risk will affect the Fund's net asset values per share, which will fluctuate
as the values of the Fund's portfolio securities change. A variety of
factors can affect the price of a particular stock and the prices of
individual stocks do not all move in the same direction uniformly or at the
same time. Different stock markets may behave differently from each other.
Securities in the Fund's portfolio may not increase as much as the market as
a whole. Growth stocks may at times be favored by the market and at other
times may be out of favor. Some securities may be inactively traded, and
therefore, may not be readily bought or sold. Although some growth stocks
may appreciate quickly, investors should not expect the Fund's investments to
act in this manner. The Fund is designed for long-term capital appreciation.

Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the
issuer. The Fund invests mainly in securities of large companies, but can
also invest in small and medium-size companies, which may have more volatile
stock prices than large companies.

|X| Risks of Growth Stocks. Stocks of growth companies may offer
opportunities for greater capital appreciation but may be more volatile than
stocks of larger, more established companies. If the company's earnings
growth fails to increase as expected, the stock price of a growth company may
decline sharply.

|X| Risks of Foreign Investing. The change in value of a foreign currency
against the U.S. dollar will result in a change in the U.S. dollar value of
securities denominated in that foreign currency. Foreign issuers are not
subject to the same accounting and disclosure requirements that U.S.
companies are subject to. The value of foreign investments may be affected by
exchange control regulations, expropriation or nationalization of a company's
assets, foreign taxes, delays in settlement of transactions, changes in
governmental economic or monetary policy in the U.S. or abroad, or other
economic or political factors.

In the short term, stock markets can be volatile, and the prices of the
Fund's shares can go up and down substantially. The Fund generally does not
use income-oriented investments to a great extent to help cushion the Fund's
share prices from stock market volatility, except for defensive purposes.
Because it focuses on larger companies, the Fund generally may be less
volatile than funds focusing on investments in small-cap stocks, but the Fund
may have greater risk of volatility than funds that invest in both stocks and
fixed income securities.

An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

The Fund's Past Performance

The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the performance of the Fund's
non-service shares from year to year for the last 10 calendar years and by
showing how the average annual total returns of the Fund's shares for 1, 5
and 10 years, or for the life of class, compare to a broad-based market
index. The Fund's past investment performance is not necessarily an
indication of how the Fund will perform in the future.

Annual Total Returns (as of December 31 each year)

[See appendix to prospectus for data in bar chart showing annual total
returns]

During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 28.49% (4th Q'99) and the lowest return (not
annualized) for a calendar quarter was -20.45% (3rd Q'01).

- ---------------------------------------------------------------------------------
Average Annual Total

Returns for the periods 5 Years 10 Years
ended 1 Year (or life of class (or life of
- ---------------------------- if less) class if less)

December 31, 2004
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Oppenheimer Capital

Appreciation Fund/VA 6.93% -2.23% 13.02%
Non-Service Shares

(inception date: 4/3/85)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------

S&P 500 Index 10.87% -2.30% 12.07%

- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Oppenheimer Capital

Appreciation Fund/VA 6.62% 4.99%* N/A
Service Shares (inception

date: 9/18/01)
- ---------------------------------------------------------------------------------

*Since inception (9/18/01).

The Fund's average annual total returns measure the performance of a
hypothetical account without deducting charges imposed by the separate
accounts that invest in the Fund and assume that all dividends and capital
gains distributions have been reinvested in additional shares. The
performance of the Fund is compared to the S&P 500 Index, an unmanaged index
of equity securities that is a measure of the general domestic stock market.
The index performance includes the reinvestment of income but does not
reflect fees, expenses, or transaction costs. Also, the Fund's investments
vary from the index.

The Fund's total returns should not be expected to be the same as the returns
of other Oppenheimer funds, even if both funds have the same portfolio
managers and/or similar names.

Fees and Expenses of the Fund

Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)

Management Fees 0.64% 0.64%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Distribution and Service (12b-1) N/A 0.25%
Fees

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Other Expenses 0.02% 0.02%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Total Annual Operating Expenses 0.66% 0.91%

- --------------------------------------------------------------------------------

Expenses may vary in future years. "Other expenses" in the table include
transfer agent fees, custodial fees, and accounting and legal expenses the
Fund pays. The Fund's transfer agent has voluntarily agreed to limit transfer
and shareholder servicing agent fees to 0.35% per fiscal year, for both
classes. That undertaking may be amended or withdrawn at any time. For the
Fund's fiscal year ended December 31, 2004, the transfer agent fees did not
exceed the expense limitation described above.

EXAMPLE. The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

Non-Service Shares $68 $212 $369 $825

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Service Shares $93 $291 $506 $1,125

- ------------------------------------------------------------------------------

About the Fund's Investments

The Fund's Principal Investment Policies and Risks. The allocation of the
Fund's portfolio among different types of investments will vary over time
based on the Manager's evaluation of economic and market trends. The Fund's
portfolio might not always include all of the different types of investments
described below. The Statement of Additional Information contains more
detailed information about the Fund's investment policies and risks.

The Manager tries to reduce risks by carefully researching securities
before they are purchased and by attempting to limit valuation risk by being
price sensitive. The Fund attempts to reduce its exposure to market risks by
diversifying its investments, that is, by not holding a substantial
percentage of the stock of any one company and by not investing too great a
percentage of the Fund's assets in any one issuer. Also, the Fund does not
concentrate 25% or more of its total assets in any one industry.

|X| Stock Investments. The Manager looks for stocks of companies that have
growth potential. Growth companies may be developing new products or services
or may be expanding into new markets for their products. They may be more
established companies entering a growth cycle. The Fund's investments are not
limited to issuers in a specific capitalization range, such as large-cap or
small-cap companies, and the Fund can invest in issuers in all capitalization
ranges. Market capitalization refers to the market value of all of a
company's issued and outstanding stock. Currently, the Fund's stock
investments are focused on mid-cap and large-cap issuers, but that emphasis
can change over time. Because the stocks of companies that have smaller
market capitalizations tend to be more volatile, to the extent that the Fund
holds small-cap stocks, its share prices may fluctuate more and the risks of
loss are greater.

The Fund's equity investments may be exchange-traded or
over-the-counter securities. Over-the-counter securities may have less
liquidity than exchange-traded securities.

Less established growth companies tend to retain a large part of their
earnings for research, development or investment in capital assets.
Therefore, they do not tend to emphasize paying dividends, and may not pay
any dividends for a protracted period. They are selected for the Fund's
portfolio because the Manager believes the price of the stock will increase
over time.

|X| Cyclical Opportunities. The Fund may also seek to take advantage of
changes in the business cycle by investing in companies that are sensitive to
those changes if the Manager believes they have growth potential. For
example, when the economy is expanding, companies in the consumer durables
and technology sectors might benefit and present long-term growth
opportunities. The Fund might sometimes seek to take tactical advantage of
short-term market movements or events affecting particular issuers or
industries.

|X| Foreign Securities. The Fund can buy foreign equity and debt
securities. It would buy debt securities primarily for liquidity or defensive
purposes, including debt securities issued by foreign companies or by foreign
governments and their agencies. The Fund currently does not expect to have
more than 35% of its assets invested in foreign securities, although it has
the ability to invest in them without limit.

Other Investment Strategies. To seek its objective, the Fund can use the
investment techniques and strategies described below. The Fund might not
always use all of them. These techniques have risks, although some are
designed to help reduce overall investment or market risks.

|X| Other Equity Securities. While the Fund emphasizes investments in
common stocks, it can also buy preferred stocks and securities convertible
into common stock. The Manager considers convertible securities to be "equity
equivalents" because of the conversion feature and in those cases their
rating has less impact on the Manager's investment decision than in the case
of other debt securities. Nevertheless, convertible debt securities are
subject to both "credit risk" (the risk that the issuer will not pay interest
or repay principal in a timely manner) and "interest rate risk" (the risk
that prices of the securities will be affected inversely by changes in
prevailing interest rates). If the Fund buys convertible securities (or
other debt securities), it will focus primarily on investment-grade
securities which pose less credit risk than lower-grade debt securities.

|X| Illiquid and Restricted Securities. Investments may be illiquid
because they do not have an active trading market, making it difficult to
value them or dispose of them promptly at an acceptable price. Restricted
securities may have terms that limit their resale to other investors or may
require registration under applicable securities laws before they may be sold
publicly. The Fund will not invest more than 15% of its net assets in
illiquid or restricted securities but is not required to sell them due to
declines in the Fund's share price. Certain restricted securities that are
eligible for resale to qualified institutional purchasers may not be subject
to that limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity.

|X| Derivative Investments. The Fund can invest in a number of different
kinds of "derivative" investments. In general terms, a derivative investment
is an investment contract whose value depends on (or is derived from) the
value of an underlying asset, interest rate or index. In the broadest sense,
options, futures contracts, and other hedging instruments the Fund might use
may be considered "derivative" investments. In addition to using derivatives
for hedging, the Fund might use certain derivative investments because they
offer the potential for increased value. The Fund currently does not use
derivatives to a significant degree and is not required to use them in
seeking its objective.

Derivatives have risks. If the issuer of the derivative investment does
not pay the amount due, the Fund can lose money on the investment. The
underlying security or investment on which a derivative is based, and the
derivative itself, may not perform the way the Manager expected it to. As a
result of these risks, the Fund could realize less principal or income from
the investment than expected or its hedge might be unsuccessful. As a result,
the Fund's share prices could fall. Certain derivative investments held by
the Fund might be illiquid.

|X| Temporary Defensive and Interim Investments. In times of adverse or
unstable market, economic or political conditions, the Fund can invest up to
100% of its assets in temporary investments that are inconsistent with the
Fund's principal investment strategies. For cash management purposes, the
Fund can hold cash equivalents such as commercial paper, repurchase
agreements, Treasury bills and other short-term U.S. government securities.
These would ordinarily be U. S. government securities, highly-rated
commercial paper, bank deposits or repurchase agreements. The Fund can also
hold these types of securities pending the investment of proceeds from the
sale of Fund shares or portfolio securities or to meet anticipated
redemptions of Fund shares. To the extent the Fund invests defensively in
these securities, it might not achieve its investment objective.

Portfolio Turnover. The Fund can engage in active trading to try to
achieve its objective. The Financial Highlights table at the end of this
Prospectus shows the Fund's portfolio turnover rates during prior fiscal
years. Increased portfolio turnover creates higher brokerage and transaction
costs for the Fund (and may reduce performance). For a contract owner, any
increase in realized gains will generally not be taxable directly but may
affect the owner's tax basis in the account.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
and annual reports that are distributed to shareholders of the Fund within 60
days after the close of the period for which such report is being made. The
Fund also makes disclosures of its portfolio securities holdings in its
Statements of Investments on Form N-Q, which are filed with the SEC no later
than 60 days after the close of the first and third fiscal quarters. These
additional quarterly filings are publicly available at the SEC. Therefore,
portfolio holdings of the Fund are made publicly available no later than 60
days after the close of the Fund's fiscal quarter.

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.

How the Fund Is Managed

The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the
policies established by the Fund's Board of Trustees, under an investment
advisory agreement that states the Manager's responsibilities. The agreement
sets the fees the Fund pays to the Manager and describes the expenses that
the Fund is responsible to pay to conduct its business.

|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on
additional assets as the Fund grows: 0.75% of the first $200 million of
average annual net assets, 0.72% of the next $200 million, 0.69% of the next
$200 million, 0.66% of the next $200 million, and 0.60% of average annual net
assets over $800 million. The Fund's management fee for its last fiscal year
ended December 31, 2004, was 0.64% of the Fund's average annual net assets
for each class of shares.

|X| Portfolio Manager. The Fund's portfolio is managed by Jane
Putnam. Ms. Putnam has been the person primarily responsible for the
day-to-day management of the Fund's portfolio since 1994. Ms. Putnam has
been a Vice President of the Manager since June 1994 and is a portfolio
manager of other portfolios in the OppenheimerFunds complex. The Statement
of Additional Information provides additional information about the Portfolio
Manager's compensation, other accounts she manages and her ownership of Fund
shares.

|X| Possible Conflicts of Interest. The Fund offers its shares to
separate accounts of different insurance companies that are not affiliated
with each other, as an investment for their variable annuity, variable life
and other investment product contracts. While the Fund does not foresee any
disadvantages to contract owners from these arrangements, it is possible that
the interests of owners of different contracts participating in the Fund
through different separate accounts might conflict. For example, a conflict
could arise because of differences in tax treatment.

INVESTING IN THE FUND

How to Buy and Sell Shares

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

Furthermore, each participating insurance company may impose its own
restrictions or limitations to discourage short-term or excessive trading.

Right to Refuse Purchase Orders. The Distributor and/or the Transfer Agent
may refuse any purchase order in their discretion and are not obligated to
provide notice before rejecting an order.

There can be no assurance that the Fund, the Transfer Agent or the
Fund's participating insurance companies will be successful in curbing
abusive short-term exchanges.

- ------------------------------------------------------------------------------
Information about your investment in the Fund through your variable
annuity contract, variable life insurance policy or other plan can be
obtained only from your participating insurance company or its servicing
agent. The Fund's Transfer Agent does not hold or have access to those
records. Instructions for buying or selling shares of the Fund should be
given to your insurance company or its servicing agent, not directly to the
Fund or its Transfer Agent.
- ------------------------------------------------------------------------------

|X| Classes of Shares. The Fund has four classes of shares authorized.
The Fund offers only two different classes of shares. The class of shares
designated as Service shares are subject to a Distribution and Service Plan.
The impact of the expenses of the Plan on Service shares is described below.
The class of shares that are not subject to a Plan has no class "name"
designation. The different classes of shares represent investments in the
same portfolio of securities but are expected to be subject to different
expenses and will likely have different share prices.

Dividends, Capital Gains and Taxes

Financial Highlights

The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
the Fund's independent auditors, whose report, along with the Fund's
financial statements, is included in the Statement of Additional Information,
which is available upon request.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 34.70 $ 26.62 $ 36.58 $ 46.63 $ 49.84
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .35 1 .12 .11 .18 .27
Net realized and unrealized gain (loss) 2.05 8.07 (9.89) (5.86) .02
-----------------------------------------------------------------------------
Total from investment operations 2.40 8.19 (9.78) (5.68) .29
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.11) (.11) (.18) (.27) (.06)
Distributions from net realized gain -- -- -- (4.10) (3.44)
-----------------------------------------------------------------------------
Total dividends and/or distributions to shareholders (.11) (.11) (.18) (4.37) (3.50)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 36.99 $ 34.70 $ 26.62 $ 36.58 $ 46.63
=============================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 6.93% 30.94% (26.86)% (12.58)% (0.23)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 1,770,273 $ 1,715,240 $ 1,338,769 $ 1,975,345 $ 2,095,803
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 1,708,511 $ 1,468,297 $ 1,630,430 $ 2,000,314 $ 1,922,099
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 0.99% 0.39% 0.35% 0.51% 0.66%
Total expenses 0.66% 4 0.67% 4 0.66% 4 0.68% 4 0.67% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 44% 48% 32% 45% 38%

1. Per share amounts calculated based on the average shares outstanding during
the period.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------

SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 1
- ------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 34.53 $ 26.53 $ 36.56 $ 31.66
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .29 2 .08 .20 -- 3
Net realized and unrealized gain (loss) 1.99 8.02 (10.05) 4.90
-----------------------------------------------------------
Total from investment operations 2.28 8.10 (9.85) 4.90
- ------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.08) (.10) (.18) --
Distributions from net realized gain -- -- -- --
-----------------------------------------------------------
Total dividends and/or distributions to shareholders (.08) (.10) (.18) --
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 36.73 $ 34.53 $ 26.53 $ 36.56
===========================================================

- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 4 6.62% 30.69% (27.09)% 15.51%
- ------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 248,649 $ 119,699 $ 18,260 $ 90
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 184,273 $ 48,178 $ 6,263 $ 16
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 5
Net investment income 0.85% 0.14% 0.26% 0.11%
Total expenses 0.91% 6 0.94% 6 0.81% 6,7 0.81% 6
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 44% 48% 32% 45%

1. For the period from September 18, 2001 (inception of offering) to December
31, 2001.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Less than $0.005 per share.

5. Annualized for periods of less than one full year.

6. Reduction to custodian expenses less than 0.01%.

7. Voluntary waiver of transfer agent fees less than 0.01%.

INFORMATION AND SERVICES

For More Information on Oppenheimer Capital Appreciation Fund/VA

The following additional information about the Fund is available without
charge upon request:

STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund's investment policies, risks, and operations. It
is incorporated by reference into this Prospectus (which means it is legally
part of this Prospectus).

ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.

How to Get More Information

You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, the notice explaining the Fund's privacy policy:

By Telephone

Call OppenheimerFunds Services toll-free: 1.800.981.2871

By Mail
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270

Information about the Fund including the Statement of Additional Information
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1.202.942.8090. Reports and other information
about the Fund are available on the EDGAR database on the SEC's Internet
website at www.sec.gov. Copies may be obtained after payment of a duplicating
fee by electronic request at the SEC's e-mail address: publicinfo@sec.gov or
by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.

The Fund's SEC File No.: 811-4108 (OppenheimerFunds logo)

OppenheimerFunds
PR0610.001.0405
Distributor, Inc.
Printed on recycled paper

Appendix to Prospectus of
Oppenheimer Capital Appreciation Fund/VA
(a series of Oppenheimer Variable Account Funds)

Graphic material included in the Prospectus of Oppenheimer Capital
Appreciation Fund/VA (the "Fund") under the heading "Annual Total Return
(as of 12/31 each year)":

Calendar
Year
Ended Annual Total Returns
- ----- --------------------

12/31/95 36.66%
12/31/96 25.20%
12/31/97 26.69%
12/31/98 24.00%
12/31/99 41.66%
12/31/00 -0.23%
12/31/01 -12.58%
12/31/02 -26.86%
12/31/03 30.94%
12/31/04 6.93%

Oppenheimer
Core Bond Fund/VA
A series of Oppenheimer Variable Account Funds

Prospectus dated April 29, Oppenheimer Core Bond Fund/VA is a mutual
2005 fund that seeks a high level of current income
as its primary goal. As a secondary goal, the
Fund seeks capital appreciation when consistent
with its goal of high current income. The Fund
invests mainly in investment grade debt
securities. Prior to April 29, 2005, the Fund's
name was Oppenheimer Bond Fund/VA.
Shares of the Fund are sold only as the
underlying investment for variable life
insurance policies, variable annuity contracts
and other insurance company separate accounts.
A prospectus for the insurance product you have
selected accompanies this Prospectus and
explains how to select shares of the Fund as an
investment under that insurance product and
whether you are only eligible to purchase
Service shares of the Fund.
This Prospectus contains important
information about the Fund's objective, its
As with all mutual funds, the investment policies, strategies and risks.
Securities and Exchange Please read this Prospectus (and your insurance
Commission has not approved product prospectus) carefully before you invest
or disapproved the Fund's and keep them for future reference about your
securities nor has it account.
determined that this
Prospectus is accurate or
complete. It is a criminal
offense to represent
otherwise.

(OppenheimerFunds logo)

CONTENTS

ABOUT THE FUND

The Fund's Investment Objective and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

INVESTING IN THE FUND

How to Buy and Sell Shares

Dividends, Capital Gains and Taxes

Financial Highlights

ABOUT THE FUND

The Fund's Investment Objective and Principal Investment Strategies

What Are the Fund's Investment Objectives? The Fund's main objective is to
seek a high level of current income. As a secondary objective, the Fund seeks
capital appreciation when consistent with its primary objective.

What Does the Fund Mainly Invest In? As a non-fundamental policy (which will
not be changed without providing 60 days notice to Fund shareholders), under
normal market conditions, the Fund invests at least 80% of its net assets
(plus borrowings for investment purposes) in investment grade bonds. The
investment-grade debt securities the Fund invests in can include the
following types of obligations, which in general are referred to as "bonds":
o short, medium and long-term foreign and U.S. government bonds and

notes,
o domestic and foreign corporate debt obligations,
o collateralized mortgage obligations (CMOs),
o other mortgage-related securities and asset-backed securities,
o participation interests in loans,
o "structured" notes, and
o other debt obligations.

The Fund's investments in U.S. government securities include securities
issued or guaranteed by the U.S. government or its agencies or
federally-chartered corporate entities referred to as "instrumentalities."
These include mortgage-related U.S. government securities and CMOs.

There are no other set percentage allocations of the Fund's assets
among the types of debt securities the Fund buys, but currently the Fund
focuses mainly on U.S. government securities, CMOs, and investment-grade debt
securities to do so because they currently offer higher yields than money
market instruments. However, if market conditions change, the Fund's
portfolio managers may change the relative allocation of the Fund's assets.

The Fund has no limitations on the range of maturities of the debt
securities in which it can invest and therefore may hold bonds with short,
medium or long-term maturities. The Fund's investments in debt securities can
include "zero coupon" securities and securities that have been "stripped" of
their interest coupons. The Fund can invest up to 20% of its total assets in
high yield debt securities and other debt securities that are below
investment grade (commonly referred to as "junk bonds") and other investments
such as preferred stock.

--------------------------------------------------
What Is A "Debt" Security? A debt security is
essentially a loan by the buyer to the issuer of
the debt security. The issuer promises to pay
back the principal amount of the loan and
normally pays interest, at a fixed or variable
rate, on the debt while it is outstanding.
--------------------------------------------------

The Fund can also use hedging instruments and certain derivative
investments, primarily CMOs and "structured" notes, to try to enhance income
or to try to manage investment risks. These investments are more fully
explained in "About the Fund's Investments," below.

The Fund seeks to maintain an average effective portfolio duration of
three to six years (measured on a dollar-weighted basis) to try to reduce the
volatility of the value of its securities portfolio. The Fund will attempt to
maintain (on a dollar-weighted basis) an overall average portfolio credit
quality of "A-" or higher as rated by Moody's Investor Services, Inc. ( or
equivalent rating of any nationally recognized credit rating organization).

How Do the Portfolio Managers Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the Fund's portfolio managers analyze the
overall investment opportunities and risks in different sectors of the debt
security markets by focusing on business cycle analysis and relative values
between the corporate and government sectors. The portfolio managers' overall
strategy is to build a broadly diversified portfolio of debt securities. The
portfolio managers currently focus on the factors below (some of which may
vary in particular cases and may change over time), looking for:
o High current income from different types of corporate and government
debt securities,
o Investment-grade securities, primarily to help reduce credit risk,
o Broad portfolio diversification to help reduce the volatility of the
Fund's share prices,
o Relative values among the debt securities market sectors.

The portfolio managers look for securities whose yield and price change
are expected to maximize the return to investors. The portfolio managers
normally will not invest in securities with higher yields if, in their
opinions they expect the price to decline to the point where total return
(including income) would be lower than the return on alternative fixed-income
investments. Conversely, the portfolio managers normally will not invest in
securities they expect to appreciate in price if that security's yield is so
low that total return (including income) will be lower than the return on
alternative fixed-income investments. All else being equal, the portfolio
managers' preference is for investing for income over price appreciation.

Who Is the Fund Designed For? The Fund's shares are available only as an
investment option under certain variable annuity contracts, variable life
insurance policies and investment plans offered through insurance company
separate accounts of participating insurance companies, for investors seeking
high current income from a fund that invests mainly in investment-grade debt
securities, but which can also hold below-investment-grade securities to seek
higher income. Those investors should be willing to assume the credit risks
of a fund that typically invests a significant amount of its assets in debt
securities and the changes in share prices that can occur when interest rates
rise. Since the Fund's income level will fluctuate, it is not designed for
investors needing an assured level of current income. The Fund is not a
complete investment program.

Main Risks of Investing in the Fund

All investments carry risks to some degree. The Fund's investments are
subject to changes in their value from a number of factors, described below.
There is also the risk that the value of your investment could be eroded over
time by the effects of inflation and that poor security selection by the
Fund's investment Manager, OppenheimerFunds, Inc., will cause the Fund to
underperform other funds having similar objectives.

|_| Special Risks of Lower-Grade Securities. Because the Fund can invest up
to 20% of its total assets in securities below investment grade to seek
higher income, the Fund's credit risks are greater than those of funds that
buy only investment grade securities. Lower-grade debt securities may be
subject to greater market fluctuations and greater risks of loss of income
and principal than investment-grade debt securities. Securities that are (or
that have fallen) below investment grade are exposed to a greater risk that
the issuers of those securities might not meet their debt obligations. Those
risks can reduce the Fund's share prices and the income it earns. The market
for lower-grade securities may be less liquid, especially during times of
economic distress, and therefore they may be harder to value or to sell at an
acceptable price.

|X| Interest Rate Risks. The values of debt securities, including U.S.
government securities prior to maturity, are subject to change when
prevailing interest rates change. When interest rates fall, the values of
already-issued debt securities generally rise. When interest rates rise, the
values of already-issued debt securities generally fall, and they may sell at
a discount from their face amount. The magnitude of these fluctuations will
often be greater for longer-term debt securities than shorter-term debt
securities. However, interest rate changes may have different effects on the
values of mortgage-related securities because of prepayment risks, discussed
below. The Fund's share prices can go up or down when interest rates change
because of the effect of the changes on the value of the Fund's investments
in debt securities.

|X| Prepayment Risk. Prepayment risk occurs when the mortgages underlying a
mortgage-related security are prepaid at a rate faster than anticipated
(usually when interest rates fall) and the issuer of a security can prepay
the principal prior to the security's maturity. Mortgage-related securities
that are subject to prepayment risk, including the CMOs and other
mortgage-related securities that the Fund buys, generally offer less
potential for gains when prevailing interest rates decline, and have greater
potential for loss when interest rates rise.

The impact of prepayments on the price of a security may be difficult
to predict and may increase the volatility of the price. Additionally, the
Fund may buy mortgage-related securities at a premium. Accelerated
prepayments on those securities could cause the Fund to lose the portion of
its principal investment represented by the premium the Fund paid.

If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. If interest rates rise rapidly, prepayments may occur at slower
rates than expected, which could have the effect of lengthening the expected
maturity of a short- or medium-term security. That could cause its value to
fluctuate more widely in response to changes in interest rates. In turn, this
could cause the value of the Fund's shares to fall more.

|X| Risks of Foreign Investing. The Fund can invest its assets without
limit in foreign debt securities and can buy securities of governments and
companies in both developed markets and emerging markets. While foreign
securities offer special investment opportunities, there are also special
risks that can reduce the Fund's share prices and returns.

The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Currency rate changes can also affect the distributions the
Fund makes from the income it receives from foreign securities as foreign
currency values change against the U.S. dollar. Foreign investing can result
in higher transaction and operating costs for the Fund. Foreign issuers are
not subject to the same accounting and disclosure requirements that U.S.
companies are subject to.

The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transactions, changes in governmental economic
or monetary policy in the U.S. or abroad, or other political and economic
factors. These risks could cause the prices of foreign securities to fall and
therefore could depress the Fund's share prices.

Additionally, if a fund invests a significant amount of its assets in
foreign securities, it might expose the fund to "time-zone arbitrage"
attempts by investors seeking to take advantage of the differences in value
of foreign securities that might result from events that occur after the
close of the foreign securities market on which a foreign security is traded
and the close of The New York Stock Exchange that day, when the Fund's net
asset value is calculated. If such time-zone arbitrage were successful, it
might dilute the interests of other shareholders. However, the Fund's use of
"fair value pricing" to adjust the closing market prices of foreign
securities under certain circumstances, to reflect what the Manager and the
Board believe to be their fair value may help deter those activities.

|X| There are Special Risks in Using Derivative Investments. The Fund can
use derivatives to seek increased income or to try to hedge investment risks.
In general terms, a derivatives investment is an investment contract whose
value depends on (or is derived from) the value of an underlying asset,
interest rate or index. Options, futures, interest rate swaps, credit
derivatives, structured notes and CMOs are examples of derivatives the Fund
can use.

|X| How Risky is the Fund Overall? The risks described above collectively
form the risk profile of the Fund, and can affect the value of the Fund's
investments, its investment performance and its price per share. These risks
mean that you can lose money by investing in the Fund. When you redeem your
shares, they may be worth more or less than what you paid for them. There is
no assurance that the Fund will achieve its investment objective. Debt
securities are subject to credit and interest rate risks that can affect
their values and the share prices of the Fund. Prepayment risks of
mortgage-backed securities can cause the Fund to reinvest the proceeds of its
investments in lower-yielding securities. The Fund generally has more risks
than bond funds that focus on U.S. government securities but the Fund's
emphasis on investment-grade securities may make its share prices less
volatile than high yield bond funds or funds that focus on foreign bonds.

An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

The Fund's Past Performance

The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the performance of the Fund's non-service
shares from year to year for the last 10 calendar years and by showing how
the average annual total returns of the Fund's shares for 1, 5 and 10 years,
or for the life of the class, compare to broad-based market indices. The
Fund's past investment performance is not necessarily an indication of how
the Fund will perform in the future.

Annual Total Returns (as of December 31 each year)
[See appendix to prospectus for data in bar chart showing annual total
returns]

During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 5.60% (2nd Q '95) and the lowest return (not
annualized) for a calendar quarter was -2.23% (2nd Q '04).

- --------------------------------------------------------------------------------
Average Annual Total Returns 1 Year 5 Years 10 Years
for the periods ended December (or life of
31, 2004 class, if less)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Oppenheimer Core Bond Fund/VA

Non-Service Shares (inception 5.49% 7.03% 7.06%

4/3/85)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Lehman Brothers Credit Index 5.24% 8.63% 8.41%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Citigroup Broad Investment 4.48% 7.73% 7.73%
Grade Index

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Lehman Brothers Aggregate Bond 4.34% 7.71% 7.72%
Index

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Oppenheimer Core Bond Fund/VA
Service Shares (inception 5.22% 7.45%1 N/A
5/1/02)

- --------------------------------------------------------------------------------

1. Since Class inception (5/1/02)

The Fund's returns in the table measure the performance of a hypothetical
account without deducting charges imposed by the separate accounts that
invest in the Fund and assume that all dividends and capital gains
distributions have been reinvested in additional shares. The Fund's
performance is compared to the Lehman Brothers Credit Index, which measures
the performance of non-convertible investment-grade domestic corporate debt
securities; the Lehman Brother Aggregate Bond Index, which measure the
performance to the broad-based index of government agencies and corporate
debt; and the Citigroup Broad Investment Grade Index. The Fund changed its
index from the Lehman Brothers Credit Index to Citigroup Broad Investment
Grade Index because the Fund believes that the Citigroup Broad Investment
Grade Index is a more appropriate benchmark reflecting the types of
securities in which the Fund invests. The Citigroup Broad Investment Grade
Index consists of securities having a higher grade and a lower modified
duration than the securities in the Lehman Brothers Credit Index. The index
performance reflects the reinvestment of income but does not consider the
effects of fees, expenses or transaction costs. Also, the Fund may have
investments that vary from the index.

The Fund's total returns should not be expected to be the same as the returns
of other Oppenheimer funds, even if both funds have the same portfolio
managers and/or similar names.

Fees and Expenses of the Fund

- --------------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Non-Service Shares Service Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Management Fees 0.72% 0.72%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Distribution and Service None 0.25%
(12b-1) Fees

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Other Expenses 0.03% 0.02%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Total Annual Operating Expenses 0.75% 0.99%

- --------------------------------------------------------------------------------

Expenses may vary in future years. "Other expenses" include transfer agent
fees, custodial fees, and accounting and legal expenses the Fund pays. The
Fund's transfer agent has voluntarily agreed to limit transfer and
shareholder servicing agent fees to 0.35% per fiscal year, for both classes.
That undertaking may be amended or withdrawn at any time. For the Fund's
fiscal year ended December 31, 2004, the transfer agent fees did not exceed
the expense limitation described above.

EXAMPLE. The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in shares of the Fund for
the time periods indicated, reinvest your dividends and distributions and
then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Your actual costs may be higher or lower,
because expenses will vary over time. Based on these assumptions your
expenses would be as follows, whether or not you redeem your investment at
the end of each period:

Non-Service Shares $77 $241 $418 $934

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Service Shares $101 $317 $550 $1,219

- ------------------------------------------------------------------------------

About the Fund's Investments

The Fund's Principal Investment Policies and Risks. The allocation of the
Fund's portfolio among different types of investments will vary over time
based upon the Manager's evaluation of economic and market trends. The Fund's
portfolio might not always include all of the different types of investments
described below. The Statement of Additional Information contains more
detailed information about the Fund's investment policies and risks.

The Manager tries to reduce risks by carefully researching securities
before they are purchased, and in some cases by using hedging techniques. The
Fund attempts to reduce its exposure to credit risks by limiting its
investments in below-investment grade securities, as explained above. The
Fund attempts to reduce its exposure to market risks by diversifying its
investments, that is, by not holding a substantial percentage of the
securities of any one issuer and by not investing too great a percentage of
the Fund's assets in any one issuer. Also, the Fund does not concentrate 25%
or more of its investments in the securities of any one foreign government or
in the debt and equity securities of companies in any one industry.

A debt security is essentially a loan by the buyer to the issuer of the
debt security. The issuer promises to pay back the principal amount of the
loan and normally pays interest, at a fixed or variable rate, on the debt
while it is outstanding. The debt securities the Fund buys may be rated by
nationally recognized rating organizations or they may be unrated securities
assigned an equivalent rating by the Manager. While the Fund's investments
may be above or below investment grade in credit quality, the Fund invests
primarily in investment-grade debt securities. However, the Fund can invest
up to 20% of its net assets in below investment-grade debt securities,
commonly called "junk bonds." They typically offer higher yields than
investment-grade bonds, because investors assume the greater risks of default
of those securities. The ratings definitions of the principal national rating
organizations are included in Appendix A to the Statement of Additional
Information.

Investment-grade debt securities are those rated in one of the four
highest categories by Standard & Poor's Corporation, Moody's Investors
Service, Inc., Fitch or other national rating organizations. They can also be
unrated or "split-rated" (rated as investment grade by one rating
organization but below investment grade by another), if determined by the
Manager to be of comparable quality to rated investment-grade securities. The
Fund is not obligated to dispose of securities when issuers are in default or
if the rating of the security is reduced below investment grade.

The Fund can invest some of its assets in other types of securities,
including common stocks, preferred stocks, and other equity securities of
foreign and U.S. companies. However, the Fund does not anticipate having
significant investments in those types of securities as part of its normal
portfolio strategy.

The Fund could pursue its secondary objective of capital appreciation
by investing in securities convertible into common stock. Convertible
securities might allow the Fund to participate in the increase in value of
the issuer's underlying common stock, by exercising the conversion right.
Normally the Fund would not hold the common stock for investment, although it
can hold common stock as part of the value of its net assets that is not
normally expected to be invested in debt securities. Typically, convertible
securities also pay dividends until they are converted. There may be other
investment strategies that could offer the Fund opportunities for capital
appreciation, such as investing in defaulted securities, but these are not
expected to be a significant part of the Fund's investment program.

|X| U.S. Government Securities. The Fund can invest in securities issued or
guaranteed by the U.S. Treasury or other government agencies or
federally-chartered corporate entities referred to as "instrumentalities."
These are referred to as "U.S. government securities" in this Prospectus.

|_| U.S. Treasury Obligations. These include Treasury bills (which have
maturities of one year or less when issued), Treasury notes (which have
maturities of from one to ten years when issued), and Treasury bonds (which
have maturities of more than ten years when issued). Treasury securities are
backed by the full faith and credit of the United States as to timely
payments of interest and repayments of principal. The Fund can also buy U.S.
Treasury securities that have been "stripped" of their coupons by a Federal
Reserve Bank, zero-coupon U.S. Treasury securities described below, and
Treasury Inflation-Protection Securities ("TIPS").

|_| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right
of the issuer to borrow from the U.S. Treasury under certain circumstances,
such as Federal National Mortgage Association bonds ("Fannie Maes"). Others
are supported only by the credit of the entity that issued them, such as
Federal Home Loan Mortgage Corporation obligations ("Freddie Macs").

|_| Mortgage-Related U.S. Government Securities. The Fund can buy interests
in pools of residential or commercial mortgages, in the form of
collateralized mortgage obligations ("CMOs") and other "pass-through"
mortgage securities. CMOs that are U.S. government securities have collateral
to secure payment of interest and principal on underlying assets. They may be
issued in different series each having different interest rates and
maturities. The collateral is either in the form of mortgage pass-through
certificates issued or guaranteed by a U.S. agency or instrumentality or
mortgage loans insured by a U.S. government agency. The Fund can have
substantial amounts of its assets invested in mortgage-related U.S.
government securities.

When interest rates rise rapidly, and if prepayments occur more slowly
than expected, a short or medium-term CMO can in effect become a long-term
security, subject to greater fluctuations in value. These prepayment risks
can make the prices of CMOs very volatile when interest rates change. The
prices of longer-term debt securities tend to fluctuate more than those of
shorter-term debt securities. That volatility will affect the Fund's share
prices.

|X| The Fund's Portfolio "Duration" Strategy. The "maturity" of a security
(the date when its principal repayment is due) differs from effective
duration, which attempts to measure the expected volatility of a security's
price.

The Fund measures the duration of its entire portfolio of securities on
a dollar-weighted basis, to try to maintain an average effective duration of
its portfolio of three to six years under normal market conditions (that is,
when financial markets are not in an unstable or volatile state). However,
duration cannot be relied on as an exact prediction of future volatility.
There can be no assurance that the Fund will achieve its targeted portfolio
duration at all times.

Duration calculations rely on a number of assumptions and variables
based on the historic performance of similar securities. Therefore, duration
can be affected by unexpected economic events or conditions relating to a
particular security. In the case of CMOs, duration calculations are based on
historic rates of prepayments of underlying mortgages. If the mortgages
underlying the Fund's investments are prepaid more rapidly or more slowly
than expected, the duration calculation for that security may not be correct.

|X| Forward Rolls. The Fund may enter into "forward roll" (also referred to
as "mortgage dollar rolls") transactions with respect to mortgage-related
securities. In this type of transaction, the Fund sells a mortgage-related
security to a buyer and simultaneously agrees to repurchase a similar
security at a later date at a set price.

During the period between the sale and the purchase, the Fund will not
be entitled to receive interest and principal payments on the securities that
have been sold. It is possible that the market value of the securities the
Fund sells may decline below the price at which the Fund is obligated to
repurchase securities, or that the counterparty might default in its
obligation.

|X| High-Yield, Lower-Grade Debt Securities. The Fund can purchase a
variety of lower-grade, high-yield debt securities of U.S. and foreign
issuers, including bonds, debentures, notes, preferred stocks, loan
participation interests, structured notes, asset-backed securities, among
others, to seek high current income. These securities are sometimes called
"junk bonds." The Fund has no requirements as to the maturity of the debt
securities it can buy, or as to the market capitalization range of the
issuers of those securities. Up to 20% of the Fund's assets can be invested
in debt securities below investment grade under normal market conditions.

Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service, Inc. or lower than "BBB" by Standard & Poor's Rating
Service or that have similar ratings by other nationally-recognized rating
organizations. The Fund can invest in securities rated as low as "C" or "D",
in unrated bonds or bonds which are in default at the time the Fund buys
them. While securities rated "Baa" by Moody's or "BBB" by S&P are considered
"investment grade," they have some speculative characteristics.

The Manager does not rely solely on ratings issued by rating
organizations when selecting investments for the Fund. The Fund can buy
unrated securities that offer high current income. The Manager may assign a
rating to an unrated security that is equivalent to the rating of a rated
security that the Manager believes offers comparable yields and risks.

While investment-grade securities are subject to risks of non-payment
of interest and principal, in general higher-yielding lower-grade bonds,
whether rated or unrated, have greater risks than investment-grade
securities. They may be subject to greater market fluctuations and risk of
loss of income and principal than investment-grade securities. There may be
less of a market for them and therefore they may be harder to value and to
sell at an acceptable price. There is a relatively greater possibility that
the issuer's earnings may be insufficient to make the payments of interest
and principal due on the bonds. These risks mean that the Fund may not
achieve the expected income from lower-grade securities, and that the Fund's
net asset value per share may be affected by declines in value of these
securities.

|X| Private-Issuer Mortgage-Backed Securities. The Fund can invest a
substantial portion of its assets in mortgage-backed securities issued by
private issuers, which do not offer the credit backing of U.S. government
securities. Primarily these include multi-class debt or pass-through
certificates secured by mortgage loans. They may be issued by banks, savings
and loans, mortgage bankers and other non-governmental issuers. Private
issuer mortgage-backed securities are subject to the credit risks of the
issuers (as well as the interest rate risks and prepayment risks of CMOs that
are U.S. government securities, discussed above); although in some cases they
may be supported by insurance or guarantees.

|X| Asset-Backed Securities. The Fund can buy asset-backed securities,
which are fractional interests in pools of loans collateralized by the loans
or other assets or receivables. They are issued by trusts and special purpose
corporations that pass the income from the underlying pool to the buyer of
the interest. These securities are subject to the risk of default by the
issuer as well as by the borrowers of the underlying loans in the pool.

|X| Foreign Debt Securities. The Fund can buy debt securities issued by
foreign governments and companies, as well as "supra-national" entities, such
as the World Bank. They can include bonds, debentures, and notes, including
derivative investments called "structured" notes, described below. The Fund
will not invest 25% or more of its total assets in debt securities of any one
foreign government or in debt securities of companies in any one industry.
The Fund has no requirements as to the maturity range of the foreign debt
securities it can buy, or as to the market capitalization range of the
issuers of those securities.

Foreign government debt securities might not be supported by the full
faith and credit of the issuing government. The Fund's foreign debt
investments can be denominated in U.S. dollars or in foreign currencies. The
Fund will buy foreign currency only in connection with the purchase and sale
of foreign securities and not for speculation.

|_| Special Risks of Emerging and Developing Markets. Securities of issuers
in emerging and developing markets may offer special investment opportunities
but present risks not found in more mature markets. Those securities may be
more difficult to value and to sell at an acceptable price and their prices
may be more volatile than securities of issuers in more developed markets.
Settlements of trades may be subject to greater delays so that the Fund may
not receive the proceeds of a sale of a security on a timely basis. These
investments may be very speculative.

These countries might have less developed trading markets and
exchanges. Emerging market countries may have less developed legal and
accounting systems and investments may be subject to greater risks of
government restrictions on withdrawing the sales proceeds of securities from
the country. Economies of developing countries may be more dependent on
relatively few industries that may be highly vulnerable to local and global
changes. Governments may be more unstable and present greater risks of
nationalization or restrictions on foreign ownership of stocks of local
companies.

The Fund can buy "Brady Bonds," which are U.S.-dollar denominated debt
securities collateralized by zero-coupon U.S. Treasury securities. They are
typically issued by emerging markets countries and are considered speculative
securities with higher risks of default.

Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus. Shareholders will receive 60 days advance notice of any
change in the 80% requirement (a non-fundamental policy) described under
"What Does The Fund Mainly Invest In?" Fundamental policies are those that
cannot be changed without the approval of a majority of the Fund's
outstanding voting shares. The Fund's investment objectives are fundamental
policies. Investment restrictions that are fundamental policies are listed in
the Statement of Additional Information. An investment policy is not
fundamental unless this Prospectus or the Statement of Additional Information
says that it is.

Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Fund might not
always use all of them. These techniques involve risks, although some are
designed to help reduce overall investment or market risks.

|X| Zero-Coupon and "Stripped" Securities. Some of the government and
corporate debt securities the Fund buys are zero-coupon bonds that pay no
interest. They are issued at a substantial discount from their face value.
"Stripped" securities are the separate income or principal components of a
debt security. Some CMOs or other mortgage-related securities may be
stripped, with each component having a different proportion of principal or
interest payments. One class might receive all the interest and the other all
the principal payments.

Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than conventional interest-bearing
securities. The Fund may have to pay out the imputed income on zero-coupon
securities without receiving the actual cash currently. Interest-only
securities are particularly sensitive to changes in interest rates.

The values of interest-only mortgage-related securities are also very
sensitive to prepayments of underlying mortgages. Principal-only securities
are also sensitive to changes in interest rates. When prepayments tend to
fall, the timing of the cash flows to these securities increases, making them
more sensitive to changes in interest rates. The market for some of these
securities may be limited, making it difficult for the Fund to dispose of its
holdings at an acceptable price. The Fund can invest up to 50% of its total
assets in zero-coupon securities issued by either the U.S. Treasury or
companies.

|X| Participation Interests in Loans. These securities represent an
undivided fractional interest in a loan obligation by a borrower. They are
typically purchased from banks or dealers that have made the loan or are
members of the loan syndicate. The loans may be to foreign or U.S. companies.
The Fund does not invest more than 5% of its net assets in participation
interests of any one borrower. They are subject to the risk of default by the
borrower. If the borrower fails to pay interest or repay principal, the Fund
can lose money on its investment.

|X| Illiquid and Restricted Securities. Investments may be illiquid because
they do not have an active trading market, making it difficult to value them
or dispose of them promptly at an acceptable price. Restricted securities may
have terms that limit their resale to other investors or may require
registration under applicable securities laws before they may be sold
publicly. The Fund will not invest more than 15% of its net assets in
illiquid or restricted securities. Certain restricted securities that are
eligible for resale to qualified institutional purchasers may not be subject
to that limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity.

|X| Derivative Investments. The Fund can invest in a number of different
kinds of "derivative" investments. In the broadest sense, exchange-traded
options, futures contracts, structured notes, CMOs and other hedging
instruments the Fund can use may be considered "derivative investments." In
addition to using hedging instruments, the Fund can use other derivative
investments because they offer the potential for increased income.

|X| "Structured" Notes. The Fund can buy "structured" notes, which are
specially-designed derivative debt investments. Their principal payments or
interest payments are linked to the value of an index (such as a currency or
securities index) or commodity. The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the note.

|X| Hedging. The Fund can buy and sell futures contracts, put and call
options, forward contracts and options on futures and broadly-based
securities indices. These are all referred to as "hedging instruments." The
Fund does not use hedging instruments for speculative purposes, and has
limits on its use of them. The Fund is not required to use hedging
instruments in seeking its goal.

Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. If a covered call written by the Fund is exercised on an
investment that has increased in value, the Fund will be required to sell the
investment at the call price and will not be able to realize any profit if
the investment has increased in value above the call price. In writing a put,
there is a risk that the Fund may be required to buy the underlying security
at a disadvantageous price.

|X| Temporary Defensive and Interim Investments. In times of unstable
adverse market or economic conditions, the Fund can invest up to 100% of its
assets in temporary investments that are inconsistent with the Funds'
principal investment strategies. Generally they would be cash or cash
equivalents, such as U.S. Treasury Bills and other short-term U.S. government
obligations or high-grade commercial paper. The Fund can also hold these
types of securities pending the investment of proceeds from the sale of Fund
shares or portfolio securities or to meet anticipated redemptions of Fund
shares. To the extent the Fund invests defensively in these securities, it
might not achieve its investment objectives.

|X| Loans of Portfolio Securities. The Fund has entered into a Securities
Lending Agreement with JP Morgan Chase. Under that agreement, portfolio
securities of the Fund may be loaned to brokers, dealers and other financial
institutions. The Securities Lending Agreement provides that loans must be
adequately collateralized and may be only in conformity with the Fund's
Securities Lending Guidelines, adopted by the Fund's Board of Trustees. The
value of the securities loaned may not exceed 25% of the value of the Fund's
net assets.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
and annual reports that are distributed to shareholders of the Fund within 60
days after the close of the period for which such report is being made. The
Fund also makes disclosures of its portfolio securities holdings in its
Statements of Investments on Form N-Q, which are filed with the SEC no later
than 60 days after the close of the first and third fiscal quarters. These
additional quarterly filings are publicly available at the SEC. Therefore,
portfolio holdings of the Fund are made publicly available no later than 60
days after the close of the Fund's fiscal quarter.

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.

How the Fund Is Managed

The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the
policies established by the Fund's Board of Trustees, under an investment
advisory agreement that states the Manager's responsibilities. The agreement
sets the fees the Fund pays to the Manager and describes the expenses that
the Fund is responsible to pay to conduct its business.

|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund pays
the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual
net assets, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million, 0.60% on the next $200 million and 0.50% of
average annual net assets over $1 billion. The Fund's management fee for its
fiscal year ended December 31, 2004, was 0.72% of the Fund's average annual
net assets for each class of shares.

|X| Portfolio Managers. The Fund's portfolio is managed by a team of
investment professionals including Angelo Manioudakis, Benjamin J. Gord,
Geoffrey Caan, Charles Moon and Antulio Bomfim who are primarily responsible
for the day-to-day management of the Fund's investments.

Mr. Manioudakis has been a portfolio manager of the Fund since April
2002, and a Senior Vice President of the Manager and of HarbourView Asset
Management Corporation since April 2002. He has been a Senior Vice President
of OFI Institutional Asset Management, Inc. since June 2002. He is also a
portfolio manager and officer of other portfolios in the OppenheimerFunds
complex. Mr. Manioudakis was Executive Director and portfolio manager for
Miller, Anderson & Sherrerd, a division of Morgan Stanley Investment
Management from August 1993 through April 2002.

Mr. Gord has been a portfolio manager of the Fund and a Vice President
of the Manager since April 2002. He is also a portfolio manager of other
portfolios in the OppenheimerFunds complex. Mr. Gord was an Executive
Director and a senior fixed income analyst at Miller Anderson & Sherrerd, a
division of Morgan Stanley Investment Management from April 1992 through
March 2002.

Mr. Caan has been a portfolio manager of the Fund and a Vice President
of the Manager since August 2003. He is also a portfolio manager of other
portfolios in the OppenheimerFunds complex. Mr. Caan was a Vice President of
ABN AMRO N.A., Inc. from June 2002 through August 2003, and a Vice President
of Zurich Scudder Investments from January 1999 through June 2002.

Mr. Moon has been a portfolio manager of the Fund and a Vice President
of the Manager since April 2002. He is also a portfolio manager of other
portfolios in the OppenheimerFunds complex. Mr. Moon was an Executive
Director and a portfolio manager at Miller Anderson & Sherrerd, a division of
Morgan Stanley Investment Management from June 1999 through March 2002.

Mr. Bomfim has been a portfolio manager of the Fund and a Vice
President of the Manager since October 2003. He is also a portfolio manager
of other portfolios in the OppenheimerFunds complex. Mr. Bomfim was a Senior
Economist at the Board of Governors of the Federal Reserve System from June
1992 to October 2003.

The Statement of Additional Information provides additional information
about the portfolio management team's compensation, other accounts they
manage and their ownership of Fund shares.

Pending Litigation. A consolidated amended complaint has been filed as
putative derivative and class actions against the Manager, Distributor and
Transfer Agent, as well as 51 of the Oppenheimer funds (collectively the
"funds") not including the Fund, 31 present and former Directors or Trustees
and 9 present and former officers of certain of the funds. This complaint,
initially filed in the U.S. District Court for the Southern District of New
York on January 10, 2005 and amended on March 4, 2005, consolidates into a
single action and amends six individual previously-filed putative derivative
and class action complaints. Like those prior complaints, the complaint
alleges that the Manager charged excessive fees for distribution and other
costs, improperly used assets of the funds in the form of directed brokerage
commissions and 12b-1 fees to pay brokers to promote sales of the funds, and
failed to properly disclose the use of fund assets to make those payments in
violation of the Investment Company Act and the Investment Advisers Act of
1940. Also, like those prior complaints, the complaint further alleges that
by permitting and/or participating in those actions, the Directors/Trustees
and the Officers breached their fiduciary duties to Fund shareholders under
the Investment Company Act and at common law. The complaint seeks unspecified
compensatory and punitive damages, rescission of the funds' investment
advisory agreements, an accounting of all fees paid, and an award of
attorneys' fees and litigation expenses.

INVESTING IN THE FUND

How to Buy and Sell Shares

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

Furthermore, each participating insurance company may impose its own
restrictions or limitations to discourage short-term or excessive trading.

Right to Refuse Purchase Orders. The Distributor and/or the Transfer Agent
may refuse any purchase order in their discretion and are not obligated to
provide notice before rejecting an order.

There can be no assurance that the Fund, the Transfer Agent or the
Fund's participating insurance companies will be successful in curbing
abusive short-term exchanges.

- ------------------------------------------------------------------------------
Information about your investment in the Fund through your variable annuity
contract, variable life insurance policy or other plan can be obtained only
----
from your participating insurance company or its servicing agent. The Fund's
Transfer Agent does not hold or have access to those records. Instructions
for buying or selling shares of the Fund should be given to your insurance
company or its servicing agent, not directly to the Fund or its Transfer
Agent.
- ------------------------------------------------------------------------------

Dividends, Capital Gains and Taxes

Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis. Dividends and
distributions will generally be lower for Service shares, which normally have
higher expenses. The Fund has no fixed dividend rate and cannot guarantee
that it will pay any dividends.

Financial Highlights

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.42 $ 11.31 $ 11.21 $ 11.25 $ 11.52
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .43 1 .51 .65 .81 .94
Net realized and unrealized gain (loss) .18 .23 .27 .03 (.29)
Payment from affiliate -- -- .01 -- --
--------------------------------------------------------------------
Total from investment operations .61 .74 .93 .84 .65
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.53) (.63) (.83) (.88) (.92)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.50 $ 11.42 $ 11.31 $ 11.21 $ 11.25
====================================================================

- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
- --------------------------------------------------------------------------------------------------------------------------
Total return at net asset value 2 5.49% 6.78% 9.02% 7.79% 6.10%
Total return before payment from affiliate 3 N/A N/A 8.93% N/A N/A

- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 504,244 $ 618,234 $ 724,787 $ 693,701 $ 562,345
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 552,293 $ 691,931 $ 686,932 $ 638,820 $ 557,873
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income before payment from affiliate 3.82% 4.03% 5.91% 3 7.93% 7.94%
Net investment income after payment from affiliate N/A N/A 6.07% N/A N/A
Total expenses 0.75% 5 0.73% 5 0.73% 5 0.77% 5 0.76% 5
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 95% 6 101% 157% 186% 260%

1. Per share amounts calculated based on the average shares outstanding during
the period.

3. The Manager voluntarily reimbursed the Class $1,107,704 from an error in the
calculation of the Fund's net asset value per share.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$2,841,348,053 and $2,925,500,296, respectively.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 1
- --------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.39 $ 11.30 $ 10.46
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .40 2 .43 .11
Net realized and unrealized gain .18 .28 .72
Payment from affiliate -- -- .01
--------------------------------------
Total from investment operations .58 .71 .84
- --------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.50) (.62) --
- --------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.47 $ 11.39 $ 11.30
======================================

- --------------------------------------------------------------------------------------------
TOTAL RETURN:
- --------------------------------------------------------------------------------------------
Total return at net asset value 3 5.22% 6.56% 8.03%
Total return before payment from affiliate 4 N/A N/A 7.94%

- --------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 3,505 $ 3,835 $ 2,435
- --------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 3,002 $ 3,903 $ 834
- --------------------------------------------------------------------------------------------
Ratios to average net assets: 5
Net investment income before payment from affiliate 3.55% 3.73% 4.37% 4
Net investment income after payment from affiliate N/A N/A 5.04%
Total expenses 0.99% 6 0.98% 6 0.98% 6,7
- --------------------------------------------------------------------------------------------
Portfolio turnover rate 95% 8 101% 157%

1. For the period from May 1, 2002 (inception of offering) to December 31, 2002.

2. Per share amounts calculated based on the average shares outstanding during
the period.

4. The Manager voluntarily reimbursed the Class $3,723 from an error in the
calculation of the Fund's net asset value per share.

5. Annualized for periods of less than one full year.

6. Reduction to custodian expenses less than 0.01%.

7. Voluntary waiver of transfer agent fees less than 0.01%.

8. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$2,841,348,053 and $2,925,500,296, respectively.

INFORMATION AND SERVICES

For More Information on Oppenheimer Core Bond Fund/VA

The following additional information about the Fund is available without
charge upon request:

STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund's investment policies, risks, and operations. It
is incorporated by reference into this Prospectus (which means it is legally
part of this Prospectus).

ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.

How to Get More Information

You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports and the notice explaining the Fund's privacy policy:

- ------------------------------------------------------------------------------
By Telephone: Call OppenheimerFunds Services toll-free:
1.800.981.2871
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------

Information about the Fund including the Statement of Additional Information
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1.202.942.8090. Reports and other information
about the Fund are available on the EDGAR database on the SEC's Internet
website at www.sec.gov. Copies may be obtained after payment of a duplicating
fee by electronic request at the SEC's e-mail address: publicinfo@sec.gov or
by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.

No one has been authorized to provide any information about the Fund or to
make any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any
state or other jurisdiction where it is unlawful to make such an offer.

The Fund's SEC File No. 811-4108
PR0630.001.0405 [logo] OppenheimerFunds Distributor, Inc.
Printed on recycled paper

Appendix to Prospectus of
Oppenheimer Core Bond Fund/VA
(a series of Oppenheimer Variable Account Funds)

Graphic material included in the Prospectus of Oppenheimer Core Bond
Fund/VA (the "Fund") under the heading "Annual Total Return (as of 12/31 each
year)":

- -----------------------------------------------------
Calendar Year Ended Annual Total Returns
- ------------------- --------------------
- -----------------------------------------------------
- -----------------------------------------------------
12/31/95 17.00%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/96 4.80%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/97 9.26%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/98 6.80%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/99 -1.52%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/00 6.10%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/01 7.79%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/02 9.02%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/03 6.78%
- -----------------------------------------------------
- -----------------------------------------------------

12/31/04 5.49%

- -----------------------------------------------------

Oppenheimer
Global Securities Fund/VA
A series of Oppenheimer Variable Oppenheimer Global Securities Fund/VA
Account Funds is a mutual fund that seeks long-term
capital appreciation by investing a
Prospectus dated April 29, 2005 substantial portion of its assets in
securities of foreign issuers,
"growth-type" companies, cyclical
industries and special situations that
are considered to have appreciation
possibilities. It invests mainly in
common stocks of U.S. and foreign
issuers.
Shares of the Fund are sold only
as the underlying investment for
variable life insurance policies,
variable annuity contracts and other
insurance company separate accounts. A
prospectus for the insurance product
you have selected accompanies this
Prospectus and explains how to select
shares of the Fund as an investment
under that insurance product, and
whether you are only eligible to
purchase Service shares, Class 3 or
Class 4 shares of the Fund.
As with all mutual funds, the This Prospectus contains important
Securities information about the Fund's
and Exchange Commission has not objective, its investment policies,
approved or disapproved the Fund's strategies and risks. Please read
securities nor has it determined that this Prospectus (and your insurance
this Prospectus is accurate or product prospectus) carefully before
complete. you invest and keep them for future
It is a criminal offense to represent reference about your account.
otherwise.
(OppenheimerFunds logo)

Contents

About the Fund
- ------------------------------------------------------------------------------

The Fund's Investment Objective and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

Investing in the Fund
- ------------------------------------------------------------------------------

How to Buy and Sell Shares

Dividends, Capital Gains and Taxes

Financial Highlights

About the Fund

The Fund's Investment Objective and Principal Investment Strategies

- ------------------------------------------------------------------------------
What Is the Fund's Investment Objective? The Fund seeks long-term capital
appreciation by investing a substantial portion of its assets in securities
of foreign issuers, "growth-type" companies, cyclical industries and special
situations that are considered to have appreciation possibilities.
- ------------------------------------------------------------------------------

What Does the Fund Mainly Invest In? The Fund invests mainly in common
stocks, and can also buy other equity securities, including preferred stocks
and securities convertible into common stock. The Fund buys securities of
issuers in the U.S. and foreign countries. The Fund can invest without limit
in foreign securities and can invest in any country, including countries with
developed or emerging markets. However, the Fund's investment Manager,
OppenheimerFunds, Inc., currently emphasizes investments in developed markets.

The Fund has no requirements to allocate its investments in any set
percentages in any particular countries, but normally will invest in at least
three countries (one of which may be the United States). Typically the Fund
invests in a number of different countries.

The Fund can invest in securities of issuers in any market
capitalization range. The Fund can also use hedging instruments and certain
derivative investments to try to manage investment risks. These investments
are more fully explained in "About the Fund's Investments," below.

How Do the Portfolio Managers Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the Fund's portfolio managers look
primarily for foreign and U.S. companies with high growth potential, using
fundamental analysis of a company's financial statements and management
structure, and analysis of the company's operations and product development,
as well as the industry of which the issuer is part.

The portfolio managers consider overall and relative economic
conditions in U.S. and foreign markets, and seeks broad diversification in
different countries to help moderate the special risks of foreign investing.
The portfolio managers currently focus on the factors below (which may vary
in particular cases and may change over time), looking for:

o companies of small-, medium- and large-capitalization ranges worldwide,
o stocks to provide growth opportunities, and
o companies with strong competitive positions and high demand for their
products or services.

In applying these and other selection criteria, the portfolio managers
consider the effect of worldwide trends on the growth of various business
sectors. The trends, or global "themes," currently considered include
technological change, demographic/geopolitical change, and changing resource
needs. The Fund does not invest a fixed or specific amount of its assets in
any one sector, and these themes and this strategy may change over time.

Who Is the Fund Designed For? The Fund's shares are available only as an
investment option under certain variable annuity contracts, variable life
insurance policies and investment plans offered through insurance company
separate accounts of participating insurance companies, for investors seeking
capital growth in their investment over the long term, from a fund that
normally has substantial investments in foreign securities. Those investors
should be willing to assume the risks of short-term share price fluctuations
that are typical for a fund focusing on stock investments and investments in
foreign securities. Since the Fund does not invest with the goal of seeking
income, and its current income will likely be small, it is not designed for
investors needing an assured level of current income. The Fund is not a
complete investment program.

Main Risks of Investing in the Fund

All investments carry risks to some degree. The Fund's investments are
subject to changes in their value from a number of factors described below.
There is also the risk that poor security selection by the Fund's investment
Manager will cause the Fund to underperform other funds having a similar
objective.

|X| Risks of Investing in Stocks. Stocks fluctuate in price, and
their short-term volatility at times may be great. Because the Fund currently
focuses its investments primarily on common stocks for capital appreciation,
the value of the Fund's portfolio will be affected by changes in the stock
markets. Market risk will affect the Fund's net asset values per share, which
will fluctuate as the values of the Fund's portfolio securities change. A
variety of factors can affect the price of a particular stock, and the prices
of individual stocks do not all move in the same direction uniformly or at
the same time. Different stock markets may behave differently from each
other.

Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more
than others, or by changes in government regulations, availability of basic
resources or supplies, or other events. To the extent that the Fund has
greater emphasis on investments in a particular industry using its "global
themes" strategy, its share values may fluctuate in response to events
affecting that industry.

Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the
issuer. The Fund can invest in securities of large companies and also small
and medium-size companies, which may have more volatile stock prices than
large companies.

|X| Risks of Foreign Investing. The Fund expects to invest
substantial amounts of its assets in foreign securities. While foreign
securities offer special investment opportunities, there are also special
risks.

The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. The value of
foreign investments may be affected by exchange control regulations,
expropriation or nationalization of a company's assets, foreign taxes, delays
in settlement of transactions, changes in governmental economic or monetary
policy in the U.S. or abroad, or other political and economic factors.

|X| There are Special Risks in Using Derivative Investments. The Fund
can use derivatives to seek increased returns or to try to hedge investment
risks. In general terms, a derivative investment is one whose value depends
on (or is derived from) the value of an underlying asset, interest rate or
index. Options, futures, and forward contracts are examples of derivatives.

If the issuer of the derivative does not pay the amount due, the Fund
can lose money on the investment. Also, the underlying security or
investment on which the derivative is based, and the derivative itself, might
not perform the way the Manager expected it to perform. If that happens, the
Fund's share prices could decline or the Fund could get less income than
expected. The Fund has limits on the amount of particular types of
derivatives it can hold. However, using derivatives can cause the Fund to
lose money on its investment and/or increase the volatility of its share
prices.

How Risky is the Fund Overall? The risks described above collectively form
the overall risk profile of the Fund, and can affect the value of the Fund's
investments, its investment performance and its prices per share. Particular
investments and investment strategies also have risks. These risks mean that
you can lose money by investing in the Fund. When you redeem your shares,
they may be worth more or less than what you paid for them. There is no
assurance that the Fund will achieve its investment objective.

In the short term, domestic and foreign stock markets can be volatile,
and the prices of the Fund's shares can go up and down substantially. The
Fund does not invest in debt securities to try to reduce the volatility of
its share prices. The Fund generally may be less volatile than funds focusing
on investments in emerging markets or small-cap stocks, but the Fund has
greater risks than funds that focus solely on large-cap domestic stocks or
stocks and bonds.

An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

The Fund's Past Performance

The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the performance of the Fund's
non-service shares from year to year for the last 10 calendar years and by
showing how the average annual total returns of the Fund's shares for 1, 5
and 10 years, or for the life of the class, compare to a broad-based market
index. The Fund's past investment performance is not necessarily an
indication of how the Fund will perform in the future.

Annual Total Returns (as of December 31 each year)

[See appendix to prospectus for data in bar chart showing annual total
returns]

During the period shown in the bar chart, the highest return (not annualized)
before taxes for a calendar quarter was 36.93% (4thQ `99) and the lowest
return (not annualized) before taxes for a calendar quarter was -18.34% (4th
Q `02).

- ---------------------------------------------------------------------------
Average Annual
Total Returns for 1 Year 5 Years 10 Years
the periods ended (or life of (or life of
December 31, 2004 class if less) class if less)

- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Oppenheimer Global
Securities Fund/VA
Non-Service Shares 19.16% 4.17% 12.58%
(inception 11/12/90)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Morgan Stanley
World Index 15.25% -2.05% 8.53
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Oppenheimer Global
Securities Fund/VA 18.88% 1.62%1 N/A
Service Shares
(inception 7/13/00)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Oppenheimer Global
Securities Fund/VA 19.19% 38.012 N/A
Class 3 Shares
(inception 5/1/03)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Oppenheimer Global
Securities Fund/VA N/A N/A N/A
Class 4 Shares3
(inception 5/3/04)
- ---------------------------------------------------------------------------
1. Since Class inception (7/31/00).
2. Since Class inception (5/1/03).
3. Because Class 4 shares have not been in operation for a full calendar
year, performance data for that class is not available.

The Fund's average annual total returns measure the performance of a
hypothetical account without deducting charges imposed by the separate
accounts that invest in the Fund and assume that all dividends and capital
gains distributions have been reinvested in additional shares. The
performance of the Fund is compared to the Morgan Stanley Capital
International World Index, an unmanaged index of equity securities listed on
stock exchanges of 20 foreign countries and the U.S. The index performance
includes the reinvestment of income but does not reflect fees, expenses, or
transaction costs. The Fund's investments vary from the index.

The Fund's total returns should not be expected to be the same as the returns
of other Oppenheimer funds, even if both funds have the same portfolio
managers and/or similar names.

Fees and Expenses of the Fund

Please refer to the accompanying prospectus of the participating insurance
company for information on initial or contingent deferred sales charges,
additional exchange fees or redemption fees, and other charges and fees for
that variable life insurance policy, variable annuity or other investment
product. Those charges and fees are not reflected in either of the tables
below.

Shareholder Fees (fees paid directly from your investment)
(% of average daily net assets)

- ---------------------------------------------------------------------------------
Non-Service Class 3 Class 4
Shares Service Shares Shares Shares
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Redemption Fee* None None 1%* 1%*
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------

* The Fund assesses a 1% fee on the proceeds of Class 3 and Class 4
shares that are redeemed within 60 days of their purchase.

The Fund does not charge any initial sales charge to buy shares or to
reinvest dividends.

Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)

- ---------------------------------------------------------------------------------
Non-Service Service Shares Class 3 Shares Class 4 Shares
Shares
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Management Fees 0.63% 0.63% 0.63% 0.63%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Distribution and

Service (12b-1) None 0.25%* None 0.25%
Fees

- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Other Expenses 0.03% 0.03% 0.03% 0.06%
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total Annual
Operating 0.66% 0.91% 0.66% 0.94%
Expenses
- ---------------------------------------------------------------------------------

* Prior to May 1, 2002, the Service class service fee was 0.15%. The actual
service class 12b-1 fees paid by the Fund during the year ended December 31,
2004 was 0.25%, and total annual operating expenses were 0.91%.

Expenses may vary in future years. "Other expenses" in the table include
transfer agent fees, custodial fees, and accounting and legal expenses the
Fund pays. The Fund's transfer agent has voluntarily agreed to limit transfer
and shareholder servicing agent fees to 0.35% per fiscal year, for all three
classes. That undertaking may be amended or withdrawn at any time. For the
Fund's fiscal year ended December 31, 2004, the transfer agent fees did not
exceed the expense limitation described above.

EXAMPLE. The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

- ------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Non-Service Shares $68 $212 $369 $825
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Service Shares $193 $291 $506 $1,125
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class 3 Shares $168 $212 $369 $825
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class 4 Shares $196 $301 $522 $1,160
- ------------------------------------------------------------------------------

About the Fund's Investments

|X| Stock Investments. The Fund invests in securities issued by
domestic or foreign companies that the Manager believes have appreciation
potential. The Fund invests primarily in a diversified portfolio of common
stocks (and may buy other equity securities) of issuers that may be of small,
medium or large size. Equity securities include common stocks, preferred
stocks and securities convertible into common stock. The Manager considers
some convertible securities to be "equity equivalents" because of the
conversion feature and in that case their rating has less impact on the
Manager's investment decision than in the case of other debt securities.
Nevertheless, convertible debt securities are subject to both "credit risk"
(the risk that the issuer will not pay interest or repay principal in a
timely manner) and "interest rate risk" (the risk that prices of the security
will be affected inversely by changes in prevailing interest rates). If the
Fund buys convertible securities, it will focus primarily on investment-grade
securities.

|_| Cyclical Opportunities. The Fund may also seek to take advantage of
changes in the business cycle at home and abroad by investing in companies
that are sensitive to those changes if the Manager believes they have growth
potential. For example, when the economy is expanding, companies in the
consumer durables and technology sectors might benefit and present long-term
growth opportunities. The Fund might sometimes seek to take tactical
advantage of short-term market movements or events affecting particular
issuers or industries.

|_| Industry Focus. At times, the Fund may increase the relative
emphasis of its investments in a particular industry. Stocks of issuers in a
particular industry are subject to changes in economic conditions, government
regulations, availability of basic resources or supplies, or other events
that affect that industry more than others. To the extent that the Fund has
greater emphasis on investments in a particular industry, its share values
may fluctuate in response to events affecting that industry. To some extent
that risk may be limited by the Fund's policy of not concentrating 25% or
more of its total assets in investments in any one industry.

|X| Special Risks of Emerging and Developing Markets. Securities of
issuers in emerging and developing markets may offer special investment
opportunities, but present risks not found in more mature markets. Those
securities may be more difficult to sell at an acceptable price and their
prices may be more volatile than securities of issuers in more developed
markets. Settlements of trades may be subject to greater delays so that the
Fund might not receive the proceeds of a sale of a security on a timely
basis. These investments may be very speculative.

These countries might have less developed trading markets and
exchanges. Emerging market countries may have less developed legal and
accounting systems and investments may be subject to greater risks of
government restrictions on withdrawing the sale proceeds of securities from
the country. Economics of developing countries may be more dependent on
relatively few industries that may be highly vulnerable to local and global
changes. Governments may be more unstable and present greater risks of
nationalization or restrictions on foreign ownership of stocks of local
companies.

Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus. Fundamental policies cannot be changed without the approval
of a majority of the Fund's outstanding voting shares. The Fund's investment
objective is a fundamental policy. Investment restrictions that are
fundamental policies are listed in the Statement of Additional Information.
An investment policy is not fundamental unless this Prospectus or the
Statement of Additional Information says that it is.

|X| Portfolio Turnover. The Fund can engage in active trading to try
to achieve its objective. It might have a turnover rate in excess of 100%
annually. The Financial Highlights table at the end of this Prospectus shows
the Fund's portfolio turnover rates during prior fiscal years. Increased
portfolio turnover creates higher brokerage and transaction costs for the
Fund (and may reduce performance) For a contract owner, any increase in
realized gains will generally not be taxable directly but may affect the
owner's tax basis in the account.

|X| Illiquid and Restricted Securities. Investments may be illiquid
because they do not have an active trading market, making it difficult to
value them or dispose of them promptly at an acceptable price. Restricted
securities may have terms that limit their resale to other investors or may
require registration under applicable securities laws before they may be sold
publicly. The Fund will not invest more than 15% of its net assets in
illiquid or restricted securities but is not required to sell them due to
declines in the Fund's share price. Certain restricted securities that are
eligible for resale to qualified institutional purchasers may not be subject
to that limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity.

|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, and other hedging instruments the
Fund might use may be considered "derivative investments." In addition to
using hedging instruments, the Fund can use other derivative investments
because they offer the potential for increased income and principal value.

Markets, underlying securities and indices might move in a direction
not anticipated by the Manager. Interest rate and stock market changes in
the U.S. and abroad may also influence the performance of derivatives. As a
result of these risks the Fund could realize less principal or income from
the investment than expected. Certain derivative investments held by the
Fund may be illiquid.

|X| Hedging. The Fund can buy and sell forward contracts, futures
contracts, and put and call options, including options on futures and
broadly-based securities indices. These are all referred to as "hedging
instruments." The Fund is not required to hedge to seek its objective. The
Fund has limits on its use of hedging instruments and does not use them for
speculative purposes.

Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, if a covered call written by the Fund is exercised
on an investment that has increased in value, the Fund will be required to
sell the investment at the call price and will not be able to realize any
profit if the investment has increased in value above the call price. In
writing a put, there is a risk that the Fund may be required to buy the
underlying security at a disadvantageous price.

|X| Temporary Defensive and Interim Investments. In times of adverse
or unstable market, economic or political conditions, the Fund can invest up
to 100% of its assets in temporary investments that are inconsistent with the
Fund's principal investment strategies. For cash management purposes, the
Fund can hold cash equivalents such as commercial paper, repurchase
agreements, Treasury bills and other short-term U.S. government securities.
These would ordinarily be U. S. government securities, highly-rated
commercial paper, bank deposits or repurchase agreements. The Fund can also
hold these types of securities pending the investment of proceeds from the
sale of Fund shares or portfolio securities or to meet anticipated
redemptions of Fund shares. To the extent the Fund invests defensively in
these securities, it might not achieve its investment objective.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
and annual reports that are distributed to shareholders of the Fund within 60
days after the close of the period for which such report is being made. The
Fund also makes disclosures of its portfolio securities holdings in its
Statements of Investments on Form N-Q, which are filed with the SEC no later
than 60 days after the close of the first and third fiscal quarters. These
additional quarterly filings are publicly available at the SEC. Therefore,
portfolio holdings of the Fund are made publicly available no later than 60
days after the close of the Fund's fiscal quarter.

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.

How the Fund Is Managed

The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the
policies established by the Fund's Board of Trustees, under an investment
advisory agreement that states the Manager's responsibilities. The agreement
sets the fees the Fund pays to the Manager and describes the expenses that
the Fund is responsible to pay to conduct its business.

|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund pays
the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual
net assets, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million, and 0.60% of average annual net assets over
$800 million. The Fund's management fee for its last fiscal year ended
December 31, 2004, was 0.63% of the Fund's average annual net assets for each
class of shares.

|X| Portfolio Managers. Effective August 1, 2004, the portfolio managers of
the Fund are William Wilby and Rajeev Bhaman. They are the persons
principally responsible for the day-to-day management of the Fund's
portfolio. Mr. Wilby has been a Senior Vice President of the Manager since
July 1994 and has been a Portfolio Manager of the Fund since December 1995.
Mr. Wilby is a portfolio manager of other portfolios in the OppenheimerFunds
complex.

Mr. Bhaman is a Vice President of the Manager and portfolio manager of other
portfolios in the OppenheimerFunds complex. Prior to joining the Manager in
1996, Mr. Bhaman was employed at Barclays de Zoete Wedd Inc., concentrating
on Asian research and research sales. Mr. Bhaman holds a B.A. and an M.B.A.
from Cornell University as well as an M.B.A. in International Business from
the Katholieke Universiteit te Leuven in Belgium. He is a Chartered
Financial Analyst.

The Statement of Additional Information provides additional information
about the Portfolio Managers' compensation, other accounts they manage and
their ownership of Fund shares.

|X| Possible Conflicts of Interest. The Fund offers its shares to
separate accounts of different insurance companies that are not affiliated
with each other, as an investment for their variable annuity, variable life
and other investment product contracts. While the Fund does not foresee any
disadvantages to contract owners from these arrangements, it is possible that
the interests of owners of different contracts participating in the Fund
through different separate accounts might conflict. For example, a conflict
could arise because of differences in tax treatment.

Pending Litigation. A consolidated amended complaint has been filed as
putative derivative and class actions against the Manager, Distributor and
Transfer Agent, as well as 51 of the Oppenheimer funds (collectively the
"funds") not including the Fund, 31 present and former Directors or Trustees
and 9 present and former officers of certain of the funds. This complaint,
initially filed in the U.S. District Court for the Southern District of New
York on January 10, 2005, and amended on March 4, 2005, consolidates into a
single action and amends six individual previously-filed putative derivative
and class action complaints. Like those prior complaints, the complaint
alleges that the Manager charged excessive fees for distribution and other
costs, improperly used assets of the funds in the form of directed brokerage
commissions and 12b-1 fees to pay brokers to promote sales of the funds, and
failed to properly disclose the use of fund assets to make those payments in
violation of the Investment Company Act and the Investment Advisers Act of
1940. Also, like those prior complaints, the complaint further alleges that
by permitting and/or participating in those actions, the Directors/Trustees
and the Officers breached their fiduciary duties to Fund shareholders under
the Investment Company Act and at common law. The complaint seeks unspecified
compensatory and punitive damages, rescission of the funds' investment
advisory agreements, an accounting of all fees paid, and an award of
attorneys' fees and litigation expenses.

Investing in the Fund

How to Buy and Sell Shares

How Are Shares Purchased? Shares of the Fund may be purchased only by
separate investment accounts of participating insurance companies as an
underlying investment for variable life insurance policies, variable annuity
contracts or other investment products. Individual investors cannot buy
shares of the Fund directly. Please refer to the accompanying prospectus of
the participating insurance company for information on how to select the Fund
as an investment option for that variable life insurance policy, variable
annuity or other investment product. That prospectus will indicate whether
you are only eligible to purchase Class 3 shares, Class 4 shares, or Service
shares of the Fund. The Fund reserves the right to refuse any purchase order
when the Manager believes it would be in the Fund's best interest to do so.
Class 3 and Class 4 shares are currently offered only as an investment option
through separate accounts offered by certain insurance companies. Please
refer to the accompanying prospectus of the participating insurance company
for more details.

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

o The Transfer Agent will attempt to monitor overall purchase and
redemption activity in the accounts of a participating insurance
companies to seek to identify patterns that may suggest excessive
trading by the underlying owners. If evidence of possible excessive
trading activity is observed by the Transfer Agent, the
participating insurance companies or other registered owners will be
asked to review account activity in their respective accounts, and
to confirm to the Transfer Agent and the Fund that appropriate
action has been taken to curtail any excessive trading activity.
However, the Transfer Agent's ability to monitor and deter excessive
short-term trading in "omnibus" or "street name" accounts ultimately
depends on the capability and cooperation of the participating
insurance companies controlling their respective accounts.

Furthermore, each participating insurance company may impose its own
restrictions or limitations to discourage short-term or excessive trading.

Right to Refuse Purchase Orders. The Distributor and/or the Transfer Agent
may refuse any purchase order in their discretion and are not obligated to
provide notice before rejecting an order.

There can be no assurance that the Fund, the Transfer Agent or the
Fund's participating insurance companies will be successful in curbing
abusive short-term exchanges.

- ------------------------------------------------------------------------------
Information about your investment in the Fund through your variable annuity
contract, variable life insurance policy or other plan can be obtained only
----
from your participating insurance company or its servicing agent. The Fund's
Transfer Agent does not hold or have access to those records. Instructions
for buying or selling shares of the Fund should be given to your insurance
company or its servicing agent, not directly to the Fund or its Transfer
Agent.
- ------------------------------------------------------------------------------

Net Asset Value. The Fund calculates the net asset value of each class of
shares as of the close of the Exchange, on each day the Exchange is open for
trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 p.m., Eastern time, but may close earlier on
some days. All references to time in this Prospectus mean "Eastern time."

|X| Classes of Shares. The Fund has four classes of shares authorized.
The Fund offers four different classes of shares. The class of shares
designated as Service class shares and Class 4 shares are subject to a
distribution and service plan. The impact of the expenses of that plan on
Service class shares is described below. The class of shares that are not
subject to a plan are designated as non-service shares and Class 3 shares.
The different classes of shares represent investments in the same portfolio
of securities but are expected to be subject to different expenses and will
likely have different share prices.

|X| Distribution and Service Plan for Service shares. The Fund has
adopted a Distribution and Service Plan for Service share class and Class 4
shares to pay the Distributor, for distribution related services, personal
services and account maintenance for the Fund's Service class and Class 4
shares. Under the Plan, payments are made quarterly at an annual rate of up
to 0.25% of the average annual net assets of Service share class and Class 4
shares of the Fund. Because these fees are paid out of the Fund's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than other types of fees or sales charges.
The distributor currently uses all of those fees to compensate sponsor(s) of
the insurance product that offers Fund shares, for providing personal service
and maintenance of accounts of their variable contract owners that hold
Service class and Class 4 shares. The impact of the service plan is to
increase operating expenses of the Service class and Class 4 shares, which
results in lower performance compared to the Fund's shares that are not
subject to a service fee.

The share price that applies to a redemption order is the next net
asset value per share that is determined after the participating insurance
company (as the Fund's designated agent) receives a redemption request on a
regular business day from its contract or policy holder, provided that the
Fund receives the order from the insurance company by 9:30 a.m. the next
regular business day at the office of its Transfer Agent in Colorado. The
participating insurance company must receive that order before the close of
the Exchange (usually 4:00 p.m. Eastern time). The Fund normally sends
payment by Federal Funds wire to the insurance company's account the day
after the Fund receives the order (and no later than seven days after the
Fund's receipt of the order). Under unusual circumstances determined by the
Securities and Exchange Commission, payment may be delayed or suspended.
Shares may be redeemed in kind under certain limited circumstances (such as
redemptions of substantial amounts to shareholders that have consented to
such in kind redemptions).

The Fund assesses a 1% fee on the proceeds of Class 3 and Class 4
shares that are redeemed within 60 days of their purchase. The redemption
fee is paid to the Fund, and is intended to offset the trading costs, market
impact and other costs associated with short-term money movements in and out
of the Fund. The redemption fee is imposed to the extent that Class 3 and
Class 4 shares redeemed exceed Class 3 and Class 4 shares that have been held
more than 60 days.

Shares may be "redeemed in kind" under certain limited circumstances (such as
redemptions of substantial amounts of shares by shareholders that have
consented to such in kind redemptions). This means that the redemption
proceeds will be paid to the participating insurance companies that hold Fund
shares with liquid securities from the Fund's portfolio. If the Fund redeems
shares in kind, the accounts may bear transaction costs and market risks
until such time as the securities are converted into cash.

Dividends, Capital Gains and Taxes

Dividends. The Fund intends to declare dividends separately for each class
of shares from net investment income, if any, on an annual basis. Dividends
will generally be lower for Service shares and Class 4 shares, which normally
have higher expenses. The Fund has no fixed dividend rate and cannot
guarantee that it will pay any dividends.

All dividends (and any capital gains distributions will be reinvested
automatically in additional Fund shares at net asset value for the account of
the participating insurance company (unless the insurance company elects to
have dividends or distributions paid in cash).

Financial Highlights

The Financial Highlights Table is presented to help you understand the Fund's
financial performance for its non-service shares for the past ten fiscal
years and the past three fiscal years for its service shares and since
inception for its Class 3 shares. Because Class 4 shares were recently made
available, no performance information is available for that share class.
Certain information reflects financial results for a single Fund share. The
total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). This information has been audited by Deloitte &
Touche LLP, the Fund's independent registered public accounting firm, whose
report, along with the Fund's financial statements, is included in the
Statement of Additional Information, which is available upon request.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.08 $ 17.70 $ 22.84 $ 30.33 $ 33.41
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .26 1 .19 .16 .17 .27
Net realized and unrealized gain (loss) 4.49 7.34 (5.19) (3.85) 1.82
------------------------------------------------------------------------
Total from investment operations 4.75 7.53 (5.03) (3.68) 2.09
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.32) (.15) (.11) (.19) (.09)
Distributions from net realized gain -- -- -- (3.62) (5.08)
------------------------------------------------------------------------
Total dividends and/or distributions to shareholders (.32) (.15) (.11) (3.81) (5.17)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 29.51 $ 25.08 $ 17.70 $ 22.84 $ 30.33
========================================================================

- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 19.16% 43.02% (22.13)% (12.04)% 5.09%
- -------------------------------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $2,518,867 $2,280,752 $1,549,993 $1,905,890 $2,136,420
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $2,451,188 $1,751,226 $1,776,289 $1,918,335 $2,116,100
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.01% 0.99% 0.80% 0.70% 0.83%
Total expenses 0.66% 4 0.67% 4 0.67% 4 0.70% 4 0.68% 4
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 30% 34% 34% 39% 50%

1. Per share amounts calculated based on the average shares outstanding during
the period.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------

SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 2000 1
- --------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.96 $ 17.61 $ 22.78 $ 30.30 $32.65
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .20 2 .12 .12 .21 .03
Net realized and unrealized gain (loss) 4.46 7.36 (5.19) (3.92) (2.38)
-------------------------------------------------------------------
Total from investment operations 4.66 7.48 (5.07) (3.71) (2.35)
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.29) (.13) (.10) (.19) --
Distributions from net realized gain -- -- -- (3.62) --
-------------------------------------------------------------------
Total dividends and/or distributions to shareholders (.29) (.13) (.10) (3.81) --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 29.33 $ 24.96 $ 17.61 $ 22.78 $30.30
===================================================================

- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 18.88% 42.86% (22.37)% (12.17)% (7.20)%
- --------------------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $346,403 $168,739 $ 52,830 $ 20,467 $ 983
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $247,490 $ 91,800 $ 34,847 $ 8,502 $ 325
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 0.77% 0.68% 0.51% 0.44% 0.60%
Total expenses 0.91% 5 0.93% 5 0.90% 5 0.85% 5 0.83% 5
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 30% 34% 34% 39% 50%

1. For the period from July 13, 2000 (inception of offering) to December 31,
2000.

2. Per share amounts calculated based on the average shares outstanding during
the period.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

CLASS 3 SHARES YEAR ENDED DECEMBER 31, 2004 2003 1
- --------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------
Net asset value, beginning of period $ 25.19 $ 17.55
- --------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .26 2 .07
Net realized and unrealized gain 4.52 7.57
----------------------------
Total from investment operations 4.78 7.64
- --------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.32) --
Distributions from net realized gain -- --
-----------------------------
Total dividends and/or distributions to shareholders (.32) --
- --------------------------------------------------------------------------------------
Net asset value, end of period $ 29.65 $ 25.19
=============================

- --------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 19.19% 43.53%
- --------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $265,044 $147,576
- --------------------------------------------------------------------------------------
Average net assets (in thousands) $199,388 $80,579
- --------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 1.00% 0.73%
Total expenses 0.66% 5 0.68% 5
- --------------------------------------------------------------------------------------
Portfolio turnover rate 30% 34%

1. For the period from May 1, 2003 (inception of offering) to December 31, 2003.

2. Per share amounts calculated based on the average shares outstanding during
the period.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------

CLASS 4 SHARES PERIOD ENDED DECEMBER 31, 2004 1
- -----------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 25.21
- -----------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .09 2
Net realized and unrealized gain 4.05
----------

Total from investment operations 4.14
- -----------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income --
Distributions from net realized gain --
----------
Total dividends and/or distributions to shareholders --
- -----------------------------------------------------------------------------
Net asset value, end of period $ 29.35

- -----------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 16.42%
- -----------------------------------------------------------------------------

- -----------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Net assets, end of period (in thousands) $37,384
- -----------------------------------------------------------------------------
Average net assets (in thousands) $19,774
- -----------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 0.53%
Total expenses 0.94% 5
- -----------------------------------------------------------------------------
Portfolio turnover rate 30%

1. For the period from May 3, 2004 (inception of offering) to December 31, 2004.

2. Per share amounts calculated based on the average shares outstanding during
the period.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

INFORMATION AND SERVICES
For More Information on Oppenheimer Global Securities Fund/VA

The following additional information about the Fund is available without
charge upon request:

Statement of Additional Information
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into
this Prospectus (which means it is legally part of this Prospectus).

Annual and Semi-Annual Reports
Additional information about the Fund's investments and performance is
available in the Fund's Annual and Semi-Annual Reports to shareholders.
The Annual Report includes a discussion of market conditions and
investment strategies that significantly affected the Fund's performance
during its last fiscal year.

How to Get More Information
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports and the notice explaining the Fund's privacy policy:
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

By Telephone: Call OppenheimerFunds Services toll-free:
1.800.981.2871

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------

Information about the Fund including the Statement of Additional
Information can be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1.202.942.8090. Reports and
other information about the Fund are available on the EDGAR database on
the SEC's Internet website at www.sec.gov. Copies may be obtained after
-----------
payment of a duplicating fee by electronic request at the SEC's e-mail
address: publicinfo@sec.gov or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102.

The Fund's SEC File No.: 811-4108
PR0485.001.0405
Printed on recycled paper.

Appendix to Prospectus of
Oppenheimer Global Securities Fund/VA
(a series of Oppenheimer Variable Account Funds)

Graphic material included in the Prospectus of Oppenheimer Global
Securities Fund/VA (the "Fund") under the heading "Annual Total Return
(as of December 31 each year)":

A bar chart will be included in the Prospectus of the Fund depicting
the annual total returns of a hypothetical $10,000 investment in
non-service shares of the Fund for each of the ten most recent calendar
years, without deducting separate account expenses. Set forth below are
the relevant data that will appear on the bar chart:

Calendar
Year
Ended Annual Total Returns
- ----- --------------------

12/31/95 2.24%
12/31/96 17.80%
12/31/97 22.42%
12/31/98 14.11%
12/31/99 58.48%
12/31/00 5.09%
12/31/01 -12.04%
12/31/02 -22.13%
12/31/03 43.02%
12/31/04 19.16%

Oppenheimer
High Income Fund/VA
A series of Oppenheimer Variable Account Funds

Prospectus dated April 29, 2005 Oppenheimer High Income Fund/VA
is a mutual fund that seeks a high
level of current income. The Fund
invests primarily in lower-grade,
high-yield debt securities.
Shares of the Fund are sold only
as the underlying investment for
variable life insurance policies,
variable annuity contracts and other
insurance company separate accounts. A
prospectus for the insurance product
you have selected accompanies this
Prospectus and explains how to select
shares of the Fund as an investment
under that insurance product, and
whether you are only eligible to
purchase Service shares of the Fund.
This Prospectus contains
important information about the Fund's
objective, its investment policies,
strategies and risks. Please read this
Prospectus (and your insurance product
prospectus) carefully before you
invest and keep them for future
reference about your account.
As with all mutual funds, the
Securities and Exchange Commission has
not approved or disapproved the Fund's
securities nor has it determined that
this Prospectus is accurate or
complete. It is a criminal offense to
represent otherwise.
Oppenheimer
High Income Fund/VA
A series of Oppenheimer Variable Account Funds

(OppenheimerFunds logo)

CONTENTS

ABOUT THE FUND

The Fund's Investment Objective and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

INVESTING IN THE FUND

How to Buy and Sell Shares

Dividends, Capital Gains and Taxes

Financial Highlights

ABOUT THE FUND

The Fund's Investment Objective and Principal Investment Strategies

What Is the Fund's Investment Objective? The Fund seeks a high level of
current income from investment in high-yield fixed-income securities.

What Does the Fund Mainly Invest In? The Fund invests mainly in a variety of
high-yield fixed-income securities of domestic and foreign issuers. The
Fund's investments typically include:
o lower-grade, high-yield domestic and foreign corporate bonds and notes
(these are the main focus of the Fund's portfolio),
o mortgage-related securities and asset-backed securities,
preferred stocks,
o "structured" notes,
o foreign government bonds and notes, and
o "zero-coupon" and "step" bonds.

Under normal market conditions, the Fund invests at least 65% of its
total assets, and can invest without limit, in high-yield, lower-grade
fixed-income securities, commonly called "junk bonds." Lower-grade securities
are below investment-grade securities, and are rated below "Baa" by Moody's
Investors Service or below "BBB" by Standard & Poor's or have comparable
ratings by other nationally-recognized rating organizations (or, in the case
of unrated securities, have comparable ratings assigned by the Fund's
investment Manager, OppenheimerFunds, Inc.).

The Fund's foreign investments can include securities of issuers in
developed markets as well as emerging markets, which have special risks. The
Fund can also invest in loan participations and can use hedging instruments
and certain derivative investments, primarily mortgage-related securities and
"structured" notes, to try to increase income or to try to manage investment
risks. These investments are more fully explained in "About the Fund's
Investments," below.

How Does the Portfolio Manager Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the Fund's portfolio manager analyzes the
overall investment opportunities and risks in different market sectors,
industries and countries. The portfolio manager's overall strategy is to
build a broadly diversified portfolio of debt securities to help moderate the
special risks of investing in lower-grade, high yield debt instruments. The
portfolio manager currently focuses on the factors below (some of which may
vary in particular cases and may change over time), looking for:
o Securities offering high current income,
o Issuers in industries that are currently undervalued,
o Issuers with strong cash flows,
o Changes in the business cycle that might affect corporate profits.

The Fund's diversification strategies, both with respect to securities
issued by different companies and within different industries, are intended
to reduce the volatility of the Fund's share prices while providing
opportunities for high current income.

Who Is the Fund Designed For? The Fund's shares are available only as an
investment option under certain variable annuity contracts, variable life
insurance policies and investment plans offered through insurance company
separate accounts of participating insurance companies, for investors seeking
high current income from a portfolio emphasizing lower-grade domestic and
foreign debt securities. Those investors should be willing to assume the
special risks of lower-grade debt securities. Since the Fund's income level
will fluctuate, it is not designed for investors needing an assured level of
current income. The Fund is designed as a long-term investment. However, the
Fund is not a complete investment program.

Main Risks of Investing in the Fund

All investments carry risks to some degree. The Fund's investments in debt
securities are subject to changes in their value from a number of factors
described below. There is also the risk that the value of your investment
could be eroded over time by the effects of inflation and that poor security
selection by the Manager will cause the Fund to underperform other funds
having similar objectives.

|_| Special Risks of Lower-Grade Securities. Because the Fund can invest
without limit in securities below investment grade to seek high income and
emphasizes these securities in its investment program, the Fund's credit
risks are greater than those of funds that buy only investment-grade bonds.
Lower-grade debt securities may be subject to greater market fluctuations and
greater risks of loss of income and principal than investment-grade debt
securities. Securities that are (or that have fallen) below investment grade
are exposed to a greater risk that the issuers of those securities might not
meet their debt obligations. These risks can reduce the Fund's share prices
and the income it earns. The market for lower-grade securities may be less
liquid, especially during times of economic distress, and therefore they may
be harder to value and to sell at an acceptable price.

|X| Interest Rate Risks. The values of debt securities, including
government securities, are subject to change when prevailing interest rates
change. When interest rates fall, the values of already-issued debt
securities generally rise. When interest rates rise, the values of
already-issued debt securities generally fall, and they may sell at a
discount from their face amount. The magnitude of these fluctuations will
often be greater for longer-term debt securities than shorter-term debt
securities. The Fund's share prices can go up or down when interest rates
change because of the effect of the changes on the value of the Fund's
investments in debt securities.

|X| Risks of Foreign Investing. The Fund can invest its assets without
limit in foreign debt securities and can buy securities of governments and
companies in both developed markets and emerging markets. The Fund normally
invests part of its assets in foreign securities. While foreign securities
offer special investment opportunities, there are also special risks that can
reduce the Fund's share prices and returns.

Additionally, if a fund invests a significant amount of its assets in
foreign securities, it might expose the fund to "time-zone arbitrage"
attempts by investors seeking to take advantage of the differences in value
of foreign securities that might result from events that occur after the
close of the foreign securities market on which a foreign security is traded
and the close of The New York Stock Exchange that day, when the Fund's net
asset value is calculated. If such time-zone arbitrage were successful, it
might dilute the interests of other shareholders. However, the Fund's use of
"fair value pricing" to adjust the closing market prices of foreign
securities under certain circumstances, to reflect what the Manager and the
Board believe to be their fair value may help deter those activities.

|X| Prepayment Risk. Prepayment risk occurs when the mortgages underlying a
mortgage-related security are prepaid at a rate faster than anticipated
(usually when interest rates fall) and the issuer of the security can prepay
the principal prior to the security's maturity. Mortgage-related securities
that are subject to prepayment risk, including the mortgage-related
securities that the Fund buys, generally offer less potential for gains when
prevailing interest rates decline, and have greater potential for loss than
other debt securities when interest rates rise.

The impact of prepayments on the price of a security may be difficult
to predict and may increase the volatility of the price. The Fund might have
to reinvest the proceeds of prepaid securities in new securities offering
lower yields. Additionally, the Fund can buy mortgage-related securities at a
premium. Accelerated prepayments on those securities could cause the Fund to
lose the portion of its principal investment represented by the premium the
Fund paid.

|X| There are Special Risks in Using Derivative Investments. The Fund can
use derivatives to seek increased income or to try to hedge investment risks.
In general terms, a derivative investment is an investment contract whose
value depends on (or is derived from) the value of an underlying asset,
interest rate or index. Options, futures, interest rate swaps, credit
derivatives, structured notes and mortgage-related securities are examples of
derivatives the Fund can use.

The Fund has limits on the amount of particular types of derivatives it
can hold. However, using derivatives can cause the Fund to lose money on its
investment and/or increase the volatility of its share prices.

How Risky is the Fund Overall? The risks described above collectively form
the risk profile of the Fund, and can affect the value of the Fund's
investments, its investment performance and its price per share. These risks
mean that you can lose money by investing in the Fund. When you redeem your
shares, they may be worth more or less than what you paid for them. There is
no assurance that the Fund will achieve its investment objective. In the
short term, the values of debt securities can fluctuate substantially because
of interest rate changes. Foreign debt securities, particularly those of
issuers in emerging markets, and high yield securities can be volatile, and
the price of the Fund's shares can go up and down substantially because of
events affecting foreign markets or issuers or events affecting the high
yield market. The Fund's security diversification strategy may help cushion
the Fund's shares prices from that volatility, but debt securities are
subject to other credit and interest rate risks that can affect their values
and the share prices of the Fund. The Fund generally has more risks than bond
funds that focus on U.S. government securities and investment-grade bonds but
may be less volatile than funds that focus solely on investments in a single
foreign sector, such as emerging markets.

An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

The Fund's Past Performance

The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the performance of the Fund's non-service
shares from year to year for the last 10 calendar years and by showing how
the average annual total returns of the Fund's shares for 1, 5 and 10 years,
or for the life of the class, compare to a broad-based market index. The
Fund's past investment performance is not necessarily an indication of how
the Fund will perform in the future.

Annual Total Returns (as of December 31 each year)
[See appendix to prospectus for data in bar chart showing annual total
returns]

During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 8.88% (2nd Q '03) and the lowest return (not
annualized) for a calendar quarter was -7.12% (3rd Q '98).

- ---------------------------------------------------------------------------------
Average Annual Total Returns 1 Year 5 Years 10 Years
for the periods ended December (or life of
31, 2004 class, if less)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Oppenheimer High Income Fund/VA

Non-Service Shares (inception 8.97% 5.29% 7.74%

4/30/86)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------

Merrill Lynch High Yield Master 10.76% 7.32% 8.46%
Index

- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Oppenheimer High Income Fund/VA

Service Shares (inception 8.73% 9.11%1 N/A

9/18/01)
- ---------------------------------------------------------------------------------

1. Since Class inception (9/18/01)

The Fund's total returns should not be expected to be the same as the returns
of other Oppenheimer funds, even if both funds have the same portfolio
managers and/or similar names.

Fees and Expenses of the Fund

Management Fees 0.72% 0.72%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Distribution and Service None 0.25%
(12b-1) Fees

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Other Expenses 0.03% 0.04%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Total Annual Operating Expenses 0.75% 1.01%

- --------------------------------------------------------------------------------

EXAMPLE. The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

Non-Service Shares $77 $241 $418 $934

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Service Shares $104 $323 $561 $1,242

- ------------------------------------------------------------------------------

About the Fund's Investments

The Fund's Principal Investment Policies and Risks. The allocation of the
Fund's portfolio among different types of investments will vary over time
based upon the Manager's evaluation of economic and market trends. The Fund's
portfolio might not always include all of the different types of investments
described below. The Statement of Additional Information contains more
details about the Fund's investment policies and risks.

A debt security is essentially a loan by the buyer to the issuer of the
debt security. The issuer promises to pay back the principal amount of the
loan and normally pays interest, at a fixed or variable rate, on the debt
while it is outstanding. The debt securities the Fund buys may be rated by
nationally recognized rating organizations or they may be unrated securities
assigned an equivalent rating by the Manager. While the Fund's investments
may be investment grade or below investment grade in credit quality, it
expects to invest mainly in lower-grade securities, commonly called "junk
bonds." They typically offer higher yields than investment-grade bonds,
because investors assume greater risks of default of these securities. The
ratings definitions of the principal national rating organizations are
included in Appendix A to the Statement of Additional Information.

The Fund has no limit on the range of maturity of the debt securities
it can buy, and therefore may hold obligations with short, medium or
long-term maturities. However, longer term securities typically offer higher
yields than shorter-term securities and therefore the Fund will focus on
longer-term debt to seek higher income. However, longer-term securities
fluctuate more in price when interest rates change than shorter-term
securities.

|X| High-Yield, Lower-Grade Fixed-Income Securities. There are no
restrictions on the amount of the Fund's assets that can be invested in debt
securities below investment grade. The Fund can invest in securities rated as
low as "C" or "D", in unrated bonds or bonds which are in default at the time
the Fund buys them. While securities rated "Baa" by Moody's or "BBB" by S&P
are considered "investment grade," they have some speculative
characteristics.

The Manager does not rely solely on ratings issued by rating
organizations when selecting investments for the Fund. The Fund can buy
unrated securities that offer high current income. The Manager assigns a
rating to an unrated security that is equivalent to the rating of a rated
security that the Manager believes offers comparable yields and risks.

While investment-grade securities are subject to risks of non-payment
of interest and principal, generally, higher yielding lower-grade bonds,
whether rated or unrated, have greater risks than investment-grade
securities. They may be subject to greater market fluctuations and risk of
loss of income and principal than investment-grade securities. There may be
less of a market for them and therefore they may be harder to value and to
sell at an acceptable price. There is a relatively greater possibility that
the issuer's earnings may be insufficient to make the payments of interest
and principal due on the bonds.

These risks mean that the Fund may not achieve the expected income from
lower-grade securities, and that the Fund's net asset value per share may be
affected by declines in value of these securities.

|X| Private Issuer Mortgage-Backed Securities. The Fund can invest a
substantial portion of its assets in mortgage-backed securities issued by
private issuers, which do not offer the credit backing of U.S. government
securities. Primarily these include multi-class debt or pass-through
certificates secured by mortgage loans. They may be issued by banks, savings
and loans, mortgage bankers and other non-governmental issuers. Private
issuer mortgage-backed securities are subject to the credit risks of the
issuers (as well as the interest rate risks and prepayment risks of CMOs that
are U.S. government securities, discussed below); although in some cases they
may be supported by insurance or guarantees.

|X| Mortgage-Related U.S. Government Securities. The Fund can buy interests
in pools of residential or commercial mortgages, in the form of
collateralized mortgage obligations ("CMOs") and other "pass-through"
mortgage securities. CMOs that are U.S. government securities have collateral
to secure payment of interest and principal. They may be issued in different
series each having different interest rates and maturities. The collateral is
either in the form of mortgage pass-through certificates issued or guaranteed
by a U.S. agency or instrumentality or mortgage loans insured by a U.S.
government agency. The Fund can have substantial amounts of its assets
invested in mortgage-related U.S. government securities.

If interest rates rise rapidly, prepayments may occur at slower rates
than expected, which could have the effect of lengthening the expected
maturity of a short or medium-term security. That could cause its value to
fluctuate more widely in response to changes in interest rates. In turn, this
could cause the value of the Fund's shares to fluctuate more.

|X| Foreign Debt Securities. The Fund can buy debt securities issued by
foreign governments and companies, as well as "supra-national" entities, such
as the World Bank. The Fund will not invest 25% or more of its total assets
in debt securities of any one foreign government or in debt securities of
companies in any one industry. The Fund has no requirements as to the
maturity range of the foreign debt securities it can buy, or as to the market
capitalization range of the issuers of those securities.

The Fund's foreign debt investments can be denominated in U.S. dollars
or in foreign currencies. The Fund will buy foreign currency only in
connection with the purchase and sale of foreign securities and not for
speculation.

|_| Special Risks of Emerging and Developing Markets. Securities of issuers
in emerging and developing markets may offer special investment opportunities
but present risks not found in more mature markets. Those securities may be
more difficult to value and to sell at an acceptable price and their prices
may be more volatile than securities of issuers in more developed markets.
They may be very speculative. Settlements of trades may be subject to greater
delays so that the Fund may not receive the proceeds of a sale of a security
on a timely basis.

These countries might have less developed trading markets and
exchanges. Emerging market countries may have less developed legal and
accounting systems, and investments may be subject to greater risks of
government restrictions on withdrawing the sales proceeds of securities from
the country. Economies of developing countries may be more dependent on
relatively few industries that may be highly vulnerable to local and global
changes. Governments may be more unstable and present greater risks of
nationalization or restrictions on foreign ownership of securities of local
companies.

"Structured" Notes. The Fund can buy "structured" notes, which are
specially-designed derivative debt investments. Their principal payments or
interest payments are linked to the value of an index (such as a currency or
securities index) or commodity. The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the note.

Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus. Fundamental policies cannot be changed without the approval
of a majority of the Fund's outstanding voting shares. The Fund's investment
objective is a fundamental policy. Investment restrictions that are
fundamental policies are listed in the Statement of Additional Information.
An investment policy is not fundamental unless this Prospectus or the
Statement of Additional Information says that it is.

Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of them. These techniques involve risks, although some are
designed to help reduce overall investment or market risks.

|_| U.S. Treasury Obligations. These include Treasury bills (which have
maturities of one year or less when issued), Treasury notes (which have
maturities of from one to ten years), and Treasury bonds (which have
maturities of more than ten years). Treasury securities are backed by the
full faith and credit of the United States as to timely payments of interest
and repayments of principal. The Fund can also buy U.S. Treasury securities
that have been "stripped" of their coupons by a Federal Reserve Bank,
zero-coupon U.S. Treasury securities described below, and Treasury
Inflation-Protection Securities ("TIPS").

|_| Obligations of U.S. Government Agencies or Instrumentalities. These
include direct obligations and mortgage-related securities that have
different levels of credit support from the U.S. government. Some are
supported by the full faith and credit of the U.S. government, such as
Government National Mortgage Association pass-through mortgage certificates
(called "Ginnie Maes"). Some are supported by the right of the issuer to
borrow from the U.S. Treasury under certain circumstances, such as Federal
National Mortgage Association bonds ("Fannie Maes"). Others are supported
only by the credit of the entity that issued them, such as Federal Home Loan
Mortgage Corporation obligations ("Freddie Macs").

Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than conventional interest-bearing
securities of similar or the same maturities. The Fund may have to pay out
the imputed income on zero-coupon securities without receiving the actual
cash currently. Interest-only securities are particularly sensitive to
changes in interest rates.

|X| Preferred Stock. Unlike common stock, preferred stock typically has a
stated dividend rate. Preferred stock dividends may be cumulative (they
remain a liability of the company until they are paid) or non-cumulative.
When prevailing interest rates rise, the value of preferred stock having a
fixed dividend rate tends to fall. The right to payment of dividends on
preferred stock is generally subordinate to the rights of a corporation's
debt securities.

|X| Illiquid and Restricted Securities. Investments may be illiquid because
they do not have an active trading market, making it difficult to value them
or dispose of them promptly at an acceptable price. Restricted securities may
have terms that limit their resale to other investors or may require
registration under applicable securities laws before they may be sold
publicly. The Fund will not invest more than 15% of its net assets in
illiquid or restricted securities. Certain restricted securities that are
eligible for resale to qualified institutional purchasers may not be subject
to that limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity.

|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In the broadest sense,
exchange-traded options, futures contracts, structured notes, CMOs and other
hedging instruments the Fund can use may be considered "derivative
investments." In addition to using hedging instruments, the Fund can use
other derivative investments because they offer the potential for increased
income.

The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may decline, or to
establish a position in the securities market as a temporary substitute for
purchasing individual securities. It might do so to try to manage its
exposure to changing interest rates. The Fund can use forward contracts to
try to manage foreign currency risks on the Fund's foreign investments.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
and annual reports that are distributed to shareholders of the Fund within 60
days after the close of the period for which such report is being made. The
Fund also makes disclosures of its portfolio securities holdings in its
Statements of Investments on Form N-Q, which are filed with the SEC no later
than 60 days after the close of the first and third fiscal quarters. These
additional quarterly filings are publicly available at the SEC. Therefore,
portfolio holdings of the Fund are made publicly available no later than 60
days after the close of the Fund's fiscal quarter.

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.

How the Fund Is Managed

The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the
policies established by the Fund's Board of Trustees, under an investment
advisory agreement that states the Manager's responsibilities. The agreement
sets the fees the Fund pays to the Manager and describes the expenses that
the Fund is responsible to pay to conduct its business.

|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund pays
the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: 0.75% of the first $200 million of average annual
net assets, 0.72% of the next $200 million, 0.69% of the next $200 million,
0.66% of the next $200 million, 0.60% on the next $200 million and 0.50% of
average annual net assets over $1 billion. The Fund's management fee for its
fiscal year ended December 31, 2004, was 0.72% of the Fund's average annual
net assets for each class of shares.

|X| Portfolio Manager. The Fund's portfolio is managed by Dimitrios
Kourkoulakos. Mr. Kourkoulakos has been the person primarily responsible for
the day-to-day management of the Fund's portfolio since June 2002. Mr.
Kourkoulakos is a Vice President of the Manager since December 2001 and an
officer of other portfolios in the OppenheimerFunds complex. He was formerly
a High Yield Analyst from 1998 to 2001 and a Securities Analyst from 1995 to
1998 of the Manager.

The Statement of Additional Information provides additional information
about the Portfolio Manager's compensation, other accounts he manages and his
ownership of Fund shares.

Pending Litigation. A consolidated amended complaint has been filed as
putative derivative and class actions against the Manager, Distributor and
Transfer Agent, as well as 51 of the Oppenheimer funds (collectively the
"funds") not including the Fund, 31 present and former Directors or Trustees
and 9 present and former officers of certain of the funds. This complaint,
initially filed in the U.S. District Court for the Southern District of New
York on January 10, 2005 and amended on March 4, 2005, consolidates into a
single action and amends six individual previously-filed putative derivative
and class action complaints. Like those prior complaints, the complaint
alleges that the Manager charged excessive fees for distribution and other
costs, improperly used assets of the funds in the form of directed brokerage
commissions and 12b-1 fees to pay brokers to promote sales of the funds, and
failed to properly disclose the use of fund assets to make those payments in
violation of the Investment Company Act and the Investment Advisers Act of
1940. Also, like those prior complaints, the complaint further alleges that
by permitting and/or participating in those actions, the Directors/Trustees
and the Officers breached their fiduciary duties to Fund shareholders under
the Investment Company Act and at common law. The complaint seeks unspecified
compensatory and punitive damages, rescission of the funds' investment
advisory agreements, an accounting of all fees paid, and an award of
attorneys' fees and litigation expenses.

INVESTING IN THE FUND

How to Buy and Sell Shares

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

Limits on Disruptive Activity. Therefore, the Manager and the Fund's Board of
Trustees have adopted the following policies and procedures to detect and
prevent frequent and/or excessive purchase and redemption activity, while
balancing the needs of investors. There is no guarantee that the policies and
procedures described below will be sufficient to identify and deter excessive
short-term trading.
The Transfer Agent may, in its discretion, limit or terminate trading
activity by any person, group or account that it believes would be
disruptive.
o The Transfer Agent will attempt to monitor overall purchase and
redemption activity in the accounts of participating insurance
companies to seek to identify patterns that may suggest excessive
trading by the underlying owners. If evidence of possible excessive
trading activity is observed by the Transfer Agent, the
participating insurance companies or other registered owners will be
asked to review account activity in their respective accounts, and
to confirm to the Transfer Agent and the Fund that appropriate
action has been taken to curtail any excessive trading activity.
However, the Transfer Agent's ability to monitor and deter excessive
short-term trading in omnibus or street name accounts ultimately
depends on the capability and cooperation of the participating
insurance companies controlling their respective accounts.

Monitoring the Policies. The Transfer Agent might not be able to detect
excessive short term trading activity facilitated by, or in accounts
maintained in, the "omnibus" or "street name" accounts of a participating
insurance company. The Fund has asked its participating insurance companies
for their cooperation in trying to prevent excessive short term trading
activity in their separate accounts by investors and their financial
advisors. While the Fund recognizes that some contract owners may engage in
periodic asset allocation and re-balancing of fund investments in their
accounts, making an "exchange" out of the Fund within 30 days of buying
shares (by the sale of the recently purchased Fund's shares and the purchase
of shares of another fund), or making more than four "round trip exchanges"
between funds in a year, may be considered excessive short-term trading
activity. Separate accounts under common ownership or control are combined
for calculating these limits.

Furthermore, each participating insurance company may impose its own
restrictions or limitations to discourage short-term or excessive trading.

Right to Refuse Purchase Orders. The Distributor and/or the Transfer Agent
may refuse any purchase order in their discretion and are not obligated to
provide notice before rejecting an order.

There can be no assurance that the Fund, the Transfer Agent or the
Fund's participating insurance companies will be successful in curbing
abusive short-term exchanges.

- ------------------------------------------------------------------------------
Information about your investment in the Fund through your variable annuity
contract, variable life insurance policy or other plan can be obtained only
----
from your participating insurance company or its servicing agent. The Fund's
Transfer Agent does not hold or have access to those records. Instructions
for buying or selling shares of the Fund should be given to your insurance
company or its servicing agent, not directly to the Fund or its Transfer
Agent.
- ------------------------------------------------------------------------------

Dividends, Capital Gains and Taxes

Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis. Dividends and
distributions will generally be lower for Service shares, which normally have
higher expenses. The Fund has no fixed dividend rate and cannot guarantee
that it will pay any dividends.

Financial Highlights

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.61 $ 7.51 $ 8.54 $ 9.27 $ 10.72
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58 1 .60 .58 .84 1.00
Net realized and unrealized gain (loss) .15 1.09 (.76) (.62) (1.36)
--------------------------------------------------------------------------------
Total from investment operations .73 1.69 (.18) .22 (.36)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.54) (.59) (.85) (.95) (1.09)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.80 $ 8.61 $ 7.51 $ 8.54 $ 9.27
================================================================================

- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 8.97% 23.96% (2.40)% 1.97% (3.74)%
- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 479,405 $ 480,112 $ 345,670 $ 344,788 $ 333,533
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 460,877 $ 396,858 $ 335,894 $ 347,723 $ 329,260
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 6.91% 8.31% 8.29% 9.94% 10.47%
Total expenses 0.75% 4 0.76% 4 0.77% 4 0.79% 4 0.79% 4
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 51% 48% 75% 46% 31%

1. Per share amounts calculated based on the average shares outstanding during
the period.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------

SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 1
- ----------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.58 $ 7.49 $ 8.54 $ 8.40
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .56 2 .61 .88 .20
Net realized and unrealized gain (loss) .15 1.06 (1.08) (.06)
--------------------------------------------------------------------
Total from investment operations .71 1.67 (.20) .14
- ----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.53) (.58) (.85) --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.76 $ 8.58 $ 7.49 $ 8.54
====================================================================

- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 8.73% 23.79% (2.67)% 1.67%
- ----------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 134,013 $ 76,354 $ 17,705 $ 3
- ----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 101,464 $ 41,246 $ 5,602 $ 2
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 6.63% 7.84% 8.91% 12.51%
Total expenses 1.01% 5 1.04% 5 1.02% 5,6 0.96% 5
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 51% 48% 75% 46%

1. For the period from September 18, 2001 (inception of offering) to December
31, 2001.

2. Per share amounts calculated based on the average shares outstanding during
the period.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

6. Voluntary waiver of transfer agent fees less than 0.01%.

INFORMATION AND SERVICES

For More Information on Oppenheimer High Income Fund/VA

The following additional information about the Fund is available without
charge upon request:

STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund's investment policies, risks, and operations. It
is incorporated by reference into this Prospectus (which means it is legally
part of this Prospectus).

ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.

How to Get More Information

You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports and the notice explaining the Fund's privacy policy:

- ------------------------------------------------------------------------------

Information about the Fund including the Statement of Additional Information
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1.202.942.8090. Reports and other information
about the Fund are available on the EDGAR database on the SEC's Internet
website at www.sec.gov. Copies may be obtained after payment of a duplicating
fee by electronic request at the SEC's e-mail address: publicinfo@sec.gov or
by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.

No one has been authorized to provide any information about the Fund or to
make any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any
state or other jurisdiction where it is unlawful to make such an offer.

The Fund's SEC File No. 811-4108
PR0640.001.0405 [logo] OppenheimerFunds Distributor, Inc.
Printed on recycled paper

Appendix to Prospectus of
Oppenheimer High Income Fund/VA
(a series of Oppenheimer Variable Account Funds)

Graphic material included in the Prospectus of Oppenheimer High Income
Fund/VA (the "Fund") under the heading "Annual Total Return (as of 12/31 each
year)":

- -----------------------------------------------------
Calendar Year Ended Annual Total Returns
- ------------------- --------------------
- -----------------------------------------------------
- -----------------------------------------------------
12/31/95 20.37%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/96 15.25%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/97 12.22%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/98 0.31%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/99 4.29%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/00 -3.74%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/01 1.97%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/02 -2.40%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/03 23.96%
- -----------------------------------------------------
- -----------------------------------------------------

12/31/04 8.97%

- -----------------------------------------------------

Oppenheimer Main Street Fund(R)/VA
A series of Oppenheimer Variable
Account Funds
Oppenheimer Main Street Fund(R)/VA is a
Prospectus dated April 29, 2005 mutual fund that seeks high total
return (which includes growth in the
value of its shares as well as current
income) from equity and debt
securities. The Fund invests mainly in
common stocks of U.S. companies.

Shares of the Fund are sold
only as an underlying investment for
variable life insurance policies,
variable annuity contracts and other
insurance company separate accounts.
A prospectus for the insurance product
you have selected accompanies this
Prospectus. It explains how to select
shares of the Fund as an investment
under the insurance product, and
whether you are only eligible to
purchase Service shares of the Fund.

This Prospectus contains
important information about the Fund's
objective, its investment policies,
As with all mutual funds, the strategies and risks. Please read this
Securities and Exchange Commission has Prospectus (and your insurance product
not approved or disapproved the Fund's prospectus) carefully before you
securities nor has it determined that invest and keep it for future
this Prospectus is accurate or reference about your account.
complete. It is a criminal offense to
represent otherwise.

(OppenheimerFunds logo)

Contents

About the Fund
- ------------------------------------------------------------------------------

The Fund's Investment Objective and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

Investing in the Fund
- ------------------------------------------------------------------------------

How to Buy and Sell Shares

Dividends, Capital Gains and Taxes

Financial Highlights

About the Fund

The Fund's Investment Objective and Principal Investment Strategies

What Is the Fund's Investment Objective? The Fund seeks high total return
(which includes growth in the value of its shares as well as current income)
from equity and debt securities.

What Does the Fund Mainly Invest In? The Fund currently invests mainly in
common stocks of U.S. companies of different capitalization ranges, presently
focusing on large-capitalization issuers. It also can buy debt securities,
such as bonds and debentures, but does not currently emphasize these
investments.

How Do the Portfolio Managers Decide What Securities to Buy or Sell? In
selecting securities for purchase or sale by the Fund, the Fund's portfolio
managers use an investment process that combines quantitative models,
fundamental research about particular securities and individual judgment.
While this process and the inter-relationship of the factors used may change
over time and its implementation may vary in particular cases, in general the
selection process involves the use of:

o Multi-factor quantitative models: The Fund uses both "top down" and
"bottom up" models. The "top down" models are primarily used to
help the portfolio managers determine their market capitalization
exposure (large, mid, small) and rely on indicators such as relative
valuations, relative price trends and interest rate relationships.
The "bottom up" models help the portfolio managers identify the most
attractive stocks within each market capitalization category. These
stock selection models are based upon many factors that measure the
attractiveness of individual securities relative to each other. The
portfolio managers typically follow and analyze more than 3,000
stocks on a daily basis and select those that they deem attractive.
o Fundamental research: The portfolio managers use both internal research
and analysis by other market analysts, with emphasis on current
company news and industry-related events.

o Judgment: The portfolio is then continuously rebalanced by the
portfolio managers, using all of the tools described above.

Who Is the Fund Designed For? The Fund's shares are available only as an
investment option under certain variable annuity contracts, variable life
insurance policies and investment plans offered through insurance company
separate accounts of participating insurance companies, for investors seeking
high total return from their investment over the long term. Those investors
should be willing to assume the risks of short-term share price fluctuations
that are typical for a fund with significant investments in stocks. Since the
Fund's income level will fluctuate, it is not designed for investors needing
an assured level of current income. The Fund is not a complete investment
program.

Main Risks of Investing in the Fund

All investments have risks to some degree. The Fund's investments are
subject to changes in their value from a number of factors described below.
There is also the risk that poor security selection by the Fund's investment
Manager, OppenheimerFunds, Inc. may cause the Fund to underperform other
funds having similar objectives.
At times, the Fund may increase the relative emphasis of its
investments in a particular industry compared to the weighting of that
industry in the S&P 500 Index, which the Fund uses as a performance
benchmark. To the extent that the Fund increases its emphasis on stocks in a
particular industry, its share values may fluctuate more in response to
events affecting that industry, such as changes in economic conditions,
government regulations, availability of basic resources or supplies, or other
events that affect that industry more than others (this is referred to as
"industry risk"). Changes in interest rates can also affect stock and bond
prices (this is known as "interest rate risk").

However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share prices of the Fund will
change daily based on changes in market prices of securities and market
conditions and in response to other economic events. Market risk will affect
the Fund's net asset values per share, which will fluctuate as the values of
the Fund's portfolio securities change.

|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. Because the Fund currently
invests a substantial portion of its assets in common stocks, the value of
the Fund's portfolio will be affected by changes in the stock markets.

A variety of factors can affect the price of a particular stock and the
prices of individual stocks do not all move in the same direction uniformly
or at the same time. Different stock markets may behave differently from each
other. In particular, because the Fund currently intends to focus its
investments in stocks of U.S. issuers, it will be affected primarily by
changes in U.S. stock markets.

Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer
or its industry. The Fund currently invests primarily in securities of large
companies, but can also buy securities of small and medium-size companies,
which may have more volatile prices than stocks of large companies.

How Risky is the Fund Overall? The risks described above collectively form
the overall risk profile of the Fund, and can affect the value of the Fund's
investments, its investment performance and its prices per share. Particular
investments and investment strategies also have risks. These risks mean that
you can lose money by investing in the Fund. When you redeem your shares,
they may be worth more or less than what you paid for them. There is no
assurance that the Fund will achieve its investment objective.

The stock markets can be volatile, and the price of the Fund's shares
can go up and down. While fixed-income securities have their own risks, and
are not currently emphasized by the Fund, they have the potential to help
cushion the Fund's total return from changes in stock prices. In the
OppenheimerFunds spectrum, the Fund is generally more conservative than
aggressive growth stock funds, but may be more volatile than investment grade
bond funds.

An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

The Fund's Past Performance

The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the performance of the Fund's
non-service shares from year to year for the last nine calendar years and by
showing how the average annual total returns of the Fund's shares for 1, 5
and 10 years, or life of class, compare to those of a broad-based market
index. The Fund's past investment performance is not necessarily an
indication of how the Fund will perform in the future.

Annual Total Returns (as of December 31 each year)

[See appendix to prospectus for data in bar chart showing annual total
returns]

Charges imposed by the separate accounts that invest in the Fund are not
included in the calculations of return in this bar chart. If those charges
were included, the returns would be less than those shown.

During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 19.28% (4th Q `98) and the lowest return (not
annualized) for a calendar quarter was -22.38% (3rd Q `98).

- ---------------------------------------------------------------------------------
Average Annual Total
Returns for the periods ----------------- 5 Years 10 Years
ended December 31, 2004 1 Year (or life of class (or life of
if less) class if less)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------

Oppenheimer Main Street 9.46% -1.59% 10.53%1
Fund(R)/VA Non-Service
Shares

(inception 7/5/95)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------

S&P 500 Index 10.87% -2.30% 10.58%2

- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Oppenheimer Main Street

Fund(R)/VA Service Shares 9.15% -2.66%3 N/A
(inception 7/13/00)

- ---------------------------------------------------------------------------------

Since inception (7/5/95).
2. Since 6/30/95.
3. Since inception (7/13/00).

The Fund's total returns should not be expected to be the same as the returns
of other Oppenheimer funds, even if both funds have the same portfolio
managers and/or similar names.

Fees and Expenses of the Fund

Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)

Management Fees 0.66% 0.66%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Distribution and Service None 0.25%
(12b-1) Fees

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Other Expenses 0.01% 0.01%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Total Annual Operating Expenses 0.67% 0.92%

- --------------------------------------------------------------------------------
Expenses may vary in future years. "Other Expenses" in the table include
transfer agent fees, custodial fees, and accounting and legal expenses the
Fund pays. The Fund's transfer agent has voluntarily agreed to limit transfer
and shareholder servicing agent fees to 0.35% per fiscal year, for both
classes. That undertaking may be amended or withdrawn at any time. For the
Fund's fiscal year ended December 31, 2004, the transfer agent fees did not
exceed the expense limitation described above.

EXAMPLE. The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

Non-Service Shares $69 $215 $374 $837

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Service Shares $194 $295 $512 $1,136

- ------------------------------------------------------------------------------

About the Fund's Investments

The Fund's Principal Investment Policies and Risks. The allocation of the
Fund's portfolio among different types of investments will vary over time
based upon the Manager's evaluation of economic and market trends. The Fund's
portfolio might not always include all the different types of investments
described below. The Statement of Additional Information contains more
detailed information about the Fund's investment policies and risks.

In addition to in-depth quantitative research, the Manager tries to
reduce risk by carefully controlling the portfolio weight of any one security
in the Fund. The Fund attempts to reduce its exposure to individual security
risk by diversifying its investments across a broad number of stocks, that
is, by not holding a substantial amount of stock of any one company and by
not investing too great a percentage of the Fund's assets in any one
company. Also, the Fund does not concentrate 25% or more of its total assets
in investments in any one industry. The share prices of the Fund will change
daily based on changes in market prices of securities and market conditions
and in response to other economic events. Additionally, the income the
securities pay can change at any time.

The Fund's equity investments may be exchange-traded or
over-the-counter securities. Over-the-counter securities may have less
liquidity than exchange-traded securities.

|X| Stock Investments. The Fund currently invests mainly in common
stocks. The Fund currently focuses on securities of issuers that have large
capitalizations. Historically their stock prices have tended to be less
volatile than securities of smaller issuers. However, the Fund can buy
stocks of issuers in all capitalization ranges. "Capitalization" refers to
the market value of all of the issuers' outstanding common stock.

|X| Loans of Portfolio Securities. The Fund has entered into a Securities
Lending Agreement with JP Morgan Chase. Under that agreement portfolio
securities of the Fund may be loaned to brokers, dealers and other financial
institutions. The Securities Lending Agreement provides that loans must be
adequately collateralized and may be made only in conformity with the Fund's
Securities Lending Guidelines, adopted by the Fund's Board of Trustees. The
value of the securities loaned may not exceed 25% of the value of the Fund's
net assets.

Portfolio Turnover. The Fund may engage in active trading to try to achieve
its objective. It might have a turnover rate in excess of 100% annually. The
Financial Highlights table at the end of this Prospectus shows the Fund's
portfolio turnover rates during prior fiscal years. Increased portfolio
turnover creates higher brokerage and transaction costs for the Fund (and may
reduce performance). For a contract owner, any increase in realized gains
will generally not be taxable directly but may affect the owner's tax basis
in the account.

Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus. Fundamental policies cannot be changed without the approval
of a majority of the Fund's outstanding voting shares. The Fund's investment
objective is a fundamental policy. Investment restrictions that are
fundamental policies are listed in the Statement of Additional Information.
An investment policy is not fundamental unless this Prospectus or the
Statement of Additional Information says that it is.

Other Investment Strategies. To seek its objective, the Fund can use the
investment techniques and strategies described below. The Fund might not
always use all of them. These techniques have risks, although some of them
are designed to help reduce overall investment or market risks.

|X| Other Equity Securities. Equity securities include common stocks, as
well as "equity equivalents" such as preferred stocks and securities
convertible into common stock. Preferred stock has a set dividend rate and
ranks after bonds and before common stocks in its claim for dividends and on
assets if the issuer is liquidated or becomes bankrupt. The Manager
considers some convertible securities to be "equity equivalents" because of
the conversion feature and in that case their rating has less impact on the
Manager's investment decision than in the case of debt securities.

|X| Debt Securities. The Fund can also invest in debt securities, such
as U.S. government securities, foreign government securities, and foreign and
domestic corporate bonds, notes and debentures, for their income
possibilities. Currently the Fund does not invest a significant percentage
of its assets in debt securities, although their relative emphasis in the
portfolio may change if the Manager believes they offer opportunities to
increase the Fund's total return.

The debt securities the Fund buys may be rated by nationally recognized
rating organizations such as Moody's Investors Service, Inc. or Standard &
Poor's Rating Service or they may be unrated securities assigned a rating by
the Manager. The Fund's investments may be above or below investment grade in
credit quality. The Manager does not rely solely on ratings by rating
organizations in selecting debt securities but evaluates business and
economic factors affecting an issuer as well.

|_| Interest Rate Risks. The values of debt securities, including U.S.
Government securities, are subject to change when prevailing interest rates
change. When interest rates fall, the values of already-issued debt
securities generally rise. When interest rates rise, the values of
already-issued debt securities generally fall. The magnitude of these
fluctuations will typically be greater for longer-term debt securities than
shorter-term debt securities. The Fund's share prices can go up or down when
interest rates change because of the effect of the changes on the value of
the Fund's investments in debt securities.

|_| Credit Risk. Debt securities are subject to credit risk. Credit
risk relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income might be reduced and if the issuer fails to
repay principal, the value of that security and of the Fund's shares might be
reduced. A downgrade in an issuer's credit rating or other adverse news
about an issuer can reduce the value of that issuer's securities. While the
Fund's investments in U.S. government securities are subject to little credit
risk, the Fund's other investments in debt securities are subject to risks of
default.

|_| U.S. Government Securities. The Fund can invest in securities
issued or guaranteed by the U.S. Treasury or other U.S. government agencies
or federally-chartered corporate entities referred to as "instrumentalities."
These are referred to as "U.S. government securities" in this Prospectus.
Although not rated, Treasury obligations have little credit risk but prior to
their maturity are subject to interest rate risk.

|X| Risks of Foreign Investing. The Fund can buy securities of
companies or governments in any country, including developed and
underdeveloped countries. There are no limits on the amounts it can invest in
foreign securities, but the Fund currently does not expect to have
substantial investments in foreign securities. While foreign securities offer
special investment opportunities, there are also special risks.

The change in value of a foreign currency against the U.S. dollar will
result in a change in the U.S. dollar value of securities denominated in that
foreign currency. Foreign issuers are not subject to the same accounting and
disclosure requirements that U.S. companies are subject to. The value of
foreign investments may be affected by exchange control regulations, currency
devaluation, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transactions, changes in governmental economic
or monetary policy in the U.S. or abroad, or other political and economic
factors.

|X| Illiquid and Restricted Securities. Investments may be illiquid
because they do not have an active trading market, making it difficult to
value them or dispose of them promptly at an acceptable price. Restricted
securities have terms that limit their resale to other investors or may
require registration under applicable securities laws before they may be sold
publicly until it is registered under the Securities Act of 1933. The Fund
will not invest more than 15% of its net assets in illiquid or restricted
securities but is not required to sell then due to declines in the Fund's
share price. Certain restricted securities that are eligible for resale to
qualified institutional purchasers may not be subject to that limit. The
Manager monitors holdings of illiquid securities on an ongoing basis to
determine whether to sell any holdings to maintain adequate liquidity.

|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In general terms, a derivative
investment is an investment contract whose value depends on (or is derived
from) the value of an underlying asset, interest rate or index. In the
broadest sense, exchange-traded options, futures contracts, mortgage-related
securities and other hedging instruments the Fund can use may be considered
"derivative investments." In addition to using hedging instruments, the Fund
may use other derivative investments because they offer the potential for
increased income and principal value.

|X| There Are Special Risks in Using Derivative Investments. If the
issuer of the derivative does not pay the amount due, the Fund can lose money
on the investment. Also, the underlying security or investment on which the
derivative is based, and the derivative itself, might not perform the way the
Manager expected it to perform. If that happens, the Fund's share prices
could decline or the Fund could get less income than expected. The Fund has
limits on the amount of particular types of derivatives it can hold. However,
using derivatives can cause the Fund to lose money on its investment and/or
increase the volatility of its share prices.

|X| Hedging. The Fund can buy and sell futures contracts, put and call
options, forward contracts and options on futures and broadly-based
securities indices. These are all referred to as "hedging instruments." The
Fund is not required to use hedging instruments to seek its objective. The
Fund does not use hedging instruments for speculative purposes, and has
limits on its use of them.

|X| Temporary Defensive and Interim Investments. In times of adverse or
unstable market, economic or political conditions, the Fund can invest up to
100% of its assets in temporary investments that are inconsistent with the
Fund's principal investment strategies. Generally they would be U.S.
government securities, highly-rated commercial paper, bank deposits or
repurchase agreements. The Fund may also hold these types of securities
pending the investment of proceeds from the sale of Fund shares or portfolio
securities or to meet anticipated redemptions of Fund shares. To the extent
the Fund invests defensively in these securities, it may not achieve its
investment objective of high total return.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in
semi-annual and annual reports that are distributed to shareholders of the
Fund within 60 days after the close of the period for which such report is
being made. The Fund also makes disclosures of its portfolio securities
holdings in its Statements of Investments on Form N-Q, which are filed with
the SEC no later than 60 days after the close of the first and third fiscal
quarters. These additional quarterly filings are publicly available at the
SEC. Therefore, portfolio holdings of the Fund are made publicly available no
later than 60 days after the close of the Fund's fiscal quarter.

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.

An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

How the Fund Is Managed

The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties under an investment
advisory agreement that states the Manager's responsibilities. The agreement
sets the fees the Fund pays to the Manager and describes the expenses that
the Fund is responsible to pay to conduct its business.

|X| Advisory Fees. Under the investment advisory agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on
additional assets as the Fund grows: the Fund pays 0.75% of the first $200
million of average annual net assets, 0.72% of the next $200 million, 0.69%
of the next $200 million, 0.66% of the next $200 million, and 0.60% of
average annual net assets over $800 million. The Fund's management fee for
its last fiscal year ended December 31, 2004, was 0.66% of the Fund's average
annual net assets for each class of shares.

|X| Portfolio Managers. The Fund's portfolio is managed by Nikolaos D.
Monoyios and Marc Reinganum who are primarily responsible for the day-to-day
management of the Fund's investments. Mr. Monoyios has been a manager of the
Fund's portfolio since May 1999. Mr. Monoyios is a Certified Financial
Analyst and has been a Senior Vice President of the Manager since October
2003. He was a Vice President of the Manager from April 1998 through
September 2003 and is an officer of other portfolios in the OppenheimerFunds
complex.

Mr. Reinganum has been a manager of the Fund's portfolio since October 2003
and has been a Vice President of the Manager since September 2002. He is also
Director of Quantitative Research and Portfolio Strategist for Equities. Mr.
Reinganum was the Mary Jo Vaughn Rauscher Chair in Financial Investments at
Southern Methodist University from 1995 until September 2002. At Southern
Methodist University, he also served as the Director of the Finance
Institute, Chairman of the Finance Department, President of the Faculty at
the Cox School of Business and member of the Board of Trustee Investment
Committee. Mr. Reinganum is an officer of other portfolios in the
OppenheimerFunds complex.

The Statement of Additional Information provides additional information about
the Portfolio Managers' compensation, other accounts they manage and their
ownership of Fund shares.

|X| Possible Conflicts of Interest. The Fund offers its shares to
separate accounts of different insurance companies that are not affiliated
with each other, as an investment for their variable annuity, variable life
and other investment product contracts. While the Fund does not foresee any
disadvantages to contract owners from these arrangements, it is possible that
the interests of owners of different contracts participating in the Fund
through different separate accounts might conflict. For example, a conflict
could arise because of differences in tax treatment.

PENDING LITIGATION. A consolidated amended complaint has been filed as
putative derivative and class actions against the Manager, Distributor
and Transfer Agent, as well as 51 of the Oppenheimer funds (collectively
the "funds") not including the Fund, 31 present and former Directors or
Trustees and 9 present and former officers of certain of the funds. This
complaint, initially filed in the U.S. District Court for the Southern
District of New York on January 10, 2005 and amended on March 4, 2005,
consolidates into a single action and amends six individual
previously-filed putative derivative and class action complaints. Like
those prior complaints, the complaint alleges that the Manager charged
excessive fees for distribution and other costs, improperly used assets
of the funds in the form of directed brokerage commissions and 12b-1
fees to pay brokers to promote sales of the funds, and failed to
properly disclose the use of fund assets to make those payments in
violation of the Investment Company Act and the Investment Advisers Act
of 1940. Also, like those prior complaints, the complaint further
alleges that by permitting and/or participating in those actions, the
Directors/Trustees and the Officers breached their fiduciary duties to
Fund shareholders under the Investment Company Act and at common law.
The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting
of all fees paid, and an award of attorneys' fees and litigation
expenses.

Investing in the Fund

How to Buy and Sell Shares

How Are Shares Purchased? Shares of the Fund may be purchased only by
separate investment accounts of participating insurance companies as an
underlying investment for variable life insurance policies, variable annuity
contracts or other investment products. Individual investors cannot buy
shares of the Fund directly. Please refer to the accompanying prospectus of
the participating insurance company for information on how to select the Fund
as an investment option for that variable life insurance policy, variable
annuity or other investment product. That prospectus will indicate whether
you are only eligible to purchase Service shares of the Fund. The Fund
reserves the right to refuse any purchase order when the Manager believes it
would be in the Fund's best interests to do so.

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

Risks from Excessive Purchase and Redemption Activity. Frequent purchases and
redemptions of Fund shares may interfere with the Manager's ability to manage
the Fund's investments efficiently, increase the Fund's transaction and
administrative costs and/or affect the Fund's performance, depending on
various factors, such as the size of the Fund, the nature of its investments,
the amount of Fund assets the portfolio manager maintains in cash or cash
equivalents, the aggregate dollar amount and the number and frequency of
trades. If large dollar amounts are involved in redemption transactions, the
Fund might be required to sell portfolio securities at unfavorable times to
meet redemption requests, and the Fund's brokerage or administrative expenses
might be increased.

o The Transfer Agent will attempt to monitor overall purchase and
redemption activity in the accounts of participating insurance
companies to seek to identify patterns that may suggest excessive
trading by the underlying owners. If evidence of possible excessive
trading activity is observed by the Transfer Agent, the participating
insurance companies or other registered owners will be asked to review
account activity in their respective accounts, and to confirm to the
Transfer Agent and the Fund that appropriate action has been taken to
curtail any excessive trading activity. However, the Transfer Agent's
ability to monitor and deter excessive short-term trading in "omnibus"
or "street name" accounts ultimately depends on the capability and
cooperation of the participating insurance companies controlling their
respective accounts.

Furthermore, each participating insurance company may impose its own
restrictions or limitations to discourage short-term or excessive trading.

Right to Refuse Purchase Orders. The Distributor and/or the Transfer Agent
may refuse any purchase order in their discretion and are not obligated to
provide notice before rejecting an order.

There can be no assurance that the Fund, the Transfer Agent or the Fund's
participating insurance companies will be successful in curbing abusive
short-term exchanges.

- ------------------------------------------------------------------------------

Information about your investment in the Fund through your variable annuity
contract, variable life insurance policy or other plan can be obtained only
----
from your participating insurance company or its servicing agent. The Fund's
Transfer Agent does not hold or have access to those records. Instructions
for buying or selling shares of the Fund should be given to your insurance
company or its servicing agent, not directly to the Fund or its Transfer
Agent.
- ------------------------------------------------------------------------------

Net Asset Value. The net asset value per share is determined as of the close
of the Exchange on each day that the Exchange is open for trading (referred
to in this Prospectus as a "regular business day"). The Exchange normally
closes at 4:00 P.M., Eastern time, but may close earlier on some days. All
references to time in this Prospectus mean "Eastern time."

The net asset value per share for a class of shares on a "regular
business day" is determined by dividing the value of the Fund's net assets
attributable to that class by the number of shares of that class outstanding
on that day. To determine net asset values, the Fund assets are valued
primarily on the basis of current market quotations. If market quotations
are not readily available or do not accurately reflect fair value for a
security (in the Manager's judgment) or if a security's value has been
materially affected by events occurring after the close of the exchange or
market on which the security is principally traded, that security may be
valued by another method that the Board of Directors/Trustees believes
accurately reflects the fair value. Because some foreign securities trade in
markets and on exchanges that operate on weekends and U.S. holidays, the
values of some of the Fund's foreign investments may change on days when
investors cannot buy or redeem Fund shares.

The Board has adopted valuation procedures for the Fund and has delegated the
day-to-day responsibility for fair value determinations to the Manager's
Valuation Committee. Fair value determinations by the Manager are subject to
review, approval and ratification by the Board at its next scheduled meeting
after the fair valuations are determined. In determining whether current
market prices are readily available and reliable, the Manager monitors the
information it receives in the ordinary course of its investment management
responsibilities for significant events that it believes in good faith will
affect the market prices of the securities of issuers held by the Fund.
Those may include events affecting specific issuers (for example, a halt in
trading of the securities of an issuer on an exchange during the trading day)
or events affecting securities markets (for example, a foreign securities
market closes early because of a natural disaster). The Fund uses fair value
pricing procedures to reflect what the Manager and the Board believe to be
more accurate values for its portfolio securities, although it may not always
be able to do so.

If, after the close of the principal market on which a security held by
the Fund is traded, and before the time as of which the Fund's net asset
values are calculated that day, a significant event occurs that the Manager
learns of and believes in the exercise of its judgment will cause a material
change in the value of that security from the closing price of the security
on the principal market on which it is traded, the Manager will use its best
judgment to determine a fair value for that security.

The Manager believes that foreign securities values may be affected by
volatility that occurs in U.S. markets on a trading day after the close of
foreign securities markets. The Manager's fair valuation procedures
therefore include a procedure whereby foreign securities prices may be "fair
valued" to take those factors into account.

The offering price that applies to an order from a participating
insurance company is based on the next calculation of the net asset value per
share that is made after the insurance company (as the Fund's designated
agent to receive purchase orders) receives a purchase order from its contract
or policy owners to purchase Fund shares on a regular business day, provided
that the Fund receives the order from the insurance company, generally by
9:30 a.m. on the next regular business day at the offices of its Transfer
Agent in Colorado.

|X| Classes of Shares. The Fund offers two different classes of
shares. The class of shares designated as Service shares are subject to a
distribution and service plan. The impact of the expenses of that plan on
Service shares is described below. The class of shares that are not subject
to a plan has no class name designation. The different classes of shares
represent investments in the same portfolio of securities but are expected to
be subject to different expenses and will likely have different share prices.

Distribution and Service Plan for Service Shares. The Fund has adopted a
Distribution and Service Plan for Service shares to pay the distributor, for
distribution related services personal services and account maintenance for
the Fund's Service shares. Under the Plan, payments are made quarterly at an
annual rate of up to 0.25% of the average annual net assets of Service shares
of the Fund. Because these fees are paid out of the Fund's assets on an
on-going basis, over time these fees will increase the cost of your
investment and may cost you more than other types of fees or sales charges.
The distributor currently uses all of those fees to compensate sponsor(s) of
the insurance product that offers Fund shares, for providing personal service
and maintenance of accounts of their variable contract owners that hold
Service shares.

The share price that applies to a redemption order is the next net asset
value per share that is determined after the participating insurance company
(as the Fund's designated agent) receives a redemption request on a regular
business day from its contract or policy holder, provided that the Fund
receives the order from the insurance company, generally by 9:30 a.m. the
next regular business day, at the office of its Transfer Agent in Denver,
Colorado. The participating insurance company must receive that order before
the close of the Exchange (usually 4:00 p.m. Eastern time). The Fund normally
sends payment by Federal Funds wire to the insurance company's account the
day after the Fund receives the order (and no later than seven days after the
Fund's receipt of the order). Shares may be redeemed in kind under certain
limited circumstances (such as redemptions of substantial amounts of shares
by shareholders that have consented to such in kind redemptions). This means
that the redemption proceeds will be paid to the participating insurance
companies that hold Fund shares with liquid securities from the Fund's
portfolio. If the Fund redeems shares in kind, the accounts may bear
transaction costs and market risks until such time as the securities are
converted into cash. Under unusual circumstances determined by the
Securities and Exchange Commission, payment may be delayed or suspended.

Dividends, Capital Gains and Taxes

Financial Highlights

FINIANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.20 $ 15.32 $ 18.99 $ 21.26 $ 24.63
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .27 1 .18 .16 .13 .10
Net realized and unrealized gain (loss) 1.53 3.86 (3.70) (2.29) (2.14)
----------------------------------------------------------------------------
Total from investment operations 1.80 4.04 (3.54) (2.16) (2.04)
- ------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.16) (.16) (.13) (.11) (.09)
Distributions from net realized gain -- -- -- -- (1.24)
----------------------------------------------------------------------------
Total dividends and/or distributions to
shareholders (.16) (.16) (.13) (.11) (1.33)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 20.84 $ 19.20 $ 15.32 $ 18.99 $ 21.26
============================================================================

- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 9.46% 26.72% (18.80)% (10.16)% (8.78)%
- ------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 1,238,948 $ 1,214,960 $ 890,740 $ 1,074,945 $ 1,009,823
- ------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 1,216,081 $ 1,003,396 $ 999,275 $ 1,028,913 $ 809,662
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.39% 1.10% 0.94% 0.73% 0.69%
Total expenses 0.67% 4 0.70% 4 0.69% 4 0.73% 4 0.73%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 82% 85% 98% 69% 63%

1. Per share amounts calculated based on the average shares outstanding during
the period.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

FINIANCIAL HIGHLIGHTS continued
- --------------------------------------------------------------------------------

SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 2001 1
- ------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.10 $ 15.26 $ 18.95 $ 21.24 $ 24.04
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .25 2 .14 .13 .14 .02
Net realized and unrealized gain (loss) 1.49 3.85 (3.70) (2.32) (2.82)
----------------------------------------------------------------
Total investment operations 1.74 3.99 (3.57) (2.18) (2.80)
- ------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.14) (.15) (.12) (.11) --
Distributions from net realized gain -- -- -- -- --
----------------------------------------------------------------
Total dividends and/or distributions to
shareholders (.14) (.15) (.12) (.11) --
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 20.70 $ 19.10 $ 15.26 $ 18.95 $ 21.24
================================================================

- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 9.15% 26.44% (18.99)% (10.27)% (11.61)%
- ------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 372,845 $ 166,717 $ 51,929 $ 21,545 $ 1,698
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 262,660 $ 98,210 $ 34,604 $ 10,306 $ 543
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 1.30% 0.83% 0.87% 0.66% 0.50%
Total expenses 0.92% 5 0.96% 5 0.84% 5 0.88% 5 0.88%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 82% 85% 98% 69% 63%

1. For the period from July 13, 2000 (inception of offering) to December 31,
2000.

2. Per share amounts calculated based on the average shares outstanding during
the period.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

INFORMATION AND SERVICES

For More Information on Oppenheimer Main Street Fund(R)/VA

The following additional information about the Fund is available without
charge upon request:

How to Get More Information

You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports and the notice explaining the Fund's privacy policy:

- ---------------------------------------------------------------------------

- ---------------------------------------------------------------------------
- ------------------------------------------------------------------------------

By Telephone: Call OppenheimerFunds Services toll-free:
1.800.981.2871

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
Information about the Fund including the Statement of Additional
Information can be reviewed and copied at the SEC's Public Reference Room
in Washington, D.C. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1.202.942.8090. Reports and
other information about the Fund are available on the EDGAR database on
the SEC's Internet website at www.sec.gov. Copies may be obtained after
payment of a duplicating fee by electronic request at the SEC's e-mail
address: publicinfo@sec.gov or by writing to the SEC's Public Reference
Section, Washington, D.C. 20549-0102.

Appendix to Prospectus of
Oppenheimer Main Street Fund(R)/ VA
(a series of Oppenheimer Variable Account Funds)

Graphic material included in the Prospectus of Oppenheimer Main
Street Fund(R)/VA (the "Fund") under the heading "Annual Total Return (as
of December 31 each year)":

A bar chart will be included in the Prospectus of the Fund depicting
the annual total returns of a hypothetical investment in non-service
shares of the Fund for each of the nine most recent calendar years,
without deducting separate account expenses. Set forth below are the
relevant data that will appear on the bar chart:

Calendar
Year
Ended Annual Total Returns
- ----- --------------------

12/31/96 32.51%
12/31/97 32.48%
12/31/98 4.70%
12/31/99 21.71%
12/31/00 -8.78%
12/31/01 -10.16%
12/31/02 -18.80%
12/31/03 26.72%
12/31/04 9.46%

Oppenheimer
Main Street Small Cap Fund(R)/VA
A series of Oppenheimer Variable
Account Funds

Prospectus dated April 29, 2005

Oppenheimer Main Street Small Cap
Fund(R)/VA is a mutual fund that seeks
capital appreciation. The Fund invests
mainly in common stocks of "small-cap"
companies.

Shares of the Fund are sold only
as an underlying investment for
variable life insurance policies,
variable annuity contracts and other
insurance company separate accounts. A
prospectus for the insurance product
you have selected accompanies this
Prospectus and explains how to select
shares of the Fund as an investment
under that insurance product, and
whether you are only eligible to
purchase Service shares of the Fund.

This Prospectus contains
important information about the Fund's
objective, its investment policies,
strategies and risks. Please read this
Prospectus (and your insurance product
As with all mutual funds, the prospectus) carefully before you
Securities invest and keep them for future
and Exchange Commission has not reference about your account.
approved or disapproved the Fund's
securities nor has it determined that
this Prospectus is accurate or
complete.
It is a criminal offense to represent
otherwise.
(OppenheimerFunds logo)

Contents

About the Fund
- ------------------------------------------------------------------------------

The Fund's Investment Objective and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

Investing in the Fund
- ------------------------------------------------------------------------------

How to Buy and Sell Shares

Dividends, Capital Gains and Taxes

Financial Highlights

About the Fund

The Fund's Investment Objective and Principal Investment Strategies

What is the Fund's Investment Objective? The Fund seeks capital appreciation.

What Does The Fund Mainly Invest In? The Fund invests mainly in common
stocks of small-capitalization ("small cap") U.S. companies that the Fund's
investment Manager, OppenheimerFunds, Inc., believes have favorable business
trends or prospects. Under normal market conditions, the Fund will invest at
least 80% of its net assets (including any borrowings for investment
purposes) in securities of companies having a small market capitalization.
These may include common stocks and other equity securities of "growth"
and/or "value" companies. A "value" investment style attempts to find
companies whose securities are believed to be undervalued in the marketplace.
A "growth" investment style encompasses a search for companies whose earnings
are expected to increase at a greater rate than the overall market. The Fund
incorporates a blended style of investing combining both growth and value
styles.

The Fund currently considers an issuer having a market capitalization
of up to $3 billion to be a "small-cap" issuer. The Fund measures an issuer's
market capitalization at the time the Fund buys the security, and it is not
required to sell the security if the issuer's capitalization grows above $3
billion. Over time, the Fund may change the range of assets it uses to define
"small-cap" issuers, as market conditions change. The Fund's investment
program is more fully explained in "About the Fund's Investments," below.

- ---------------------------------------------------------------------
What is "Market Capitalization"?
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------

In general, a company's market capitalization is the total
market value of the company's issued and outstanding common
stock.

- ---------------------------------------------------------------------

How Do The Portfolio Managers Decide What Securities To Buy Or Sell? In
selecting securities for purchase or sale by the Fund, the Fund's portfolio
managers use an investment process that combines quantitative models,
fundamental research about particular securities and individual judgment.
While this process and the inter-relationship of the factors used may change
over time and its implementation may vary in particular cases, in general the
selection process involves the use of:

o Multi-factor quantitative models: These include a group of "top-down"
models that analyze data such as relative valuations, relative price
trends, interest rates and the shape of the yield curve. These help
direct portfolio emphasis by industries and value or growth styles. A
group of "bottom up" models helps to rank stocks in a universe,
selecting stocks for relative attractiveness by analyzing fundamental
stock and company characteristics.
o Fundamental research: The portfolio managers use internal research and
analysis by other market analysts, with emphasis on current company
news and industry-related events.
o Judgment: The portfolio is then continuously re-balanced by the
portfolio managers, based upon the quantitative tools and quantitative
factors described above.

In seeking broad diversification of the Fund's portfolio, the portfolio
managers currently search primarily for the following characteristics
(although these may vary over time and in different cases):
o Companies with a small market capitalization, primarily up to $3
billion.

o Companies with attractive financial characteristics under the
quantitative models.

o Companies experiencing positive changes in operations due to enhanced
competitive ability and/or beneficial industry trends.

The portfolio managers employ a disciplined approach in deciding
whether to sell particular portfolio securities based on quantitative models
and fundamental research. If a particular stock exhibits the following
factors, among others, they will consider selling the stock:
o deterioration in a company's expected earnings or cash flow;
o change in valuation as determined by multiple variables including:
earnings, cash flow and book value; or
o analysis of a company's balance sheet suggests less attractive earnings
potential.

In addition, if the reason that the portfolio managers originally
purchased the stock of a particular company materially changes, they may
decide to sell the stock.

Who is the Fund Designed For? The Fund's shares are available only as an
investment option under certain variable annuity contracts, variable life
insurance policies and investment plans offered through insurance company
separate accounts of participating insurance companies, for investors seeking
capital growth in their investment over the long term from investments in
small-cap stocks. Those investors should be willing to assume the greater
risks of short-term share price fluctuations that are typical for a fund
focusing on small-cap stocks. Since the Fund does not invest for income and
the income from its investments will likely be small, it is not designed for
investors needing an assured level of current income. The Fund is not a
complete investment program.

Main Risks of Investing in the Fund

All investments have some degree of risk. The Fund's investments, in
particular, are subject to changes in their value from a number of factors
described below. Investments in stocks can be volatile and are subject to
changes in general stock market movements (this is referred to as "market
risk"). There is also the risk that poor security selection by the Manager
may cause the Fund to underperform other funds having a similar objective.
The Fund may also be subject to the risk that economic or other events can
have a negative effect on particular industries that might have a relatively
greater weighting in the Fund's portfolio (this is referred to as "industry
risk") There is also the risk of negative change in value of a particular
stock because of an event affecting a particular issuer.

Stocks of growth companies may provide greater opportunities for
capital appreciation but may be more volatile than other stocks. That
volatility is likely to be even greater for small-cap companies. The Fund can
also buy foreign securities that have special risks not associated with
investments in domestic securities, such as the effects of currency
fluctuations on relative prices.

The Manager tries to reduce risks by carefully researching securities
before they are purchased. The Fund attempts to reduce its exposure to market
risks by diversifying its investments, that is, by not holding a substantial
percentage of the stock of any one company and by not investing too great a
percentage of the Fund's assets in any one company. Also, the Fund does not
concentrate 25% or more of its assets in investments in any one industry.

However, changes in the overall market prices of securities can occur
at any time. Market risk will affect the Fund's net asset value per share,
which will fluctuate as the values of the Fund's portfolio securities change.
The share price of the Fund will change daily based on changes in market
prices of securities and market conditions, and in response to other economic
events.

|X| Risks Of Investing In Stocks. Because the Fund invests primarily
in common stocks of small-cap companies, the value of the Fund's portfolio
will be affected by changes in the stock market and the special economic and
other factors that might primarily affect the prices of small cap stocks. The
prices of individual stocks do not all move in the same direction uniformly
or at the same time. Different stock markets may behave differently from each
other.

Securities in the Fund's portfolio may not increase as much as the
market as a whole. Some small cap securities may be inactively traded, and
therefore, may not be readily bought or sold. Although profits in some Fund
holdings may be realized quickly, investors should not expect the Fund's
investments to appreciate rapidly. Other factors can affect a particular
stock's price, such as poor earnings reports by the issuer, loss of major
customers, major litigation against the issuer, or changes in government
regulations affecting the issuer or its industry.

|X| Industry, Sector and Investment Style Focus. At times the Fund may
increase the relative emphasis of its investments in a particular industry or
sector, and in the growth or value investment styles. The prices of stocks of
issuers in a particular industry, sector or investment style may go up and
down in response to changes in economic conditions, government regulations,
availability of basic resources or supplies, or other events that affect that
industry or sector or style more than others. To the extent that the Fund
increases the relative emphasis of its investments in a particular industry,
sector or investment style, its share values may fluctuate in response to
events affecting that industry, sector or investment style. To some extent
that risk may be limited by the Fund's policy of not concentrating 25% or
more of its assets in investments in any one industry.

The growth and value investment styles each have their own investment
risks, and either may be out of favor at any point in time. Stocks of growth
companies, particularly newer companies, may offer opportunities for greater
capital appreciation but may be more volatile than stocks of larger, more
established companies. If the company's earnings growth or stock price fails
to increase as expected the stock price of a growth company may decline
sharply. If value stocks prove not to be undervalued, the stock price may
not appreciate and may even decline.

|X| Special Risks of Small-Cap Stocks. The Fund focuses its investments
on securities of companies having a small market capitalization, which can
include both established and newer companies. While newer emerging growth
companies might offer greater opportunities for capital appreciation than
more established companies, they involve substantially greater risks of loss
and price fluctuations than more-established issuers.

Small-cap companies may have limited product lines or markets for their
products, limited access to financial resources and less depth in management
skill than larger, more established companies. Their stocks may be less
liquid than those of larger issuers. That means the Fund could have greater
difficulty selling a security of a small cap issuer at an acceptable price,
especially in periods of market volatility. That factor increases the
potential for losses to the Fund. Also, it may take a substantial period of
time before the Fund realizes a gain on an investment in a small-cap company,
if it realizes any gain at all.

To the extent that a fund invests significantly in small-cap equity
securities, because those types of securities may be traded infrequently,
investors may seek to trade fund shares based on their knowledge or
understanding of the value of those types of securities (this is sometimes
referred to as "price arbitrage"). Such price arbitrage, if otherwise
successful, might interfere with the efficient management of a fund's
portfolio to a greater degree than would be the case for funds that invest in
more liquid securities, because the fund may have difficulty selling those
securities at advantageous times or prices to satisfy the liquidity
requirements created by large and/or frequent trading activity. Successful
price arbitrage activities might also dilute the value of fund shares held by
other shareholders.

|X| How Risky is the Fund Overall? The risks described above
collectively form the overall risk profile of the Fund and can affect the
value of the Fund's investments, its investment performance and its price per
share. Particular investments and investment strategies also have risks.
These risks mean that you can lose money by investing in the Fund. When you
redeem your shares, they may be worth more or less than what you paid for
them. There is no assurance that the Fund will achieve its investment
objective.

In the short term, the market for small-cap stocks can be volatile, and the
price of the Fund's shares can go up and down substantially. The Fund
generally does not use income-producing investments to help cushion the
Fund's total return from changes in stock prices. The Fund is a very
aggressive investment vehicle, designed for investors willing to assume
greater risks in the hope of achieving greater gains. It generally may be
less volatile than funds focusing on emerging markets but its share price is
likely to fluctuate more than the price of shares of Funds emphasizing
large-cap stocks. The Fund is not a complete investment program.

An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

The Fund's Past Performance

The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the performance of the Fund's non-service
shares from year to year for the last six calendar years and by showing how
the average annual total returns of the Fund's shares for 1 and 5 years, or
the life of a class, compare to those of a small-capitalization sector index.
The Fund's past investment performance is not necessarily an indication of
how the Fund will perform in the future.

Annual Total Returns (as of December 31 each year)

[See appendix to prospectus for data in bar chart showing annual total
returns]

During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 49.05% (4th Q'99) and the lowest return (not
annualized) for a calendar quarter was -18.40% (1st Q'01)

- -----------------------------------------------------------------------------------
Average Annual Total
Returns for the periods 1 Year 5 Years 10 Years
ended December 31, 2004 (or life of class (or life of class
if less) if less)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Oppenheimer Main Street 19.42% 3.40% 7.93%1
Small Cap Fund(R)/VA
Non-Service Shares

(inception 5/1/98)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Russell 2000(R)Index 18.33% 6.61%2 5.95%3

Service Shares 19.18% 12.55%4 N/A
(inception 7/16/01)

- -----------------------------------------------------------------------------------

1. Since inception (5/1/98).
2. Since 7/31/01.
3. Since 4/30/98.
4. Since inception (7/16/01).

The Fund's total returns should not be expected to be the same as the returns
of other Oppenheimer funds, even if both funds have the same portfolio
managers and/or similar names.

Fees and Expenses of the Fund

Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
- --------------------------------------------------------------------------------
Non-Service Shares Service Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Management Fees 0.75% 0.75%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Distribution and Service None 0.25%
(12b-1) Fees

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Other Expenses 0.08% 0.06%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Total Annual Operating Expenses 0.83% 1.06%

EXAMPLE. The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

Non-Service Shares $85 $266 $462 $1,030

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Service Shares $209 $339 $588 $1,301

- ------------------------------------------------------------------------------

About the Fund's Investments

The Fund's Principal Investment Policies and Risks. The allocation of the
Fund's portfolio among the different types of permitted investments will vary
over time based on the Manager's evaluation of economic and market trends.
The Fund's portfolio might not always include all of the different types of
investments described below. The Statement of Additional Information contains
more detailed information about the Fund's investment policies and risks.

Small-Cap Stocks. The Fund invests mainly in a diversified portfolio of
common stocks of small-cap companies to seek capital appreciation. Small-cap
growth companies could include, for example, companies that are developing
new products or services, that have relatively favorable prospects, or that
are expanding into new and growing markets. They may provide new products or
services that can enable them to capture a dominant or important market
position. They may have a special area of expertise or the capability to take
advantage of changes in demographic factors in a more profitable way than
larger, more established companies. Small-cap value companies meet valuation
parameters (such as the P/E ratio) that may indicate that they are less
expensive than other small-cap companies.

The Manager currently defines small-capitalization issuers as those
issuers having a market capitalization of up to $3 billion. However, this
definition of a "small-cap" issuer is subject to change.

The Fund's equity investments may be exchange-traded or
over-the-counter securities. Over-the-counter securities may have less
liquidity than exchange-traded securities.

|X| Investing in Small, Unseasoned Companies. The Fund can invest in
unseasoned companies. These are companies that have been in operation less
than three years, including the operations of any predecessors. Because these
companies have a limited operating history and may be more dependent on the
efforts of individual managers, their securities may have limited liquidity
and their prices may be very volatile. The Fund currently does not intend to
invest more than 20% of its net assets in these securities.

Newer companies typically retain a large part of their earnings for
research, development or investment in capital assets. Therefore, they do not
tend to emphasize paying dividends, and may not pay any dividends for some
time after the Fund buys their stock. However, the Fund does not have current
income as a goal.

|X| Portfolio Turnover. The Fund may engage in active trading to try to
achieve its objective. It might have a turnover rate in excess of 100%
annually. The Financial Highlights table at the end of this Prospectus shows
the Fund's portfolio turnover rates during prior fiscal years. Increased
portfolio turnover creates higher brokerage and transaction costs for the
Fund (and may reduce performance). For a contract owner, any increase in
realized gains will generally not be taxable directly but may affect the
owner's tax basis in the account.

Can The Fund's Investment Objective And Policies Change? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus. Shareholders will receive 60 days advance notice of any
change in the 80% requirement described above under "What Does The Fund
Mainly Invest in?" Fundamental policies are those that cannot be changed
without the approval of a majority of the Fund's outstanding voting shares.
The Fund's investment objective is a fundamental policy. Investment
restrictions that are fundamental policies are listed in the Statement of
Additional Information. An investment policy is not fundamental unless this
Prospectus or the Statement of Additional Information says that it is.

Other Investment Strategies. To seek its objective, the Fund can also use
the investment techniques and strategies described below. The Manager might
not always use all of the different types of techniques and investments
described below. These techniques involve certain risks, although some are
designed to help reduce investment or market risks.

|X| Other Equity Securities. While the Fund emphasizes investments in
common stocks, it may also buy preferred stocks and securities convertible
into common stock. While some convertible securities are debt securities, the
Manager considers some of them to be "equity equivalents" because of the
conversion feature and in that case their rating has less impact on the
investment decision than in the case of other debt securities. Nevertheless,
convertible securities are subject to both "credit risk" (the risk that the
issuer will not pay interest or repay principal in a timely manner) and
"interest rate risk" (the risk that the prices of the securities will be
affected inversely by changes prevailing interest rates). If the Fund buys
convertible securities (or other debt securities) it will focus primarily on
investment-grade securities, which pose less credit risk than lower-grade
debt securities.

Other Investments. The Fund's investments are not limited only to small-cap
issuers. Under normal market conditions, up to 20% of the assets of
the Fund can be invested in securities of mid and large capitalization
companies, if the Manager believes they offer opportunities for growth.

Special Risks of Initial Public Offerings (IPOs). The Fund has no limit on
the amount of its assets that can be invested in IPOs. By definition,
securities issued in IPOs have not traded publicly until the time of
their offerings. Special risks associated with IPOs may include, among
others, the fact that there may be only a limited number of shares
available for trading. The market for those securities may be
unseasoned. The issuer may have a limited operating history. These
factors may contribute to price volatility. The limited number of
shares available for trading in some IPOs may also make it more
difficult for the Fund to buy or sell significant amounts of shares
without an unfavorable impact on prevailing prices. In addition, some
companies initially offering their shares publicly are involved in
relatively new industries or lines of business, which may not be widely
understood by investors. Some of the companies involved in new
industries may be regarded as developmental stage companies, without
revenues or operating income, or the near-term prospects of them. Many
IPOs are by small-or micro-cap companies that are undercapitalized.

|X| Foreign Securities. The Fund can invest in foreign securities,
although most of the small cap stocks the Fund holds are issued by domestic
companies. The Fund currently emphasizes investments in U.S. companies and
does not expect its investments in foreign securities to exceed 25% of its
net assets.

While foreign securities offer special investment opportunities, there
are also special risks. The change in value of a foreign currency against the
U.S. dollar will result in a change in the U.S. dollar value of securities
denominated in that foreign currency. Foreign issuers are not subject to the
same accounting and disclosure requirements that U.S. companies are subject
to.

The value of foreign investments may be affected by exchange control
regulations, currency devaluations, expropriation or nationalization of a
company's assets, foreign taxes, delays in settlement of transactions,
changes in governmental economic or monetary policy in the U.S. or abroad, or
other political and economic factors.

Additionally, if a fund invests a significant amount of its assets in
foreign securities, it might expose the fund to "time-zone arbitrage"
attempts by investors seeking to take advantage of the differences in value
of foreign securities that might result from events that occur after the
close of the foreign securities market on which a foreign security is traded
and the close of The New York Stock Exchange that day, when the Fund's net
asset value is calculated. If such time-zone arbitrage were successful, it
might dilute the interests of other shareholders. However, the Fund's use of
"fair value pricing" to adjust the closing market prices of foreign
securities under certain circumstances, to reflect what the Manager and the
Board believe to be their fair value may help deter those activities.

|X| Illiquid and Restricted Securities. Investments may be illiquid
because they do not have an active trading market, making it difficult to
value them or dispose of them promptly at an acceptable price. Restricted
securities may have terms that limit their resale to other investors or may
require registration under applicable securities laws before they may be sold
publicly. The Fund will not invest more than 10% of its net assets in
illiquid or restricted securities. The Board can increase that limit to 15%.
Certain restricted securities that are eligible for resale to qualified
institutional purchasers may not be subject to that limit. The Manager
monitors holdings of illiquid securities on an ongoing basis to determine
whether to sell any holdings to maintain adequate liquidity.

|X| Derivative Investments. The Fund can invest in a number of
different kinds of "derivative" investments. In general terms, a derivative
investment is an investment contract whose value depends on (or is derived
from) the value of an underlying asset, interest rate or index. In the
broadest sense, options, futures contracts, and other hedging instruments the
Fund might use may be considered "derivative" investments. The Fund currently
does not use derivatives to a significant degree and is not required to use
them in seeking its objective.

Derivatives have risks. If the issuer of the derivative investment does
not pay the amount due, the Fund can lose money on the investment. The
underlying security or investment on which a derivative is based, and the
derivative itself, may not perform the way the Manager expected it to. As a
result of these risks the Fund could realize less principal or income from
the investment than expected or its hedge might be unsuccessful. As a result,
the Fund's share prices could fall. Certain derivative investments held by
the Fund might be illiquid.

Options trading involves the payment of premiums and has special tax
effects on the Fund. If a covered call written by the Fund is exercised on
an investment that has increased in value, the Fund will be required to sell
the investment at the call price and will not be able to realize any profits
if the investment has increased in value above the call price. There are
also special risks in particular hedging strategies. If the Manager used a
hedging instrument at the wrong time or judged market conditions incorrectly,
the strategy could reduce the Fund's return. The Fund could also experience
losses if the prices of its futures and options positions were not correlated
with its other investments or if it could not close out a position because of
an illiquid market.

|X| Temporary Defensive and Interim Investments. In times of adverse
or unstable market, economic or political conditions, the Fund can invest up
to 100% of its assets in temporary investments that are inconsistent with the
Fund's principal investment strategies. Generally they would be cash or cash
equivalents, such as U.S. Treasury Bills and other short-term U.S. government
obligations or high-grade commercial paper. The Fund can also hold these
types of securities pending the investment of proceeds from the sale of Fund
shares or portfolio securities or to meet anticipated redemptions of Fund
shares. To the extent the Fund invests defensively in these securities, it
might not achieve its investment objectives.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in
semi-annual and annual reports that are distributed to shareholders of the
Fund within 60 days after the close of the period for which such report is
being made. The Fund also makes disclosures of its portfolio securities
holdings in its Statements of Investments on Form N-Q, which are filed with
the SEC no later than 60 days after the close of the first and third fiscal
quarters. These additional quarterly filings are publicly available at the
SEC. Therefore, portfolio holdings of the Fund are made publicly available no
later than 60 days after the close of the Fund's fiscal quarter.

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.

How the Fund Is Managed

The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the
policies established by the Fund's Board of Trustees, under an Investment
Advisory Agreement that states the Manager's responsibilities. The Agreement
sets the fees the Fund pays to the Manager and describes the expenses that
the Fund is responsible to pay to conduct its business.

The Manager has been an investment adviser since 1960. The Manager and
its subsidiaries and controlled affiliates managed more than $170 billion in
assets as of March 31, 2005, including other Oppenheimer funds with more than
7 million shareholder accounts. The Manager is located at Two World
Financial Center, 225 Liberty Street, 11th Floor, New York, New York
10281-1008.

|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund
pays the Manager an advisory fee at an annual rate that declines on
additional assets as the Fund grows: the Fund pays 0.75% of the first $200
million of average annual net assets, 0.72% of the next $200 million, 0.69%
of the next $200 million, 0.66% of the next $200 million, and 0.60% of
average annual net assets over $800 million. The Fund's management fee for
its last fiscal year ended December 31, 2004, was 0.75% of the Fund's average
annual net assets for each class of shares.

|X| Portfolio Managers. The Fund's portfolio is managed by Nikolaos D.
Monoyios and Mark Zavanelli who are primarily responsible for the day-to-day
management of the Fund's investments. Mr. Monoyios is a Certified Financial
Analyst. Mr. Monoyios has been a manager of the Fund's portfolio since
October 2003 and has been a Senior Vice President of the Manager since
October 2003. He was a Vice President of the Manager from April 1998 through
September 2003 and is an officer of other portfolios in the OppenheimerFunds
complex.

Mr. Zavanelli is a Chartered Financial Analyst and has been a Vice President
of the Manager since November 2000. He is also an officer of other portfolios
in the OppenheimerFunds complex. Prior to joining the Manager in May 1998,
Mr. Zavanelli was President of Waterside Capital Management, a registered
investment adviser, from August 1995 through April 1998.

The Statement of Additional Information provides additional information about
the Portfolio Managers' compensation, other accounts they manage and their
ownership of Fund shares.

|X| Possible Conflicts of Interest. The Fund offers its shares to
separate accounts of different insurance companies that are not affiliated
with each other, as an investment for their variable annuity, variable life
and other investment product contracts. While the Fund does not foresee any
disadvantages to contract owners from these arrangements, it is possible that
the interests of owners of different contracts participating in the Fund
through different separate accounts might conflict. For example, a conflict
could arise because of differences in tax treatment.

The Fund's Board has procedures to monitor the portfolio for possible
conflicts to determine what action should be taken. If a conflict occurs, the
Board might require one or more participating insurance company separate
accounts to withdraw their investments in the Fund. That could force the Fund
to sell securities at disadvantageous prices, and orderly portfolio
management could be disrupted. Also, the Board might refuse to sell shares of
the Fund to a particular separate account, or could terminate the offering of
the Fund's shares if required to do so by law or if it would be in the best
interests of the shareholders of the Fund to do so.

Investing in the Fund

How to Buy and Sell Shares

How Are Shares Purchased? Shares of the Fund may be purchased only by
separate investment accounts of participating insurance companies as an
underlying investment for variable life insurance policies, variable annuity
contracts or other investment products. Individual investors cannot buy
shares of the Fund directly. Please refer to the accompanying prospectus of
the participating insurance company for information on how to select the Fund
as an investment option for that variable life insurance policy, variable
annuity or other investment product. That prospectus will indicate whether
you are only eligible to purchase Service shares of the Fund. The Fund
reserves the right to refuse any purchase order when the Manager believes it
would be in the Fund's best interests to do so.

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

Risks from Excessive Purchase and Redemption Activity. Frequent purchases and
redemptions of Fund shares may interfere with the Manager's ability to manage
the Fund's investments efficiently, increase the Fund's transaction and
administrative costs and/or affect the Fund's performance, depending on
various factors, such as the size of the Fund, the nature of its investments,
the amount of Fund assets the portfolio manager maintains in cash or cash
equivalents, the aggregate dollar amount and the number and frequency of
trades. If large dollar amounts are involved in redemption transactions, the
Fund might be required to sell portfolio securities at unfavorable times to
meet redemption requests, and the Fund's brokerage or administrative expenses
might be increased.

o The Transfer Agent will attempt to monitor overall purchase and
redemption activity in the accounts of participating insurance
companies to seek to identify patterns that may suggest excessive
trading by the underlying owners. If evidence of possible excessive
trading activity is observed by the Transfer Agent, the participating
insurance companies or other registered owners will be asked to review
account activity in their respective accounts, and to confirm to the
Transfer Agent and the Fund that appropriate action has been taken to
curtail any excessive trading activity. However, the Transfer Agent's
ability to monitor and deter excessive short-term trading in omnibus or
street name accounts ultimately depends on the capability and
cooperation of the participating insurance companies controlling their
respective accounts.

Furthermore, each participating insurance company may impose its own
restrictions or limitations to discourage short-term or excessive trading.

Right to Refuse Purchase Orders. The Distributor and/or the Transfer Agent
may refuse any purchase order in their discretion and are not obligated to
provide notice before rejecting an order.

There can be no assurance that the Fund, the Transfer Agent or the
Fund's participating insurance companies will be successful in curbing
abusive short-term exchanges.

- ------------------------------------------------------------------------------
Information about your investment in the Fund through your variable annuity
contract, variable life insurance policy or other plan can be obtained only
----
from your participating insurance company or its servicing agent. The Fund's
Transfer Agent does not hold or have access to those records. Instructions
for buying or selling shares of the Fund should be given to your insurance
company or its servicing agent, not directly to the Fund or its Transfer
Agent.
- ------------------------------------------------------------------------------

Net Asset Value. The net asset value per share is determined as of the close
of The New York Stock Exchange (the "Exchange") on each day that the Exchange
is open for trading (referred to in this Prospectus as a "regular business
day"). The Exchange normally closes at 4:00 P.M., Eastern time, but may
close earlier on some days. All references to time in this Prospectus mean
"Eastern time."

The net asset value per share for a class of shares on a "regular
business day" is determined by dividing the value of the Fund's net assets
attributable to that class by the number of shares of that class outstanding
on that day. To determine net asset values, the Fund assets are valued
primarily on the basis of current market quotations. If market quotations
are not readily available or do not accurately reflect fair value for a
security (in the Manager's judgment) or if a security's value has been
materially affected by events occurring after the close of the exchange or
market on which the security is principally traded, that security may be
valued by another method that the Board of Trustees believes accurately
reflects the fair value. Because some foreign securities trade in markets and
on exchanges that operate on weekends and U.S. holidays, the values of some
of the Fund's foreign investments may change on days when investors cannot
buy or redeem Fund shares.

The Board has adopted valuation procedures for the Fund and has delegated the
day-to-day responsibility for fair value determinations to the Manager's
Valuation Committee. Fair value determinations by the Manager are subject to
review, approval and ratification by the Board at its next scheduled meeting
after the fair valuations are determined. In determining whether current
market prices are readily available and reliable, the Manager monitors the
information it receives in the ordinary course of its investment management
responsibilities for significant events that it believes in good faith will
affect the market prices of the securities of issuers held by the Fund.
Those may include events affecting specific issuers (for example, a halt in
trading of the securities of an issuer on an exchange during the trading day)
or events affecting securities markets (for example, a foreign securities
market closes early because of a natural disaster). The Fund uses fair value
pricing procedures to reflect what the Manager and the Board believe to be
more accurate values for its portfolio securities, although it may not always
be able to do so.

The Manager believes that foreign securities values may be affected by
volatility that occurs in U.S. markets on a trading day after the close of
foreign securities markets. The Manager's fair valuation procedures
therefore include a procedure whereby foreign securities prices may be "fair
valued" to take those factors into account.

The offering price that applies to an order from a participating
insurance company is based on the next calculation of the net asset value per
share that is made after the insurance company (as the Fund's designated
agent to receive purchase orders) receives a purchase order from its contract
owners to purchase Fund shares on a regular business day, provided that the
Fund receives the order from the insurance company by 9:30 a.m. on the next
regular business day at the offices of its Transfer Agent in Colorado.

|X| Classes of Shares. The Fund has four classes of shares authorized.
The Fund only offers two different classes of shares. The class of shares
designated as Service shares are subject to a Distribution and Service Plan.
The impact of the expenses of the Plan on Service shares is described below.
The class of shares that are not subject to a Plan has no class name
designation. The different classes of shares represent investments in the
same portfolio of securities but are expected to have different expenses and
share prices.

Dividends, Capital Gains and Taxes

Capital Gains. The Fund may realize capital gains on the sale of portfolio
securities. If it does, it may make distributions out of any net short-term
or long-term capital. The Fund may make supplemental distributions of
dividends and capital gains following the end of its fiscal year. There can
be no assurance that the Fund will pay any capital gains distributions in a
particular year.

Financial Highlights

The Financial Highlights Table is presented to help you understand the Fund's
financial performance for the past five fiscal years for its non-service
shares and since inception for its service shares. Certain information
reflects financial results for a single Fund share. The total return in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
the Fund's independent registered public accounting firm, whose report, along
with the Fund's financial statements, is included in the Statement of
Additional Information, which is available on request.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.44 $ 9.31 $ 11.05 $ 11.09 $ 14.07
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .01 1 (.03) (.01) -- 2 (.03)
Net realized and unrealized gain (loss) 2.60 4.16 (1.73) (.04) (2.35)
------------------------------------------------------
Total from investment operations 2.61 4.13 (1.74) (.04) (2.38)
- ----------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- -- (.60)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.05 $ 13.44 $ 9.31 $ 11.05 $ 11.09
======================================================

- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 19.42% 44.36% (15.75)% (0.36)% (18.34)%
- ----------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 38,636 $ 27,551 $ 19,577 $ 18,514 $ 14,599
- ----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 30,871 $ 20,271 $ 20,505 $ 15,307 $ 12,576
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income (loss) 0.06% (0.30)% (0.09)% (0.01)% (0.29)%
Total expenses 0.83% 1.01% 1.00% 1.05% 1.37%
Expenses after payments and waivers and reduction
to custodian expenses N/A 5 N/A 5 N/A 5 N/A 5 1.35%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 147% 130% 121% 213% 162%

1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Less than $0.005 per share.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 1
- --------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.40 $ 9.29 $ 11.05 $ 10.61
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.02) 2 (.02) (.01) -- 3
Net realized and unrealized gain (loss) 2.59 4.13 (1.75) .44
------------------------------------------------
Total from investment operations 2.57 4.11 (1.76) .44
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 15.97 $ 13.40 $ 9.29 $ 11.05
================================================

- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 4 19.18% 44.24% (15.93)% 4.15%
- --------------------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 173,612 $ 62,660 $ 6,111 $ 108
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 112,279 $ 25,018 $ 2,228 $ 26
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 5
Net investment loss (0.14)% (0.43)% (0.26)% (0.34)%
Total expenses 1.06% 1.23% 1.21% 1.19%
Expenses after payments and waivers and reduction to custodian expenses N/A 6 N/A 6 1.19% N/A 6
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 147% 130% 121% 213%

1. For the period from July 16, 2001 (inception of offering) to December 31,
2001.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Less than $0.005 per share.

5. Annualized for periods of less than one full year.

6. Reduction to custodian expenses less than 0.01%.

Information and Services
For More Information on Oppenheimer Main Street Small Cap Fund(R)/VA
The following additional information about the Fund is available without
charge upon request:

How to Get More Information

You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports and the notice explaining the Fund's privacy policy:

- ---------------------------------------------------------------------------

- ---------------------------------------------------------------------------
- ------------------------------------------------------------------------------

By Telephone: Call OppenheimerFunds Services toll-free:
1.800.981.2871

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

By Mail: Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
Information about the Fund, including the Statement of Additional
Information, can be reviewed and copies at the SEC's Public Reference
Room in Washington, D.C. Information on the operation of the Public
Reference Library may be obtained by calling the SEC at 202.942.8090.
Reports and other information about the Fund are available on the EDGAR
database on the SEC's Internet website at www.sec.gov. Copies may be
obtained after payment of a duplicating fee by electronic request at the
SEC's e-mail address: publicinfo@sec.gov or by writing to the SEC's
Public Reference Section, Washington, D.C. 20549-0102.

The Fund's SEC File No.: 811-4108
PR0297.001.0405
Printed on recycled paper.

Appendix to Prospectus of
Oppenheimer Main Street Small Cap Fund(R)/VA
(a series of Oppenheimer Variable Account Funds)

Graphic material included in the Prospectus of Oppenheimer Main
Street Small Cap Fund(R)/VA (the "Fund") under the heading "Annual Total
Return (as of December 31 each year)":

A bar chart will be included in the Prospectus of the Fund
depicting the annual total returns of a hypothetical $10,000 investment
in non-service shares of the Fund for each of the six most recent
calendar years, without deducting separate account expenses. Set forth
below are the relevant data that will appear on the bar chart:

Calendar
Year
Ended Annual Total Return
- ----- -------------------

12/31/99 46.56%
12/31/00 -18.34%
12/31/01 -0.36%
12/31/02 -15.75%
12/31/03 44.36%
12/31/04 19.42%

Oppenheimer Money Fund/VA
(a series of Oppenheimer Variable Account Funds)

Prospectus dated April 29, 2005 Oppenheimer Money Fund/VA is a
money market mutual fund. Its goal is
to seek the maximum current income
from investments in money market
securities that is consistent with low
risk and maintenance of liquidity.

Shares of the Fund are sold only
as an underlying investment for
variable life insurance policies,
variable annuity contracts and other
insurance company separate accounts. A
prospectus for the insurance product
you have selected accompanies this
Prospectus and explains how to select
shares of the Fund as an investment
under that insurance product.

This Prospectus contains
important information about the Fund's
objective, its investment policies,
strategies and risks. Please read this
Prospectus (and your insurance product
prospectus) carefully before you
invest and keep them for future
As with all mutual funds, the reference about your account.
Securities and Exchange Commission has
not approved or disapproved the Fund's
securities nor has it determined that
this Prospectus is accurate or
complete. It is a criminal offense to
represent otherwise.

Oppenheimer
Money Fund/VA
A series of Oppenheimer Variable Account Funds

(OppenheimerFunds logo)

CONTENTS

ABOUT THE FUND

The Fund's Investment Objective and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

INVESTING IN THE FUND

How to Buy and Sell Shares

Dividends, Capital Gains and Taxes

Financial Highlights

ABOUT THE FUND

The Fund's Investment Objective and Principal Investment Strategies

What is the Fund's Investment Objective? The Fund seeks maximum current
income from investments in "money market" securities consistent with low
capital risk and the maintenance of liquidity.

What Does the Fund Mainly Invest In? The Fund invests in a variety of
high-quality money market securities to seek current income. Money market
securities are short-term debt instruments issued by the U.S. government,
domestic and foreign corporations or financial institutions and other
entities. They include, for example, bank obligations, repurchase agreements,
commercial paper, other corporate debt obligations and government debt
obligations.

"High quality" instruments must be rated in one of the two highest
credit-quality categories for short-term securities by at least two
nationally recognized rating services (or by one, if only one rating service
has rated the security). If unrated, a security must be determined by the
Fund's investment Manager, OppenheimerFunds, Inc., to be of comparable
quality to securities rated in the two highest credit-quality categories.

Who is the Fund Designed For? The Fund's shares are available only as an
underlying investment option for certain variable annuities, variable life
insurance policies and insurance company separate accounts. The Fund is an
option under those insurance products for investors who want to earn income
at current money market rates while preserving the value of their investment.
The Fund seeks to keep its share price stable at $1.00. Income on short-term
securities tends to be lower than income on longer-term debt securities, so
that the Fund's yield will likely be lower than the yield on longer-term
fixed income funds. The Fund does not invest for the purpose of seeking
capital appreciation or gains. The Fund is not a complete investment program.

Main Risks of Investing in the Fund

All investments have risks to some degree. Funds that invest in debt
obligations for income may be subject to credit risks and interest rate
risks. However, the Fund's investments must meet strict standards set by its
Board of Trustees following special rules for money market funds under
federal law. Those rules require the Fund to maintain --
o high credit quality in its portfolio,
o a short average portfolio maturity to reduce the effects of changes in
interest rates on the value of the Fund's securities and
o diversification of the Fund's investments among issuers to reduce the
effects of a default by any one issuer on the value of the Fund's
shares.

Even so, there are risks that any of the Fund's holdings could have its
credit rating downgraded, or that the issuer could default, or that interest
rates could rise sharply, causing the value of the Fund's investments (and
its share price) to fall. If insurance products holding Fund shares redeem
them at a rate greater than anticipated by the Manager, the Fund might have
to sell portfolio securities prior to their maturity at a loss. As a result,
there is a risk that the Fund's shares could fall below $1.00 per share.
Income on short-term securities tends to be lower than income on longer-term
debt securities so the Fund's yield will likely be lower than the yield on
longer-term fixed income funds. Also, there is the risk that the value of
your investment could be eroded over time by the effects of inflation, or
that poor security selection by the Manager could cause the Fund to
underperform other funds that have a similar objective.

The Manager tries to reduce risks by diversifying investments and by
carefully researching securities before they are purchased. The rate of the
Fund's income will vary from day to day, generally reflecting changes in
overall short-term interest rates. There is no assurance that the Fund will
achieve its investment objective.

An Investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks
to preserve the value of your investment at $1.00 per share, it is possible
to lose money by investing in the Fund.

The Fund's Past Performance

The bar chart and table below show how the Fund's returns may vary over time,
by showing changes in the Fund's performance from year to year for the last
10 calendar years and its average annual total returns for 1, 5 and 10 year
periods. Variability of returns is one measure of the risks of investing in a
money market fund. The Fund's past investment performance is not necessarily
an indication of how the Fund will perform in the future.

Annual Total Returns (as of December 31 each year)

[See appendix to prospectus for annual total return data for bar chart.]

During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 1.59% (2nd Q '00) and the lowest return (not
annualized) for a calendar quarter was 0.17% (3rd & 4th Q '03, 2nd Q '04).

- -------------------------------------------------------------------------------
Average Annual Total Returns
for the periods ended December 1 Year 5 Years 10 Years
31, 2004
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Oppenheimer Money Fund/VA

(inception 4/3/85) 0.98% 2.65% 3.94%

- -------------------------------------------------------------------------------

The returns in the table measure the performance of a hypothetical account
without deducting charges imposed by the separate accounts that invest in the
Fund and assume that all distributions have been reinvested in additional
shares. The total returns are not the Fund's current yield. The Fund's
current yield more closely reflects the Fund's current earnings. To obtain
the Fund's current 7-day yield information, please call the Transfer Agent
toll-free at 1.800.225.5677.

The Fund's total returns should not be expected to be the same as the returns
of other Oppenheimer funds, even if both funds have the same portfolio
managers and/or similar names

Fees and Expenses of the Fund

The following tables are provided to help you understand the fees and
expenses you may pay if you buy and hold shares of the Fund. The Fund pays a
variety of expenses directly for management of its assets, administration and
other services. Those expenses are subtracted from the Fund's assets to
calculate the Fund's net asset values per share. All shareholders therefore
pay those expenses indirectly. The numbers below are based on the Fund's
expenses during its fiscal year ended December 31, 2004.

Management Fees 0.45%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution and Service (12b-1) Fees None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Other Expenses 0.03%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Total Annual Operating Expenses 0.48%

- --------------------------------------------------------------------------------

Expenses may vary in future years. "Other expenses" in the table include
transfer agent fees, custodial fees, and accounting and legal expenses the
Fund pays. The Fund's transfer agent has voluntarily agreed to limit transfer
and shareholder servicing agent fees to 0.35% per fiscal year. That
undertaking may be amended or withdrawn at any time. For the Fund's fiscal
year ended December 31, 2004, the transfer agent fees did not exceed the
expense limitation described above.

EXAMPLE. The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

- ----------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------
- ----------------------------------------------------

$49 $154 $269 $605

- ----------------------------------------------------

About the Fund's Investments

The Fund's Principal Investment Policies. The Fund invests in short-term
money market instruments that must meet quality, maturity and diversification
standards established by its Board of Trustees as well as rules that apply to
money market funds under the Investment Company Act. The allocation of the
Fund's portfolio among the different types of permitted investments will vary
over time based on the Manager's evaluation of investment opportunities. The
Fund's portfolio might not always include all of the different types of
investments described below. The Statement of Additional Information contains
more detailed information about the Fund's investment policies and risks.

The Manager tries to reduce risks by diversifying investments and by
carefully researching investments before the Fund buys them. The rate of the
Fund's income will vary from day to day, generally reflecting changes in
overall short-term interest rates.

What Types of Money Market Securities does the Fund Invest In? The following
is a brief description of the types of money market securities the Fund can
invest in. Money market securities are high-quality, short-term debt
instruments that may be issued by the U.S. government, corporations, banks or
other entities. They may have fixed, variable or floating interest rates. All
of the Fund's investments must meet special quality requirements under the
Investment Company Act.

|X| U.S. Government Securities. These are obligations issued or guaranteed
by the U.S. government or any of its agencies or federally-chartered
corporations, referred to as "instrumentalities." Some are direct obligations
of the U.S. Treasury, such as Treasury bills, notes and bonds, and are
supported by the full faith and credit of the United States. Some U.S.
government securities are supported by the right of the issuer to borrow from
the U.S. Treasury. Others may be supported only by the credit of the
instrumentality. The Fund's investments in U.S. government securities does
not mean that its share price or returns are guaranteed or backed by the U.S.
government.

|X| Bank Obligations. The Fund can invest in time deposits, certificates of
deposit and bankers' acceptances. These investments must be:
o obligations of a domestic bank having total assets of at least $1
billion, or
o U.S. dollar-denominated obligations of a foreign bank with total assets
of at least U.S. $1 billion.

|X| Commercial Paper. Commercial paper is a short-term, unsecured
promissory note of a domestic or foreign company.

|X| Corporate Debt Obligations. The Fund can invest in other short-term
corporate debt obligations, besides commercial paper.

|X| Other Money Market Obligations. The Fund can invest in money market
obligations other than those listed above if they are subject to repurchase
agreements or guaranteed as to their principal and interest by a domestic
bank or by a corporation whose commercial paper may be purchased by the Fund.

The Fund can buy other money market instruments that the Manager
approves under Board approved policies. They must be U.S. dollar-denominated
short-term investments that the Manager has determined have minimal credit
risks. They also must be of "high quality" as determined by a national rating
organization. To a limited extent the Fund may buy an unrated security that
the Manager determines to have met those qualifications.

The Fund can also purchase floating or variable rate demand notes and
asset-backed securities. The Fund's investments in them may be subject to
restrictions adopted by the Board from time to time. The Fund can invest in
bank loan participation agreements, which are described in the Statement of
Additional Information, but has rarely done so.

What Credit Quality and Maturity and Standards Apply to the Fund's
Investments? Money market instruments are subject to credit risk. This is the
risk that the issuer might not make timely payments of interest on the
security or repay principal when it is due. The Fund may buy only those
securities that meet standards set in the Investment Company Act for money
market funds. The Fund's Board has adopted procedures to evaluate securities
that are being considered for the Fund's portfolio and the Manager has the
responsibility to implement those procedures when selecting investments for
the Fund.

In general, the Fund buys only high-quality investments that the
Manager believes present minimal credit risk at the time of purchase.
"High-quality" investments are:
o rated in one of the two highest short-term rating categories of two
national rating organizations, or
o rated by one rating organization in one of its two highest rating
categories (if only one rating organization has rated the
investment), or
o unrated investments that the Manager determines are comparable in
quality to the two highest rating categories.

All investments the Fund makes must be denominated in U.S. dollars.

In general, these procedures require that securities be rated in one of
the two highest short-term rating categories of two national rating
organizations. At least 95% of the Fund's assets must be invested in
securities of issuers with the highest credit rating. In some cases, the Fund
can buy securities rated by one rating organization or unrated securities
that the Manager judges to be comparable in quality to the two highest rating
categories.

The procedures also limit the percentage of the Fund's assets that can
be invested in the securities of any one issuer (other than the U.S.
government, its agencies and instrumentalities), to spread the Fund's
investment risks. A security's maturity must not exceed 397 days. Finally,
the Fund must maintain an average portfolio maturity of not more than 90
days, to reduce interest rate risks.

Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental policies without shareholder approval,
although significant changes will be described in amendments to this
Prospectus. Fundamental policies are those that cannot be changed without the
approval of a majority of the Fund's outstanding voting shares. The Fund's
investment objective is a fundamental policy. Investment restrictions that
are fundamental policies are listed in the Statement of Additional
Information. An investment policy is not fundamental unless this Prospectus
or the Statement of Additional Information says that it is.

Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of them. These techniques involve certain risks, although some
of them are designed to help reduce overall investment or market risks. The
Statement of Additional Information contains more information about some of
these practices.

|X| Floating Rate/Variable Rate Notes. The Fund can purchase notes that
have floating or variable interest rates. Variable rates are adjustable at
stated periodic intervals. Floating rates are adjusted automatically
according to a specified market index for such investments, such as the prime
rate of a bank. If the maturity of a note is more than 397 days, the Fund can
buy it only if it has a demand feature. That feature must permit the Fund to
recover the principal amount of the note on not more than thirty days' notice
at any time, or at specified times not exceeding 397 days from the date of
purchase.

|X| Obligations of Foreign Banks and Foreign Branches of U.S. Banks. The
Fund can invest in U.S. dollar-denominated securities of foreign banks having
total assets at least equal to U.S. $1 billion. It can also buy U.S.
dollar-denominated securities of foreign branches of U.S. banks. These
securities have additional investment risks compared to obligations of
domestic branches of U.S. banks that have total assets of at least U.S. $1
billion. Risks that may affect the foreign bank's ability to pay its debt
include:

o political and economic developments in the country in which
the bank or branch is located,
o imposition of withholding taxes on interest income payable on
the securities,
o government seizure or nationalization of foreign deposits,
o the establishment of exchange control regulations and
o the adoption of other governmental restrictions that might
limit the repayment of principal and/or payment of interest on
those securities.

Additionally, not all of the U.S. and state banking laws and
regulations that apply to domestic banks, and that are designed to protect
depositors and investor, apply to foreign branches of domestic banks. None of
those U.S. and state regulations apply to foreign banks.

|X| Asset-Backed Securities. The Fund can invest in asset-backed
securities. These are fractional interests in pools of consumer loans or
other trade receivables, such as credit card or auto loan receivables, which
are the obligations of a number of different parties. The income from the
underlying pool is passed through to holders, such as the Fund.

These securities may be supported by a credit enhancement, such as a
letter of credit, a guarantee (by a bank or broker) or a preference right.
However, the credit enhancement may apply only to a fraction of the
security's value. If the issuer of the security has no security interest in
the assets that back the pool, there is a risk that the Fund could lose money
if the issuer defaults.

|X| Repurchase Agreements. The Fund can enter into repurchase agreements.
In a repurchase transaction, the Fund buys a security and simultaneously
sells it to the vendor for delivery at a future date. The Fund's repurchase
agreements must be fully collateralized. However, if the vendor fails to pay
the resale price on the delivery date, the Fund might incur costs in
disposing of the collateral and might experience losses if there is any delay
in its ability to do so. There is no limit on the amount of the Fund's net
assets that may be subject to repurchase agreements of 7 days or less. It
cannot invest more than 10% of its net assets in repurchase agreements
maturing in more than 7 days.

|X| Illiquid and Restricted Securities. Investments may be illiquid because
there is no active trading market for them, making it difficult to value them
or dispose of them promptly at an acceptable price. Restricted securities may
have terms that limit their resale to other investors or may require
registration under applicable securities laws before they may be sold
publicly. The Fund will not invest more than 10% of its net assets in
illiquid or restricted securities. Certain restricted securities that are
eligible for resale to qualified institutional purchasers may not be subject
to that limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity. Difficulty in selling a security may result in a loss to the Fund
or additional costs.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
and annual reports that are distributed to shareholders of the Fund within 60
days after the close of the period for which such report is being made. The
Fund also makes disclosures of its portfolio securities holdings in its
Statements of Investments on Form N-Q, which are filed with the SEC no later
than 60 days after the close of the first and third fiscal quarters. These
additional quarterly filings are publicly available at the SEC. Therefore,
portfolio holdings of the Fund are made publicly available no later than 60
days after the close of the Fund's fiscal quarter.

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.

How the Fund Is Managed

The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the
policies established by the Fund's Board of Trustees, under an investment
advisory agreement that states the Manager's responsibilities. The agreement
sets the fees the Fund pays to the Manager and describes the expenses that
the Fund is responsible to pay to conduct its business.

|X| Advisory Fees. Under the Investment Advisory Agreement, the Fund pays
the Manager an advisory fee at an annual rate that declines on additional
assets as the Fund grows: the Fund pays 0.450% of the first $500 million of
average annual net assets, 0.425% of the next $500 million, 0.400% of the
next $500 million, and 0.375% of average annual net assets in excess of $1.5
billion. The Fund's management fee for its fiscal year ended December 31,
2004, was 0.45% of the Fund's average annual net assets.

|X| Portfolio Managers. The Fund's portfolio is managed by Barry D. Weiss
and Carol E. Wolf who are primarily responsible for the day-to-day
management of the Fund's investments. Mr. Weiss has been a manager of the
Fund's portfolio since July 2001 and has been a Vice President of the
Manager since July 2001 and of HarbourView Asset Management Corporation
since June 2003. He was Assistant Vice President and Senior Credit Analyst
of the Manager from February 2000 through June 2001 and is an officer of
other portfolios in the OppenheimerFunds complex. Prior to joining the
Manager in February 2000, Mr. Weiss was Associate Director, Structured
Finance, at Fitch IBCA Inc. from April 1998 through February 2000.

Ms. Wolf has been a manager of the Fund's portfolio since July 1998 and
has been a Senior Vice President of the Manager since June 2000 and of
HarbourView Asset Management Corporation since June 2003. She was Vice
President of the Manager from June 1990 through June 2000 and is an officer
of other portfolios in the OppenheimerFunds complex.

The Statement of Additional Information provides additional information
about the Portfolio Managers' compensation, other accounts they manage and
their ownership of Fund shares.

Pending Litigation. A consolidated amended complaint has been filed as
putative derivative and class actions against the Manager, Distributor and
Transfer Agent, as well as 51 of the Oppenheimer funds (collectively the
"funds") not including the Fund, 31 present and former Directors or Trustees
and 9 present and former officers of certain of the funds. This complaint,
initially filed in the U.S. District Court for the Southern District of New
York on January 10, 2005 and amended on March 4, 2005, consolidates into a
single action and amends six individual previously-filed putative derivative
and class action complaints. Like those prior complaints, the complaint
alleges that the Manager charged excessive fees for distribution and other
costs, improperly used assets of the funds in the form of directed brokerage
commissions and 12b-1 fees to pay brokers to promote sales of the funds, and
failed to properly disclose the use of fund assets to make those payments in
violation of the Investment Company Act and the Investment Advisers Act of
1940. Also, like those prior complaints, the complaint further alleges that
by permitting and/or participating in those actions, the Directors/Trustees
and the Officers breached their fiduciary duties to Fund shareholders under
the Investment Company Act and at common law. The complaint seeks unspecified
compensatory and punitive damages, rescission of the funds' investment
advisory agreements, an accounting of all fees paid, and an award of
attorneys' fees and litigation expenses.

INVESTING IN THE FUND

How to Buy and Sell Shares

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

Limits on Disruptive Activity. Therefore, the Manager and the Fund's Board of
Trustees have adopted the following policies and procedures to detect and
prevent frequent and/or excessive purchase and redemption activity, while
balancing the needs of investors. There is no guarantee that the policies and
procedures described below will be sufficient to identify and deter excessive
short-term trading.
The Transfer Agent may, in its discretion, limit or terminate trading
activity by any person, group or account that it believes would be
disruptive.
o The Transfer Agent will attempt to monitor overall purchase and
redemption activity in the accounts of participating insurance
companies to seek to identify patterns that may suggest excessive
trading by the underlying owners. If evidence of possible excessive
trading activity is observed by the Transfer Agent, the
participating insurance companies or other registered owners will be
asked to review account activity in their respective accounts, and
to confirm to the Transfer Agent and the Fund that appropriate
action has been taken to curtail any excessive trading activity.
However, the Transfer Agent's ability to monitor and deter excessive
short-term trading in omnibus or street name accounts ultimately
depends on the capability and cooperation of the participating
insurance companies controlling their respective accounts.

Furthermore, each participating insurance company may impose its own
restrictions or limitations to discourage short-term or excessive trading.

Right to Refuse Purchase Orders. The Distributor and/or the Transfer Agent
may refuse any purchase order in their discretion and are not obligated to
provide notice before rejecting an order.

There can be no assurance that the Fund, the Transfer Agent or
the Fund's participating insurance companies will be successful in curbing
abusive short-term exchanges.

- ------------------------------------------------------------------------------
Information about your investment in the Fund through your variable annuity
contract, variable life insurance policy or other plan can be obtained only
----
from your participating insurance company or its servicing agent. The Fund's
Transfer Agent does not hold or have access to those records. Instructions
for buying or selling shares of the Fund should be given to your insurance
company or its servicing agent, not directly to the Fund or its Transfer
Agent.

- ------------------------------------------------------------------------------

At What Price Are Shares Sold? Shares are sold to participating insurance
companies at their offering price, which is the net asset value per share.
The net asset value normally will remain at $1.00 per share. However, there
is no guarantee that the Fund will be able to maintain a net asset value of
$1.00 per share. The Fund does not impose any sales charge on purchases of
its shares. If there are any charges imposed under the variable annuity,
variable life or other contract through which Fund shares are purchased, they
are described in the accompanying prospectus of the participating insurance
company.

Net Asset Value. The Fund calculates the net asset value per shares as of the
close of The New York Stock Exchange (the "Exchange"), on each day the
Exchange is open for trading (referred to in this Prospectus as a "regular
business day"). The Exchange normally closes at 4:00 p.m., Eastern time, but
may close earlier on some days. All references to time in this Prospectus
mean "Eastern time."

The net asset value per share is determined by dividing the value of
the Fund's net assets by the number of shares that are outstanding. Under a
policy adopted by the Fund's Board of Trustees, the Fund uses the amortized
cost method to value its securities to determine the Fund's net asset value.

The offering price that applies to an order from a participating
insurance company is based on the next calculation of the net asset value per
share that is made after the insurance company (as the Fund's designated
agent to receive purchase orders) receives a purchase order from its contract
owners to purchase Fund shares on a regular business day, provided that the
Fund receives the order from the insurance company by 9:30 a.m. on the next
regular business day at the offices of its Transfer Agent in Colorado.

|X| Classes of Shares. The Fund has four classes of shares authorized. The
Fund offers only one share class in this Prospectus, which has no class name
designation. There are currently no outstanding shares of any other share
class of the Fund.

|X| Distribution and Service Plan. The Fund has not adopted a Distribution
and Service Plan for the shares offered in this Prospectus.

Dividends, Capital Gains and Taxes

Dividends. The Fund intends to declare dividends from net investment income
each regular business day and to pay those dividends monthly. To maintain a
net asset value of $1.00 per share, the Fund might withhold dividends or make
distributions from capital or capital gains. Daily dividends will not be
declared or paid on newly purchased shares until Federal Funds are available
to the Fund from the purchase payment for such shares.

All dividends (and any capital gains distributions) will be reinvested
automatically in additional Fund shares at net asset value for the
participating insurance company's separate account (unless the participating
insurance company elects to have dividends or distributions paid in cash).

Capital Gains. The Fund normally holds its securities to maturity and
therefore will not usually pay capital gains distributions. Although the Fund
does not seek capital gains, it could realize capital gains on the sale of
portfolio securities. If it does, it may make distributions of any net
short-term or long-term capital gains each year. The Fund may make
supplemental distributions of dividends and capital gains following the end
of its fiscal year.

Financial Highlights

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations--net
investment income and net realized gain .01 1 .01 .01 .04 .06
- ---------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.01) (.01) (.01) (.04) (.06)
Dividends from net realized gain -- -- -- 2 -- --
--------------------------------------------------------------------
Total dividends and/or distributions to shareholders (.01) (.01) (.01) (.04) (.06)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====================================================================

- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3 0.98% 0.79% 1.47% 3.85% 6.26%
- ---------------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 196,503 $ 237,613 $ 379,969 $ 370,229 $ 215,771
- ---------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 218,243 $ 316,096 $ 386,457 $ 288,106 $ 204,586
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 0.97% 0.80% 1.46% 3.59% 5.98%
Total expenses 0.48% 5 0.47% 5 0.47% 5 0.52% 5 0.51% 5

1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Less than $0.005 per share.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

INFORMATION AND SERVICES

For More Information on Oppenheimer Money Fund/VA

The following additional information about the Fund is available without
charge upon request:

STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund's investment policies, risks, and operations. It
is incorporated by reference into this Prospectus (which means it is legally
part of this Prospectus).

ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.

How to Get More Information

You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports and the notice explaining the Fund's privacy policy:

- ------------------------------------------------------------------------------

Information about the Fund including the Statement of Additional Information
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1.202.942.8090. Reports and other information
about the Fund are available on the EDGAR database on the SEC's Internet
website at www.sec.gov. Copies may be obtained after payment of a duplicating
fee by electronic request at the SEC's e-mail address: publicinfo@sec.gov or
by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.

No one has been authorized to provide any information about the Fund or to
make any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any
state or other jurisdiction where it is unlawful to make such an offer.

The Fund's SEC File No. 811-4108
PR0660.001.0405 [logo] OppenheimerFunds Distributor, Inc.
Printed on recycled paper

Appendix to Prospectus of
Oppenheimer Money Fund/VA
(a series of Oppenheimer Variable Account Funds)

Graphic material included in the Prospectus of Oppenheimer Money
Fund/VA (the "Fund") under the heading "Annual Total Return (as of 12/31 each
year)":

- -----------------------------------------------------
Calendar Year Ended Annual Total Returns
- ------------------- --------------------
- -----------------------------------------------------
- -----------------------------------------------------
12/31/95 5.62%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/96 5.13%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/97 5.32%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/98 5.25%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/99 4.96%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/00 6.26%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/01 3.85%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/02 1.47%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/03 0.79%
- -----------------------------------------------------
- -----------------------------------------------------

12/31/04 0.98%

- -----------------------------------------------------

Oppenheimer
Strategic Bond Fund/VA
A series of Oppenheimer Variable Account Funds

Prospectus dated April 29, 2005 Oppenheimer Strategic Bond Fund/VA is
a mutual fund that seeks a high level of
current income principally derived from
interest on debt securities. The Fund
invests mainly in three market sectors: debt
securities of foreign governments and
companies, U.S. government securities, and
lower-rated high yield securities of U.S.
and foreign companies.

Shares of the Fund are sold only as
the underlying investment for variable life
insurance policies, variable annuity
contracts and other insurance company
separate accounts. A prospectus for the
insurance product you have selected
accompanies this Prospectus and explains
how to select shares of the Fund as an
investment under that insurance product,
and whether you are only eligible to
purchase Service shares of the Fund.
This Prospectus contains important
information about the Fund's objective, its
investment policies, strategies and risks.
Please read this Prospectus (and your
insurance product prospectus) carefully
before you invest and keep them for future
As with all mutual funds, the reference about your account.
Securities and Exchange
Commission has not approved or
disapproved the Fund's securities
nor has it determined that this
Prospectus is accurate or
complete. It is a criminal
offense to represent otherwise.

(OppenheimerFunds logo)

CONTENTS

ABOUT THE FUND

The Fund's Investment Objective and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

INVESTING IN THE FUND

How to Buy and Sell Shares

Dividends, Capital Gains and Taxes

Financial Highlights

ABOUT THE FUND

The Fund's Investment Objective and Principal Investment Strategies

What is the Fund's Investment Objective? The Fund seeks a high level of
current income principally derived from interest on debt securities.

What Does the Fund Mainly Invest In? Under normal market conditions, the Fund
invests at least 80% of its net assets (including any borrowings for
investment purposes) in debt securities. The Fund invests mainly in debt
securities of issuers in three market sectors: foreign governments and
companies, U.S. government securities and lower-grade high-yield securities
of U.S. and foreign companies. Those debt securities typically include:
o short, medium and long-term foreign government and U.S. government
bonds and notes,
o collateralized mortgage obligations (CMOs),
o other mortgage-related securities and asset-backed securities,
o participation interests in loans,
o "structured" notes,
o lower-grade, high-yield domestic and foreign corporate debt
obligations, and
o "zero-coupon" or "stripped" securities.

Under normal market conditions, the Fund invests in each of those three
market sectors. However, the Fund is not obligated to do so, and the amount
of its assets in each of the three sectors will vary over time. The Fund can
invest up to 100% of its assets in any one sector at any time, if the Fund's
investment Manager, OppenheimerFunds, Inc., believes that in doing so the
Fund can achieve its objective without undue risk. The Fund can invest in
securities having short, medium, or long-term maturities and may invest
without limit in lower-grade, high-yield debt obligations, also called "junk
bonds."

------------------------------------
What Is A "Debt" Security? A debt
security is essentially a loan by
the buyer to the issuer of the
debt security. The issuer promises
to pay back the principal amount
of the loan and normally pays
interest, at a fixed or variable
rate, on the debt while it is
outstanding.
------------------------------------

The Fund's foreign investments can include debt securities of issuers
in developed markets as well as emerging markets, which have special risks.
The Fund can also use hedging instruments and certain derivative investments,
primarily CMOs and "structured" notes, to try to enhance income or to try to
manage investment risks. These investments are more fully explained in "About
the Fund's Investments," below.

How Does the Manager Decide What Securities to Buy or Sell? In selecting
securities for the Fund, the Fund's portfolio managers analyze the overall
investment opportunities and risks in individual national economies. The
portfolio managers' overall strategy is to build a broadly-diversified
portfolio of debt securities to help moderate the special risks of investing
in high-yield debt instruments and foreign securities. The managers may try
to take advantage of the lack of correlation of price movements that may
occur among the three sectors from time to time. The portfolio managers
currently focus on the factors below (some of which may vary in particular
cases and may change over time), looking for:
o Securities offering high current income,
o Overall diversification for the portfolio by seeking securities
whose markets and prices tend to move in different directions, and
o Relative values among the three major market sectors in which the
Fund invests.

Who is the Fund Designed For? The Fund's shares are available only as an
investment option under certain variable annuity contracts, variable life
insurance policies and investment plans offered through insurance company
separate accounts of participating insurance companies, for investors seeking
high current income from a fund that ordinarily will have substantial
investments in both domestic and foreign debt securities. Those investors
should be willing to assume the risks of short-term share price fluctuations
that are typical for a fund that invests in debt securities, particularly
high-yield and foreign securities, which have special risks. Since the Fund's
income level will fluctuate, it is not designed for investors needing an
assured level of current income. Also, the Fund does not seek capital
appreciation. The Fund is designed as a long-term investment for investors
seeking an investment with an overall sector diversification strategy.
However, the Fund is not a complete investment program.

Main Risks of Investing in the Fund

All investments have some degree of risk. The Fund's investments, in
particular, are subject to changes in their value from a number of factors
described below. There is also the risk that poor security selection by the
Manager will cause the Fund to underperform other funds having a similar
objective.

The Manager tries to reduce risks by carefully researching securities
before they are purchased, and in some cases by using hedging techniques. The
Fund attempts to reduce its exposure to market risks by diversifying its
investments, that is, by not holding a substantial percentage of the
securities of any one issuer and by not investing too great a percentage of
the Fund's assets in any one issuer. The Fund's diversification strategies,
both with respect to securities in different sectors and securities issued by
different companies and governments are intended to help reduce the
volatility of the Fund's share prices while seeking current income. Also, the
Fund does not concentrate 25% or more of its investments in the securities of
any one foreign government or in the debt and equity securities of companies
in any one industry.

However, changes in the overall market prices of securities and the
income they pay can occur at any time. The share price and yield of the Fund
will change daily based on changes in market prices of securities and market
conditions, and in response to other economic events.

|_| Special Risks of Lower-Grade Securities. Because the Fund can invest
without limit in securities below investment grade to seek high current
income, the Fund's credit risks are greater than those of funds that buy only
investment-grade bonds. Lower-grade debt securities may be subject to greater
market fluctuations and greater risks of loss of income and principal than
investment-grade debt securities. Securities that are (or that have fallen)
below investment grade are exposed to a greater risk that the issuers of
those securities might not meet their debt obligations. The market for these
securities may be less liquid, making it difficult for the Fund to sell them
quickly at an acceptable price. These risks can reduce the Fund's share
prices and the income it earns.

|X| Risks of Foreign Investing. The Fund can invest its assets without
limit in foreign government and corporate debt securities and can buy
securities of governments and companies in both developed markets and
emerging markets. The Fund normally invests significant amounts of its assets
in foreign securities. While foreign securities offer special investment
opportunities, there are also special risks that can reduce the Fund's share
prices and returns.

Additionally, if a fund invests a significant amount of its assets in
foreign securities, it might expose the fund to "time-zone arbitrage"
attempts by investors seeking to take advantage of the differences in value
of foreign securities that might result from events that occur after the
close of the foreign securities market on which a foreign security is traded
and the close of The New York Stock Exchange that day, when the Fund's net
asset value is calculated. If such time-zone arbitrage were successful, it
might dilute the interests of other shareholders. However, the Fund's use of
"fair value pricing" to adjust the closing market prices of foreign
securities under certain circumstances, to reflect what the Manager and the
Board believe to be their fair value may help deter those activities.

|_| Special Risks of Emerging and Developing Markets. Securities of issuers
in emerging and developing markets may offer special investment opportunities
but present risks not found in more mature markets. Those securities may be
more difficult to sell at an acceptable price and their prices may be more
volatile than securities of issuers in more developed markets. Settlements of
trades may be subject to greater delays so that the Fund may not receive the
proceeds of a sale of a security on a timely basis.

|X| Interest Rate Risks. The prices of debt securities, including U.S.
government securities, are subject to change when prevailing interest rates
change. When interest rates fall, the values of already-issued debt
securities generally rise. When interest rates rise, the values of
already-issued debt securities generally fall, and they may sell at a
discount from their face amount. The magnitude of these fluctuations will
often be greater for longer-term debt securities than shorter-term debt
securities. The Fund's share prices can go up or down when interest rates
change because of the effect of the changes on the value of the Fund's
investments in debt securities. Also, if interest rates fall, the Fund's
investments in newly issued securities with lower yields will reduce the
Fund's income.

|X| Prepayment Risk. Prepayment risk is the risk that the issuer of a
security can prepay the principal prior to the security's expected maturity.
The prices and yields of mortgage-related securities are determined, in part,
by assumptions about the cash flows from the rate of payments of the
underlying mortgages. Changes in interest rates may cause the rate of
expected prepayments of those mortgages to change. In general, prepayments
increase when general interest rates fall and decrease when general interest
rates rise. Securities subject to prepayment risk, including the
mortgage-related securities that the Fund buys, have greater potential for
losses when interest rates rise than other types of debt securities.

The impact of prepayments on the price of a security may be difficult
to predict and may increase the volatility of the price. Interest-only and
principal-only "stripped" securities can be particularly volatile when
interest rates change. If the Fund buys mortgage-related securities at a
premium, accelerated prepayments on those securities could cause the Fund to
lose a portion of its principal investment represented by the premium the
Fund paid.

If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. If interest rates rise rapidly, prepayments may occur at slower
rates than expected, which could have the effect of lengthening the expected
maturity of a short or medium-term security. That could cause the value of
the security to fluctuate more widely in response to changes in interest
rates and this could cause the value of the Fund's shares to fall.

|X| Sector Allocation Risks. The Manager's expectations about the relative
performance of the three principal sectors in which the Fund invests may be
inaccurate, and the Fund's returns might be less than other funds using
similar strategies.

|X| Risk of Derivative Investments. The Fund can use derivatives to seek
increased income or to try to hedge investment risks. In general terms, a
derivative investment is an investment contract whose value depends on (or is
derived from) the value of an underlying asset, interest rate or index.
Options, futures, forwards, interest rate swaps, structured notes and CMOs
are examples of derivatives the Fund can use.

How Risky is the Fund Overall? The risks described above collectively form
the overall risk profile of the Fund and can affect the value of the Fund's
investments, its investment performance and its price per share. Particular
investments and investment strategies also have risks. These risks mean that
you can lose money by investing in the Fund. When you redeem your shares,
they may be worth more or less than what you paid for them. There is no
assurance that the Fund will achieve its investment objective.

In the short term, the values of debt securities can fluctuate
substantially because of interest rate changes. Foreign debt securities,
particularly those of issuers in emerging markets, and high yield securities
can be volatile, and the price of the Fund's shares can go up and down
substantially because of events affecting foreign markets or issuers or
events affecting the high yield market. The Fund's sector and security
diversification strategy may help cushion the Fund's shares prices from that
volatility, but debt securities are subject to other credit and interest rate
risks that can affect their values and the share prices of the Fund. The Fund
generally has more risks than bond funds that focus on U.S. government
securities and investment-grade bonds but may be less volatile than bond
funds that focus solely on investments in a single foreign sector, such as
emerging markets.

An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

The Fund's Past Performance

The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the performance of the Fund's non-service
shares from year to year for the last 10 calendar years and by showing how
the average annual total returns of the Fund's shares for 1, 5 and 10 years,
or for the life of the class, compare to broad-based market indices. The
Fund's past investment performance is not necessarily an indication of how
the Fund will perform in the future.

Annual Total Returns (as of December 31 each year)
[See appendix to prospectus for data in bar chart showing annual total
returns]

During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 6.10% (2nd Q '03) and the lowest return (not
annualized) for a calendar quarter was -2.14% (3rd Q '98).

- -------------------------------------------------------------------------------
Average Annual Total Returns 1 Year 5 Years 10 Years
for the periods ended December (or life of
31, 2004 class, if less)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Oppenheimer Strategic Bond

Fund/VA 8.67% 8.21% 8.23%
Non-Service Shares (inception

5/3/93)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Lehman Brothers Aggregate Bond 4.34% 7.71% 7.72%2
Index

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Citigroup World Government 10.35% 8.79% 7.60%2
Bond Index

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Oppenheimer Strategic Bond

Fund/VA 8.43% 9.01%1 N/A
Service Shares (inception

3/19/01)
- -------------------------------------------------------------------------------

1. Since Class inception (3/19/01)
2. From 4/30/93.

The Fund's total returns should not be expected to be the same as the returns
of other Oppenheimer funds, even if both funds have the same portfolio
managers and/or similar names.

Fees and Expenses of the Fund

Management Fees 0.71% 0.71%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution and Service None 0.25%
(12b-1) Fees
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Other Expenses 0.03% 0.03%

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Total Annual Operating Expenses 0.74% 0.99%

- --------------------------------------------------------------------------------

EXAMPLE. The following example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

The example assumes that you invest $10,000 in shares of the Fund for
the time periods indicated, reinvest you dividends and distributions and then
redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Your actual costs may be higher or lower,
because expenses will vary over time. Based on these assumptions your
expenses would be as follows, whether or not you redeem your investment at
the end of each period:

Non-Service Shares $76 $237 $413 $922

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Service Shares $101 $317 $550 $1,219

- ------------------------------------------------------------------------------

About the Fund's Investments

The Fund's Principal Investment Policies and Risks. The allocation of the
Fund's portfolio among the different types of permitted investments will vary
over time based upon the Manager's evaluation of economic and market trends.
At times the Fund might emphasize investments in one or two sectors because
of the Manager's evaluation of the opportunities for high current income from
debt securities in those sectors relative to other sectors. The Fund's
portfolio might not always include all of the different types of investments
described below. The Statement of Additional Information contains more
detailed information about the Fund's investment policies and risks.

The Fund can invest in different types of debt securities described
below. A debt security is essentially a loan by the buyer to the issuer of
the debt security. The issuer promises to pay back the principal amount of
the loan and normally pays interest, at a fixed or variable rate, on the debt
while it is outstanding. The debt securities the Fund buys may be rated by
nationally recognized rating organizations or they may be unrated securities
assigned an equivalent rating by the Manager. The Fund's investments may be
investment grade or below investment grade in credit quality and the Fund can
invest without limit in below investment-grade debt securities, commonly
called "junk bonds." These typically offer higher yields than investment
grade bonds, because investors assume greater risks of default of these
securities. The ratings definitions of the principal national rating
organizations are included in Appendix A to the Statement of Additional
Information.

The Fund can invest some of its assets in other types of securities,
including common stocks and other equity securities of foreign and U.S.
companies. However, the Fund does not anticipate having significant
investments in those types of securities as part of its normal portfolio
strategies. The Statement of Additional Information contains more detailed
information about the Fund's investment policies and risks.

|_| Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the U.S.
government. Some are supported by the full faith and credit of the U.S.
government, such as Government National Mortgage Association pass-through
mortgage certificates (called "Ginnie Maes"). Some are supported by the right
of the issuer to borrow from the U.S. Treasury under certain circumstances,
such as Federal National Mortgage Association bonds ("Fannie Maes"). Others
are supported only by the credit of the entity that issued them, such as
Federal Home Loan Mortgage Corporation obligations ("Freddie Macs").

|_| Mortgage-Related U.S. Government Securities. The Fund can buy interests
in pools of residential or commercial mortgages, in the form of
collateralized mortgage obligations ("CMOs") and other "pass-through"
mortgage securities. CMOs that are U.S. government securities have collateral
to secure payment of interest and principal. They may be issued in different
series each having different interest rates and maturities. The collateral is
either in the form of mortgage pass-through certificates issued or guaranteed
by a U.S. agency or instrumentality or mortgage loans insured by a U.S.
government agency. The Fund can have substantial amounts of its assets
invested in mortgage-related U.S. government securities.

If prepayments of mortgages underlying a CMO occur faster than expected
when interest rates fall, the market value and yield of the CMO could be
reduced. When interest rates rise rapidly, if prepayments occur more slowly
than expected, a short or medium-term CMO can in effect become a long-term
security, subject to greater fluctuations in value. These prepayment risks
can make the prices of CMOs very volatile when interest rates change. The
prices of longer-term debt securities tend to fluctuate more than those of
shorter-term debt securities. That volatility will affect the Fund's share
prices.

Lower-grade debt securities are those rated below "Baa" by Moody's
Investors Service, Inc. or lower than "BBB" by Standard & Poor's Rating
Service or that have similar ratings by other nationally-recognized rating
organizations. The Fund can invest in securities rated as low as "C" or "D",
in unrated bonds or bonds which are in default at the time the Fund buys
them. While securities rated "Baa" by Moody's or "BBB" by S&P are considered
"investment grade," they have some speculative characteristics.

The Manager does not rely solely on ratings issued by rating
organizations when selecting investments for the Fund. The Fund can buy
unrated securities that offer high current income. The Manager assigns a
rating to an unrated security that is equivalent to the rating of a rated
security that the Manager believes offers comparable yields and risks.

|X| Private-Issuer Mortgage-Backed Securities. The Fund can invest a
substantial portion of its assets in mortgage-backed securities issued by
private issuers, which do not offer the credit backing of U.S. government
securities. Primarily these include multi-class debt or pass-through
certificates secured by mortgage loans. They may be issued by banks, savings
and loans, mortgage bankers and other non-governmental issuers. Private
issuer mortgage-backed securities are subject to the credit risks of the
issuers (as well as the interest rate risks and prepayment risks of CMOs,
discussed above); although in some cases they may be supported by insurance
or guarantees.

|X| Foreign Securities. The Fund can buy a variety of debt securities
issued by foreign governments and companies, as well as "supra-national"
entities, such as the World Bank. They can include bonds, debentures, and
notes, including derivative investments called "structured" notes, described
below. The Fund's foreign debt investments can be denominated in U.S. dollars
or in foreign currencies. The Fund will buy foreign currency only in
connection with the purchase and sale of foreign securities and not for
speculation.

|_| Investments in Emerging and Developing Markets. The Fund can buy "Brady
Bonds," which are U.S.-dollar denominated debt securities collateralized by
zero-coupon U.S. Treasury securities. They are typically issued by emerging
markets countries and are considered speculative securities with higher risks
of default.

Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to
this Prospectus. Shareholders will receive 60 days advance notice of any
changes in the 80% requirement (a non-fundamental policy) described above
under "What Does The Fund Mainly Invest In?" Fundamental policies are those
that cannot be changed without the approval of a majority of the Fund's
outstanding voting shares. The Fund's investment objective is a fundamental
policy. Other investment restrictions that are fundamental policies are
listed in the Statement of Additional Information. An investment policy is
not fundamental unless this Prospectus or the Statement of Additional
Information says that it is.

Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve certain risks, although some are designed to
help reduce investment or market risks.

Zero-coupon and stripped securities are subject to greater fluctuations
in price from interest rate changes than conventional interest-bearing
securities. The Fund may have to pay out the imputed income on zero-coupon
securities without receiving the actual cash currently. The Fund can invest
up to 50% of its total assets in zero-coupon securities issued by either the
U.S. Treasury or companies.

The values of interest-only and principal only mortgage-related
securities are also very sensitive to prepayments of underlying mortgages.
Principal-only securities are also sensitive to prepayment of underlying
mortgages and changes in interest rates. When prepayments tend to fall, the
timing of the cash flows to these securities increases, making them more
sensitive to changes in interest rates. The market for some of these
securities may be limited, making it difficult for the Fund to dispose of its
holdings at an acceptable price.

|X| Illiquid and Restricted Securities. Investments may be illiquid because
there is no active trading market for them, making it difficult to value them
or dispose of them promptly at an acceptable price. Restricted securities may
have terms that limit their resale to other investors or may require
registration under applicable securities laws before they may be sold
publicly. The Fund will not invest more than 15% of its net assets in
illiquid or restricted securities. Certain restricted securities that are
eligible for resale to qualified institutional purchasers may not be subject
to that limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity.

|X| Derivative Investments. The Fund can invest in a number of different
kinds of "derivative" investments. In general terms, a derivative investment
is an investment contract whose value depends on (or is derived from) the
value of an underlying asset, interest rate or index. In the broadest sense,
options, futures contracts, and other hedging instruments the Fund might use
may be considered "derivative" investments. In addition to using derivatives
for hedging, the Fund might use other derivative investments because they
offer the potential for increased income. The Fund currently does not use
derivatives to a significant degree and is not required to use them in
seeking its objective.

Derivatives have risks. If the issuer of the derivative investment does
not pay the amount due, the Fund can lose money on the investment. The
underlying security or investment on which a derivative is based, and the
derivative itself, may not perform the way the Manager expected it to. As a
result of these risks the Fund could realize less principal or income from
the investment than expected or its hedge might be unsuccessful. As a result,
the Fund's share prices could fall. Certain derivative investments held by
the Fund might be illiquid.

The value of these notes will fall or rise in response to the changes
in the values of the underlying security or index. They are subject to both
credit and interest rate risks and therefore the Fund could receive more or
less than it originally invested when the notes mature, or it might receive
less interest than the stated coupon payment if the underlying investment or
index does not perform as anticipated. The prices of these notes may be very
volatile and they may have a limited trading market, making it difficult for
the Fund to sell its investment at an acceptable price.

|X| Hedging. The Fund can buy and sell futures contracts, put and call
options, and forward contracts. These are all referred to as "hedging
instruments." The Fund is not required to use other hedging instruments to
seek its objective. The Fund does not use hedging instruments for speculative
purposes and has limits on its use of them.

The Fund could buy and sell options, futures and forward contracts for
a number of purposes. It might do so to try to hedge against falling prices
of its portfolio securities or to establish a position in the securities
market as a temporary substitute for purchasing individual securities. It
might do so to try to manage its exposure to changing interest rates. Forward
contracts and currency options can be used to try to manage foreign currency
risks on the Fund's foreign investments. The Fund could write covered call
options to seek cash for liquidity purposes or to distribute to shareholders.

Options trading involves the payment of premiums and has special tax
effects on the Fund. If a covered call written by the Fund is exercised on an
investment that has increased in value, the Fund will be required to sell the
investment at the call price and will not be able to realize any profit if
the investment has increased in value above the call price. There are also
special risks in particular hedging strategies. If the Manager used a hedging
instrument at the wrong time or judged market conditions incorrectly, the
strategy could reduce the Fund's return. The Fund could also experience
losses if the prices of its futures and options positions were not correlated
with its other investments or if it could not close out a position because of
an illiquid market.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
and annual reports that are distributed to shareholders of the Fund within 60
days after the close of the period for which such report is being made. The
Fund also makes disclosures of its portfolio securities holdings in its
Statements of Investments on Form N-Q, which are filed with the SEC no later
than 60 days after the close of the first and third fiscal quarters. These
additional quarterly filings are publicly available at the SEC. Therefore,
portfolio holdings of the Fund are made publicly available no later than 60
days after the close of the Fund's fiscal quarter.

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.

How the Fund Is Managed

The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the
policies established by the Fund's Board of Trustees, under an investment
advisory agreement that states the Manager's responsibilities. The agreement
sets the fees the Fund pays to the Manager and describes the expenses that
the Fund is responsible to pay to conduct its business.

|X| Advisory Fees. Under the Investment Advisory Agreement, the
Fund pays the Manager an advisory fee at an annual rate that declines on
additional assets as the Fund grows: 0.75% of the first $200 million of
average annual net assets, 0.72% of the next $200 million, 0.69% of the next
$200 million, 0.66% of the next $200 million, 0.60% on the next $200 million
and 0.50% of average annual net assets over $1 billion. The Fund's management
fee for its fiscal year ended December 31, 2004, was 0.71% of the Fund's
average annual net assets for each class of shares.

|X| Portfolio Manager. The Fund's portfolio is managed by Arthur P.
Steinmetz. Mr. Steinmetz has been the person primarily responsible for the
day-to-day management of the Fund's portfolio since May 1993. Mr. Steinmetz
is Senior Vice President of the Manager since March 1993 and of HarbourView
Asset Management Corporation since March 2000. He is an officer of other
portfolios and other accounts in the OppenheimerFunds complex.

The Statement of Additional Information provides additional information
about the Portfolio Manager's compensation, other accounts he manages and his
ownership of Fund shares.

Pending Litigation. A consolidated amended complaint has been filed as
putative derivative and class actions against the Manager, Distributor and
Transfer Agent, as well as 51 of the Oppenheimer funds (collectively the
"funds") not including the Fund, 31 present and former Directors or Trustees
and 9 present and former officers of certain of the funds. This complaint,
initially filed in the U.S. District Court for the Southern District of New
York on January 10, 2005 and amended on March 4, 2005, consolidates into a
single action and amends six individual previously-filed putative derivative
and class action complaints. Like those prior complaints, the complaint
alleges that the Manager charged excessive fees for distribution and other
costs, improperly used assets of the funds in the form of directed brokerage
commissions and 12b-1 fees to pay brokers to promote sales of the funds, and
failed to properly disclose the use of fund assets to make those payments in
violation of the Investment Company Act and the Investment Advisers Act of
1940. Also, like those prior complaints, the complaint further alleges that
by permitting and/or participating in those actions, the Directors/Trustees
and the Officers breached their fiduciary duties to Fund shareholders under
the Investment Company Act and at common law. The complaint seeks unspecified
compensatory and punitive damages, rescission of the funds' investment
advisory agreements, an accounting of all fees paid, and an award of
attorneys' fees and litigation expenses.

INVESTING IN THE FUND

How to Buy and Sell Shares

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

Limits on Disruptive Activity. Therefore, the Manager and the Fund's Board of
Trustees have adopted the following policies and procedures to detect and
prevent frequent and/or excessive purchase and redemption activity, while
balancing the needs of investors. There is no guarantee that the policies and
procedures described below will be sufficient to identify and deter excessive
short-term trading.
The Transfer Agent may, in its discretion, limit or terminate trading
activity by any person, group or account that it believes would be
disruptive.
o The Transfer Agent will attempt to monitor overall purchase and
redemption activity in the accounts of participating insurance
companies to seek to identify patterns that may suggest excessive
trading by the underlying owners. If evidence of possible excessive
trading activity is observed by the Transfer Agent, the
participating insurance companies or other registered owners will be
asked to review account activity in their respective accounts, and
to confirm to the Transfer Agent and the Fund that appropriate
action has been taken to curtail any excessive trading activity.
However, the Transfer Agent's ability to monitor and deter excessive
short-term trading in omnibus or street name accounts ultimately
depends on the capability and cooperation of the participating
insurance companies controlling their respective accounts.

Furthermore, each participating insurance company may impose its own
restrictions or limitations to discourage short-term or excessive trading.

Right to Refuse Purchase Orders. The Distributor and/or the Transfer Agent
may refuse any purchase order in their discretion and are not obligated to
provide notice before rejecting an order.

There can be no assurance that the Fund, the Transfer Agent or the
Fund's participating insurance companies will be successful in curbing
abusive short-term exchanges.

- ------------------------------------------------------------------------------
Information about your investment in the Fund through your variable annuity
contract, variable life insurance policy or other plan can be obtained only
----
from your participating insurance company or its servicing agent. The Fund's
Transfer Agent does not hold or have access to those records. Instructions
for buying or selling shares of the Fund should be given to your insurance
company or its servicing agent, not directly to the Fund or its Transfer
Agent.
- ------------------------------------------------------------------------------

|X| Classes of Shares. The Fund has four classes of shares authorized. The
Fund offers only two different classes of shares. The class designated as
Service shares are subject to a Distribution and Service Plan. The impact of
the expenses of the Plan on Service shares is described below. The class of
shares that are not subject to a Plan has no class "name" designation. The
different classes of shares represent investments in the same portfolio of
securities but are expected to be subject to different expenses and will
likely have different share prices.

The share price that applies to a redemption order is the next net
asset value per share that is determined after the participating insurance
company (as the Fund's designated agent) receives a redemption request on a
regular business day from its contract or policy holder, provided that the
Fund receives the order from the insurance company by 9:30 a.m. the next
regular business day at the office of its Transfer Agent in Colorado. The
participating insurance company must receive that order before the close of
the Exchange (usually 4:00 p.m. Eastern time). The Fund normally sends
payment by Federal Funds wire to the insurance company's account the day
after the Fund receives the order (and no later than seven days after the
Fund's receipt of the order). Under unusual circumstances determined by the
Securities and Exchange Commission, payment may be delayed or suspended.
Shares may be redeemed in kind under certain limited circumstances (such as
redemptions of substantial amounts of shares by shareholders that have
consented to such in kind redemptions). This means that the redemption
proceeds will be paid to the participating insurance companies that hold Fund
shares with liquid securities from the Fund's portfolio. If the Fund redeems
shares in kind, the accounts may bear transaction costs and market risks
until such time as the securities are converted into cash.

Dividends, Capital Gains and Taxes

Dividends. The Fund intends to declare dividends separately for each class of
shares from net investment income on an annual basis. Dividends and
distributions will generally be lower for Service shares, which normally have
higher expenses. The Fund has no fixed dividend rate and cannot guarantee
that it will pay any dividends.

Financial Highlights

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.05 $ 4.57 $ 4.62 $ 4.69 $ 4.97
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .22 1 .22 .29 .41 .41
Net realized and unrealized gain (loss) .20 .56 .03 (.19) (.28)
----------------------------------------------------------------------------------
Total from investment operations .42 .78 .32 .22 .13
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.26) (.30) (.37) (.29) (.41)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.21 $ 5.05 $ 4.57 $ 4.62 $ 4.69
=================================================================================

- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 8.67% 18.07% 7.44% 4.85% 2.63%
- -----------------------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 614,915 $ 571,445 $ 406,126 $ 351,686 $ 304,562
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 584,878 $ 472,213 $ 374,519 $ 330,711 $ 289,923
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 4.50% 5.61% 6.89% 8.78% 9.23%
Total expenses 0.74% 0.75% 0.79% 0.79% 0.79%
Expenses after payments and waivers and
reduction to custodian expenses N/A 4 N/A 4 0.78% N/A 4 N/A 4
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 88% 5 117% 65% 104% 104%

1. Per share amounts calculated based on the average shares outstanding during
the period.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$959,649,113 and $973,488,511, respectively.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 2002 2001 1
- ---------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.13 $ 4.67 $ 4.73 $ 4.64
- ---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .19 2 .27 .03 .15
Net realized and unrealized gain (loss) .22 .49 .28 (.06)
-------------------------------------------------------
Total from investment operations .41 .76 .31 .09
- ---------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.25) (.30) (.37) --
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.29 $ 5.13 $ 4.67 $ 4.73
=======================================================

- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 8.43% 17.16% 7.03% 1.94%
- ---------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 242,705 $ 79,782 $ 8,138 $ 4
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 150,040 $ 34,744 $ 2,307 $ 2
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 3.82% 4.57% 5.40% 8.17%
Total expenses 0.99% 1.02% 1.06% 0.92%
Expenses after payments and waivers and
reduction to custodian expenses N/A 5 N/A 5 1.03% N/A 5
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 88% 6 117% 65% 104%

1. For the period from March 19, 2001 (inception of offering) to December 31,
2001.

2. Per share amounts calculated based on the average shares outstanding during
the period.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$959,649,113 and $973,488,511, respectively.

INFORMATION AND SERVICES

For More Information on Oppenheimer Strategic Bond Fund/VA

The following additional information about the Fund is available without
charge upon request:

STATEMENT OF ADDITIONAL INFORMATION. This document includes additional
information about the Fund's investment policies, risks, and operations. It
is incorporated by reference into this Prospectus (which means it is legally
part of this Prospectus).

ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance is available in the Fund's Annual and Semi-Annual
Reports to shareholders. The Annual Report includes a discussion of market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.

How to Get More Information

You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports and the notice explaining the Fund's privacy policy:

- ------------------------------------------------------------------------------

Information about the Fund including the Statement of Additional Information
can be reviewed and copied at the SEC's Public Reference Room in Washington,
D.C. Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1.202.942.8090. Reports and other information
about the Fund are available on the EDGAR database on the SEC's Internet
website at www.sec.gov. Copies may be obtained after payment of a duplicating
fee by electronic request at the SEC's e-mail address: publicinfo@sec.gov or
by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.

No one has been authorized to provide any information about the Fund or to
make any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any
state or other jurisdiction where it is unlawful to make such an offer.

The Fund's SEC File No. 811-4108
PR0265.001.0405 [logo] OppenheimerFunds Distributor, Inc.
Printed on recycled paper

Appendix to Prospectus of
Oppenheimer Strategic Bond Fund/VA
(a series of Oppenheimer Variable Account Funds)

Graphic material included in the Prospectus of Oppenheimer Strategic
Bond Fund/VA (the "Fund") under the heading "Annual Total Return (as of 12/31
each year)":

A bar chart will be included in the Prospectus of the Fund depicting
the annual total returns of a hypothetical $10,000 investment in Non-Service
shares of the Fund for each of the most recent calendar years, without
deducting separate account expenses. Set forth below are the relevant data
that will appear on the bar chart:

- -----------------------------------------------------
Calendar Year Ended Annual Total Returns
- ------------------- --------------------
- -----------------------------------------------------
- -----------------------------------------------------
12/31/95 15.33%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/96 12.07%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/97 8.71%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/98 2.90%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/99 2.83%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/00 2.63%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/01 4.85%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/02 7.44%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/03 18.07%
- -----------------------------------------------------
- -----------------------------------------------------

12/31/04 8.67%

- -----------------------------------------------------

Oppenheimer
Value Fund/VA
A series of Oppenheimer Variable Account Funds

Prospectus dated April 29, 2005

Oppenheimer Value Fund/VA is a mutual
fund. It seeks long-term growth of
capital by investing primarily in
common stocks with low price-earnings
ratios and better-than-anticipated
earnings. Realization of current
income is a secondary consideration.
Shares of the Fund are sold only
as the underlying investment for
variable life insurance policies,
variable annuity contracts and other
insurance company separate accounts. A
prospectus for the insurance product
you have selected accompanies this
Prospectus and explains how to select
shares of the Fund as an investment
under that insurance product.
This Prospectus contains
important information about the Fund's
objective, its investment policies,
strategies and risks. Please read this
Prospectus (and your insurance product
prospectus) carefully before you
invest and keep them for future
reference about your account.

As with all mutual funds, the
Securities
and Exchange Commission has not
approved or disapproved the Fund's
securities nor has it determined that
this Prospectus is accurate or
complete.

It is a criminal offense to represent
otherwise.
(OppenheimerFunds logo)

Contents

About the Fund
- ------------------------------------------------------------------------------

The Fund's Investment Objective and Principal Investment
Strategies

Main Risks of Investing in the Fund

The Fund's Past Performance

Fees and Expenses of the Fund

About the Fund's Investments

How the Fund is Managed

Investing in the Fund
- ------------------------------------------------------------------------------

How to Buy and Sell Shares

Dividends, Capital Gains and Taxes

Financial Highlights

ABOUT THE FUND

The Fund's Investment Objective and Principal Investment Strategies

What Is the Fund's Investment Objective? The Fund seeks long-term growth of
capital by investing primarily in common stocks with low price-earnings
ratios and better-than-anticipated earnings. Realization of current income is
a secondary consideration.

What Does the Fund Mainly Invest In? The Fund invests mainly in common stocks
of different capitalization ranges, and currently emphasizes large
capitalization stocks. The Fund also can buy other investments, including:
o Preferred stocks, rights and warrants and convertible securities, and
o Securities of U.S. and foreign companies, although there are limits on
the Fund's investments in foreign securities.

How Does the Portfolio Manager Decide What Securities to Buy or Sell? In
selecting securities for purchase or sale by the Fund, the Fund's portfolio
manager selects securities one at a time. This is called a "bottom up
approach." The portfolio manager uses fundamental analysis to select
securities for the Fund that he believes are undervalued. While this process
and the inter-relationship of the factors used may change over time and its
implementation may vary in particular cases, the portfolio manager currently
considers the following factors when assessing a company's business prospects:
o Future supply/demand conditions for its key products,
o Product cycles,
o Quality of management,
o Competitive position in the market place,
o Reinvestment plans for cash generated, and
o Better-than-expected earnings reports.

Not all factors are relevant for every individual security.

The portfolio manager may consider selling a stock for one or more of the
following reasons:
o The stock price reached its target,
o The company's fundamentals appear to be deteriorating, or
o Better stock selections are believed to have been identified.

Who Is the Fund Designed For? The Fund's shares are available only as an
investment option under certain variable annuity contracts, variable life
insurance policies and investment plans offered through insurance company
separate accounts of participating insurance companies, for investors seeking
capital growth in their investment over the long term. Because the Fund
currently focuses its investments in stocks, those investors should be
willing to assume the risks of short-term share price fluctuations that are
typical for a fund that can have substantial stock investments. Since the
Fund's income level will fluctuate and will likely be small, it is not
designed for investors needing an assured level of current income. The Fund
is not a complete investment program.

Main Risks of Investing in the Fund

All investments have some degree of risk. The Fund's investments are subject
to changes in their value from a number of factors described below. There is
also the risk that poor security selection by the Fund's investment manager,
OppenheimerFunds, Inc. (the "Manager"), will cause the Fund to underperform
other funds having similar objectives.

|X| Risks of Investing in Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. Because the Fund currently
focuses its investments in stocks, the value of the Fund's portfolio will be
affected by changes in the stock markets. Market risk will affect the Fund's
net asset values per share, which will fluctuate as the values of the Fund's
portfolio securities change.

A variety of factors can affect the price of a particular stock and the
prices of individual stocks do not all move in the same direction uniformly
or at the same time. Different stock markets may behave differently from
each other. In particular, because the Fund currently emphasizes investments
in stocks of U.S. issuers, it will be affected primarily by changes in U.S.
stock markets.

Additionally, stocks of issuers in a particular industry may be
affected by changes in economic conditions that affect that industry more
than others, or by changes in government regulations, availability of basic
resources or supplies, or other events affecting that industry. At times, the
Fund may increase the relative emphasis of its investments in a particular
industry. To the extent that the Fund is emphasizing investments in a
particular industry, its share values may fluctuate in response to events
affecting that industry.

Other factors can affect a particular stock's price, such as poor
earnings reports by the issuer, loss of major customers, major litigation
against the issuer, or changes in government regulations affecting the issuer
or its industry. The Fund emphasizes securities of large companies but it can
also buy stocks of small- and medium-size companies, which may have more
volatile stock prices than stocks of large companies.

|X| Risks of Value Investing. Value investing seeks stocks having prices
that are low in relation to what their real worth or prospects are believed
to be. The Fund hopes that it will realize appreciation in the value of its
holdings when other investors realize the intrinsic value of those stocks. In
using a value investing style, there is the risk that the market will not
recognize that the securities are undervalued and they might not appreciate
in value as the Manager anticipates.

|X| Risks of Foreign Investing. While foreign securities offer special
investment opportunities, there are also special risks. The change in value
of a foreign currency against the U.S. dollar will result in a change in the
U.S. dollar value of securities denominated in that foreign currency. Foreign
issuers are not subject to the same accounting and disclosure requirements
that U.S. companies are subject to.

The value of foreign investments may be affected by exchange control
regulations, expropriation or nationalization of a company's assets, foreign
taxes, delays in settlement of transaction, changes in governmental economic
or monetary policy in the U.S. or aboard, or other political and economic
factors.

How Risky is the Fund Overall? The risks described above collectively form
the overall risk profile of the Fund and can affect the value of the Fund's
investments, its investment performance and the prices of its shares.
Particular investments and investment strategies also have risks. These
risks mean that you can lose money by investing in the Fund. When you redeem
your shares, they may be worth more or less than what you paid for them. The
share prices of the Fund will change daily based on changes in market prices
of securities and market conditions, and in response to other economic
events. There is no assurance that the Fund will achieve its investment
objective.

The Fund focuses its investments on stocks for long-term growth. Stock
markets can be volatile, and the prices of the Fund's shares will go up and
down. The Fund generally does not use income-oriented investments to help
cushion the Fund's total return from changes in stock prices. In the
OppenheimerFunds spectrum, the Fund is generally more conservative than
aggressive growth stock funds, but more aggressive than funds that invest in
stocks and bonds.

An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.

The Fund's Past Performance

The bar chart and table below show one measure of the risks of investing in
the Fund, by showing the Fund's performance for the last two calendar years
and by showing how the Fund's average annual total returns for the past two
calendar years compare to those of a broad-based market index. The Fund's
past investment performance is not necessarily an indication of how the Fund
will perform in the future.

Annual Total Returns (as of December 31 each year)

[See appendix to prospectus for data in bar chart showing annual total
returns]

During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 11.96% (4th Q'04) and the lowest return (not
annualized) for a calendar quarter was -0.39% (2nd Q'04).

- ---------------------------------------------------------------------------------
Average Annual Total
Returns for the periods 1 Year 5 Years 10 Years
ended (or life of (or life of (or life of
- -------------------------- class if less) class if less) class if less)
December 31, 2004
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------

Oppenheimer Value Fund/VA 14.50% 21.57% N/A
Shares (inception 1/1/03)

- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------

Russell 1000 Value Index 16.49% 23.08% N/A

- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------

The Fund's total returns should not be expected to be the same as the returns
of other Oppenheimer funds, even if both funds have the same portfolio
managers and/or similar names.

Fees and Expenses of the Fund

The following tables are meant to help you understand the fees and expenses
you may pay if you buy and hold shares of the Fund. The Fund pays a variety
of expenses directly for management of its assets, administration and other
services. Those expenses are subtracted from the Fund's assets to calculate
the Fund's net asset values per share. All shareholders therefore pay those
expenses indirectly. The numbers below are based on the Fund's expenses
during its fiscal year ended December 31, 2004.

Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)

- --------------------------------------------------------------------------------

Management Fees 0.75%

- --------------------------------------------------------------------------------
- ----------------------------------------------------------

Distribution and Service N/A
(12b-1) Fees

- ----------------------------------------------------------
- ----------------------------------------------------------

Other Expenses 1.07%

- ----------------------------------------------------------
- ----------------------------------------------------------

Total Annual Operating Expenses 1.82%

- ----------------------------------------------------------

Expenses may vary in future years. "Other Expenses" include transfer agent
fees, custodial expenses, and accounting and legal expenses the Fund pays.
The Fund's transfer agent has voluntarily agreed to limit transfer and
shareholder servicing agent fees to 0.35% per fiscal year. That undertaking
may be amended or withdrawn at any time. For the Fund's fiscal year ended
December 31, 2004, the transfer agent fees did not exceed the expense
limitation described above.

EXAMPLE. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds.

- ------------------------------------------------------------------------------

1 Year 3 Years 5 Years 10 Years

- ------------------------------------------------------------------------------
- ----------------------------------------------------

$187 $578 $994 $2,156

- ----------------------------------------------------

About the Fund's Investments

The Fund's Principal Investment Policies. The allocation of the Fund's
portfolio among the different types of investments will vary over time based
upon the evaluation of economic and market trends by the Manager. The Fund's
portfolio might not always include all of the different types of investments
described below. The Statement of Additional Information contains more
detailed information about the Fund's investment policies and risks.

However, changes in the overall market prices of securities and any
income they may pay can occur at any time. The price and yield of the Fund's
shares will change daily based on changes in market prices of securities and
market conditions and in response to other economic events.

|X| Stock Investments. The Fund invests primarily in a diversified
portfolio of common stocks of issuers that may be of small, medium or large
capitalization, to seek capital growth. The Fund can invest in other equity
securities, including preferred stocks, rights and warrants, and securities
convertible into common stock. The Fund can buy securities issued by domestic
or foreign companies. However, the Fund currently emphasizes investments in
large capitalization stocks of U.S. issuers.

The Fund's equity investments may be exchange-traded or
over-the-counter securities. Over-the-counter securities may have less
liquidity than exchange-traded securities.

While many convertible securities are debt securities, the Manager
considers some of them to be "equity equivalents" because of their conversion
feature. In these cases, their credit rating has less impact on the
investment decision than in the case of other debt securities. Convertible
securities are subject to credit risk and interest rate risk, discussed below.

The Fund can buy convertible securities rated as low as "B" by Moody's
Investor Services, Inc. or Standard & Poor's Rating Service or having
comparable ratings by other nationally recognized rating organizations (or,
if they are unrated, having a comparable rating assigned by the Manager).
Those ratings are below "investment grade" and the securities are subject to
greater risk of default by the issuer than investment-grade securities. These
investments are subject to the Fund's policy of not investing more than 10%
of its net assets in debt securities.

Other Investment Strategies. To seek its objective, the Fund can use the
investment techniques and strategies described below. The Fund might not
always use all of them. These techniques have risks, although some of them
are designed to help reduce overall investment or market risks.

|X| Cash and Cash Equivalents. Under normal market conditions the Fund can
invest up to 15% of its net assets in cash and cash equivalents such as
commercial paper, repurchase agreements, Treasury bills and other short-term
U.S. government securities. This strategy would be used primarily for cash
management or liquidity purposes. To the extent that the Fund uses this
strategy, it might reduce its opportunities to seek its objective of
long-term growth of capital.

|X| Debt Securities. Under normal market conditions, the Fund can invest in
debt securities, such as securities issued or guaranteed by the U.S.
government or its agencies and instrumentalities, foreign government
securities, and foreign and domestic corporate bonds and debentures. Normally
these investments are limited to not more than 10% of the Fund's net assets,
including convertible debt securities.

The debt securities the Fund buys may be rated by nationally recognized
rating organizations or they may be unrated securities assigned an equivalent
rating by the Manager. The Fund's debt investments may be "investment grade"
(that is, rated in the four highest rating categories of a nationally
recognized rating organization) or may be lower-grade securities rated as low
as "B," as described above.

|X| Credit Risk. Debt securities are subject to credit risk. Credit risk
relates to the ability of the issuer of a security to make interest and
principal payments on the security as they become due. If the issuer fails to
pay interest, the Fund's income might be reduced, and if the issuer fails to
repay principal, the value of that security and of the Fund's shares might be
reduced. A downgrade in an issuer's credit rating or other adverse news about
an issuer can reduce the value of that issuer's securities. While the Fund's
investments in U.S. government securities are subject to little credit risk,
the Fund's other investments in debt securities, particularly high-yield,
lower-grade debt securities are subject to risks of default. Lower-grade debt
securities may be subject to greater market fluctuations and greater risks of
loss of income and principal than investment-grade debt securities.

|X| Interest Rate Risk. The values of debt securities, including U.S.
government securities, are subject to change when prevailing interest rates
change. When interest rates fall, the values of already-issued debt
securities generally rise. When interest rates rise, the values of
already-issued debt securities generally fall, and they may sell at a
discount from their face amount. The magnitude of these fluctuations will
often be greater for longer-term debt securities than shorter-term debt
securities. The Fund's share prices can go up or down when interest rates
change because of the effect of the changes on the value of the Fund's
investments in debt securities.

|X| Foreign Securities. The Fund can invest up to 25% of its total assets
in securities or governments in any country, developed or underdeveloped.
These include equity and debt securities of companies organized under the
laws of countries other than the United States and debt securities of foreign
governments and their agencies and instrumentalities.

|X| Derivative Investments. In general terms, a derivative investment is an
investment contract whose value depends on (or is derived from) the value of
an underlying asset, interest rate or index. Options, futures,
mortgage-related securities and "stripped" securities are examples of
derivatives the Fund can use. Currently the Fund does not use derivative
investments to a significant degree.
|X| There Are Special Risks In Using Derivative Investments. If the issuer
of the derivative does not pay the amount due, the Fund can lose money on the
investment. Also, the underlying security or investment on which the
derivative is based, and the derivative itself, might not perform the way the
Manager expected it to perform. If that happens, the Fund's share prices
could decline or the Fund could get less income than expected. Interest rate
and stock market changes in the U.S. and abroad may also influence the
performance of derivatives. Some derivative investments held by the Fund may
be illiquid. The Fund has limits on the amount of particular types of
derivatives it can hold. However, using derivatives can cause the Fund to
lose money on its investment and/or increase the volatility of its share
prices.
|X| Hedging. The Fund can buy and sell futures contracts, put and call
options, swaps, and forward contracts. These are all referred to as "hedging
instruments." The Fund does not use hedging instruments for speculative
purposes. The Fund has limits on its use of hedging instruments and is not
required to use them in seeking its investment objective.

The Fund can buy and sell options, swaps, futures and forward contracts
for a number of purposes. Some of these strategies would hedge the Fund's
portfolio against price fluctuations. Other hedging strategies, such as
buying futures and call options, would tend to increase the Fund's exposure
to the securities market. The Fund may also try to manage its exposure to
changing interest rates.

There are special risks in particular hedging strategies. For example,
options trading involves the payment of premiums and can increase portfolio
turnover. If a covered call written by the Fund is exercised on an investment
that has increased in value, the Fund will be required to sell the investment
at the call price and will not be able to realize any profit if the
investment has increased in value above the call price.

If the Manager used a hedging instrument at the wrong time or judged
market conditions incorrectly, the hedge fails and the strategy could reduce
the Fund's return. The Fund could also experience losses if the prices of its
futures and options positions were not correlated with its other investments
or if it could not close out a position because of an illiquid market.

|X| Illiquid and Restricted Securities. Investments may be illiquid because
they do not have an active trading market, making it difficult to value them
or dispose of them promptly at an acceptable price. Restricted securities may
have terms that limit their resale to other investors or may require
registration under applicable securities laws before they may be sold
publicly. The Fund will not invest more than 10% of its net assets in
illiquid or restricted securities but is not required to sell them due to
decline in the Fund's share price. Certain restricted securities that are
eligible for resale to qualified institutional purchasers may not be subject
to that limit. The Manager monitors holdings of illiquid securities on an
ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity.

|X| Temporary Defensive and Interim Investments. In times of adverse or
unstable market, economic or political conditions, the Fund can invest up to
100% of its assets in temporary investments that are inconsistent with the
Fund's principal investment strategies. Generally, they would be short-term
U.S. government securities, high-grade commercial paper, bank obligations or
repurchase agreements. The Fund can also hold these types of securities
pending the investment of proceeds from the sale of Fund shares or portfolio
securities or to meet anticipated redemptions of Fund shares. To the extent
the Fund invests in these securities, it might not achieve its investment
objective.

PORTFOLIO HOLDINGS. The Fund's portfolio holdings are included in semi-annual
and annual reports that are distributed to shareholders of the Fund within 60
days after the close of the period for which such report is being made. The
Fund also makes disclosures of its portfolio securities holdings in its
Statements of Investments on Form N-Q, which are filed with the SEC no later
than 60 days after the close of the first and third fiscal quarters. These
additional quarterly filings are publicly available at the SEC. Therefore,
portfolio holdings of the Fund are made publicly available no later than 60
days after the close of the Fund's fiscal quarter.

A description of the Fund's policies and procedures with respect to the
disclosure of the Fund's portfolio securities is available in the Fund's
Statement of Additional Information.

How the Fund Is Managed

The Manager has been an investment advisor since January 1960. The
Manager and its subsidiaries and controlled affiliates managed more than $170
billion in assets as of March 31, 2005, including other Oppenheimer funds
with more than 7 million shareholder accounts. The Manager is located at Two
World Financial Center, 225 Liberty Street, 11th Floor, New York, New York
10281-1008.

|X| Advisory Fees. Under the investment advisory agreement, the Fund pays
the Manager an advisory fee at an annual rate of 0.75% of the first $200
million of average annual net assets, 0.72% of the next $200 million, 0.69%
of the next $200 million, 0.66% of the next $200 million, and 0.60% of
average annual net assets over $800 million. The Fund's management fee for
its last fiscal year ended December 31, 2004, was 0.75% of the fund's average
annual net assets.

|X| Portfolio Manager. The Fund's portfolio is managed by Christopher
Leavy. Mr. Leavy is a Vice President of the Fund and has been the person
primarily responsible for the day-to-day management of the Fund's portfolio
since December 2002. He has been a Senior Vice President of the Manager since
September 2002. Mr. Leavy is also an officer and portfolio manager of other
funds in the OppenheimerFunds complex. Prior to joining the Manager in
September 2002, he was a portfolio manager of Morgan Stanley Dean Witter
Investment Management from 1997 to 2000. The Statement of Additional
Information provides additional information about the Portfolio Manager's
compensation, other accounts he manages and his ownership of Fund shares.

INVESTING IN THE FUND

How to Buy and Sell Shares

Currently, the Fund offers only non-service shares.

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

Furthermore, each participating insurance company may impose its own
restrictions or limitations to discourage short-term or excessive trading.

Right to Refuse Purchase Orders. The Distributor and/or the Transfer Agent
may refuse any purchase order in their discretion and are not obligated to
provide notice before rejecting an order.

There can be no assurance that the Fund, the Transfer Agent or the
Fund's participating insurance companies will be successful in curbing
abusive short-term exchanges.

- ------------------------------------------------------------------------------
Information about your investment in the Fund through your variable annuity
contract, variable life insurance policy or other plan can be obtained only
----
from your participating insurance company or its servicing agent. The Fund's
Transfer Agent does not hold or have access to those records. Instructions
for buying or selling shares of the Fund should be given to your insurance
company or its servicing agent, not directly to the Fund or its Transfer
Agent.
- ------------------------------------------------------------------------------

|X| At What Price Are Shares Sold? Shares are sold to participating
insurance companies at their offering price, which is the net asset value per
share. The Fund does not impose any sales charge on purchases of its shares.
If there are any charges imposed under the variable annuity, variable life or
other contract through which Fund shares are purchased, they are described in
the accompanying prospectus of the participating insurance company.

Net Asset Value. The Fund calculates the net asset value as of the close of
the Exchange, on each day the Exchange is open for trading (referred to in
this Prospectus as a "regular business day"). The Exchange normally closes at
4:00 p.m., Eastern time, but may close earlier on some days. All references
to time in this Prospectus mean "Eastern time."

The net asset value per share on a "regular business day" is determined
by dividing the value of the Fund's net assets by the number of shares
outstanding on that day. To determine net asset values, the Fund assets are
valued primarily on the basis of current market quotations. If market
quotations are not readily available or do not accurately reflect fair value
for a security (in the Manager's judgment) or if a security's value has been
materially affected by events occurring after the close of the exchange or
market on which the security is principally traded, that security may be
valued by another method that the Board of Trustees believes accurately
reflects the fair value. Because some foreign securities trade in markets and
on exchanges that operate on weekends and U.S. holidays, the values of some
of the Fund's foreign investments may change on days when investors cannot
buy or redeem Fund shares.

|X| Classes of Shares. The Fund has four classes of shares authorized. The
class of shares offered by this Prospectus has no class name designation.
There are currently no outstanding shares of any other share class of the
Fund.

Distribution and Service Plan. The Fund has not adopted a Distribution and
Service Plan for the shares offered in this Prospectus.

Dividends, Capital Gains and Taxes

Dividends. The Fund intends to declare dividends from net investment income,
if any, on an annual basis. The Fund has no fixed dividend rate and cannot
guarantee that it will pay any dividends or distributions.

Financial Highlights

The Financial Highlights Table is presented to help you understand the Fund's
financial performance since inception. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that an investor would have earned (or lost) on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, the Fund's independent
registered public accounting firm, whose report, along with the Fund's
financial statements, is included in the Statement of Additional Information,
which is available on request.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2004 2003 1
- --------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.90 $ 10.00
- --------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.01) 2 .03
Net realized and unrealized gain 1.82 2.87
------------------------------------
Total from investment operations 1.81 2.90
- --------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.03) --
Distributions from net realized gain (2.42) --
------------------------------------
Total dividends and/or distributions
to shareholders (2.45) --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.26 $ 12.90
====================================

- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 14.50% 29.00%
- --------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 2,815 $ 3,871
- --------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 3,370 $ 3,205
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income (loss) (0.08)% 0.27%
Total expenses 1.82% 5 1.39% 5
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 100% 120%

1. For the period from January 2, 2003 (commencement of operations) to December
31, 2003.

2. Per share amounts calculated based on the average shares outstanding during
the period.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

INFORMATION AND SERVICES

For More Information on Oppenheimer Value Fund/VA

The following additional information about the Fund is available without
charge upon request:

ANNUAL AND SEMI-ANNUAL REPORTS. Additional information about the Fund's
investments and performance will be available in the Fund's Annual and
Semi-Annual Reports to shareholders. The Annual Report will include a
discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.

How to Get More Information

You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, the notice explaining the Fund's privacy policy:

By Telephone
Call OppenheimerFunds Services toll-free: 1.800.981.2871

By Mail
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270

The Fund's SEC File No.: 811-4108 [logo]
OppenheimerFunds
PR0642.001.0405
Distributor, Inc.
Printed on recycled paper

Appendix to Prospectus of
Oppenheimer Value Fund /VA
(a series of Oppenheimer Variable Account Funds)

Graphic material included in the Prospectus of Oppenheimer Value
Fund/VA (the "Fund") under the heading "Annual Total Return (as of 12/31
each year)":

A bar chart will be included in the Prospectus of the Fund depicting
the annual total returns of a hypothetical $10,000 investment in shares
of the Fund for each of the two most recent calendar years, without
deducting separate account expenses. Set forth below are the relevant
data that will appear on the bar chart:

- -----------------------------------------------------

Calendar Year Ended Annual Total Returns
- ------------------- --------------------

- -----------------------------------------------------
- -----------------------------------------------------

12/31/03 29.00%

- -----------------------------------------------------
- -----------------------------------------------------

12/31/04 14.50%

- -----------------------------------------------------

EX-99 3 sai1497.htm SAI - PART 1 OF 4 SAI - Part 1 of 4

Oppenheimer Variable Account Funds

6803 S. Tucson Way, Centennial, Colorado 80112
1.800.981.2871

Statement of Additional Information dated April 29, 2005


OPPENHEIMER  VARIABLE  ACCOUNT FUNDS (the  "Trust") is an  investment  company
consisting of 11 separate Series (the "Funds"):


Oppenheimer Aggressive Growth Fund/VA
Oppenheimer Balanced Fund/VA
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Core Bond Fund/VA
      (named "Oppenheimer Bond Fund/VA" prior to April 29, 2005)
Oppenheimer Global Securities Fund/VA
Oppenheimer High Income Fund/VA
Oppenheimer Main Street Fund(R)/VA
Oppenheimer Main Street Small Cap Fund(R)/VA
Oppenheimer Money Fund/VA
Oppenheimer Strategic Bond Fund/VA
Oppenheimer Value Fund/VA

      Shares of the Funds are sold to provide benefits under variable life
insurance policies and variable annuity contracts and other insurance company
separate accounts, as described in the Prospectuses for the Funds and for the
insurance products you have selected.


      This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Funds and the Trust, and
supplements information in the Funds' Prospectuses dated April 29, 2005. It
should be read together with the Prospectuses. You can obtain a Prospectus by
writing to the Funds' Transfer Agent, OppenheimerFunds Services, at P.O. Box
5270, Denver, Colorado 80217, by calling the Transfer Agent at the toll-free
number shown above or by visiting the OppenheimerFunds website at
www.oppenheimerfunds.com.




Contents                                                                Page

About the Funds
Additional Information About the Funds' Investment Policies and Risks..3
    The Funds' Investment Policies.....................................3
    Other Investment Techniques and Strategies.........................18
    Other Investment Restrictions......................................39
    Disclosure of Portfolio Holdings...................................42
How the Funds are Managed .............................................46
    Organization and History...........................................46
    Board of Trustees and Oversight Committees.........................48
    Trustees and Officers of the Funds.................................49
    The Manager........................................................61
Brokerage Policies of the Funds........................................69
Distribution and Service Plans (Service Shares and Class 4 Shares).....72
Performance of the Funds...............................................73


About Your Account
How To Buy and Sell Shares.............................................79
Dividends, Gains and Taxes.............................................84
Additional Information About the Funds.................................86

Financial Information About the Funds *
Report of Independent Registered Public Accounting Firm and Financial
Statements............................................................. F-1

Appendix A: Ratings Definitions........................................ A-1
Appendix B: Industry Classifications (Oppenheimer Money Fund/VA)....... B-1
Appendix C: Industry Classifications (all other Funds)................. C-1
Appendix D: Major Shareholders......................................... D-1


*This Statement of Additional Information consists of two separate documents.
This text comprises the first document. The second document contains the
Report of the Independent Registered Public Accounting Firm and Financial
Statements for each Fund. The two documents should be read together with the
Prospectuses for the Funds and for the insurance products you have selected.
These documents can also be viewed or downloaded online with Adobe Acrobat
Reader. Call 1.888.470.0861 if you want the domain name of an insurance
sponsor's website that displays both documents comprising this Statement of
Additional Information online, if you have technical difficulties, or to
request a paper copy of both documents comprising this Statement of
Additional Information at no charge.




ABOUT THE FUNDS

Additional Information About the Funds' Investment Policies and Risks


The investment objective, the principal investment policies and the
main risks of the Funds are described in the Funds' Prospectuses. This
Statement of Additional Information contains supplemental information about
those policies and risks and the types of securities that the Funds'
investment Manager, OppenheimerFunds, Inc. (the "Manager"), can select for
the Funds. Additional information is also provided about the strategies that
each Fund may use to try to achieve its objective. The full name of each Fund
is shown on the cover page, the word "Oppenheimer" is omitted from these
names in the rest of this document, to conserve space.


The Funds' Investment Policies. The composition of the Funds' portfolios and
the techniques and strategies that the Manager uses in selecting portfolio
securities will vary over time. The Funds are not required to use all of the
investment techniques and strategies described below at all times in seeking
their goals. They may use some of the special investment techniques and
strategies at some times or not at all.

In selecting securities for the Funds' portfolios, the Manager
evaluates the merits of particular securities primarily through the exercise
of its own investment analysis. That process may include, among other things:

o     evaluation of the issuer's historical operations,
o     prospects for the industry of which the issuer is part,
o     the issuer's financial condition,
o     its pending product developments and business (and those of
      competitors),
o     the effect of general market and economic conditions on the issuer's
      business, and
o     legislative proposals that might affect the issuer.

      The Funds are categorized by the types of investment they make.
Aggressive Growth Fund/VA, Capital Appreciation Fund/VA, Global Securities
Fund/VA, Main Street Small Cap Fund(R)/VA, and Value Fund/VA can be categorized
as "Equity Funds." High Income Fund/VA, Core Bond Fund/VA, and Strategic Bond
Fund/VA can be categorized as "Fixed Income Funds." Balanced Fund/VA and Main
Street Fund(R)/VA share the investment characteristics (and certain of the
Investment Policies) of both the Equity Funds and the Fixed Income Funds,
depending upon the allocations determined from time to time by their
portfolio managers. The allocation of Main Street Fund(R)/VA's portfolio to
equity securities is generally substantially larger than its allocation to
fixed-income securities. Money Fund/VA's investment policies are explained
separately; however, discussion below about investment restrictions,
repurchase agreements, illiquid securities and loans of portfolio securities
also apply to Money Fund/VA.

      |X|   Investments in Equity Securities. The Equity Funds focus their
investments in equity securities, which include common stocks, preferred
stocks, rights and warrants, and securities convertible into common stock.
Certain equity securities may be selected not only for their appreciation
possibilities but because they may provide dividend income. At times, a Fund
may have substantial amounts of its assets invested in securities of issuers
in one or more capitalization ranges, based upon the Manager's use of its
investment strategies and its judgment of where the best market opportunities
are to seek a Fund's objective.


      Small-cap growth companies may offer greater opportunities for capital
appreciation than securities of large, more established companies. However,
these securities also involve greater risks than securities of larger
companies. Securities of small- and mid- cap issuers may be subject to
greater price volatility in general than securities of large-cap companies.
Therefore, to the degree that a Fund has investments in smaller
capitalization companies at times of market volatility, that Fund's share
prices may fluctuate more. Main Street Small Cap Fund(R)/VA will invest
primarily in securities of small-cap issuers, but, for the other equity funds
those investments may be limited to the extent the Manager believes that such
investments would be inconsistent with the goal of preservation of principal.


o     Growth Investing. In selecting equity investments, the portfolio
managers for the Equity Funds may from time to time use a growth investing
style, a value investing style, or a combination of both. In using a growth
approach, the portfolio managers seek securities of "growth" companies.
Growth companies are those companies that the Manager believes are entering
into a growth cycle in their business, with the expectation that their stock
will increase in value. They may be established companies, as well as, newer
companies in the development stage. Growth companies may have a variety of
characteristics that in the Manager's view define them as "growth" issuers.

      Growth companies may be generating or applying new technologies, new or
improved distribution techniques or new services. They may own or develop
natural resources. They may be companies that can benefit from changing
consumer demands or lifestyles, or companies that have projected earnings in
excess of the average for their sector or industry. In each case, they have
prospects that the Manager believes are favorable for the long term. The
portfolio managers of the Funds look for growth companies with strong,
capable management, sound financial and accounting policies, successful
product development and marketing and other factors.

o     Value Investing. In selecting equity investments, the portfolio
managers for the Equity Funds in particular may from time to time use a value
investing style. In using a value approach, the portfolio managers seek stock
and other equity securities that appear to be temporarily undervalued, by
various measures, such as price/earnings ratios, rather than seeking stocks
of "growth" issuers. This approach is subject to change and might not
necessarily be used in all cases. Value investing seeks stocks having prices
that are low in relation to their real worth or future prospects, in the hope
that a Fund will realize appreciation in the value of its holdings when other
investors realize the intrinsic value of the stock.

      Using value investing requires research as to the issuer's underlying
financial condition and prospects. Some of the measures that can be used to
identify these securities include, among others:
o     Price/Earnings ratio, which is the stock's price divided by its
         earnings per share. A stock having a price/earnings ratio lower than
         its historical range, or the market as a whole or that of similar
         companies may offer attractive investment opportunities.
o     Price/book value ratio, which is the stock price divided by the book
         value of the company per share, which measures the company's stock
         price in relation to its asset value.
o     Dividend Yield is measured by dividing the annual dividend by the stock
         price per share.
o     Valuation of Assets, which compares the stock price to the value of the
         company's underlying assets, including their projected value in the
         marketplace and liquidation value.


o     Convertible Securities. While convertible securities are generally a
form of debt security, in many cases their conversion feature (allowing
conversion into equity securities) causes them to be regarded by the Manager
more as "equity equivalents." As a result, the credit rating assigned to the
security has less impact on the Manager's investment decision with respect to
convertible securities than in the case of non-convertible fixed income
securities. Convertible securities are subject to the credit risks and
interest rate risks described below in "Debt Securities."


      To determine whether convertible securities should be regarded as
"equity equivalents," the Manager examines the following factors:

(1)   whether, at the option of the investor, the convertible security can be
         exchanged for a fixed number of shares of common stock of the issuer,

(2)   whether the issuer of the convertible securities has restated its
         earnings per share of common stock on a fully diluted basis
         (considering the effect of conversion of the convertible
         securities), and

(3)   the extent to which the convertible security may be a defensive "equity
         substitute," providing the ability to participate in any
         appreciation in the price of the issuer's common stock.

o     Rights and Warrants. The Funds may invest in warrants or rights. They
do not expect that their investments in warrants and rights will exceed 5% of
their total assets. That limit does not apply to warrants and rights that the
Funds have acquired as part of units of securities or that are attached to
other securities. No more than 2% of Value Fund/VA's total assets may be
invested in warrants that are not listed on either The New York Stock
Exchange (the "Exchange") or The American Stock Exchange.


      Warrants basically are options to purchase equity securities at
specific prices valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities. Rights
are similar to warrants, but normally have a short duration and are
distributed directly by the issuer to its shareholders. Rights and warrants
have no voting rights, receive no dividends and have no liquidation rights
with respect to the assets of the issuer.


      |X|   Preferred Stocks. Preferred stocks are equity securities but have
certain attributes of debt securities. Preferred stock, unlike common stock,
has a stated dividend rate payable from the corporation's earnings. Preferred
stock dividends may be cumulative or non-cumulative, participating, or
auction rate. "Cumulative" dividend provisions require all or a portion of
prior unpaid dividends to be paid before the issuer can pay dividends on
common shares.

      If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as provisions for
their call or redemption prior to maturity which can have a negative effect
on their prices when interest rates decline. Preferred stock may be
"participating" stock, which means that it may be entitled to a dividend
exceeding the stated dividend in certain cases.

      Preferred stocks are equity securities because they do not constitute a
liability of the issuer and therefore do not offer the same degree of
protection of capital as debt securities and may not offer the same degree of
assurance of continued income as debt securities. The rights of preferred
stock on distribution of a corporation's assets in the event of its
liquidation are generally subordinate to the rights associated with a
corporation's debt securities. Preferred stock generally has a preference
over common stock on the distribution of a corporation's assets in the event
of its liquidation.

      |X|   Investments in Bonds and Other Debt Securities. The Fixed Income
Funds in particular can invest in bonds, debentures and other debt securities
to seek current income as part of their investment objectives.

      A Fund's debt investments can include investment-grade and
non-investment-grade bonds (commonly referred to as "junk bonds").
Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors
Service, Inc., ("Moody's") or at least "BBB" by Standard & Poor's Rating
Services ("S&P") or Fitch, Inc. ("Fitch") or that have comparable ratings by
another nationally recognized rating organization. In making investments in
debt securities, the Manager may rely to some extent on the ratings of
ratings organizations or it may use its own research to evaluate a security's
credit-worthiness. If the securities that a Fund buys are unrated, to be
considered part of a Fund's holdings of investment-grade securities, they
must be judged by the Manager to be of comparable quality to bonds rated as
investment grade by a rating organization.

o     U.S. Government Securities. These are securities issued or guaranteed
by the U.S. Treasury or other government agencies or federally-chartered
corporate entities referred to as "instrumentalities." The obligations of
U.S. government agencies or instrumentalities in which the Funds may invest
may or may not be guaranteed or supported by the "full faith and credit" of
the United States. "Full faith and credit," means generally that the taxing
power of the U.S. government is pledged to the payment of interest and
repayment of principal on a security. If a security is not backed by the full
faith and credit of the United States, the owner of the security must look
principally to the agency issuing the obligation for repayment. The owner
might not be able to assert a claim against the United States if the issuing
agency or instrumentality does not meet its commitment. The Funds will invest
in securities of U.S. government agencies and instrumentalities only if the
Manager is satisfied that the credit risk with respect to the agency or
instrumentality is minimal.

o     U.S. Treasury Obligations. These include Treasury bills (maturities of
one year or less when issued), Treasury notes (maturities of one to 10
years), and Treasury bonds (maturities of more than 10 years). Treasury
securities are backed by the full faith and credit of the United States as to
timely payments of interest and repayments of principal. They also can
include U.S. Treasury securities that have been "stripped" by a Federal
Reserve Bank, zero-coupon U.S. Treasury securities described below, and
Treasury Inflation-Protection Securities ("TIPS").

o     Treasury Inflation-Protection Securities. The Funds can buy these TIPS,
which are designed to provide an investment vehicle that is not vulnerable to
inflation. The interest rate paid by TIPS is fixed. The principal value rises
or falls semi-annually based on changes in the published Consumer Price
Index. If inflation occurs, the principal and interest payments on TIPS are
adjusted to protect investors from inflationary loss. If deflation occurs,
the principal and interest payments will be adjusted downward, although the
principal will not fall below its face amount at maturity.


o     Obligations Issued or Guaranteed by U.S. Government Agencies or
Instrumentalities. These include direct obligations and mortgage-related
securities that have different levels of credit support from the government.
Some are supported by the full faith and credit of the U.S. government, such
as Government National Mortgage Association ("GNMA") pass-through mortgage
certificates (called "Ginnie Maes"). Some are supported by the right of the
issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are
supported only by the credit of the entity that issued them, such as Federal
Home Loan Mortgage Corporation ("FHLMC") obligations ("Freddie Macs").


|X|   U.S. Government Mortgage-Related Securities. The Funds can invest in a
variety of mortgage-related securities that are issued by U.S. government
agencies or instrumentalities, some of which are described below.


o     GNMA Certificates. The Government National Mortgage Association is a
wholly-owned corporate instrumentality of the United States within the U.S.
Department of Housing and Urban Development. GNMA's principal programs
involve its guarantees of privately-issued securities backed by pools of
mortgages. Ginnie Maes are debt securities representing an interest in one
mortgage or a pool of mortgages that are insured by the Federal Housing
Administration ("FHA") or the Farmers Home Administration ("FMHA") or
guaranteed by the Veterans Administration ("VA").


      The Ginnie Maes in which the Funds invest are of the "fully modified
pass-through" type. They provide that the registered holders of the Ginnie
Maes will receive timely monthly payments of the pro-rata share of the
scheduled principal payments on the underlying mortgages, whether or not
those amounts are collected by the issuers. Amounts paid include, on a pro
rata basis, any prepayment of principal of such mortgages and interest (net
of servicing and other charges) on the aggregate unpaid principal balance of
the Ginnie Maes, whether or not the interest on the underlying mortgages has
been collected by the issuers.

      The Ginnie Maes purchased by the Funds are guaranteed as to timely
payment of principal and interest by GNMA. In giving that guaranty, GNMA
expects that payments received by the issuers of Ginnie Maes on account of
the mortgages backing the Ginnie Maes will be sufficient to make the required
payments of principal of and interest on those Ginnie Maes. However, if those
payments are insufficient, the guaranty agreements between the issuers of the
Ginnie Maes and GNMA require the issuers to make advances sufficient for the
payments. If the issuers fail to make those payments, GNMA will do so.

      Under federal law, the full faith and credit of the United States is
pledged to the payment of all amounts that may be required to be paid under
any guaranty issued by GNMA as to such mortgage pools. An opinion of an
Assistant Attorney General of the United States, dated December 9, 1969,
states that such guaranties "constitute general obligations of the United
States backed by its full faith and credit." GNMA is empowered to borrow from
the United States Treasury to the extent necessary to make any payments of
principal and interest required under those guaranties.

      Ginnie Maes are backed by the aggregate indebtedness secured by the
underlying FHA-insured, FMHA-insured or VA-guaranteed mortgages. Except to
the extent of payments received by the issuers on account of such mortgages,
Ginnie Maes do not constitute a liability of those issuers, nor do they
evidence any recourse against those issuers. Recourse is solely against GNMA.
Holders of Ginnie Maes (such as the Funds) have no security interest in or
lien on the underlying mortgages.

      Monthly payments of principal will be made, and additional prepayments
of principal may be made, to the Fund with respect to the mortgages
underlying the Ginnie Maes owned by the Fund. All of the mortgages in the
pools relating to the Ginnie Maes in the Funds are subject to prepayment
without any significant premium or penalty, at the option of the mortgagors.
While the mortgages on one-to-four family dwellings underlying certain Ginnie
Maes have a stated maturity of up to 30 years, it has been the experience of
the mortgage industry that the average life of comparable mortgages, as a
result of prepayments, refinancing and payments from foreclosures, is
considerably less.


o     Federal Home Loan Mortgage Corporation (Freddie Mac) Certificates.
FHLMC, a corporate instrumentality of the United States, issues FHLMC
Certificates representing interests in mortgage loans. FHLMC guarantees to
each registered holder of a FHLMC Certificate timely payment of the amounts
representing a holder's proportionate share in:

(i)   interest payments less servicing and guarantee fees,
(ii)  principal prepayments, and
(iii) the ultimate collection of amounts representing the holder's
            proportionate interest in principal payments on the mortgage
            loans in the pool represented by the FHLMC Certificate, in each
            case whether or not such amounts are actually received.

      The obligations of FHLMC under its guarantees are obligations solely of
FHLMC and are not backed by the full faith and credit of the United States.

o     Federal National Mortgage Association (Fannie Mae) Certificates. Fannie
Mae, a federally-chartered and privately-owned corporation, issues Fannie Mae
Certificates which are backed by a pool of mortgage loans. Fannie Mae
guarantees to each registered holder of a Fannie Mae Certificate that the
holder will receive amounts representing the holder's proportionate interest
in scheduled principal and interest payments, and any principal prepayments,
on the mortgage loans in the pool represented by such Certificate, less
servicing and guarantee fees, and the holder's proportionate interest in the
full principal amount of any foreclosed or other liquidated mortgage loan. In
each case the guarantee applies whether or not those amounts are actually
received. The obligations of Fannie Mae under its guarantees are obligations
solely of Fannie Mae and are not backed by the full faith and credit of the
United States or any of its agencies or instrumentalities other than Fannie
Mae.

o     Commercial (Privately-Issued) Mortgage Related Securities. The Funds
can invest in commercial mortgage-related securities issued by private
entities. Generally these are multi-class debt or pass-through certificates
secured by mortgage loans on commercial properties. They are subject to the
credit risk of the issuer. These securities typically are structured to
provide protection to investors in senior classes from possible losses on the
underlying loans. They do so by having holders of subordinated classes take
the first loss if there are defaults on the underlying loans. They may also
be protected to some extent by guarantees, reserve funds or additional
collateralization mechanisms.

      |X|   Participation Interests. The Funds can invest in participation
interests, subject to the Fund's limitation on investments in illiquid
investments. A participation interest is an undivided interest in a loan made
by the issuing financial institution in the proportion that the buyer's
participation interest bears to the total principal amount of the loan. Not
more than 5% of the Fund's net assets can be invested in participation
interests of the same borrower. The issuing financial institution may have no
obligation to the Fund other than to pay the Fund the proportionate amount of
the principal and interest payments it receives.

      Participation interests are primarily dependent upon the
creditworthiness of the borrowing corporation, which is obligated to make
payments of principal and interest on the loan. There is a risk that a
borrower may have difficulty making payments. If a borrower fails to pay
scheduled interest or principal payments, the Fund could experience a
reduction in its income. The value of that participation interest might also
decline, which could affect the net asset value of the Fund's shares. If the
issuing financial institution fails to perform its obligations under the
participation agreement, the Fund might incur costs and delays in realizing
payment and suffer a loss of principal and/or interest.

|X|   Zero-Coupon U.S. Government Securities. The Funds may buy zero-coupon
U.S. government securities. These will typically be U.S. Treasury Notes and
Bonds that have been stripped of their unmatured interest coupons, the
coupons themselves, or certificates representing interests in those stripped
debt obligations and coupons.

      Zero-coupon securities do not make periodic interest payments and are
sold at a deep discount from their face value at maturity. The buyer
recognizes a rate of return determined by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. This
discount depends on the time remaining until maturity, as well as prevailing
interest rates, the liquidity of the security and the credit quality of the
issuer. The discount typically decreases as the maturity date approaches.

      Because zero-coupon securities pay no interest and compound
semi-annually at the rate fixed at the time of their issuance, their value is
generally more volatile than the value of other debt securities that pay
interest. Their value may fall more dramatically than the value of
interest-bearing securities when interest rates rise. When prevailing
interest rates fall, zero-coupon securities tend to rise more rapidly in
value because they have a fixed rate of return.

      A Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives
any cash payments on the zero-coupon investment. To generate cash to satisfy
those distribution requirements, a Fund may have to sell portfolio securities
that it otherwise might have continued to hold or to use cash flows from
other sources such as the sale of Fund shares.

o     Special Risks of Lower-Grade Securities. Because lower-grade securities
tend to offer higher yields than investment grade securities, a Fund may
invest in lower grade securities if the Manager is trying to achieve greater
income (and, in some cases, the appreciation possibilities of lower-grade
securities may be a reason they are selected for a Fund's portfolio).

      Some of the special credit risks of lower-grade securities are
discussed in the Prospectus. There is a greater risk that the issuer may
default on its obligation to pay interest or to repay principal than in the
case of investment-grade securities. The issuer's low creditworthiness may
increase the potential for its insolvency. An overall decline in values in
the high yield bond market is also more likely during a period of a general
economic downturn. An economic downturn or an increase in interest rates
could severely disrupt the market for high yield bonds, adversely affecting
the values of outstanding bonds as well as the ability of issuers to pay
interest or repay principal. In the case of foreign high yield bonds, these
risks are in addition to the special risk of foreign investing discussed in
the Prospectus and in this Statement of Additional Information.

      While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's
or Fitch are investment-grade and are not regarded as junk bonds, those
securities may be subject to special risks, and have some speculative
characteristics. Definitions of the debt security ratings categories of
Moody's, Standard & Poor's and Fitch are included in Appendix A to this
Statement of Additional Information.

o     Interest Rate Risk. Interest rate risk refers to the fluctuations in
value of fixed-income securities resulting from the inverse relationship
between price and yield. For example, an increase in general interest rates
will tend to reduce the market value of already-issued fixed-income
investments, and a decline in general interest rates will tend to increase
their value. In addition, debt securities with longer maturities, which tend
to have higher yields, are subject to potentially greater fluctuations in
value from changes in interest rates than obligations with shorter maturities.

      Fluctuations in the market value of fixed-income securities after the
Funds buy them will not affect the interest income payable on those
securities (unless the security pays interest at a variable rate pegged to
interest rate changes). However, those price fluctuations will be reflected
in the valuations of the securities, and therefore the Funds' net asset
values will be affected by those fluctuations.

      |X|   Floating Rate and Variable Rate Obligations. Some securities the
Funds can purchase have variable or floating interest rates. Variable rates
are adjusted at stated periodic intervals. Variable rate obligations can have
a demand feature that allows the Funds to tender the obligation to the issuer
or a third party prior to its maturity. The tender may be at par value plus
accrued interest, according to the terms of the obligations.

      The interest rate on a floating rate demand note is adjusted
automatically according to a stated prevailing market rate, such as a bank's
prime rate, the 91-day U.S. Treasury Bill rate, or some other standard. The
instrument's rate is adjusted automatically each time the base rate is
adjusted. The interest rate on a variable rate note is also based on a stated
prevailing market rate but is adjusted automatically at specified intervals
of not less than one year. Generally, the changes in the interest rate on
such securities reduce the fluctuation in their market value. As interest
rates decrease or increase, the potential for capital appreciation or
depreciation is less than that for fixed-rate obligations of the same
maturity. The Manager may determine that an unrated floating rate or variable
rate demand obligation meets the Funds' quality standards by reason of being
backed by a letter of credit or guarantee issued by a bank that meets those
quality standards.

      Floating rate and variable rate demand notes that have a stated
maturity in excess of one year may have features that permit the holder to
recover the principal amount of the underlying security at specified
intervals not exceeding one year and upon no more than 30 days' notice. The
issuer of that type of note normally has a corresponding right in its
discretion, after a given period, to prepay the outstanding principal amount
of the note plus accrued interest. Generally, the issuer must provide a
specified number of days' notice to the holder.

      |X|   Asset-Backed Securities. Asset-backed securities are fractional
interests in pools of assets, typically accounts receivable or consumer
loans. They are issued by trusts or special-purpose corporations. They are
similar to mortgage-backed securities, described below, and are backed by a
pool of assets that consist of obligations of individual borrowers. The
income from the pool is passed through to the holders of participation
interest in the pools. The pools may offer a credit enhancement, such as a
bank letter of credit, to try to reduce the risks that the underlying debtors
will not pay their obligations when due. However, the enhancement, if any,
might not be for the full par value of the security. If the enhancement is
exhausted and any required payments of interest or repayments of principal
are not made, that Fund could suffer losses on its investment or delays in
receiving payment.

      The value of an asset-backed security is affected by changes in the
market's perception of the asset backing the security, the creditworthiness
of the servicing agent for the loan pool, the originator of the loans, or the
financial institution providing any credit enhancement, and is also affected
if any credit enhancement has been exhausted. The risks of investing in
asset-backed securities are ultimately related to payment of consumer loans
by the individual borrowers. As a purchaser of an asset-backed security, a
Fund would generally have no recourse to the entity that originated the loans
in the event of default by a borrower. The underlying loans are subject to
prepayments, which may shorten the weighted average life of asset-backed
securities and may lower their return, in the same manner as in the case of
mortgage-backed securities and CMOs, described below. Unlike mortgage-backed
securities, asset-backed securities typically do not have the benefit of a
security interest in the underlying collateral.

      |X|   Mortgage-Related Securities. Mortgage-related securities (also
referred to as mortgage-backed securities) are a form of derivative
investment collateralized by pools of commercial or residential mortgages.
Pools of mortgage loans are assembled as securities for sale to investors by
government agencies or entities or by private issuers. These securities
include collateralized mortgage obligations ("CMOs"), mortgage pass-through
securities, stripped mortgage pass-through securities, interests in real
estate mortgage investment conduits ("REMICs") and other real-estate related
securities.

      Mortgage-related securities that are issued or guaranteed by agencies
or instrumentalities of the U.S. government have relatively little credit
risk (depending on the nature of the issuer). Privately issued
mortgage-related securities have some credit risk, as the underlying mortgage
may not fully collateralize the obligation and full payment of them is not
guaranteed. Both types of mortgage-related securities are subject to interest
rate risks and prepayment risks, as described in the Prospectuses.

      As with other debt securities, the prices of mortgage-related
securities tend to move inversely to changes in interest rates. The Fixed
Income Funds and Value Fund/VA can buy mortgage-related securities that have
interest rates that move inversely to changes in general interest rates,
based on a multiple of a specific index. Although the value of a
mortgage-related security may decline when interest rates rise, the converse
is not always the case.

      In periods of declining interest rates, mortgages are more likely to be
prepaid. Therefore, a mortgage-related security's maturity can be shortened
by unscheduled prepayments on the underlying mortgages. Therefore, it is not
possible to predict accurately the security's yield. The principal that is
returned earlier than expected may have to be reinvested in other investments
having a lower yield than the prepaid security. Therefore, these securities
may be less effective as a means of "locking in" attractive long-term
interest rates, and they may have less potential for appreciation during
periods of declining interest rates, than conventional bonds with comparable
stated maturities.

      Prepayment risks can lead to substantial fluctuations in the value of a
mortgage-related security. In turn, this can affect the value of that Fund's
shares. If a mortgage-related security has been purchased at a premium, all
or part of the premium that Fund paid may be lost if there is a decline in
the market value of the security, whether that results from interest rate
changes or prepayments on the underlying mortgages. In the case of stripped
mortgage-related securities, if they experience greater rates of prepayment
than were anticipated, that Fund may fail to recoup its initial investment on
the security.

      During periods of rapidly rising interest rates, prepayments of
mortgage-related securities may occur at slower than expected rates. Slower
prepayments effectively may lengthen a mortgage-related security's expected
maturity. Generally, that would cause the value of the security to fluctuate
more widely in responses to changes in interest rates. If the prepayments on
a Fund's mortgage-related securities were to decrease broadly, that Fund's
effective duration, and therefore its sensitivity to interest rate changes,
would increase.

      As with other debt securities, the values of mortgage-related
securities may be affected by changes in the market's perception of the
creditworthiness of the entity issuing the securities or guaranteeing them.
Their values may also be affected by changes in government regulations and
tax policies.

o     Forward Rolls. The Funds can enter into "forward roll" transactions
with respect to mortgage-related securities (also referred to as "mortgage
dollar rolls"). In this type of transaction, a Fund sells a mortgage-related
security to a buyer and simultaneously agrees to repurchase a similar
security (the same type of security, and having the same coupon and maturity)
at a later date at a set price. The securities that are repurchased will have
the same interest rate as the securities that are sold, but typically will be
collateralized by different pools of mortgages (with different prepayment
histories) than the securities that have been sold. Proceeds from the sale
are invested in short-term instruments, such as repurchase agreements. The
income from those investments, plus the fees from the forward roll
transaction, are expected to generate income to a Fund in excess of the yield
on the securities that have been sold.

      The Funds will only enter into "covered" rolls. To assure its future
payment of the purchase price, the Funds will identify on its books liquid
assets in an amount equal to the payment obligation under the roll.

      These transactions have risks. During the period between the sale and
the repurchase, the Fund will not be entitled to receive interest and
principal payments on the securities that have been sold. It is possible that
the market value of the securities the Fund sells may decline below the price
at which the Fund is obligated to repurchase securities.

o     Collateralized Mortgage Obligations. CMOs are multi-class bonds that
are backed by pools of mortgage loans or mortgage pass-through certificates.
They may be collateralized by:
(1)   pass-through certificates issued or guaranteed by Ginnie Mae, Fannie
            Mae, or Freddie Mac,
(2)   unsecuritized mortgage loans insured by the Federal Housing
            Administration or guaranteed by the Department of Veterans'
            Affairs,
(3)   unsecuritized conventional mortgages,
(4)   other mortgage-related securities, or
(5)   any combination of these.

      Each class of CMO, referred to as a "tranche," is issued at a specific
coupon rate and has a stated maturity or final distribution date. Principal
prepayments on the underlying mortgages may cause the CMO to be retired much
earlier than the stated maturity or final distribution date. The principal
and interest on the underlying mortgages may be allocated among the several
classes of a series of a CMO in different ways. One or more trenches may have
coupon rates that reset periodically at a specified increase over an index.
These are floating rate CMOs, and typically have a cap on the coupon rate.
Inverse floating rate CMOs have a coupon rate that moves in the reverse
direction to an applicable index. The coupon rate on these CMOs will increase
as general interest rates decrease. These are usually much more volatile than
fixed rate CMOs or floating rate CMOs.

      |X|   Foreign Securities. The Equity Funds and the Fixed Income Funds
may invest in foreign securities, and Global Securities Fund/VA expects to
have substantial investments in foreign securities. These include equity
securities issued by foreign companies and debt securities issued or
guaranteed by foreign companies or governments, including supra-national
entities. "Foreign securities" include equity and debt securities of
companies organized under the laws of countries other than the United States
and debt securities issued or guaranteed by governments other than the U.S.
government or by foreign supra-national entities. They also include
securities of companies (including those that are located in the U.S. or
organized under U.S. law) that derive a significant portion of their revenue
or profits from foreign businesses, investments or sales, or that have a
significant portion of their assets abroad. They may be traded on foreign
securities exchanges or in the foreign over-the-counter markets. Value
Fund/VA can purchase up to 25% of its total assets in certain equity and debt
securities issued or guaranteed by foreign companies or of foreign
governments or their agencies and as stated in the Prospectus, the Fund does
not concentrate 25% or more of its total assets in the securities of any one
foreign government.

      Securities of foreign issuers that are represented by American
Depository Receipts or that are listed on a U.S. securities exchange or
traded in the U.S. over-the-counter markets are not considered "foreign
securities" for the purpose of a Fund's investment allocations, because they
are not subject to many of the special considerations and risks, discussed
below, that apply to foreign securities traded and held abroad.

      Because the Funds may purchase securities denominated in foreign
currencies, a change in the value of such foreign currency against the U.S.
dollar will result in a change in the amount of income the Funds have
available for distribution. Because a portion of the Funds' investment income
may be received in foreign currencies, the Funds will be required to compute
their income in U.S. dollars for distribution to shareholders, and therefore
the Funds will absorb the cost of currency fluctuations. After the Funds have
distributed income, subsequent foreign currency losses may result in the
Fund's having distributed more income in a particular fiscal period than was
available from investment income, which could result in a return of capital
to shareholders.

      Investing in foreign securities offers potential benefits not available
from investing solely in securities of domestic issuers. They include the
opportunity to invest in foreign issuers that appear to offer growth
potential, or in foreign countries with economic policies or business cycles
different from those of the U.S., or to reduce fluctuations in portfolio
value by taking advantage of foreign stock markets that do not move in a
manner parallel to U.S. markets. The Funds will hold foreign currency only in
connection with the purchase or sale of foreign securities.

o     Foreign Debt Obligations. The debt obligations of foreign governments
and entities may or may not be supported by the full faith and credit of the
foreign government. The Fixed Income Funds may buy securities issued by
certain supra-national entities, which include entities designated or
supported by governments to promote economic reconstruction or development,
international banking organizations and related government agencies. Examples
are the International Bank for Reconstruction and Development (commonly
called the "World Bank"), the Asian Development bank and the Inter-American
Development Bank.

      The governmental members of these supra-national entities are
"stockholders" that typically make capital contributions and may be committed
to make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a
percentage of its total capital, reserves and net income. There can be no
assurance that the constituent foreign governments will continue to be able
or willing to honor their capitalization commitments for those entities.


      The Fixed Income Funds can invest in U.S. dollar-denominated "Brady
Bonds." These foreign debt obligations may be fixed-rate par bonds or
floating-rate discount bonds. They are generally collateralized in full as to
repayment of principal at maturity by U.S. Treasury zero-coupon obligations
that have the same maturity as the Brady Bonds. Brady Bonds can be viewed as
having three or four valuation components: (i) the collateralized repayment
of principal at final maturity; (ii) the collateralized interest payments;
(iii) the uncollateralized interest payments; and (iv) any uncollateralized
repayment of principal at maturity. Those uncollateralized amounts constitute
what is called the "residual risk".


      If there is a default on collateralized Brady Bonds resulting in
acceleration of the payment obligations of the issuer, the zero-coupon U.S.
Treasury securities held as collateral for the payment of principal will not
be distributed to investors, nor will those obligations be sold to distribute
the proceeds. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds. The defaulted bonds will
continue to remain outstanding, and the face amount of the collateral will
equal the principal payments which would have then been due on the Brady
Bonds in the normal course. Because of the residual risk of Brady Bonds and
the history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds, Brady Bonds are considered
speculative investments.

o     Risks of Foreign Investing. Investments in foreign securities may offer
special opportunities for investing but also present special additional risks
and considerations not typically associated with investments in domestic
securities. Some of these additional risks are:
o     reduction of income by foreign taxes;
o     fluctuation in value of foreign investments due to changes in currency
                  rates or currency control regulations (for example,
                  currency blockage);
o     transaction charges for currency exchange;
o     lack of public information about foreign issuers;
o     lack of uniform accounting, auditing and financial reporting standards
                  in foreign countries comparable to those applicable to
                  domestic issuers;
o     less volume on foreign exchanges than on U.S. exchanges;
o     greater volatility and less liquidity on foreign markets than in the
                  U.S.;
o     less governmental regulation of foreign issuers, stock exchanges and
                  brokers than in the U.S.;
o     greater difficulties in commencing lawsuits;
o     higher brokerage commission rates than in the U.S.;
o     increased risks of delays in settlement of portfolio transactions or
                  loss of certificates for portfolio securities;
o     possibilities in some countries of expropriation, confiscatory
                  taxation, currency devaluation, political, financial or
                  social instability or adverse diplomatic developments; and
o     unfavorable differences between the U.S. economy and foreign economies.

      In the past, U.S. government policies have discouraged certain
investments abroad by U.S. investors, through taxation or other restrictions,
and it is possible that such restrictions could be re-imposed.

|X|   Passive Foreign Investment Companies. Some securities of corporations
domiciled outside the U.S. which the Fund may purchase, may be considered
passive foreign investment companies ("PFICs") under U.S. tax laws. PFICs are
those foreign corporations which generate primarily passive income. They tend
to be growth companies or "start-up" companies. For federal tax purposes, a
corporation is deemed a PFIC if 75% or more of the foreign corporation's
gross income for the income year is passive income or if 50% or more of its
assets are assets that produce or are held to produce passive income. Passive
income is further defined as any income to be considered foreign personal
holding company income within the subpart F provisions defined by IRCss.954.

      Investing in PFICs involves the risks associated with investing in
foreign securities, as described above. There are also the risks that the
Fund may not realize that a foreign corporation it invests in is a PFIC for
federal tax purposes. Federal tax laws impose severe tax penalties for
failure to properly report investment income from PFICs. Following industry
standards, the Fund makes every effort to ensure compliance with federal tax
reporting of these investments. PFICs are considered foreign securities for
the purposes of the Fund's minimum percentage requirements or limitations of
investing in foreign securities.


      Subject to the limits under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), the Fund may also invest in foreign
mutual funds which are also deemed PFICs (since nearly all of the income of a
mutual fund is generally passive income). Investing in these types of PFICs
may allow exposure to various countries because some foreign countries limit,
or prohibit, all direct foreign investment in the securities of companies
domiciled therein.


      In addition to bearing their proportionate share of a fund's expenses
(management fees and operating expenses), shareholders will also indirectly
bear similar expenses of such entities. Additional risks of investing in
other investment companies are described below under "Investment in Other
Investment Companies."

o     Special Risks of Emerging Markets. Emerging and developing markets
abroad may also offer special opportunities for growth investing but have
greater risks than more developed foreign markets, such as those in Europe,
Canada, Australia, New Zealand and Japan. There may be even less liquidity in
their securities markets, and settlements of purchases and sales of
securities may be subject to additional delays. They are subject to greater
risks of limitations on the repatriation of income and profits because of
currency restrictions imposed by local governments. Those countries may also
be subject to the risk of greater political and economic instability, which
can greatly affect the volatility of prices of securities in those countries.
The Manager will consider these factors when evaluating securities in these
markets, because the selection of those securities must be consistent with
the Fund's goal of preservation of principal.

      The Funds intend to invest less than 5% of their total assets in
securities of issuers of Eastern European countries. The social, political
and economic reforms in most Eastern European countries are still in their
early stages, and there can be no assurance that these reforms will continue.
Eastern European countries in many cases do not have a sophisticated or
well-established capital market structure for the sale and trading of
securities. Participation in the investment markets in some of those
countries may be available initially or solely through investment in joint
ventures, state enterprises, private placements, unlisted securities or other
similar illiquid investment vehicles.

      In addition, although investment opportunities may exist in Eastern
European countries, any change in the leadership or policies of the
governments of those countries, or changes in the leadership or policies of
any other government that exercises a significant influence over those
countries, may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring. As a result investment opportunities which
may currently exist may be threatened.

      The prior authoritarian governments of a number of the Eastern European
countries previously expropriated large amounts of real and personal
property, which may include property which will be represented by or held by
entities issuing the securities a Fund might wish to purchase. In many cases,
the claims of the prior property owners against those governments were never
finally settled. There can be no assurance that any property represented by
or held by entities issuing securities purchased by a Fund will not also be
expropriated, nationalized, or confiscated. If that property were
confiscated, a Fund could lose a substantial portion of its investments in
such countries. A Fund's investments could also be adversely affected by
exchange control regulations imposed in any of those countries.

      |X|   Portfolio Turnover. "Portfolio turnover" describes the rates at
which the Funds traded their portfolio securities during their last fiscal
year. For example, if a Fund sold all of its securities during the year, its
portfolio turnover rate would have been 100%. The Funds' portfolio turnover
rates will fluctuate from year to year, and any of the Funds may have
portfolio turnover rates of more than 100% annually.


      Balanced Fund/VA's portfolio turnover rate decreased significantly
compared to its previous fiscal year. Balanced Fund/VA's portfolio managers
began managing the fund in January 2003. During Balanced Fund/VA's 2003
fiscal year, the portfolio managers of the equity portion of the fund reduced
its equity holdings significantly, consistent with their management style. In
addition, the portfolio managers of the fixed income portion of the Balanced
Fund/VA had entered into an increased number of forward roll transactions,
due to their belief that the market offered attractive return potential to do
so. These changes increased portfolio turnover for the fund's fiscal year
2003. Because the portfolio managers made these investment changes primarily
in fiscal year 2003, the fund's portfolio turnover rate decreased
significantly for the fund's fiscal year 2004 compared with fiscal year 2003.


Other Investment Techniques and Strategies. In seeking their respective
objectives, the Funds may from time to time use the types of investment
strategies and investments described below. They are not required to use all
of these strategies at all times, and at times may not use them.

      |X|   Investing in Small, Unseasoned Companies. The Funds may invest in
securities of small, unseasoned companies, subject to limits (if any) stated
in that Fund's Prospectus. These are companies that have been in operation
for less than three years, including the operations of any predecessors.
Securities of these companies may be subject to volatility in their prices.
They may have a limited trading market or no trading market, which may
adversely affect the Funds' ability to value them or to dispose of them and
can reduce the price the Funds might be able to obtain for them. Other
investors that own a security issued by a small, unseasoned issuer for which
there is limited liquidity might trade the security when the Funds are
attempting to dispose of their holdings of that security. In that case, a
Fund might receive a lower price for its holdings than might otherwise be
obtained.

      |X|   When-Issued and Delayed-Delivery Transactions (All Portfolios).
The Funds may invest in securities on a "when-issued" basis and may purchase
or sell securities on a "delayed-delivery" or "forward commitment" basis.
When-issued and delayed-delivery are terms that refer to securities whose
terms and indenture are available and for which a market exists, but which
are not available for immediate delivery.

      When such transactions are negotiated, the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made.
Delivery and payment for the securities take place at a later date. The
securities are subject to change in value from market fluctuations during the
period until settlement. The value at delivery may be less than the purchase
price. For example, changes in interest rates in a direction other than that
expected by the Manager before settlement will affect the value of such
securities and may cause a loss to the Funds. During the period between
purchase and settlement, no payment is made by the Funds to the issuer and no
interest accrues to that portfolio from the investment. No income begins to
accrue to the Funds on a when-issued security until the Funds receive the
security at settlement of the trade.

      The Funds will engage in when-issued transactions to secure what the
Manager considers to be an advantageous price and yield at the time of
entering into the obligation. When a Fund enters into a when-issued or
delayed-delivery transaction, it relies on the other party to complete the
transaction. Its failure to do so may cause that Fund to lose the opportunity
to obtain the security at a price and yield the Manager considers to be
advantageous.

      When a Fund engages in when-issued and delayed-delivery transactions,
it does so for the purpose of acquiring or selling securities consistent with
its investment objective and policies for its portfolio or for delivery
pursuant to options contracts it has entered into, and not for the purpose of
investment leverage. Although a Fund will enter into delayed-delivery or
when-issued purchase transactions to acquire securities, it may dispose of a
commitment prior to settlement. If a Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to delivery against a forward commitment, it may incur a gain or loss.

      At the time a Fund makes the commitment to purchase or sell a security
on a when-issued or delayed delivery basis, it records the transaction on its
books and reflects the value of the security purchased in determining that
Fund's net asset value. In a sale transaction, it records the proceeds to be
received. That Fund will identify on its books liquid assets at least equal
in value to the value of that Fund's purchase commitments until that Fund
pays for the investment.

      When-issued and delayed-delivery transactions can be used by the Funds
as a defensive technique to hedge against anticipated changes in interest
rates and prices. For instance, in periods of rising interest rates and
falling prices, a Fund might sell securities in its portfolio on a forward
commitment basis to attempt to limit its exposure to anticipated falling
prices. In periods of falling interest rates and rising prices, a Fund might
sell portfolio securities and purchase the same or similar securities on a
when-issued or delayed-delivery basis to obtain the benefit of currently
higher cash yields.

      |X|   Zero-Coupon Securities. The Fixed Income Funds may buy
zero-coupon and delayed interest securities, and "stripped" securities of
foreign government issuers, which may or may not be backed by the "full faith
and credit" of the issuing foreign government, and of domestic and foreign
corporations. The Fixed Income Funds and Value Fund/VA may also buy
zero-coupon and "stripped" U.S. government securities. Zero-coupon securities
issued by foreign governments and by corporations will be subject to greater
credit risks than U.S. government zero-coupon securities.

      |X|   "Stripped" Mortgage-Related Securities. The Fixed Income Funds
and Value Fund/VA can invest in stripped mortgage-related securities that are
created by segregating the cash flows from underlying mortgage loans or
mortgage securities to create two or more new securities. Each has a
specified percentage of the underlying security's principal or interest
payments. These are a form of derivative investment.

      Mortgage securities may be partially stripped so that each class
receives some interest and some principal. However, they may be completely
stripped. In that case all of the interest is distributed to holders of one
type of security, known as an "interest-only" security, or "I/O," and all of
the principal is distributed to holders of another type of security, known as
a "principal-only" security or "P/O." Strips can be created for pass-through
certificates or CMOs.

      The yields to maturity of I/Os and P/Os are very sensitive to principal
repayments (including prepayments) on the underlying mortgages. If the
underlying mortgages experience greater than anticipated prepayments of
principal, that Fund might not fully recoup its investment in an I/O based on
those assets. If underlying mortgages experience less than anticipated
prepayments of principal, the yield on the P/Os based on them could decline
substantially.

      |X|   Repurchase Agreements. The Funds may acquire securities subject
to repurchase agreements. They may do so for liquidity purposes to meet
anticipated redemptions of Fund shares, or pending the investment of the
proceeds from sales of Fund shares, or pending the settlement of portfolio
securities transactions, or for temporary defensive purposes, as described
below.

      In a repurchase transaction, the Funds buy a security from, and
simultaneously resell it to, an approved vendor for delivery on an
agreed-upon future date. The resale price exceeds the purchase price by an
amount that reflects an agreed-upon interest rate effective for the period
during which the repurchase agreement is in effect. Approved vendors include
U.S. commercial banks, U.S. branches of foreign banks, or broker-dealers that
have been designated as primary dealers in government securities. They must
meet credit requirements set by the Manager from time to time.

      The majority of these transactions run from day to day, and delivery
pursuant to the resale typically occurs within one to five days of the
purchase. Repurchase agreements having a maturity beyond seven days are
subject to each Fund's limit on holding illiquid investments. No Fund will
enter into a repurchase agreement that causes more than 15% of its net assets
(for Value Fund/VA and Money Fund/VA, 10%) to be subject to repurchase
agreements having a maturity beyond seven days. There is no limit on the
amount of a Fund's net assets that may be subject to repurchase agreements
having maturities of seven days or less for defensive purposes.

      Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Funds' repurchase
agreements require that at all times while the repurchase agreements are in
effect, the value of the collateral must equal or exceed the repurchase price
to fully collateralize the repayment obligation. However, if the vendor fails
to pay the resale price on the delivery date, the Funds may incur costs in
disposing of the collateral and may experience losses if there is any delay
in its ability to do so. The Manager will monitor the vendor's
creditworthiness to confirm that the vendor is financially sound and will
continuously monitor the collateral's value.

      Pursuant to an Exemptive Order issued by the Securities and Exchange
Commission (the "SEC"), the Funds, along with other affiliated entities
managed by the Manager, may transfer uninvested cash balances into one or
more joint repurchase accounts. These balances are invested in one or more
repurchase agreements, secured by U.S. government securities. Securities that
are collateral for repurchase agreements are financial assets subject to the
Fund's entitlement orders through its securities account at its custodian
bank until the agreements mature. Each joint repurchase arrangement requires
that the market value of the collateral be sufficient to cover payments of
interest and principal; however, in the event of default by the other party
to the agreement, retention or sale of the collateral may be subject to legal
proceedings.


      |X|   Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Funds' investments. To enable a
Fund to sell its holdings of a restricted security not registered under the
Securities Act of 1933, as amended (the "Securities Act"), that Fund may have
to cause those securities to be registered. The expenses of registering
restricted securities may be negotiated by the Fund with the issuer at the
time the Fund buys the securities. When a Fund must arrange registration
because the Fund wishes to sell the security, a considerable period may
elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. That Fund
would bear the risks of any downward price fluctuation during that period.


      The Funds may also acquire restricted securities through private
placements. Those securities have contractual restrictions on their public
resale. Those restrictions might limit a Fund's ability to dispose of the
securities and might lower the amount a Fund could realize upon the sale.

      The Funds have limitations that apply to purchases of restricted
securities, as stated in the Prospectus. Those percentage restrictions do not
limit purchases of restricted securities that are eligible for sale to
qualified institutional purchasers under Rule 144A of the Securities Act, if
those securities have been determined to be liquid by the Manager under
Board-approved guidelines. Those guidelines take into account the trading
activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a
particular Rule 144A security, the Funds' holdings of that security may be
considered to be illiquid.

      Illiquid securities include repurchase agreements maturing in more than
seven days and participation interests that do not have puts exercisable
within seven days.


|X|   Loans of Portfolio Securities. To raise cash for liquidity purposes or
for income, the Fund can lend its portfolio securities to brokers, dealers
and other types of financial institutions approved by the Fund's Board of
Trustees.


      The Fund may lend its portfolio securities pursuant to the Securities
Lending Agreement (the "Securities Lending Agreement") with JP Morgan Chase,
subject to the restrictions stated in the Prospectus. The Fund will lend such
portfolio securities to attempt to increase the Fund's income. Under the
Securities Lending Agreement and applicable regulatory requirements (which
are subject to change), the loan collateral must, on each business day, be at
least equal to the value of the loaned securities and must consist of cash,
bank letters of credit or securities of the U.S. Government (or its agencies
or instrumentalities), or other cash equivalents in which the Fund is
permitted to invest. To be acceptable as collateral, letters of credit must
obligate a bank to pay to JP Morgan Chase, as agent, amounts demanded by the
Fund if the demand meets the terms of the letter. Such terms of the letter of
credit and the issuing bank must be satisfactory to JP Morgan Chase and the
Fund. The Fund will receive, pursuant to the Securities Lending Agreement,
80% of all annual net income (i.e., net of rebates to the Borrower) from
securities lending transactions. JP Morgan Chase has agreed, in general, to
guarantee the obligations of borrowers to return loaned securities and to be
responsible for expenses relating to securities lending. The Fund will be
responsible, however, for risks associated with the investment of cash
collateral, including the risk that the issuer of the security in which the
cash collateral has been invested in defaults. The Securities Lending
Agreement may be terminated by either JP Morgan Chase or the Fund on 30 days'
written notice. The terms of the Fund's loans must also meet applicable tests
under the Internal Revenue Code and permit the Fund to reacquire loaned
securities on five business days' notice or in time to vote on any important
matter.

      There are some risks in connection with securities lending. The Funds
might experience a delay in receiving additional collateral to secure a loan,
or a delay in recovery of the loaned securities if the borrower defaults. The
Funds must receive collateral for a loan. Under current applicable regulatory
requirements (which are subject to change), on each business day the loan
collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, or securities of the U.S.
government or its agencies or instrumentalities, or other cash equivalents in
which that Fund is permitted to invest. To be acceptable as collateral,
letters of credit must obligate a bank to pay amounts demanded by the Funds
if the demand meets the terms of the letter. The terms of the letter of
credit and the issuing bank both must be satisfactory to the Funds.

      When they lend securities, that Fund receives amounts equal to the
dividends or interest on loaned securities. It also receives one or more of
(a) negotiated loan fees, (b) interest on securities used as collateral, and
(c) interest on any short-term debt securities purchased with such loan
collateral. Either type of interest may be shared with the borrower. That
Fund may also pay reasonable finder's, custodian and administrative fees in
connection with these loans. The terms of a Fund's loans must meet applicable
tests under the Internal Revenue Code and must permit the Fund to reacquire
loaned securities on five days' notice or in time to vote on any important
matter.

      |X|   Borrowing for Leverage. Each Fund has the ability to borrow from
banks on an unsecured basis. Each Fund has undertaken to limit borrowing to
25% of the value of that Fund's net assets, which is further limited to 10%
if borrowing is for a purpose other than to facilitate redemptions. Investing
borrowed funds in portfolio securities is a speculative technique known as
"leverage." The Funds cannot borrow money in excess of 33-1/3% of the value
of that Fund's total assets. The Funds may borrow only from banks and/or
affiliated investment companies. With respect to this fundamental policy, the
Funds can borrow only if they maintain a 300% ratio of assets to borrowings
at all times in the manner set forth in the Investment Company Act. If the
value of that Fund's assets fails to meet this 300% asset coverage
requirement, that Fund will reduce its bank debt within three days to meet
the requirement. To do so, that Fund might have to sell a portion of its
investments at a disadvantageous time.

      A Fund will pay interest on these loans, and that interest expense will
raise the overall expenses of that Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow
for leverage. Additionally, that Fund's net asset values per share might
fluctuate more than that of funds that do not borrow. Currently, the Funds do
not contemplate using this technique in the next year but if they do so, it
will not likely be to a substantial degree.

         o  Bank Obligations. The Funds can buy time deposits, certificates
of deposit and bankers' acceptances. They must be:
o     obligations issued or guaranteed by a domestic bank (including a
               foreign branch of a domestic bank) having total assets of at
               least U.S. $1 billion, or
o     obligations of a foreign bank with total assets of at least U.S. $1
               billion.

      "Banks" include commercial banks, savings banks and savings and loan
associations, which may or may not be members of the Federal Deposit
Insurance Corporation.

         o  Commercial Paper. The Funds can invest in commercial paper if it
is rated within the top three rating categories of S&P and Moody's or other
rating organizations.

      If the paper is not rated, it may be purchased if the Manager
determines that it is comparable to rated commercial paper in the top three
rating categories of national rating organizations.

      The Funds can buy commercial paper, including U.S. dollar-denominated
securities of foreign branches of U.S. banks, issued by other entities if the
commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper
may otherwise be purchased by the Funds.

         o  Variable Amount Master Demand Notes. Master demand notes are
corporate obligations that permit the investment of fluctuating amounts by
the Funds at varying rates of interest under direct arrangements between the
Funds, as lender, and the borrower. They permit daily changes in the amounts
borrowed. The Funds have the right to increase the amount under the note at
any time up to the full amount provided by the note agreement, or to decrease
the amount. The borrower may prepay up to the full amount of the note without
penalty. These notes may or may not be backed by bank letters of credit.

      Because these notes are direct lending arrangements between the lender
and borrower, it is not expected that there will be a trading market for
them. There is no secondary market for these notes, although they are
redeemable (and thus are immediately repayable by the borrower) at principal
amount, plus accrued interest, at any time. Accordingly, the Fund's right to
redeem such notes is dependent upon the ability of the borrower to pay
principal and interest on demand.

      The Funds have no limitations on the type of issuer from whom these
notes will be purchased. However, in connection with such purchases and on an
ongoing basis, the Manager will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and
interest on demand, including a situation in which all holders of such notes
made demand simultaneously. Investments in master demand notes are subject to
the limitation on investments by the Fund in illiquid securities, described
in the Prospectus. Currently, the Fund does not intend that its investments
in variable amount master demand notes will exceed 5% of its total assets.

      |X|   Derivatives. The Funds can invest in a variety of derivative
investments for hedging purposes. Some derivative investments the Funds can
use are the hedging instruments described below in this Statement of
Additional Information. The Equity Funds do not use, and do not currently
contemplate using, derivatives or hedging instruments to a significant degree
in the coming year and they are not obligated to use them in seeking their
objectives.

      Other derivative investments the Fixed Income Funds can invest in
include "index-linked" notes. Principal and/or interest payments on these
notes depend on the performance of an underlying index. Currency-indexed
securities are another derivative these Funds may use. Typically, these are
short-term or intermediate-term debt securities. Their value at maturity or
the rates at which they pay income are determined by the change in value of
the U.S. dollar against one or more foreign currencies or an index. In some
cases, these securities may pay an amount at maturity based on a multiple of
the amount of the relative currency movements. This type of index security
offers the potential for increased income or principal payments but at a
greater risk of loss than a typical debt security of the same maturity and
credit quality.

      Other derivative investments the Fixed Income Funds can use include
debt exchangeable for common stock of an issuer or "equity-linked debt
securities" of an issuer. At maturity, the debt security is exchanged for
common stock of the issuer or it is payable in an amount based on the price
of the issuer's common stock at the time of maturity. Both alternatives
present a risk that the amount payable at maturity will be less than the
principal amount of the debt because the price of the issuer's common stock
might not be as high as the Manager expected.

|X|   Hedging. Although the Funds can use hedging instruments, they are not
obligated to use them in seeking their objective. To attempt to protect
against declines in the market value of the Funds' portfolio, to permit the
Funds to retain unrealized gains in the value of portfolio securities which
have appreciated, or to facilitate selling securities for investment reasons,
the Funds could:
o     sell futures contracts,
o     buy puts on such futures or on securities, or
o     write covered calls on securities or futures. Covered calls may also be
            used to increase the Funds' income, but the Manager does not
            expect to engage extensively in that practice.

      The Funds can use hedging to establish a position in the securities
market as a temporary substitute for purchasing particular securities. In
that case the Funds would normally seek to purchase the securities and then
terminate that hedging position. The Funds might also use this type of hedge
to attempt to protect against the possibility that its portfolio securities
would not be fully included in a rise in value of the market. To do so the
Funds could:
o     buy futures, or
o     buy calls on such futures or on securities.

      The Funds' strategy of hedging with futures and options on futures will
be incidental to the Fund's activities in the underlying cash market. The
particular hedging instruments the Funds can use are described below. The
Funds may employ new hedging instruments and strategies when they are
developed, if those investment methods are consistent with the Funds'
investment objective and are permissible under applicable regulations
governing the Funds.


o     Futures. The Funds can buy and sell futures contracts that relate to
(1) broadly-based stock indices (these are referred to as "stock index
futures"), (2) an individual stock ("single stock futures"), (3) bond indices
(these are referred to as "bond index futures"), (4) debt securities (these
are referred to as "interest rate futures"), (5) foreign currencies (these
are referred to as "forward contracts") and (6) commodity contracts (these
are referred to as commodity futures)." Except for High Income Fund/VA and
Strategic Bond Fund/VA, the Fixed Income Funds are not expected to buy or
sell stock index futures or single stock futures on a regular o   basis.


      A broadly-based stock index is used as the basis for trading stock
index futures. They may in some cases be based on stocks of issuers in a
particular industry or group of industries. A stock index assigns relative
values to the common stocks included in the index and its value fluctuates in
response to the changes in value of the underlying stocks. A stock index
cannot be purchased or sold directly. Bond index futures are similar
contracts based on the future value of the basket of securities that comprise
the index. These contracts obligate the seller to deliver, and the purchaser
to take, cash to settle the futures transaction. There is no delivery made of
the underlying securities to settle the futures obligation. Either party may
also settle the transaction by entering into an offsetting contract.

      An interest rate future obligates the seller to deliver (and the
purchaser to take) cash or a specified type of debt security to settle the
futures transaction. Either party could also enter into an offsetting
contract to close out the position. Similarly, a single stock future
obligates the seller to deliver (and the purchaser to take) cash or a
specified equity security to settle the futures transaction. Either party
could also enter into an offsetting contract to close out the position.
Single stock futures trade on a very limited number of exchanges, with
contracts typically not fungible among the exchanges. Similarly, a single
stock future obligates the seller to deliver (and the purchaser to take) cash
or a specified equity security to settle the futures transaction. Either
party could also enter into an offsetting contract to close out the position.
Single stock futures trade on a very limited number of exchanges, with
contracts typically not fungible among the exchanges.

      No money is paid or received by the Funds on the purchase or sale of a
future. Upon entering into a futures transaction, the Funds will be required
to deposit an initial margin payment with the futures commission merchant
(the "futures broker"). Initial margin payments will be deposited with the
Funds' custodian bank in an account registered in the futures broker's name.
However, the futures broker can gain access to that account only under
specified conditions. As the future is marked to market (that is, its value
on that Fund's books is changed) to reflect changes in its market value,
subsequent margin payments, called variation margin, will be paid to or by
the futures broker daily.

      At any time prior to expiration of the future, the Funds may elect to
close out their position by taking an opposite position, at which time a
final determination of variation margin is made and any additional cash must
be paid by or released to that Fund. Any loss or gain on the future is then
realized by that Fund for tax purposes. All futures transactions are effected
through a clearinghouse associated with the exchange on which the contracts
are traded.

o     Put and Call Options. The Funds can buy and sell certain kinds of put
options ("puts") and call options ("calls"). The Funds can buy and sell
exchange-traded and over-the-counter put and call options, including index
options, securities options, currency options, commodities options, and
options on the other types of futures described above.

o     Writing Covered Call Options. The Funds can write (that is, sell)
covered calls. If a Fund sells a call option, it must be covered. That means
the Fund must own the security subject to the call while the call is
outstanding, or, for certain types of calls, the call may be covered by
segregating liquid assets to enable that Fund to satisfy its obligations if
the call is exercised. Up to 100% of a Fund's total assets may be subject to
calls that Fund writes.

      When a Fund writes a call on a security, it receives cash (a premium).
That Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may
differ from the market price of the underlying security. That Fund shares the
risk of loss that the price of the underlying security may decline during the
call period. That risk may be offset to some extent by the premium the Fund
receives. If the value of the investment does not rise above the call price,
it is likely that the call will lapse without being exercised. In that case
the Fund would keep the cash premium and the investment.

      When a Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal
to the difference between the closing price of the call and the exercise
price, multiplied by a specified multiple that determines the total value of
the call for each point of difference. If the value of the underlying
investment does not rise above the call price, it is likely that the call
will lapse without being exercised. In that case the Fund would keep the cash
premium.

      The Funds' custodian bank, or a securities depository acting for the
custodian bank, will act as the Funds' escrow agent, through the facilities
of the Options Clearing Corporation ("OCC"), as to the investments on which
the Funds have written calls traded on exchanges or as to other acceptable
escrow securities. In that way, no margin will be required for such
transactions. OCC will release the securities on the expiration of the option
or when the Funds enter into a closing transaction.

      When a Fund writes an over-the-counter ("OTC") option, that Fund will
enter into an arrangement with a primary U.S. government securities dealer
which will establish a formula price at which the Fund will have the absolute
right to repurchase that OTC option. The formula price will generally be
based on a multiple of the premium received for the option, plus the amount
by which the option is exercisable below the market price of the underlying
security (that is, the option is "in the money"). When a Fund writes an OTC
option, it will treat as illiquid (for purposes of its restriction on holding
illiquid securities) the mark-to-market value of any OTC option it holds,
unless the option is subject to a buy-back agreement by the executing broker.

      To terminate its obligation on a call it has written, a Fund may
purchase a corresponding call in a "closing purchase transaction." A Fund
will then realize a profit or loss, depending upon whether the net of the
amount of the option transaction costs and the premium received on the call
the Fund wrote is more or less than the price of the call the Fund purchases
to close out the transaction. That Fund may realize a profit if the call
expires unexercised, because that Fund will retain the underlying security
and the premium it received when it wrote the call. Any such profits are
considered short-term capital gains for federal income tax purposes, as are
the premiums on lapsed calls. When distributed by a Fund they are taxable as
ordinary income. If a Fund cannot effect a closing purchase transaction due
to the lack of a market, it will have to hold the callable securities until
the call expires or is exercised.

      A Fund may also write calls on a futures contract without owning the
futures contract or securities deliverable under the contract. To do so, at
the time the call is written, that Fund must cover the call by identifying an
equivalent dollar amount of liquid assets on its books. The Fund will
identify additional liquid assets if the value of the identified assets drops
below 100% of the current value of the future. Because of this requirement,
in no circumstances would that Fund's receipt of an exercise notice as to
that future require that Fund to deliver a futures contract. It would simply
put that Fund in a short futures position, which is permitted by the Funds'
hedging policies.

o     Writing Put Options. Each Fund can sell put options. A put option on
securities gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying investment at the exercise price during the
option period. The Funds will not write puts if, as a result, more than 50%
of the Fund's net assets would be required to be identified on its books to
cover such put options.

      If a Fund writes a put, the put must be covered by identifying liquid
assets on its books. The premium the Funds receive from writing a put
represents a profit, as long as the price of the underlying investment
remains equal to or above the exercise price of the put. However, that Fund
also assumes the obligation during the option period to buy the underlying
investment from the buyer of the put at the exercise price, even if the value
of the investment falls below the exercise price. If a put a Fund has written
expires unexercised, that Fund realizes a gain in the amount of the premium
less the transaction costs incurred. If the put is exercised, that Fund must
fulfill its obligation to purchase the underlying investment at the exercise
price. That price will usually exceed the market value of the investment at
that time. In that case, that Fund may incur a loss if it sells the
underlying investment. That loss will be equal to the sum of the sale price
of the underlying investment and the premium received minus the sum of the
exercise price and any transaction costs the Fund incurred.

      When writing a put option on a security, to secure its obligation to
pay for the underlying security, that Fund will identify on its books liquid
assets with a value equal to or greater than the exercise price of the
underlying securities. That Fund therefore forgoes the opportunity of
investing the assets identified on its books or writing calls against those
assets.

      As long as a Fund's obligation as the put writer continues, it may be
assigned an exercise notice by the broker-dealer through which the put was
sold. That notice will require that Fund to take delivery of the underlying
security and pay the exercise price. No Fund has control over when it may be
required to purchase the underlying security, since it may be assigned an
exercise notice at any time prior to the termination of its obligation as the
writer of the put. That obligation terminates upon expiration of the put. It
may also terminate if, before it receives an exercise notice, that Fund
effects a closing purchase transaction by purchasing a put of the same series
as it sold. Once a Fund has been assigned an exercise notice, it cannot
effect a closing purchase transaction.

      A Fund may decide to effect a closing purchase transaction to realize a
profit on an outstanding put option it has written or to prevent the
underlying security from being put. Effecting a closing purchase transaction
will also permit that Fund to write another put option on the security, or to
sell the security and use the proceeds from the sale for other investments. A
Fund will realize a profit or loss from a closing purchase transaction
depending on whether the cost of the transaction is less or more than the
premium received from writing the put option. Any profits from writing puts
are considered short-term capital gains for federal tax purposes, and when
distributed by a Fund, is taxable as ordinary income.

o     Purchasing Puts and Calls. Each Fund can purchase calls to protect
against the possibility that its portfolio will not participate in an
anticipated rise in the securities market. When a Fund buys a call (other
than in a closing purchase transaction), it pays a premium. That Fund then
has the right to buy the underlying investment from a seller of a
corresponding call on the same investment during the call period at a fixed
exercise price. A Fund benefits only if it sells the call at a profit or if,
during the call period, the market price of the underlying investment is
above the sum of the call price plus the transaction costs and the premium
paid for the call and the Fund exercises the call. If a Fund does not
exercise the call or sell it (whether or not at a profit), the call will
become worthless at its expiration date. In that case the Fund will have paid
the premium but lost the right to purchase the underlying investment.

      A Fund can buy puts whether or not it holds the underlying investment
in its portfolio. When a Fund purchases a put, it pays a premium and, except
as to puts on indices, has the right to sell the underlying investment to a
seller of a put on a corresponding investment during the put period at a
fixed exercise price. Buying a put on securities or futures a Fund owns
enables that Fund to attempt to protect itself during the put period against
a decline in the value of the underlying investment below the exercise price
by selling the underlying investment at the exercise price to a seller of a
corresponding put. If the market price of the underlying investment is equal
to or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date. In that case
the Fund will have paid the premium but lost the right to sell the underlying
investment. However, the Fund may sell the put prior to its expiration. That
sale may or may not be at a profit.

      Buying a put on an investment a Fund does not own (such as an index of
future) permits a Fund to resell the put or to buy the underlying investment
and sell it at the exercise price. The resale price will vary inversely to
the price of the underlying investment. If the market price of the underlying
investment is above the exercise price and, as a result, the put is not
exercised, the put will become worthless on its expiration date.

      When a Fund purchases a call or put on an index or future, it pays a
premium, but settlement is in cash rather than by delivery of the underlying
investment to the Fund. A gain or loss depends on changes in the index in
question (and thus on price movements in the securities market generally)
rather than on price movements in individual securities or futures contracts.

      A Fund may buy a call or put only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 5% of the Fund's
total assets.

o     Buying and Selling Options on Foreign Currencies. A Fund can buy and
sell calls and puts on foreign currencies. They include puts and calls that
trade on a securities or commodities exchange or in the over-the-counter
markets or are quoted by major recognized dealers in such options. A Fund
could use these calls and puts to try to protect against declines in the
dollar value of foreign securities and increases in the dollar cost of
foreign securities the Fund wants to acquire.

      If the Manager anticipates a rise in the dollar value of a foreign
currency in which securities to be acquired are denominated, the increased
cost of those securities may be partially offset by purchasing calls or
writing puts on that foreign currency. If the Manager anticipates a decline
in the dollar value of a foreign currency, the decline in the dollar value of
portfolio securities denominated in that currency might be partially offset
by writing calls or purchasing puts on that foreign currency. However, the
currency rates could fluctuate in a direction adverse to a Fund's position.
That Fund will then have incurred option premium payments and transaction
costs without a corresponding benefit.

      A call the Fund writes on a foreign currency is "covered" if the Fund
owns the underlying foreign currency covered by the call or has an absolute
and immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration identified
on its books) upon conversion or exchange of other foreign currency held in
its portfolio.

      A Fund could write a call on a foreign currency to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns
or has the right to acquire and which is denominated in the currency
underlying the option. That decline might be one that occurs due to an
expected adverse change in the exchange rate. This is known as a
"cross-hedging" strategy. In those circumstances, the Fund covers the option
by identifying on its books liquid assets in an amount equal to the exercise
price of the option.

o     Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques
that are different than what is required for normal portfolio management. If
the Manager uses a hedging instrument at the wrong time or judges market
conditions incorrectly, hedging strategies may reduce a Fund's return. A Fund
could also experience losses if the prices of its futures and options
positions were not correlated with its other investments.

      A Fund's option activities could affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund might cause
a Fund to sell related portfolio securities, thus increasing its turnover
rate. The exercise by a Fund of puts on securities will cause the sale of
underlying investments, increasing portfolio turnover. Although the decision
whether to exercise a put it holds is within a Fund's control, holding a put
might cause that Fund to sell the related investments for reasons that would
not exist in the absence of the put.

      A Fund could pay a brokerage commission each time it buys or sells a
call, a put or an underlying investment in connection with the exercise of a
call or put. Those commissions could be higher on a relative basis than the
commissions for direct purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market value of the
underlying investments. Consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result
in a Fund's net asset values being more sensitive to changes in the value of
the underlying investment.

      If a covered call written by a Fund is exercised on an investment that
has increased in value, that Fund will be required to sell the investment at
the call price. It will not be able to realize any profit if the investment
has increased in value above the call price.

      An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance
that a liquid secondary market will exist for any particular option. A Fund
might experience losses if it could not close out a position because of an
illiquid market for the future or option.

      There is a risk in using short hedging by selling futures or purchasing
puts on broadly-based indices or futures to attempt to protect against
declines in the value of a Fund's portfolio securities. The risk is that the
prices of the futures or the applicable index will correlate imperfectly with
the behavior of the cash prices of that Fund's securities. For example, it is
possible that while a Fund has used a hedging instrument in a short hedge,
the market might advance and the value of the securities held in the Fund's
portfolio might decline. If that occurred, the Fund would lose money on the
hedging instrument and also experience a decline in the value of its
portfolio securities. However, while this could occur for a very brief period
or to a very small degree, over time the value of a diversified portfolio of
securities will tend to move in the same direction as the indices upon which
the hedging instrument is based.

      The risk of imperfect correlation increases as the composition of a
Fund's portfolio diverges from the securities included in the applicable
index. To compensate for the imperfect correlation of movements in the price
of the portfolio securities being hedged and movements in the price of the
hedging instruments, a Fund may use hedging instruments in a greater dollar
amount than the dollar amount of portfolio securities being hedged. It might
do so if the historical volatility of the prices of the portfolio securities
being hedged are more than the historical volatility of the applicable index.

      The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit
and maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
market may cause temporary price distortions.

      A Fund can use hedging instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when a Fund does
so the market might decline. If that Fund then concludes not to invest in
securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that
is not offset by a reduction in the price of the securities purchased.

o     Forward Contracts. Forward contracts are foreign currency exchange
contracts. They are used to buy or sell foreign currency for future delivery
at a fixed price. A Fund uses them to "lock in" the U.S. dollar price of a
security denominated in a foreign currency that the Fund has bought or sold,
or to protect against possible losses from changes in the relative values of
the U.S. dollar and a foreign currency. A Fund limits its exposure in foreign
currency exchange contracts in a particular foreign currency to the amount of
its assets denominated in that currency or a closely-correlated currency. A
Fund may also use "cross-hedging" where it hedges against changes in
currencies other than the currency in which a security it holds is
denominated.

      Under a forward contract, one party agrees to purchase, and another
party agrees to sell, a specific currency at a future date. That date may be
any fixed number of days from the date of the contract agreed upon by the
parties. The transaction price is set at the time the contract is entered
into. These contracts are traded in the inter-bank market conducted directly
among currency traders (usually large commercial banks) and their customers.

      The Funds may use forward contracts to protect against uncertainty in
the level of future exchange rates. The use of forward contracts does not
eliminate the risk of fluctuations in the prices of the underlying securities
a Fund owns or intends to acquire, but it does fix a rate of exchange in
advance. Although forward contracts may reduce the risk of loss from a
decline in the value of the hedged currency, at the same time they limit any
potential gain if the value of the hedged currency increases.

      When a Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when it anticipates receiving
dividend payments in a foreign currency, the Fund might desire to "lock-in"
the U.S. dollar price of the security or the U.S. dollar equivalent of the
dividend payments. To do so, that Fund could enter into a forward contract
for the purchase or sale of the amount of foreign currency involved in the
underlying transaction, in a fixed amount of U.S. dollars per unit of the
foreign currency. This is called a "transaction hedge." The transaction hedge
will protect the Fund against a loss from an adverse change in the currency
exchange rates during the period between the date on which the security is
purchased or sold or on which the payment is declared, and the date on which
the payments are made or received.


      A Fund could also use forward contracts to lock in the U.S. dollar
value of a portfolio position. This is called a "position hedge." When a Fund
believes that foreign currency might suffer a substantial decline against the
U.S. dollar, it could enter into a forward contract to sell an amount of that
foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in that foreign currency. When a Fund
believes that the U.S. dollar might suffer a substantial decline against a
foreign currency, it could enter into a forward contract to buy that foreign
currency for a fixed dollar amount. Alternatively, a Fund could enter into a
forward contract to sell a different foreign currency for a fixed U.S. dollar
amount if the Fund believes that the U.S. dollar value of the foreign
currency to be sold pursuant to its forward contract will fall whenever there
is a decline in the U.S. dollar value of the currency in which portfolio
securities of the Fund are denominated. That is referred to as a "cross
hedge".


      The Fund will cover its short positions in these cases by identifying
on its books liquid assets having a value equal to the aggregate amount of
the Fund's commitment under forward contracts. No Fund will enter into
forward contracts or maintain a net exposure to such contracts if the
consummation of the contracts would obligate a Fund to deliver an amount of
foreign currency in excess of the value of that Fund's portfolio securities
or other assets denominated in that currency or another currency that is the
subject of the hedge.

      The precise matching of the amounts under forward contracts and the
value of the securities involved generally will not be possible because the
future value of securities denominated in foreign currencies will change as a
consequence of market movements between the date the forward contract is
entered into and the date it is sold. In some cases the Manager might decide
to sell the security and deliver foreign currency to settle the original
purchase obligation. If the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver, the Fund might
have to purchase additional foreign currency on the "spot" (that is, cash)
market to settle the security trade. If the market value of the security
instead exceeds the amount of foreign currency the Fund is obligated to
deliver to settle the trade, the Fund might have to sell on the spot market
some of the foreign currency received upon the sale of the security. There
will be additional transaction costs on the spot market in those cases.

      The projection of short-term currency market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Forward contracts involve the risk that anticipated
currency movements will not be accurately predicted, causing a Fund to
sustain losses on these contracts and to pay additional transactions costs.
The use of forward contracts in this manner might reduce a Fund's performance
if there are unanticipated changes in currency prices to a greater degree
than if a Fund had not entered into such contracts.

      At or before the maturity of a forward contract requiring a Fund to
sell a currency, the Fund might sell a portfolio security and use the sale
proceeds to make delivery of the currency. In the alternative a Fund might
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract. Under that contract a Fund will
obtain, on the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, a Fund might close out a forward contract
requiring it to purchase a specified currency by entering into a second
contract entitling it to sell the same amount of the same currency on the
maturity date of the first contract. The Fund would realize a gain or loss as
a result of entering into such an offsetting forward contract under either
circumstance. The gain or loss will depend on the extent to which the
exchange rate or rates between the currencies involved moved between the
execution dates of the first contract and offsetting contract.

      The costs to a Fund of engaging in forward contracts varies with
factors such as the currencies involved, the length of the contract period
and the market conditions then prevailing. Because forward contracts are
usually entered into on a principal basis, no brokerage fees or commissions
are involved. Because these contracts are not traded on an exchange, a Fund
must evaluate the credit and performance risk of the counterparty under each
forward contract.

      Although a Fund values its assets daily in terms of U.S. dollars, it
does not intend to convert its holdings of foreign currencies into U.S.
dollars on a daily basis. Funds may convert foreign currency from time to
time, and will incur costs in doing so. Foreign exchange dealers do not
charge a fee for conversion, but they do seek to realize a profit based on
the difference between the prices at which they buy and sell various
currencies. Thus, a dealer might offer to sell a foreign currency to a Fund
at one rate, while offering a lesser rate of exchange if the Fund desires to
resell that currency to the dealer.

|X|   Interest Rate Swaps Transactions. Core Bond Fund/VA, High Income
Fund/VA, Strategic Bond/VA and Value Fund/VA can enter into interest rate
swap agreements. In an interest rate swap, the Fund and another party
exchange their right to receive or their obligation to pay interest on
securities. For example, they might swap the right to receive floating rate
payments for fixed rate payments. Each of these Funds can enter into interest
rate swaps on securities it owns or as hedge against a basket of securities
held by that Fund that the Fund's Manager deems to be closely correlated with
the swap transactions. Also, that Fund will identify on its books liquid
assets (such as cash or U.S. government securities) to cover any amounts it
could owe under swaps that exceed the amounts it is entitled to receive, and
it will adjust that amount daily, as needed.

      Swap agreements entail both interest rate risk and credit risk. There
is a risk that, based on movements of interest rates in the future, the
payments made by the Fund under a swap agreement will be greater than the
payments it received. Credit risk arises from the possibility that the
counterparty will default. If the counterparty defaults, the Fund's loss will
consist of the net amount of contractual interest payments that the Fund has
not yet received. The Manager will monitor the creditworthiness of
counterparties to the Fund's interest rate swap transactions on an ongoing
basis.


      The Fund can enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides
that all swaps done between the Fund and that counterparty shall be regarded
as parts of an integral agreement. If amounts are payable on a particular
date in the same currency in respect of one or more swap transactions, the
amount payable on that date in that currency shall be the net amount. In
addition, the master netting agreement may provide that if one party defaults
generally or on one swap, the counterparty can terminate all of the swaps
with that party. Under these agreements, if a default results in a loss to
one party, the measure of that party's damages is calculated by reference to
the average cost of a replacement swap for each swap. It is measured by the
mark-to-market value at the time of the termination of each swap. The gains
and losses on all swaps are then netted, and the result is the counterparty's
gain or loss on termination. The termination of all swaps and the netting of
gains and losses on termination is generally referred to as "aggregation".

o     Swaption Transactions. The Fixed Income Funds may enter into a swaption
transaction, which is a contract that grants the holder, in return for
payment of the purchase price (the "premium") of the option, the right, but
not the obligation, to enter into an interest rate swap at a preset rate
within a specified period of time, with the writer of the contract. The
writer of the contract receives the premium and bears the risk of unfavorable
changes in the preset rate on the underlying interest rate swap. Unrealized
gains/losses on swaptions are reflected in investment assets and investment
liabilities in the Fund's statement of financial condition.

|X|   Credit Derivatives. The Fixed Income Funds and Balanced/VA may enter
into credit default swaps, both directly ("unfunded swaps") and indirectly in
the form of a swap embedded within a structured note ("funded swaps"), to
protect against the risk that a security will default. Unfunded and funded
credit default swaps may be on a single security, or on a basket of
securities. These Funds pay a fee to enter into the swap and receives a fixed
payment during the life of the swap. These Funds may take a short position in
the credit default swap (also known as "buying credit protection"), or may
take a long position in the credit default swap note (also known as "selling
credit protection").


      These Funds would take a short position in a credit default swap (the
"unfunded swap") against a long portfolio position to decrease exposure to
specific high yield issuers. If the short credit default swap is against a
corporate issue, these Funds must own that corporate issue. However, if the
short credit default swap is against sovereign debt, these Funds may own
either: (i) the reference obligation, (ii) any sovereign debt of that foreign
country, or (iii) sovereign debt of any country that the Manager determines
is closely correlated as an inexact bona fide hedge.

      If these Funds take a short position in the credit default swap, if
there is a credit event (including bankruptcy, failure to timely pay interest
or principal, or a restructuring), these Funds will deliver the defaulted
bonds and the swap counterparty will pay the par amount of the bonds. An
associated risk is adverse pricing when purchasing bonds to satisfy the
delivery obligation. If the swap is on a basket of securities, the notional
amount of the swap is reduced by the par amount of the defaulted bond, and
the fixed payments are then made on the reduced notional amount.

      Taking a long position in the credit default swap note (i.e.,
purchasing the "funded swap") would increase a Fund's exposure to specific
high yield corporate issuers. The goal would be to increase liquidity in that
market sector via the swap note and its associated increase in the number of
trading instruments, the number and type of market participants, and market
capitalization.

      If a Fund takes a long position in the credit default swap note, if
there is a credit event the Fund will pay the par amount of the bonds and the
swap counterparty will deliver the bonds. If the swap is on a basket of
securities, the notional amount of the swap is reduced by the par amount of
the defaulted bond, and the fixed payments are then made on the reduced
notional amount.

      These Funds will invest no more than 25% of their total assets in
"unfunded" credit default swaps. These Funds will limit their investments in
"funded" credit default swap notes to no more than 10% of its total assets.

      Other risks of credit default swaps include the cost of paying for
credit protection if there are no credit events, pricing transparency when
assessing the cost of a credit default swap, counterparty risk, and the need
to fund the delivery obligation (either cash or the defaulted bonds,
depending on whether the Fund is long or short the swap, respectively).

o     Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Funds are required to operate within certain
guidelines and restrictions with respect to the use of futures as established
by the Commodities Futures Trading Commission (the "CFTC"). In particular, a
Fund is exempted from registration with the CFTC as a "commodity pool
operator" if the Fund complies with the requirements of Rule 4.5 adopted by
the CFTC. The Rule does not limit the percentage of a Fund's assets that may
be used for futures margin and related options premiums for a bona fide
hedging position. However, under the Rule, a Fund must limit its aggregate
initial futures margin and related options premiums to not more than 5% of
the Funds' net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule.

      Transactions in options by a Fund are subject to limitations
established by the option exchanges. The exchanges limit the maximum number
of options that may be written or held by a single investor or group of
investors acting in concert. Those limits apply regardless of whether the
options were written or purchased on the same or different exchanges or are
held in one or more accounts or through one or more different exchanges or
through one or more brokers. Thus, the number of options that a Fund may
write or hold may be affected by options written or held by other entities,
including other investment companies having the same advisor as that Fund (or
an advisor that is an affiliate of the Funds' advisor). The exchanges also
impose position limits on futures transactions. An exchange may order the
liquidation of positions found to be in violation of those limits and may
impose certain other sanctions.

      Under the Investment Company Act, when a Fund purchases a future, it
must identify as segregated on its records liquid assets in an amount equal
to the market value of the securities underlying the future, less the margin
deposit applicable to it.

o     Tax Aspects of Certain Hedging Instruments. Certain foreign currency
exchange contracts are treated as "Section 1256 contracts" under the Internal
Revenue Code. In general, gains or losses relating to Section 1256 contracts
are characterized as 60% long-term and 40% short-term capital gains or losses
under the Code. However, foreign currency gains or losses arising from
Section 1256 contracts that are forward contracts generally are treated as
ordinary income or loss. In addition, Section 1256 contracts held by the
Funds at the end of each taxable year are "marked-to-market," and unrealized
gains or losses are treated as though they were realized. These contracts
also may be marked-to-market for other purposes under rules prescribed
pursuant to the Internal Revenue Code. An election can be made by a Fund to
exempt those transactions from this marked-to-market treatment.

      Certain forward contracts a Fund enters into may result in "straddles"
for federal income tax purposes. The straddle rules may affect the character
and timing of gains (or losses) recognized by that Fund on straddle
positions. Generally, a loss sustained on the disposition of a position
making up a straddle is allowed only to the extent that the loss exceeds any
unrecognized gain in the offsetting positions making up the straddle.
Disallowed loss is generally allowed at the point where there is no
unrecognized gain in the offsetting positions making up the straddle, or the
offsetting position is disposed of.

      Under the Internal Revenue Code, the following gains or losses are
treated as ordinary income or loss:
(1)   gains or losses attributable to fluctuations in exchange rates that
         occur between the time a Fund accrues interest or other receivables
         or accrues expenses or other liabilities denominated in a foreign
         currency and the time that Fund actually collects such receivables
         or pays such liabilities, and
(2)   gains or losses attributable to fluctuations in the value of a foreign
         currency between the date of acquisition of a debt security
         denominated in a foreign currency or foreign currency forward
         contracts and the date of disposition.

      Currency gains and losses are offset against market gains and losses on
each trade before determining a net "Section 988" gain or loss under the
Internal Revenue Code for that trade, which may increase or decrease the
amount of a Fund's investment income available for distribution to its
shareholders.

      |X|   Temporary Defensive and Interim Investments. When market
conditions are unstable, or the Manager believes it is otherwise appropriate
to reduce holdings in stocks or bonds, the Funds can invest in a variety of
debt securities for defensive purposes. The Funds can also purchase these
securities for liquidity purposes to meet cash needs due to the redemption of
Fund shares, or to hold while waiting to reinvest cash received from the sale
of other portfolio securities. The Funds can buy:
o     obligations issued or guaranteed by the U.S. government or its
            instrumentalities or agencies,
o     commercial paper (short-term, unsecured, promissory notes of domestic
            or foreign companies) rated in the three top rating categories of
            a nationally recognized rating organization,
o     short-term debt obligations of corporate issuers, rated investment
            grade (rated at least Baa by Moody's or at least BBB by Standard
            & Poor's or a comparable rating by another rating organization),
            or unrated securities judged by the Manager to have a comparable
            quality to rated securities in those categories,
o     certificates of deposit and bankers' acceptances of domestic and
            foreign banks having total assets in excess of $1 billion, and
o     repurchase agreements.

      Short-term debt securities would normally be selected for defensive or
cash management purposes because they can normally be disposed of quickly,
are not generally subject to significant fluctuations in principal value and
their value will be less subject to interest rate risk than longer-term debt
securities.

|X|   Investment in Other Investment Companies. The Funds (except Money
Fund/VA) can also invest in the securities of other investment companies,
which can include open-end funds, closed-end funds and unit investment
trusts, subject to the limits set forth in the Investment Company Act that
apply to those types of investments. For example, a Fund can invest in
Exchange-Traded Funds, which are typically open-end funds or unit investment
trusts, listed on a stock exchange. A Fund might do so as a way of gaining
exposure to the segments of the equity or fixed-income markets represented by
the Exchange-Traded Funds' portfolio, at times when a Fund may not be able to
buy those portfolio securities directly.

      Investing in another investment company may involve the payment of
substantial premiums above the value of such investment company's portfolio
securities and is subject to limitations under the Investment Company Act.
The Funds do not intend to invest in other investment companies unless the
Manager believes that the potential benefits of the investment justify the
payment of any premiums or sales charges. As a shareholder of an investment
company, a Fund would be subject to its ratable share of that investment
company's expenses, including its advisory and administration expenses. The
Funds do not anticipate investing a substantial amount of its net assets in
shares of other investment companies.


Money Fund/VA Investment Policies. Under Rule 2a-7 under the investment
Company Act, Money Fund/VA may purchase only "Eligible Securities," as
defined below, that the Manger, under procedures approved by the Trust's
Board of Trustees, has determined have minimal credit risk. An "Eligible
Security" is (a) a security that has received a rating in one of the two
highest short-term rating categories by any two "nationally-recognized
statistical rating organizations" as defined in Rule 2a-7 ("Rating
Organizations"), or, if only one Rating Organization has rated that security,
by that Rating Organization (the "Rating Requirements"), (b) a security that
is guaranteed, and either that guarantee or the party providing that
guarantee meets the Rating Requirements, or (c) an unrated security that is
either issued by an issuer having another similar security that meets the
Rating Requirements, or is judged by the Manager to be of comparable quality
to investments that meet the Rating Requirements. Rule 2a-7 permits Money
Fund/VA to purchase "First Tier Securities," which are Eligible Securities
rated in the highest category for short-term debt obligations by at least two
Rating Organizations, or, if only one Rating Organization has rated a
particular security, by that Rating Organization, or comparable unrated
securities. The Fund can also buy "Second Tier Securities," which are
Eligible Securities that are not First Tier securities.


      If a security's rating is downgraded, the Manager and/or the Board may
have to reassess the security's credit risk. If a security has ceased to be a
First Tier Security, the Manager will promptly reassess whether the security
continues to present "minimal credit risk." If the Manager becomes aware that
any Rating Organization has downgraded its rating of a Second Tier Security
or rated an unrated security below its second highest rating category, the
Trust's Board of Trustees shall promptly reassess whether the security
presents minimal credit risk and whether it is in Money Fund/VA's best
interests to dispose of it.

      If Money Fund/VA disposes of the security within five days of the
Manager learning of the downgrade, the Manager will provide the Board with
subsequent notice of such downgrade. If a security is in default, or ceases
to be an Eligible Security, or is determined no longer to present minimal
credit risks, the Board must determine if disposal of the security would be
in Money Fund/VA's best interests.

      The Rating Organizations currently designated as nationally-recognized
statistical rating organizations by the SEC are Standard & Poor's (a division
of the McGraw-Hill Companies), Moody's Investors Service, Inc., Fitch, Inc.
and Dominion Bond Rating Service Limited. See Appendix A to this Statement of
Additional Information for a description of the rating categories of the
Rating Organizations.

o     Certificates of Deposit and Commercial Paper. Money Fund/VA may invest
         in certificates of deposit of up to $100,000 of a domestic bank if
         such certificates of deposit are fully insured as to principal by
         the Federal Deposit Insurance Corporation. For purposes of this
         section, the term "bank" includes commercial banks, savings banks,
         and savings and loan associations and the term "foreign bank"
         includes foreign branches of U.S. banks (issuers of "Eurodollar"
         instruments), U.S. branches and agencies of foreign banks (issuers
         of "Yankee dollar" instruments) and foreign branches of foreign
         banks. Money Fund/VA also may purchase obligations issued by other
         entities if they are: (i) guaranteed as to principal and interest by
         a bank or corporation whose certificates of deposit or commercial
         paper may otherwise be purchased by Money Fund/VA, or (ii) subject
         to repurchase agreements (explained in the prospectus), if the
         collateral for the agreement complies with Rule 2a-7.

o     Bank Loan Participation Agreements. Money Fund/VA may invest in bank
         loan participation agreements, although such investments have not
         been a principal investment strategy. They provide the Fund with an
         undivided interest in a loan made by the issuing bank in the
         proportion the Fund's interest bears to the total principal amount
         of the loan. In evaluating the risk of these investments, the Fund
         looks to the creditworthiness of the borrower that is obligated to
         make principal and interest payments on the loan.

o     Time Deposits. Money Fund/VA may invest in fixed time deposits, which
         are non-negotiable deposits in a bank for a specified period of time
         at a stated interest rate, whether or not subject to withdrawal
         penalties; however, such deposits which are subject to such
         penalties, other than deposits maturing in less than seven days, are
         subject to the 10% limitation applicable to illiquid securities
         purchased by Money Fund/VA.

o     Floating Rate/Variable Rate Notes. Money Fund/VA may invest in
         instruments with floating or variable interest rates. The interest
         rate on a floating rate obligation is based on a stated prevailing
         market rate, such as a bank's prime rate, the 90-day U.S. Treasury
         Bill rate, the rate of return on commercial paper or bank
         certificates of deposit, or some other standard, and is adjusted
         automatically each time such market rate is adjusted. The interest
         rate on a variable rate obligation is also based on a stated
         prevailing market rate but is adjusted automatically at a specified
         interval of no less than one year. Some variable rate or floating
         rate obligations in which Money Fund/VA may invest have a demand
         feature entitling the holder to demand payment at an amount
         approximately equal to the principal amount thereof plus accrued
         interest at any time, or at specified intervals not exceeding one
         year. These notes may or may not be backed by bank letters of
         credit. The interest rates on these notes fluctuate from time to
         time. Generally, the changes in the interest rate on such securities
         reduce the fluctuation in their market value. As interest rates
         decrease or increase, the potential for capital appreciation or
         depreciation is less than that for fixed-rate obligations of the
         same maturity.

o     Master Demand Notes. Master demand notes are corporate obligations that
         permit the investment of fluctuating amounts by Money Fund/VA at
         varying rates of interest pursuant to direct arrangements between
         Money Fund/VA, as lender, and the corporate borrower that issues the
         note. These notes permit daily changes in the amounts borrowed.
         Money Fund/VA has the right to increase the amount under the note at
         any time up to the full amount provided by the note agreement, or to
         decrease the amount. The borrower may repay up to the full amount of
         the note at any time without penalty. It is not generally
         contemplated that master demand notes will be traded because they
         are direct lending arrangements between the lender and the borrower.
         There is no secondary market for these notes, although they are
         redeemable and thus immediately repayable by the borrower at face
         value, plus accrued interest, at any time. Accordingly, where these
         obligations are not secured by letters of credit or other credit
         support arrangements, Money Fund/VA's right to redeem is dependent
         upon the ability of the borrower to pay principal and interest on
         demand. In evaluating the master demand arrangements, the Manager
         considers the earning power, cash flow, and other liquidity ratios
         of the issuer. If they are not rated by Rating Organizations, Money
         Fund/VA may invest in them only if, at the time of an investment,
         they are Eligible Securities. The Manager will continuously monitor
         the borrower's financial ability to meet all of its obligations
         because Money Fund/VA's liquidity might be impaired if the borrower
         were unable to pay principal and interest on demand. There is no
         limit on the amount of the Money Fund/VA's assets that may be
         invested in floating rate and variable rate obligations. Floating
         rate or variable rate obligations which do not provide for recovery
         of principal and interest within seven days' notice will be subject
         to the 10% limitation applicable to illiquid securities purchased by
         Money Fund/VA.

Other Investment Restrictions. In addition to having a number of investment
policies and restrictions identified in the Prospectuses or elsewhere as
"fundamental policies," the Funds have other investment restrictions that are
fundamental policies, described below.

      |X|   What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be
changed only by the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, a "majority" vote is defined as
the vote of the holders of the lesser of:
o     67% or more of the shares present or represented by proxy at a
            shareholder meeting, if the holders of more than 50% of the
            outstanding shares are present or represented by proxy, or
o     more than 50% of the outstanding shares.

      The Funds' (except Value Fund /VA) investment objectives are
fundamental policies. Other policies described in the Prospectuses or this
Statement of Additional Information are "fundamental" only if they are
identified as such. The Funds' Board of Trustees can change non-fundamental
policies without shareholder approval. However, significant changes to
investment policies will be described in supplements or updates to the
Prospectuses or this Statement of Additional Information, as appropriate. The
Funds' most significant investment policies are described in the Prospectus.

      |X|   Do the Funds Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Funds.

o     No Fund can buy securities issued or guaranteed by any one issuer if
         (i) more than 5% of its total assets would be invested in securities
         of that issuer or (ii) it would then own more than 10% of that
         issuer's voting securities, or (iii) it would then own more than 10%
         in principal amount of that issuer's outstanding debt securities.
         The restriction on debt securities does not apply to Strategic Bond
         Fund/VA. All of the restrictions apply only to 75% of each Fund's
         total assets. The limits do not apply to securities issued by the
         U.S. government or any of its agencies or instrumentalities, or
         securities of other investment companies.

o     The Funds cannot make loans except (a) through lending of securities,
         (b) through the purchase of debt instruments or similar evidences of
         indebtedness, (c) through an interfund lending program with other
         affiliated funds, and (d) through repurchase agreements.

o     The Funds cannot concentrate investments. That means they cannot invest
         25% or more of their total assets in companies in any one industry.
         Obligations of the U.S. government, its agencies and
         instrumentalities are not considered to be part of an "industry" for
         the purposes of this restriction. This policy does not limit
         investments by Money Fund/VA in obligations issued by banks.

o     The Funds cannot buy or sell real estate or interests in real estate.
         However, the Funds can purchase debt securities secured by real
         estate or interests in real estate, or issued by companies,
         including real estate investment trusts, which invest in real estate
         or interests in real estate.

o     The Funds cannot underwrite securities of other companies. A permitted
         exception is in case a Fund is deemed to be an underwriter under the
         Securities Act when reselling any securities held in its own
         portfolio.

o     The Funds cannot invest in commodities or commodity contracts, other
         than the hedging instruments permitted by any of its other
         fundamental policies. It does not matter whether the hedging
         instrument is considered to be a commodity or commodity contract.

o     The Funds cannot issue "senior securities," but this does not prohibit
         certain investment activities for which assets of the Funds are
         designated as segregated, or margin, collateral or escrow
         arrangements are established, to cover the related obligations.
         Examples of those activities include borrowing money, reverse
         repurchase agreements, delayed-delivery and when-issued arrangements
         for portfolio securities transactions, and contracts to buy or sell
         derivatives, hedging instruments, options or futures.

o     The Funds cannot borrow money in excess of 33-1/3% of the value of that
         Fund's total assets. The Funds may borrow only from bank. With
         respect to this fundamental policy, the Funds can borrow only if
         they maintain a 300% ratio of assets to borrowings at all times in
         the manner set forth in the Investment Company Act.

      The following investment restrictions are fundamental policies of the
Value Fund/VA.

o     Value Fund/VA cannot issue senior securities. However, it can make
         payments or deposits of margin in connection with options or futures
         transactions, lend its portfolio securities, enter into repurchase
         agreements, borrow money and pledge its assets as permitted by its
         other fundamental policies. For purposes of this restriction, the
         issuance of shares of common stock in multiple classes or series,
         the purchase or sale of options, futures contracts and options on
         futures contracts, forward commitments, and repurchase agreements
         entered into in accordance with the Fund's investment policies, and
         the pledge, mortgage or hypothecation of the Fund's assets are not
         deemed to be senior securities.

o     Value Fund/VA cannot buy securities or other instruments issued or
         guaranteed by any one issuer if more than 5% of its total assets
         would be invested in securities or other instruments of that issuer
         or if it would then own more than 10% of that issuer's voting
         securities. This limitation applies to 75% of the Fund's total
         assets. The limit does not apply to securities issued or guaranteed
         by the U.S. government or any of its agencies or instrumentalities
         or securities of other investment companies.

o     Value Fund/VA cannot invest 25% or more of its total assets in any one
         industry. That limit does not apply to securities issued or
         guaranteed by the U.S. government or its agencies and
         instrumentalities or securities issued by investment companies.

o     Value Fund/VA cannot invest in physical commodities or commodities
         contracts. However, the Fund can invest in hedging instruments
         permitted by any of its other investment policies, and can buy or
         sell options, futures, securities or other instruments backed by, or
         the investment return from which is linked to, changes in the price
         of physical commodities, commodity contracts or currencies.

o     Value Fund/VA cannot invest in real estate or in interests in real
         estate. However, the Fund can purchase securities of issuers holding
         real estate or interests in real estate (including securities of
         real estate investment trusts) if permitted by its other investment
         policies.

o     Value Fund/VA cannot underwrite securities of other issuers. A
         permitted exception is in case it is deemed to be an underwriter
         under the Securities Act in reselling its portfolio securities.

o     Value Fund/VA cannot make loans, except to the extent permitted under
         the Investment Company Act, the rules or regulations thereunder or
         any exemption therefrom that is applicable to the Fund, as such
         statute, rules or regulations may be amended or interpreted from
         time to time.

o     Value Fund/VA may not borrow money, except to the extent permitted
         under the Investment Company Act, the rules or regulations
         thereunder or any exemption therefrom that is applicable to the
         Fund, as such statute, rules or regulations may be amended or
         interpreted from time to time.

      Value Fund/VA has also adopted the following non-fundamental policy:
The Fund cannot invest in securities of other investment companies, except to
the extent permitted under the Investment Company Act, the rules or
regulations thereunder or any exemption therefrom, as such statute, rules or
regulations may be amended or interpreted from time to time.


      Main Street Small Cap Fund(R)/VA has also adopted the following
non-fundamental policy: With respect to the Fund's non-fundamental policy to
invest, under normal circumstances, at least 80% of its net assets (plus the
amount of any borrowings used for investment purposes) in equity securities
of "small-cap" issuers, the Fund will provide shareholders at least 60 days'
prior notice of any change in such policy as required by the Investment
Company Act.


      Unless the Prospectus or this Statement of Additional Information
states that a percentage restriction applies on an ongoing basis, it applies
only at the time the Funds makes an investment (except in the case of
borrowing and investments in illiquid securities). The Funds need not sell
securities to meet the percentage limits if the value of the investment
increases in proportion to the size of the Fund.

      For purposes of the Funds' policy not to concentrate its investments as
described above, Money Fund/VA and all other Funds have adopted the industry
classifications set forth in Appendix B and Appendix C, respectively, to this
Statement of Additional Information. This is not a fundamental policy.


Disclosure of Portfolio Holdings. The Funds have adopted policies and procedures
concerning  the  dissemination  of  information  about the portfolio  securities
holdings of the Funds by employees,  officers and/or  directors of Agent.  These
policies  are designed to assure that  non-public  information  about  portfolio
securities is distributed only for a legitimate business purpose, and is done in
a manner  that (a)  conforms  to  applicable  laws  and  regulations  and (b) is
designed  to  prevent  that  information  from  being  used in a way that  could
negatively affect the Funds'  investment  program or enable third parties to use
that information in a manner that is harmful to the Fund.

o Public  Disclosure.  Each of the Fund's  portfolio  holdings are made publicly
available no later than 60 days after the close of each Fund's  fiscal  quarters
in semi-annual  and annual reports to  shareholders,  or in their  Statements of
Investments on Form N-Q,  which are publicly  available at the SEC. In addition,
the top 10 or more holdings shall be posted on the OppenheimerFunds'  website at
www.oppenheimerfunds.com   in  the  "Fund  Profiles"   section.   Other  general
information   about  the  Fund's  portfolio   investments,   such  as  portfolio
composition  by asset  class,  industry,  country,  currency,  credit  rating or
maturity, may also be posted with a 15-day lag.

     Until publicly  disclosed,  the Fund's portfolio  holdings are proprietary,
confidential business information. While recognizing the importance of providing
Fund shareholders with information about their Fund's  investments and providing
portfolio  information  to a  variety  of  third  parties  to  assist  with  the
management,  distribution and administrative process, such need for transparency
must be balanced against the risk that third parties who gain access to a Fund's
portfolio  holdings  information  could attempt to use that information to trade
ahead of or against  the Funds,  which  could  negatively  affect the prices the
Funds are able to obtain in portfolio  transactions  or the  availability of the
portfolio securities that portfolio managers are trading in on a Fund's behalf.

     The Manager and its subsidiaries and affiliates,  employees,  officers, and
directors,   shall  neither  solicit  nor  accept  any   compensation  or  other
consideration  (including  any  agreement to maintain  assets in the Funds or in
other investment  companies or accounts managed by the Manager or any affiliated
person  of the  Manager)  in  connection  with  the  disclosure  of  the  Fund's
non-public portfolio holdings.  The receipt of investment advisory fees or other
fees and  compensation  paid to the Manager and their  subsidiaries  pursuant to
agreements approved by the Funds' Board shall not be deemed to be "compensation"
or "consideration"  for these purposes.  It is a violation of the Code of Ethics
for any  covered  person to  release  holdings  in  contravention  of  portfolio
holdings disclosure policies and procedures adopted by the Funds.

     A list  of the top 10 or  more  portfolio  securities  holdings  (based  on
invested  assets),  listed by security or by issuer, as of the end of each month
may be disclosed to third parties  (subject to the  procedures  below) no sooner
than 15 days after month-end.

     Except under special limited circumstances discussed below, month-end lists
of the Fund's  complete  portfolio  holdings  may be disclosed no sooner than 30
days after the relevant month-end, subject to the procedures below. If they have
not been disclosed publicly,  they may be disclosed pursuant to special requests
for legitimate business reasons, provided that:

o The  third-party  recipient  must first  submit a request  for release of Fund
portfolio holdings, explaining the business reason for the request;

o Senior officers (a Senior Vice President or above) in the Manager's  Portfolio
and Legal  departments  must approve the  completed  request for release of Fund
portfolio holdings; and

o  The  third-party   recipient  must  sign  the  Manager's  portfolio  holdings
non-disclosure agreement before receiving the data, agreeing to keep information
that is not publicly  available  regarding the Fund's holdings  confidential and
agreeing not to trade directly or indirectly based on the information.

     An exception may be made to provide  portfolio  holdings  information  on a
more  current   basis  to  insurance   company   sponsors  that  have  signed  a
Participation  Agreement with, and offer series of, Oppenheimer Variable Account
Funds or Panorama Series Fund, Inc. to their separate account contract  holders,
if such insurance companies require such portfolio holdings  information for the
preparation  of  reports  to their  contract  holders,  and  have  contractually
undertaken to keep such information confidential. Additionally, such information
may be made  available  to new  insurance  company  sponsors  that  first sign a
confidentiality  agreement in  connection  with  evaluating  offering such funds
under their separate accounts.

     Complete Fund portfolio holdings positions may be released to the following
categories of entities or individuals  on an ongoing  basis,  provided that such
entity or individual either (1) has signed an agreement to keep such information
confidential and not trade on the basis of such information or (2) is subject to
fiduciary  obligations,  as a member of the  Funds'  Board,  or as an  employee,
officer and/or director of the Manager, Distributor, or Transfer Agent, or their
respective legal counsel,  not to disclose such information except in conformity
with these policies and procedures and not to trade for his/her personal account
on the basis of such information:

     o Employees of the Funds' Manager,  Distributor and Transfer Agent who need
     to have access to such  information  (as  determined by senior  officers of
     such entity),

     o The Funds' certified public accountants and independent registered public
     accounting firm,

     o Members of the Funds' Board and the Board's legal counsel,

     o The Funds' custodian bank,

     o A proxy voting service designated by the Funds and its Board,

     o Rating/ranking organizations (such as Lipper and Morningstar),

          o Insurance companies having separate accounts invested in Oppenheimer
          Variable Account Funds or Panorama Series Fund, Inc. (to prepare their
          financial statements or analysis),


          o  Portfolio  pricing  services  retained  by the  Manager  to provide
          portfolio security prices, and

          o Dealers,  to obtain bids (price  quotations,  if securities  are not
          priced by the Funds' regular pricing services).

     Portfolio holdings  information of the Fund may be provided,  under limited
circumstances,  to  brokers  and  dealers or others  with whom the Funds  trades
and/or entities that provide investment  coverage and/or analytical  information
regarding the Funds' portfolio,  provided that there is a legitimate  investment
reason for  providing  the  information  to the broker,  dealer or other entity.
Month-end portfolio holdings information may, under this procedure,  be provided
to vendors providing research information and/or analytics to the Funds, with at
least a 15-day delay after the month end,  but in certain  cases may be provided
to a broker or analytical vendor with a 1- 2 day lag to facilitate the provision
of requested  investment  information  to the manager to facilitate a particular
trade or the portfolio  manager's  investment  process for the Funds.  Any third
party  receiving  such  information  must  first  sign the  Manager's  portfolio
holdings   non-disclosure   agreement  as  a  pre-condition  to  receiving  this
information.

     Portfolio holdings information (which may include information on individual
securities  positions  or multiple  securities)  may be provided to the entities
listed below (1) by portfolio traders employed by the Manager in connection with
portfolio  trading,  and (2) by the members of the Manager's  Security Valuation
Group and Accounting  Departments in connection with portfolio  pricing or other
portfolio evaluation purposes:

          o Brokers  and  dealers  in  connection  with  portfolio  transactions
          (purchases and sales)

          o Brokers  and  dealers  to obtain  bids or bid and asked  prices  (if
          securities held by a Fund are not priced by the Funds' regular pricing
          services)

          o  Dealers  to  obtain  price  quotations  where  the  Funds  are  not
          identified as the owner.

     Portfolio  holdings  information  (which may  include  information  on each
Fund's  entire  portfolio or individual  securities  therein) may be provided by
senior  officers of the Manager or  attorneys on the legal staff of the Manager,
Distributor, or Transfer Agent, in the following circumstances:

          o  Response  to legal  process  in  litigation  matters,  such as
             responses to subpoenas or in class action matters where the Funds
             may be part of the plaintiff class (and seeks recovery for losses
             on a security) or a defendant,

           o Response to regulatory requests for information (the SEC, NASD,
             state   securities   regulators,    and/or   foreign   securities
             authorities,    including   without   limitation   requests   for
             information in inspections or for position reporting purposes), o
             To   potential    sub-advisors   of   portfolios   (pursuant   to
             confidentiality  agreements),  o To  consultants  for  retirement
             plans for plan  sponsors/discussions  at due  diligence  meetings
             (pursuant to a confidentiality  agreement),  o Investment bankers
             in   connection    with   merger    discussions    (pursuant   to
             confidentiality agreements).

     Portfolio  managers and analysts may, subject to the Manager's  policies on
communications with the press and other media, discuss portfolio  information in
interviews  with members of the media,  or in due diligence or similar  meetings
with  clients  or  prospective  purchasers  of Fund  shares  or their  financial
intermediary representatives.

     The  shareholders  of Global  Securities  Fund/VA,  Main Street Fund/VA and
Strategic  Bond  Fund/VA may,  under  unusual  circumstances  (such as a lack of
liquidity  in the Funds'  portfolio  to meet  redemptions),  receive  redemption
proceeds of their Fund shares paid as pro rata shares of securities  held in the
Funds' portfolio. In such



 circumstances,  disclosure  of the  Fixed  Inc  Funds'  portfolio
 holdings may be made to such shareholders.

     The Chief Compliance Officer of the Funds and the Manager, Distributor, and
Transfer  Agent  (the  "CCO")  shall  oversee  the  compliance  by the  Manager,
Distributor,  Transfer  Agent,  and their  personnel  with  these  policies  and
procedures.  At least annually, the CCO shall report to the Funds' Board on such
compliance  oversight and on the categories of entities and individuals to which
disclosure  of  portfolio  holdings  of the  Funds  have been  made  during  the
preceding  year pursuant to these  policies.  The CCO shall report to the Funds'
Board any  material  violation  of these  policies  and  procedures  during  the
previous calendar quarter and shall make recommendations to the Companies and to
the  Boards  as to any  amendments  that  the CCO  believes  are  necessary  and
desirable to carry out or improve these policies and procedures.

     The Manager and/or the Funds have entered into ongoing arrangements to make
available  information about the Funds' portfolio  holdings.  One or more of the
Oppenheimer funds may currently disclose portfolio holdings information based on
ongoing arrangements to the following parties:

A.G. Edwards & Sons       Fixed Income Securities     Natexis Bleichroeder



ABG Securities                    Fortis Securities           Ned Davis Research Group
ABN AMRO                          Fox-Pitt, Kelton            Nomura Securities
Advest                            Friedman, Billing, Ramsey   Pacific Crest
AG Edwards                        Fulcrum Global Partners     Pacific Crest Securities
American Technology Research      Garp Research               Pacific Growth Equities
Auerbach Grayson                  George K Baum & Co.         Petrie Parkman
Banc of America Securities        Goldman                     Pictet
Barclays                          Goldman Sachs               Piper Jaffray Inc.
Baseline                          HSBC                        Plexus
Bear Stearns                      HSBC Securities Inc         Prager Sealy & Co.
Belle Haven                       ING Barings                 Prudential Securities
Bloomberg                         ISI Group                   Ramirez & Co.
BNP Paribas                       Janney Montgomery           Raymond James
BS Financial Services             Jefferies                   RBC Capital Markets
Buckingham Research Group         Jeffries & Co.              RBC Dain Rauscher
Caris & Co.                       JP Morgan                   Research Direct
CIBC World Markets                JP Morgan Securities        Robert W. Baird
Citigroup                         JPP Eurosecurities          Roosevelt & Cross
Citigroup Global Markets          Keefe, Bruyette & Woods     Russell Mellon
Collins Stewart                   Keijser Securities          Ryan Beck & Co.
Craig-Hallum Capital Group LLC    Kempen & Co. USA Inc.       Sanford C. Bernstein
Credit Agricole Cheuvreux N.A.    Kepler Equities/Julius      Scotia Capital Markets
Inc.                              Baer Sec
Credit Suisse First Boston        KeyBanc Capital Markets     SG Cowen & Co.
Daiwa Securities                  Leerink Swan                SG Cowen Securities
Davy                              Legg Mason                  Soleil Securities Group
Deutsche Bank                     Lehman                      Standard & Poor's
Deutsche Bank Securities          Lehman Brothers             Stone & Youngberg
Dresdner Kleinwort Wasserstein    Lipper                      SWS Group
Emmet & Co                        Loop Capital Markets        Taylor Rafferty
Empirical Research                MainFirst Bank AG           Think Equity Partners
Enskilda Securities               Makinson Cowell US Ltd      Thomas Weisel Partners
Essex Capital Markets             Maxcor Financial            UBS
Exane BNP Paribas                 Merrill                     Wachovia
Factset                           Merrill Lynch               Wachovia Corp
Fidelity Capital Markets          Midwest Research            Wachovia Securities
Fimat USA Inc.                    Mizuho Securities           Wescott Financial
First Albany                      Morgan Stanley              William Blair
First Albany Corporation          Morningstar                 Yieldbook


How the Funds Are Managed


Organization and History. Each Fund is an investment portfolio, or "series"
of Oppenheimer Variable Account Funds (the "Trust"), a multi-series open-end
diversified management investment company organized as a Massachusetts
business trust that presently includes 11 series. Money Fund/VA, Core Bond
Fund/VA and Capital Appreciation Fund/VA were all organized in 1983, High
Income Fund/VA, Aggressive Growth Fund/VA and Balanced Fund/VA, were all
organized in 1986, Global Securities Fund/VA was organized in 1990, Strategic
Bond Fund/VA was organized in 1993, Main Street Fund(R)/VA was organized in
1995, Main Street Small Cap Fund(R)/VA was organized in 1998 and Value Fund/ VA
was organized in 2002. Prior to May 1, 1998, Oppenheimer Aggressive Growth
Fund/VA was named "Oppenheimer Capital Appreciation Fund." The suffix "VA"
was added to each Fund's name on May 1, 1999. Prior to that date, Oppenheimer
Capital Appreciation Fund/VA was named "Oppenheimer Growth Fund," and
Oppenheimer Main Street(R)Growth & Income Fund/VA was named "Oppenheimer
Growth & Income Fund." Prior to May 1, 2001, Oppenheimer Main Street Small
Cap Fund(R)/VA was named "Oppenheimer Small Cap Growth Fund/VA." Prior to May
1, 2003, Oppenheimer Main Street Fund(R)/VA was named "Oppenheimer Main Street(R)
Growth & Income Fund/VA." Prior to April 29, 2004, Oppenheimer Balanced
Fund/VA was named "Oppenheimer Multiple Strategies Fund/VA." Prior to April
29, 2005, Oppenheimer Core Bond Fund/VA was named "Oppenheimer Bond Fund/VA."
All references to the Funds' Board of Trustees and Officers refer to the
Trustees and Officers, respectively, of Oppenheimer Variable Account Funds.


|X|   Classes of Shares. The Trustees are authorized, without shareholder
approval, to create new series and classes of shares. The Trustees may
reclassify unissued shares of a Fund into additional series or classes of
shares. The Trustees also may divide or combine the shares of a class into a
greater or lesser number of shares without changing the proportionate
beneficial interest of a shareholder in the Funds. Shares do not have
cumulative voting rights or preemptive or subscription rights. Shares may be
voted in person or by proxy at shareholder meetings.


      The Funds currently have four classes of shares authorized. All Funds
offer a class of shares with no name designation referred to in this
Statement of Additional Information and the Prospectus as "non-service
shares." As of December 31, 2004, all Funds except Money Fund/VA and Value
Fund/VA also offered a service share class, subject to a Distribution and
Service Plan. Money Fund/VA and Value Fund/VA currently only offer the class
of non-service shares. Global Securities Fund/VA offers two additional share
classes, referred to in this Statement of Additional Information and the
Global Securities Fund/VA Prospectus as "Class 3"and "Class 4", which are
subject to a redemption fee. In addition, Class 4 shares are subject to a
Distribution and Service Plan. Each class of shares:


o     has its own dividends and distributions,
o     pays certain expenses which may be different for the different classes,
o     may have a different net asset value,
o     may have separate voting rights on matters in which interests of one
         class are different from interests of another class, and
o     votes as a class on matters that affect that class alone.

      Shares are freely transferable under the terms of the insurance
product, and each share of each class has one vote at shareholder meetings,
with fractional shares voting proportionally on matters submitted to the vote
of shareholders. Each share of a Fund represents an interest proportionately
equal to the interest of each other share of the same class of that Fund.


|X|   Meetings of Shareholders. The Trust is a Massachusetts business trust,
the Funds are not required to hold, and do not plan to hold, regular annual
meetings of shareholders, but may do so from time to time on important
matters or when required to do so by the Investment Company Act or other
applicable law. Shareholders have the right, upon a declaration in vote or
writing of two-thirds of the outstanding shares of the Funds, to remove a
Trustee or to take other action described in the Trusts' Declaration of
Trust. They may also do so when a shareholder meeting is called by the
Trustees or upon proper request of the shareholders.


      The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of 10% of its
outstanding shares. If the Trustees receive a request from at least 10
shareholders stating that they wish to communicate with other shareholders to
request a meeting to remove a Trustee, the Trustees will then either make the
Funds' shareholder list available to the applicants or mail their
communication to all other shareholders at the applicants' expense. The
shareholders making the request must have been shareholders for at least six
months and must hold shares of the Funds valued at $25,000 or more or
constituting at least 1% of the Funds' outstanding shares. The Trustees may
also take other action as permitted by the Investment Company Act.


|X|   Shareholder and Trustee Liability. The Trust's Declaration of Trust
contains an express disclaimer of shareholder and Trustee liability and
states that all persons extending credit to, doing business with, contracting
with or having or asserting any claim against the Trust or the Trustees shall
look only to the assets of the appropriate Series for payment, and neither
the shareholders nor the Trustees, nor any of their agents, whether past,
present or future, shall be personally liable for the obligations of the
Trust. The Declaration of Trust also states that any shareholder or former
shareholder who is held personally liable for the obligations of the Trust
solely by reason of his being or having been a shareholder shall be
indemnified by the Trust against all losses and expenses arising from such
liability. Upon request, the Trust shall assume the defense of any such claim
and satisfy any judgment on the claim. Massachusetts law permits a
shareholder of a business trust (such as the Trust) to be held personally
liable as a "partner" under certain circumstances. However, the risk that a
shareholder will incur any financial loss from being held to be a "partner"
of the Trust is limited to the relatively remote circumstances in which a
Fund would be unable to meet its obligations.


      The Trust's contractual arrangements state that any person doing
business with the Trust (and each shareholder of the Funds) agrees under its
Declaration of Trust to look solely to the assets of the Funds for
satisfaction of any claim or demand that may arise out of any dealings with
the Funds. Additionally, the Trustees shall have no personal liability to any
such person, to the extent permitted by law.

|X|   Board of Trustees and Oversight Committees. The Funds are governed by a
Board of Trustees, which is responsible for protecting the interests of
shareholders under Massachusetts law. The Trustees meet periodically
throughout the year to oversee the Funds' activities, review their
performance, and review the actions of the Manager.


      The Board of Trustees has an Audit Committee, a Review Committee and a
Governance Committee. The Audit Committee is comprised solely of Trustees who
are not "interested persons" under the Investment Company Act ("Independent
Trustees"). The members of the Audit Committee are Edward L. Cameron
(Chairman), George C. Bowen, Robert J. Malone and F. William Marshall, Jr.
The Audit Committee held seven meetings during the fiscal year ended December
31, 2004. The Audit Committee is responsible for the selection of the Funds'
independent registered public accounting firm. Other main functions of the
Audit Committee include, but are not limited to: (i) reviewing the scope and
results of financial statement audits and the audit fees charged; (ii)
reviewing reports from the Funds' independent registered public accounting
firm regarding the Funds' internal accounting procedures and controls; (iii)
reviewing certain reports from; and meeting periodically with; the Fund's
CCO; (iv) reviewing reports from the Manager's Internal Audit Department; (v)
maintaining a separate line of communication between the Funds' independent
registered public accounting firm and its Independent Trustees; and (vi)
exercising all other functions outlined in the Audit Committee Charter,
including but not limited to reviewing the independence of the Funds'
independent registered public accounting firm and the pre-approval of the
Funds' independent registered public accounting firm; performance of any
non-audit service, including tax service, for the Funds and the Manager and
certain affiliates of the Manager that is not prohibited by the
Sarbanes-Oxley Act.

      The members of the Review Committee are Jon S. Fossel (Chairman),
Robert G. Avis, Sam Freedman, and Beverly Hamilton. The Review Committee held
six meetings during the fiscal year ended December 31, 2004. Among other
functions, the Review Committee reviews reports and makes recommendations to
the Board concerning the fees paid to the Funds' transfer agent and the
Manager and the services provided to the Funds by the transfer agent and the
Manager. The Review Committee also reviews the Funds' investment performance
and policies and procedures adopted by the Funds to comply with the
Investment Company Act and other applicable law.

      The members of the Governance Committee are Robert Malone (Chairman),
William Armstrong, Beverly Hamilton and F. William Marshall, Jr. Each member
of the Committee is independent, meaning each person is not an "interested
person" as defined in the Investment Company Act. The Governance Committee
was established in August 2004 and held two meetings during the Funds' fiscal
year ended December 31, 2004. The Governance Committee is expected to
consider general governance matters, including a formal process for
shareholders to send communications to the Board and the qualifications of
candidates for board positions including consideration of any candidate
recommended by shareholders.

     The Governance  Committee  adopted a charter on April 26, 2005. Among other
functions, the Committee has adopted a process for  shareholder  submission of
nominees for board  positions.  Shareholders  may submit  names of  individuals,
accompanied  by complete  and properly  supported  resumes,  for the  Governance
Committee's  consideration  by mailing such information to the Committee in care
of the Funds.  The  Committee may consider such persons at such time as it meets
to consider possible nominees. The Committee,  however, reserves sole discretion
to determine  which  candidates  for trustees and  independent  trustees it will
recommend to the Board and/or  shareholders and it may identify candidates other
than those submitted by Shareholders.  The Committee may, but need not, consider
the advice and  recommendation of the Manager and/or its affiliates in selecting
nominees.  The full Board elects new trustees  except for those instances when a
shareholder vote is required.

      Shareholders who desire to communicate with the Board should address
correspondence to the Board or an individual Board member and may submit
their correspondence either electronically at www.opppenheimerfunds.com under
the caption "contact us" or by mail to the Funds at the address on the cover
of this Statement of Additional Information. The Governance Committee will
consider whether a different process should be recommended to the Board.



Trustees and Officers of the Funds. Except for John V. Murphy, each of the
Trustees is an "Independent Trustee" under the Investment Company Act. Mr.
Murphy is an "Interested Trustee," because he is affiliated with the Manager
by virtue of his positions as an officer and director of the Manager, and as
a shareholder of its parent company. Mr. Murphy was elected as a Trustee of
the Funds with the understanding that in the event he ceases to be the chief
executive officer of the Manager, he will resign as a trustee of the Funds
and the other Board II Funds (defined below) for which he is a trustee or
director. All of the Trustees are also directors or trustees of the following
Oppenheimer funds (except for Ms. Hamilton and Mr. Malone, who are not
Trustees of Oppenheimer Senior Floating Rate Fund) (referred to as the "Board
II Funds"):

                                          Oppenheimer Principal
   Oppenheimer Cash Reserves              Protected Trust III
   Oppenheimer Champion Income Fund       Oppenheimer Real Asset Fund
                                          Oppenheimer Senior Floating
   Oppenheimer Capital Income Fund        Rate Fund
                                          Oppenheimer   Strategic  Income
   Oppenheimer Equity Fund, Inc.          Fund
                                          Oppenheimer   Variable  Account
   Oppenheimer High Yield Fund            Funds
   Oppenheimer International Bond Fund    Panorama Series Fund, Inc.
   Oppenheimer Integrity Funds
   Oppenheimer   Limited-Term  Government
   Fund
                                          Centennial    California    Tax
   Oppenheimer Main Street Fund, Inc.     Exempt Trust
   Oppenheimer  Main  Street  Opportunity
   Fund                                   Centennial Government Trust
   Oppenheimer Main Street Small Cap Fund Centennial Money Market Trust
                                          Centennial  New York Tax Exempt
   Oppenheimer Municipal Fund             Trust
   Oppenheimer Principal Protected Trust  Centennial Tax Exempt Trust
   Oppenheimer  Principal Protected Trust
   II

      Present or former officers, directors, trustees and employees (and
their immediate family members) of the Funds, the Manager and its affiliates,
and retirement plans established by them for their employees are permitted to
purchase Class A shares of the Funds and the other Oppenheimer funds at net
asset value without sales charge. The sales charge on Class A shares is
waived for that group because of the economies of scales efforts realized by
the Distributor.

      Messrs. Bomfim, Caan, Gillespie, Gord, Kourkoulakos, Leavy,
Manioudakis, Miao, Monoyios, Moon, Murphy, Petersen, Reinganum, Steinmetz,
Vandehey, Vottiero, Weiss, Wixted, Zack and Zavanelli, and Mss. Bloomberg,
Ives and Wolf who are officers of the Funds, hold the same offices with one
or more of the other Board II Funds. As of March 31, 2005 the Trustees and
officers of the Funds, as a group, owned of record or beneficially less than
1% of any class of shares of the Funds. The foregoing statement does not
reflect ownership of shares of the Funds held of record by an employee
benefit plan for employees of the Manager, other than the shares beneficially
owned under that plan by the officers of the Funds listed above. In addition,
none of the Independent Trustees (nor any of their immediate family members)
own securities of either the Manager or the Distributor of the Board II Funds
or of any entity directly or indirectly controlling, controlled by or under
common control with the Manager or the Distributor.

      The Funds' Trustees and officers, their positions held with the Trust
and length of service in such position(s) and their principal occupations and
business affiliations during the past five years are listed in the chart
below. The chart also includes information about the Trustees' beneficial
share ownership in the Funds and in all registered investment companies that
a Trustee oversees in the Oppenheimer family of funds ("Supervised Funds").
The address of each Trustee in the chart below is 6803 S. Tucson Way,
Centennial, CO 80112. Each Trustee serves for an indefinite term, until his
or her resignation, retirement, death or removal.

- -------------------------------------------------------------------------------
                                 Independent Trustees
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
       Name,            Principal Occupation(s)                                  Aggregate
 Position(s) Held With  Other Trusteeships/Directorships Held      Dollar        Dollar Range
 the Trust, Length of   by Trustee; Number of Portfolios in Fund   Range of      of Shares
 Service, Age           Complext Currenlty Overseen by Trustee     Shares        Beneficially                                                    Range Of
                                                                   Beneficially  Owned in All

- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
                                                                As of December 31, 2004
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
William L.          None                                           Over
Armstrong,                                                       $100,000
68
Chairman of the Board
since 2003 and Trustee
since 1999
Age:  68

Chairman of the  following  private  mortgage  banking  companies:  Cherry Creek
Mortgage  Company (since 1991),  Centennial  State Mortgage Company (since 1994)
and The El Paso Mortgage Company (since 1993); Chairman of the following private
companies:  Ambassador Media Corporation and Broadway Ventures (since 1984); and
Director of the following public company: Helmerich &amp; Payne, Inc. (since
1992) (an oil and gas  drilling/production  company).  Mr.  Armstrong  is also a
Director/Trustee  of Campus  Crusade  for Christ  (since  1991) and the  Bradley
Foundation  (since  2002).  Chairman  of  the  following:   Transland  Financial
Services, Inc. (1997-2003) (a private mortgage banking company),  Great Frontier
Insurance  (an  insurance  agency)  (1995-2000),   Frontier  Real  Estate,  Inc.
(1994-2000)  (residential  real estate brokerage) and Frontier Title (1995-2000)
(a title insurance agency); Director of the following: UNUMProvident (1991-2003)
(an insurance company),  Storage Technology Corporation  (1991-2003) (a computer
equipment  company)  and  International  Family  Entertainment   (1992-1997)  (a
television  channel).  Mr.  Armstrong  is also a former  U.S.  Senator  (January
1979-January 1991). Oversees 38 portfolios in the OppenheimerFunds complex.

- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Robert G. Avis,     None                                           Over
Trustee since 1993                                               $100,000
Age: 73

Director and President of A.G. Edwards Capital, Inc. (General Partner of private
equity funds) (until  February  2001);  Chairman,  President and Chief Executive
Officer of A.G.  Edwards  Capital,  Inc. (until March 2000) (General  Partner of
private equity funds);  a Director (until March 2000) and a Vice Chairman (until
March 1999) of A.G.  Edwards  &amp;  Sons (a  brokerage  company);  Director
(until March 2000) and Chairman (until March 1999) of A.G. Edwards Trust Company
(an  investment  adviser);  a Vice Chairman and Director of A.G.  Edwards,  Inc.
(until March 1999); and Chairman of A.G.E.  Asset Management  (until March 1999)
(an investment adviser). Oversees 38 portfolios in the OppenheimerFunds complex.
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
George C. Bowen, Trustee since 1999 Age: 68

                                             None              Over $100,000

Assistant  Secretary and a Director of Centennial Asset  Management  Corporation
(December  1991-April 1999);  President,  Treasurer and a Director of Centennial
Capital  Corporation  (June  1989-April  1999);  Chief  Executive  Officer and a
Director of MultiSource  Services,  Inc. (March  1996-April  1999).  Until April
1999,  Mr. Bowen held several  positions  with the Manager and in  subsidiary or
affiliated   companies  of  the   Manager.   Oversees  38   portfolios   in  the
OppenheimerFunds complex.

- ----------------------------------------------------------------------------------------
Edward L. Cameron,
Trustee since 1999
Age: 66
                                            None               Over $100,000

A member of The Life Guard of Mount Vernon since 1999 (since June 2000)  (George
Washington's  $100,000  Age: 66 home).  Director  of Genetic  ID,  Inc.  and its
subsidiaries (March 2001-May 2002) (a privately held biotech company); a partner
with  PricewaterhouseCoopers LLP (July 1974-June 1999) (an accounting firm); and
Chairman of Price Waterhouse LLP Global Investment  Management Industry Services
Group (July  1994-June  1998).  Oversees 38 portfolios  in the  OppenheimerFunds
complex.
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Jon S.  Fossel,                            None                 Over $100,000
Trustee since 1990
Age: 63

Director  of  UNUMProvident  (since  June 2002) (an  insurance  company)  and of
Northwestern  Energy Corp.  (since November 2004) (a public utility electric and
gas utility corporation). Director of P.R. Pharmaceuticals (October 1999-October
2003) (a privately held company) and the Rocky Mountain Elk Foundation (February
1998-February  2003) (a non-profit  foundation);  Chairman and a Director (until
October 1996) and President and Chief Executive  Officer (until October 1995) of
the Manager;  President,  Chief Executive  Officer and a Director of Oppenheimer
Acquisition  Corp.,   Shareholders   Services  Inc.  and  Shareholder  Financial
Services,   Inc.   (until   October   1995).   Oversees  38  portfolios  in  the
OppenheimerFunds complex.
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Sam Freedman,                           None                    Over $100,000
Trustee since 1996
Age: 64

Director of Colorado Uplift (since September 1984) (a non-profit charity). Until
October  1994,  Mr.  Freedman held several  positions  with the Manager and with
subsidiary or affiliated companies of the Manager. Oversees 38 portfolios in the
OppenheimerFunds complex.
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Beverly L. Hamilton,                    None                    Over $100,000
Trustee since 2002
Age: 58

Trustee of Monterey  Institute for  International  Studies (since February 2000)
(an  educational  organization);  a Director of the  following:  The  California
Endowment  (since  April 2002) (a  philanthropic  organization),  the  Community
Hospital  of  Monterey   Peninsula   (since   February  2002)  (an   educational
organization),  the American Funds  Emerging  Markets Growth Fund (since October
1991)  (a  mutual  fund).  Mrs.  Hamilton  is also a  member  of the  investment
committees of The Rockefeller  Foundation and of The University of Michigan. Ms.
Hamilton was a Trustee of MassMutual  Select Funds  (1996-May 2004) (an open-end
investment company;  formerly MassMutual  Institutional Funds) and a Director of
the following:  MML Series  Investment Fund (April 1989-May 2004) (an investment
company) and MML Services (April 1987-May 2004) (an investment company). She was
an  adviser  to  Credit  Suisse  First  Boston's  Sprout  venture  capital  unit
(1994-2005) (a venture  capital  fund); a Member of the Investment  Committee of
Hartford Hospital  (2000-2003);  an adviser to Unilever (Holland's) pension fund
(2000-2003);  and  President of ARCO  Investment  Management  Company  (February
1991-April  2000).  Oversees  37  portfolios  in the  OppenheimerFunds  complex.
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Robert J. Malone,                       None                    Over $100,000
Trustee since 2002
Age: 60

Chairman,  Chief  Executive  Officer and  Director of Steele  Street  State Bank
(since August 2003) (a commercial  banking entity);  Director of Colorado UpLIFT
(since  1986) (a  non-profit  organization);  Trustee  of the  Gallagher  Family
Foundation  (since 2000) (non-profit  organization).  Mr. Malone was Chairman of
U.S.  Bank-Colorado  (July  1996-April  1999) (a subsidiary of U.S.  Bancorp and
formerly  Colorado  National Bank) and a Director of the  following:  Commercial
Assets,  Inc.  (1993-2000) (a REIT), Jones Knowledge,  Inc.  (2001-July 2004) (a
privately held company) and U.S. Exploration, Inc. (1997-February 2004) (oil and
gas  exploration).  Oversees  37  portfolios  in the  OppenheimerFunds  complex.
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
F. William Marshall, Jr.,               None                    Over $100,000
Trustee since 2000
Age: 62

Trustee  of  the  following:   MassMutual  Select  Funds  (formerly   MassMutual
Institutional  Funds) and MML Series Investment Fund (since 1996) (both open-end
investment  companies),  the Springfield  Library and Museum  Association (since
1995)  (museums) and the Community  Music School of Springfield  (since 1996) (a
music school);  Chairman and Trustee (since 2003) and Chairman of the Investment
Committee  (since  1994)  for  the  Worcester   Polytech  Institute  (a  private
university);  and President and Treasurer of the SIS Funds (since  January 1999)
(a private not for profit charitable fund). A Member of the Investment Committee
of the Community Foundation of Western  Massachusetts (1998 - 2003); Chairman of
SIS  &amp;amp;  Family Bank, F.S.B.  (January  1999-July 1999) (a commercial
bank;  formerly SIS Bank) ; and  Executive  Vice  President of Peoples  Heritage
Financial Group, Inc. (January  1999-July 1999) (commercial  bank).  Oversees 40
portfolios          in          the          OppenheimerFunds          complex.*
- ----------------------------------------------------------------------------------------
*  Includes  two  registered  investment  companies,   MassMutual  Select  Funds
(formerly  MassMutual  Institutional  Funds) and MML Series Investment Fund (the
"MassMutual  Funds"),  the investment  adviser for which is the indirect  parent
company of the Funds' Manager. The Manager also serves as the Sub-Advisor to the
MassMutual  Institutional  Equity  Fund,  a series of  MassMutual  Institutional
Funds. In accordance with the  instructions  for Form N-1A, for purposes of this
section  only,  the  MassMutual  Funds are included in the "Fund  Complex."  The
Manager   does  not   consider   the   MassMutual   Funds  to  be  part  of  the
OppenheimerFunds "Fund Complex" as that term may be otherwise interpreted.



- -------------------------------------------------------------------------------------


      The address of Mr. Murphy in the chart below is Two World Financial
Center, 225 Liberty Street, 11th Floor, New York, NY 10281-1008. Mr. Murphy
serves for an indefinite term, until his resignation, death or removal.


- -------------------------------------------------------------------------------------

                           Interested Trustee and Officer

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Name,                Principal Occupation(s) During Past 5    Dollar     Aggregate
                                                                         Dollar
                                                                         Range Of
                                                                         Shares
                                                                         Beneficially
                                                                         Owned in
                     Years;                                   Range of   Any of the
Position(s) Held     Other Trusteeships/Directorships Held    Shares     Oppenheimer
with Trust,          by Trustee ;                             BeneficiallFunds
Length of Service,   Number of Portfolios in Fund Complex     Owned in   Overseen
Age                  Currently Overseen by Trustee            the Trust  by Trustee

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

                                                                As of December 31,
                                                                       2004

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

John V. Murphy,      Chairman, Chief Executive Officer and    None       Over
President and        director (since June 2001) and                      $100,000
Trustee since 2001   President (since September 2000) of the
Age: 55              Manager; President and a director or
                     trustee of other Oppenheimer funds;
                     President and a director (since July
                     2001) of Oppenheimer Acquisition Corp.
                     (the Manager's parent holding company)
                     and of Oppenheimer Partnership
                     Holdings, Inc. (a holding company
                     subsidiary of the Manager); a director
                     (since November 2001) of
                     OppenheimerFunds Distributor, Inc. (a
                     subsidiary of the Manager); Chairman
                     and a director (since July 2001) of
                     Shareholder Services, Inc. and of
                     Shareholder Financial Services, Inc.
                     (transfer agent subsidiaries of the
                     Manager); President and a director
                     (since July 2001) of OppenheimerFunds
                     Legacy Program (a charitable trust
                     program established by the Manager); a
                     director of the following investment
                     advisory subsidiaries of the Manager:
                     OFI Institutional Asset Management,
                     Inc., Centennial Asset Management
                     Corporation, Trinity Investment
                     Management Corporation and Tremont
                     Capital Management, Inc. (since
                     November 2001), HarbourView Asset
                     Management Corporation and OFI Private
                     Investments, Inc. (since July 2001);
                     President (since November 1, 2001) and
                     a director (since July 2001) of
                     Oppenheimer Real Asset Management,
                     Inc.; Executive Vice President (since
                     February 1997) of Massachusetts Mutual
                     Life Insurance Company (the Manager's
                     parent company); a director (since June
                     1995) of DLB Acquisition Corporation (a
                     holding company that owns the shares of
                     Babson Capital Management LLC); a
                     member of the Investment Company
                     Institute's Board of Governors (elected
                     to serve from October 3, 2003 through
                     September 30, 2006). Formerly, Chief
                     Operating Officer (September 2000-June
                     2001) of the Manager; President and
                     trustee (November 1999-November 2001)
                     of MML Series Investment Fund and
                     MassMutual Select Funds (open-end
                     investment companies); a director
                     (September 1999-August 2000) of C.M.
                     Life Insurance Company; President,
                     Chief Executive Officer and director
                     (September 1999-August 2000) of MML Bay
                     State Life Insurance Company; a
                     director (June 1989-June 1998) of
                     Emerald Isle Bancorp and Hibernia
                     Savings Bank (a wholly-owned subsidiary
                     of Emerald Isle Bancorp). Oversees 62
                     portfolios as Trustee/Director and 20
                     additional portfolios as Officer in the
                     OppenheimerFunds complex.

- -------------------------------------------------------------------------------------


      The address of the officers in the chart below is as follows: for
Messrs. Bhaman, Ferreira, Gillespie, Gord, Kourkoulakos, Leavy, Manioudakis,
Miao, Monoyios, Moon, O'Hare, Reinganum, Steinmetz, Wilby, Zack and
Zavanelli, and Mss. Bloomberg and Putnam, Two World Financial Center, 225
Liberty Street, New York, NY 10281-1008, for Messrs. Vandehey, Petersen,
Vottiero, Weiss and Wixted and Mss. Ives and Wolf, 6803 S. Tucson Way,
Centennial, CO 80112-3924. Each Officer serves for an annual term or until
his or her earlier resignation, death or removal.


- -------------------------------------------------------------------------------------

                               Officers of the Trust

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Name,                      Principal Occupation(s) During Past 5 Years
Position(s) Held with
Trust
Length of Service,
Age

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Rajeev Bhaman,             Vice President of the Manager since January 1997; an
Vice President and         officer of 2 portfolios in the OppenheimerFunds complex;
Portfolio Manager since    formerly Assistant Vice President of the Manager (March
2004                       1996 - January 1997).
Age: 41

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Antulio Bomfim,            Vice President of the Manager since 2003. Formerly,
Vice President and         Senior Economist with the Board of Governors of the
Portfolio Manager since    Federal Reserve System since 1992.
2003
Age: 37

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Geoffrey Caan,             Vice President of the Manager since August 2003.
Vice President and         Formerly Vice President of ABN AMRO NA, Inc. (June 2002
Portfolio Manager since    - August 2003); Vice President of Zurich Scudder
2003                       Investments (January 1999 - June 2002).
Age: 35

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Emmanuel Ferreira,         Vice President of the Manager since January 2003. An
Vice President and         officer of 5 portfolios in the OppenheimerFunds complex.
Portfolio Manager since    Formerly, Portfolio Manager at Lashire Investments (July
2003                       1999-December 2002).
Age: 37

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Benjamin J. Gord,          Vice President of the Manager (since April 2002), of
Vice President and         HarbourView Asset Management Corporation (since April
Portfolio Manager since    2002) and of OFI Institutional Asset Management, Inc.
2003                       (as of June 2002); an officer of 1 portfolio in the
Age: 42                    OppenheimerFunds complex. Formerly an executive director
                           and senior fixed income analyst at Miller Anderson &
                           Sherrerd, a division of Morgan Stanley Investment
                           Management (April 1992-March 2002).

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Dimitrios Kourkoulakos,    Vice President of the Manager since December 2001; an
Vice President and         officer of 3 portfolios in the OppenheimerFunds complex;
Portfolio Manager since    formerly a High Yield Analyst (1998 - 2001) and a
2002                       Securities Analyst (1995 - 1998) of the Manager.
Age: 38

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Christopher Leavy,         Senior Vice President of the Manager since September
Vice President and         2000; an officer of 8 portfolios in the OppenheimerFunds
Portfolio Manager since    complex. Formerly a portfolio manager of Morgan Stanley
2002                       Dean Witter Investment Management (1997 - September
Age: 34                    2000).

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Angelo Manioudakis,        Senior Vice President of the Manager (since April 2002),
Vice President and         of HarbourView Asset Management Corporation (since
Portfolio Manager since    April, 2002 and of OFI Institutional Asset Management,
2002                       Inc. (since June 2002); an officer of 16 portfolios in
Age: 38                    the OppenheimerFunds complex. Formerly Executive
                           Director and portfolio manager for Miller, Anderson &
                           Sherrerd, a division of Morgan Stanley Investment
                           Management (August 1993-April 2002).

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Nikolaos D. Monoyios,      Senior Vice President of the Manager since October 2003;
Vice President and         a Certified Financial Analyst. Formerly Vice President
Portfolio Manager since    of the Manager (April 1998-September 2003). An officer
1999                       of 6 portfolios in the OppenheimerFunds complex.
Age: 55

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Charles Moon,              Vice President of the Manager (since April 2002, of
Vice President and         HarbourView Asset Management Corporation (since April
Portfolio Manager since    2002) and of OFI Institutional Asset Management, Inc.
2003                       (since June 2002); an officer of 1 portfolio in the
Age: 38                    OppenheimerFunds complex. Formerly executive director
                           and portfolio manager at Miller Anderson & Sherrerd, a
                           division of Morgan Stanley Investment Management (June
                           1999-March 2002); Vice President of Citicorp Securities
                           Inc. (June 1993-May 1999).

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

John O'Hare,               Vice President of the Manager since September 2003; an
Vice President and         officer of 2 portfolios in the OppenheimerFunds complex.
Portfolio Manager since    Formerly Executive Vice President and Portfolio Manager
2003                       (June 2000 - August 2003) and Portfolio Manager and
Age: 46                    Senior Vice President (August 1997 - June 2000) at
                           Geneva Capital Management, Ltd. (an investment advisor).
                           Mr. O'Hare holds a BBA in Finance and Economics from the
                           University of Wisconsin and is a Chartered Financial
                           Analyst.

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Jane Putnam,               Vice President of the Manager since October 1995; an
Vice President and         officer of 2 portfolios in the OppenheimerFunds complex.
Portfolio Manager since
1994
Age: 44

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Dr. Marc Reinganum, Vice   Vice President of the Manager since September 2002; a
President and Portfolio    Director of Quantitative Research and Portfolio
Manager since 2003         Strategist for Equities; an officer of 3 portfolios in
Age: 51                    the OppenheimerFunds complex. Formerly the Mary Jo
                           Vaughn Rauscher Chair in Financial Investments at
                           Southern Methodist University since 1995. At Southern
                           Methodist University he also served as the Director of
                           the Finance Institute, Chairman of the Finance
                           Department, President of the Faculty at the Cox School
                           of Business and member of the Board of Trustee
                           Investment Committee.

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Arthur P. Steinmetz,       Senior Vice President of the Manager (since March 1993)
Vice President and         and of HarbourView Asset Management Corporation (since
Portfolio Manager since    March 2000); an officer of 4 portfolios in the
1993                       OppenheimerFunds complex.
Age: 46

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Barry D. Weiss,            Vice President of OppenheimerFunds, Inc. (since July
Vice President and         2001) and of HarbourView Asset Management Corporation
Portfolio Manager since    (since June 2003); an officer of 6 portfolios in the
2001                       OppenheimerFunds complex. Formerly Assistant Vice
Age: 40                    President and Senior Credit Analyst of the Manager
                           (February 2000-June 2001). Prior to joining the Manager
                           in February 2000, he was Associate Director, Structured
                           Finance, Fitch IBCA Inc. (April 1998 - February 2000).

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

William L. Wilby,          Senior Vice President (since July 1994) and Senior
Vice President and         Investment Officer, Director of Equities (since July
Portfolio Manager since    2004) of the Manager. Formerly, Senior Investment
1995                       Officer, Director of International Equities of the
Age: 60                    Manager (May 2000-July 2004) and Senior Vice President
                           of HarbourView Asset Management Corporation (May
                           1999-November 2001). An officer of 2 portfolios in the
                           OppenheimerFunds complex.

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Carol E. Wolf,             Senior Vice President of OppenheimerFunds, Inc. (since
Vice President and         June 2000) and of HarbourView Asset Management
Portfolio Manager since    Corporation (since 6/39/03); an officer of 6 portfolios
1998                       in the OppenheimerFunds complex. Formerly Vice President
Age: 53                    of OppenheimerFunds, Inc. (June 1990 - June 2000).

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Mark Zavanelli,            Vice President of the Manager since November 2000; a
Vice President and         Chartered Financial Analyst; an officer of 3 portfolios
Portfolio Manager since    in the OppenheimerFunds complex. Prior to joining the
2001                       Manager in May 1998 he was President of Waterside
Age: 34                    Capital Management, a registered investment advisor
                           (August 1995 - April 1998).

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Mark S. Vandehey,          Senior Vice President and Chief Compliance Officer
Vice President and Chief   (since March 2004) of the Manager; Vice President (since
Compliance Officer since   June 1983) of OppenheimerFunds Distributor, Inc.,
2004                       Centennial Asset Management Corporation and Shareholder
Age: 54                    Services, Inc. Formerly (until February 2004) Vice
                           President and Director of Internal Audit of the Manager.
                           An officer of 82 portfolios in the Oppenheimer funds
                           complex.

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Brian W. Wixted,           Senior Vice President and Treasurer (since March 1999)
Treasurer since 1999       of the Manager; Treasurer of HarbourView Asset
Age: 45                    Management Corporation, Shareholder Financial Services,
                           Inc., Shareholder Services, Inc., Oppenheimer Real Asset
                           Management Corporation, and Oppenheimer Partnership
                           Holdings, Inc. (since March 1999), of OFI Private
                           Investments, Inc. (since March 2000), of
                           OppenheimerFunds International Ltd. and OppenheimerFunds
                           plc (since May 2000), of OFI Institutional Asset
                           Management, Inc. (since November 2000), and of
                           OppenheimerFunds Legacy Program (a Colorado non-profit
                           corporation) (since June 2003); Treasurer and Chief
                           Financial Officer (since May 2000) of OFI Trust Company
                           (a trust company subsidiary of the Manager); Assistant
                           Treasurer (since March 1999) of Oppenheimer Acquisition
                           Corp. Formerly Assistant Treasurer of Centennial Asset
                           Management Corporation (March 1999-October 2003) and
                           OppenheimerFunds Legacy Program (April 2000-June 2003);
                           Principal and Chief Operating Officer (March 1995-March
                           1999) at Bankers Trust Company-Mutual Fund Services
                           Division. An officer of 82 portfolios in the
                           OppenheimerFunds complex.

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Brian Petersen,            Assistant Vice President of the Manager since August
Assistant Treasurer since  2002; formerly Manager/Financial Product Accounting
2004                       (November 1998-July 2002) of the Manager. An officer of
Age: 34                    82 portfolios in the OppenheimerFunds complex.

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Philip Vottiero,           Vice President/Fund Accounting of the Manager since
Assistant Treasurer since  March 2002. Formerly Vice President/Corporate Accounting
2002                       of the Manager (July 1999-March 2002) prior to which he
Age: 41                    was Chief Financial Officer at Sovlink Corporation
                           (April 1996-June 1999). An officer of 82 portfolios in
                           the OppenheimerFunds complex.

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Robert G. Zack,            Executive Vice President (since January 2004) and
Vice President &           General Counsel (since February 2002) of the Manager;
Secretary                  General Counsel and a director (since November 2001) of
since 2001                 the Distributor; General Counsel (since November 2001)
Age: 56                    of Centennial Asset Management Corporation; Senior Vice
                           President and General Counsel (since November 2001) of
                           HarbourView Asset Management Corporation; Secretary and
                           General Counsel (since November 2001) of Oppenheimer
                           Acquisition Corp.; Assistant Secretary and a director
                           (since October 1997) of OppenheimerFunds International
                           Ltd. and OppenheimerFunds plc; Vice President and a
                           director (since November 2001) of Oppenheimer
                           Partnership Holdings, Inc.; a director (since November
                           2001) of Oppenheimer Real Asset Management, Inc.; Senior
                           Vice President, General Counsel and a director (since
                           November 2001) of Shareholder Financial Services, Inc.,
                           Shareholder Services, Inc., OFI Private Investments,
                           Inc. and OFI Trust Company; Vice President (since
                           November 2001) of OppenheimerFunds Legacy Program;
                           Senior Vice President and General Counsel (since
                           November 2001) of OFI Institutional Asset Management,
                           Inc.; a director (since June 2003) of OppenheimerFunds
                           (Asia) Limited. Formerly Senior Vice President (May
                           1985-December 2003), Acting General Counsel (November
                           2001-February 2002) and Associate General Counsel (May
                           1981-October 2001) of the Manager; Assistant Secretary
                           of Shareholder Services, Inc. (May 1985-November 2001),
                           Shareholder Financial Services, Inc. (November
                           1989-November 2001); and OppenheimerFunds International
                           Ltd. (October 1997-November 2001). An officer of 82
                           portfolios in the OppenheimerFunds complex.

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Kathleen T. Ives,          Vice President (since June 1998) and Senior Counsel and
Assistant Secretary since  Assistant Secretary (since October 2003) of the Manager;
2001                       Vice President (since 1999) and Assistant Secretary
Age: 39                    (since October 2003) of the Distributor; Assistant
                           Secretary (since October 2003) of Centennial Asset
                           Management Corporation; Vice President and Assistant
                           Secretary (since 1999) of Shareholder Services, Inc.;
                           Assistant Secretary (since December 2001) of
                           OppenheimerFunds Legacy Program and of Shareholder
                           Financial Services, Inc.. Formerly an Assistant Counsel
                           (August 1994-October 2003) and Assistant Vice President
                           of the Manager (August 1997-June 1998). An officer of 82
                           portfolios in the OppenheimerFunds complex.

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Lisa I. Bloomberg,         Vice President and Associate Counsel of the Manager
Assistant Secretary since  since May 2004; formerly First Vice President and
2004                       Associate General Counsel of UBS Financial Services Inc.
Age: 37                    (formerly, PaineWebber Incorporated) (May 1999 - April
                           2004) prior to which she was an Associate at Skadden,
                           Arps, Slate, Meagher & Flom, LLP (September 1996 - April
                           1999). An officer of 82 portfolios in the
                           OppenheimerFunds complex.

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Phillip S. Gillespie,      Senior Vice President and Deputy General Counsel of the
Assistant Secretary since  Manager since September 2004. Formerly Mr. Gillespie
2004                       held the following positions at Merrill Lynch Investment
Age: 41                    Management: First Vice President (2001-September 2004);
                           Director (from 2000) and Vice President (1998-2000). An
                           officer of 82 portfolios in the OppenheimerFunds complex.

- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------

Wayne Miao,                Assistant Vice President and Assistant Counsel of the
Assistant Secretary since  Manager since June 2004. Formerly an Associate with
2004                       Sidley Austin Brown & Wood LLP (September 1999 - May
Age: 32                    2004). An officer of 82 portfolios in the
                           OppenheimerFunds complex.

- -------------------------------------------------------------------------------------


|X|   Remuneration of Trustees. The officers of the Funds and Mr. Murphy (who
is an officer and Trustee of the Funds) are affiliated with the Manager and
receive no salary or fee from the Funds. The Independent Trustees of the
Trust received the compensation shown below with respect to
the Funds' fiscal year ended December 31, 2004. The compensation from the
Trust and the total compensation from the Trust and fund complex represent
compensation received for serving as a director or trustee and member of a
committee (if applicable) of the boards of those funds during the calendar
year ended December 31, 2004.




- -------------------------------------------------------------------------------

Trustee Name and Other              Aggregate         Total Compensation
Position(s) with the Trust          Compensation      From Trust and Fund
                                    from              Complex Paid to
Position(s) (as applicable)         Trust 1           Trustees*

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

William L. Armstrong                      $35,842               $178,000
Chairman of the Board and
Governance Committee Member

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Robert G. Avis                            $23,861               $118,500
Review Committee Member

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

George C. Bowen                           $23,861               $118,500
Audit Committee Member

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Edward L. Cameron                         $27,385               $136,000
Audit Committee Chairman

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Jon S. Fossel                             $27,385               $136,000
Review Committee Chairman

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Sam Freedman                              $23,861               $118,500
Review Committee Member

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Beverly Hamilton 2
Review Committee Member and              $23,3583              $152,3554
Governance Committee Member

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Robert J. Malone 2
Governance Committee Chairman and        $24,5103               $121,726
Audit Committee Member

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

F. William Marshall, Jr.
Audit Committee Member and                $23,861              $167,5005
Governance Committee Member

- -------------------------------------------------------------------------------

               1.  Aggregate  Compensation  from Fund includes fees and deferred
               compensation, if any, for a Trustee.

               2.  Compensation for Mrs. Hamilton and Mr. Malone was paid by all
               the Board II Funds,  with the  exception  of  Oppenheimer  Senior
               Floating  Rate  Fund for  which  they  currently  do not serve as
               Trustees (a total of 37 Oppenheimer  funds at December 31, 2004).
               Mrs.  Hamilton  and Mr.  Malone  elected  to defer  100% of their
               compensation under the Deferred Compensation Plan.

               3. Includes $2,305 deferred for Mrs.  Hamilton and $2,418 for Mr.
               Malone under the Deferred Compensation Plan.

               4. Includes $36,354  compensation for serving as a trustee by two
               open-end investment companies  (MassMutual Select Funds (formerly
               MassMutual  Institutional  Funds) and MML Series Investment Fund)
               the investment  adviser for which is the indirect  parent company
               of the Fund's Manager. The Manager also serves as the Sub-Advisor
               to the MassMutual Premier  International  Equity Fund, formerly a
               series of MassMutual  Select Funds.  Mrs.  Hamilton  retired as a
               Trustee of MassMutual Select Funds and MML Series Investment Fund
               in May 2004.

               5. Includes $49,000  compensation for serving as a trustee by two
               open-end investment companies  (MassMutual Select Funds (formerly
               MassMutual  Institutional  Funds) and MML Series Investment Fund)
               the investment  adviser for which is the indirect  parent company
               of the Fund's Manager. The Manager also serves as the Sub-Advisor
               to the MassMutual Premier  International  Equity Fund, formerly a
               series of MassMutual Select Funds.

*For purposes of this section only, "Fund Complex" includes the Oppenheimer
funds, MassMutual Premier Funds and MML Series Investment Fund in accordance
with the instructions for Form N-1A. The Manager does not consider MassMutual
Select Funds and MML Series Investment Fund to be part of the
OppenheimerFunds "Fund Complex" as that term may be otherwise interpreted.

      |X|   Deferred Compensation Plan For Trustees. The Board of Trustees
has adopted a Deferred Compensation Plan for Independent Trustees that
enables them to elect to defer receipt of all or a portion of the annual fees
they are entitled to receive from the Funds. Under the plan, the compensation
deferred by a Trustee is periodically adjusted as though an equivalent amount
had been invested in shares of one or more Oppenheimer funds selected by the
Trustee. The amount paid to the Trustee under the plan will be determined
based upon the performance of the selected funds.

Deferral of Trustee's fees under the plan will not materially affect the
Funds' assets, liabilities and net income per share. The plan will not
obligate the Funds to retain the services of any Trustee or to pay any
particular level of compensation to any Trustee. Pursuant to an Order issued
by the SEC, the Funds may invest in the funds selected by the Trustee under
the plan without shareholder approval for the limited purpose of determining
the value of the Trustee's deferred fee account.

|X|   Major Shareholders. As of March 31, 2005, the only entities owning of
record or known by the management of the Trust to be beneficial of record
owners of 5% or more of the outstanding shares of any Fund were the Manager
and the following insurance companies and their respective affiliates, such
shares were held as shown in Appendix D:

(i)   Allianz Life Insurance Company of North America ("Allianz"),
      Minneapolis, MN;
(ii)  Allmerica Financial Life Insurance and Annuity Company ("Allmerica"),
      Worcester, MA;
(iii) Allstate Financial Advisors ("Allstate Financial"), Lincoln, NE;
(iv)  Allstate Life Insurance Company of New York ("Allstate NY"), Vernon
      Hills, IL;
(v)   Allstate Life Insurance Company ("Allstate"), Vernon Hills, IL;
(vi)  American Enterprise Life Insurance Company ("American Enterprise"),
      Minneapolis, MN;
(vii) American General Annuity Insurance Company ("American General"),
      Houston, TX;
(viii)Cuna Mutual Life Insurance Company ("CUNA"), Waverly, IA;
(ix)  First Security Benefit Life Insurance and Annuity Company of New York
      ("Security Benefit"), White Plains, NY;
(x)   GE Life and Annuity Assurance Company ("GE"), Richmond, VA;
(xi)  IDS Life Insurance Company ("IDS Life"), Minneapolis, MN;
(xii) ING Life Insurance and Annuity Company ("ING"), Hartford, CT;
(xiii) Kemper Investors Life Insurance Company ("Kemper"), Schaumburg,
      IL;
(xiv) Lincoln Benefit Life Company ("Lincoln"), Lincoln, NE;
(xv)  Mass Mutual Life Insurance Company ("MassMutual"), Springfield, MA;
(xvi) Merrill Lynch, Pierce, Fenner, & Smith, Inc. ("Merrill Lynch"),
      Jacksonville, FL;
(xvii) Minnesota Life Insurance Company ("Minnesota"), St. Paul, MN;
(xviii)Mony Life Insurance Company of America ("Mony"), New York, NY;
(xix) Nationwide Life Insurance Company ("Nationwide"), Columbus, OH;
(xx)  Protective Life Insurance Company ("Protective"), Birmingham, AL;
(xxi) Sage Life Assurance of America ("Sage"), Wethersfield, CT;
(xxii)Sun Life Assurance Company of Canada (U.S.) ("Sun Life"),
      Wellesley Hills, MA; and
(xxiii)The Travelers Insurance Company ("Travelers"), Hartford, CT. Such
      shares were held as shown in Appendix D.

The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company, a
global, diversified insurance and financial services organization.

      |X|   Code of Ethics. The Funds (except Money Fund/VA), the Manager and
the Distributor have a Code of Ethics. It is designed to detect and prevent
improper personal trading by certain employees, including portfolio managers
that would compete with or take advantage of the Funds' portfolio
transactions. Covered persons include persons with knowledge of the
investments and investment intentions of the Funds and other funds advised by
the Manager. The Code of Ethics does permit personnel subject to the Code to
invest in securities, including securities that may be purchased or held by
the Funds, subject to a number of restrictions and controls. Compliance with
the Code of Ethics is carefully monitored and enforced by the Manager.

      The Code of Ethics is an exhibit to the Funds' registration statement
filed with the SEC and can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. You can obtain information about the hours
of operation of the Public Reference Room by calling the SEC at
1.202.942.8090. The Code of Ethics can also be viewed as part of the Funds'
registration statement on the SEC's EDGAR database at the SEC's Internet
website at www.sec.gov. Copies may be obtained, after paying a duplicating
fee, by electronic request at the following E-mail address:
publicinfo@sec.gov or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.

|X|   Portfolio Proxy Voting. The Funds (except Money Fund/VA) have adopted
Portfolio Proxy Voting Policies and Procedures under which the Funds votes
proxies relating to securities ("portfolio proxies") held by the Funds. The
Funds' primary consideration in voting portfolio proxies are the financial
interests of the Funds and their shareholders. The Funds have retained an
unaffiliated third-party as its agent to vote portfolio proxies in accordance
with the Funds' Portfolio Proxy Voting Guidelines and to maintain records of
such portfolio proxy voting. The Proxy Voting Guidelines include provisions
to address conflicts of interest that may arise between the Funds and the
Manager where a directly-controlled affiliate of the Manager manages or
administers the assets of a pension plan of a company soliciting the proxy.
The Funds' Portfolio Proxy Voting Guidelines on routine and non-routine proxy
proposals are summarized below.

               o  The  Funds  vote  with  the  recommendation  of  the  issuer's
               management on routine  matters,  including  election of directors
               nominated by  management  and  ratification  of auditors,  unless
               circumstances indicate otherwise.

               o In  general,  the  Funds  oppose  anti-takeover  proposals  and
               supports elimination of anti-takeover  proposals,  absent unusual
               circumstances.

               o  The  Funds   support   shareholder   proposals   to  reduce  a
               super-majority vote requirement, and opposes management proposals
               to add a super-majority vote requirement.

               o The Funds oppose proposals to classify the board of directors.

               o The Funds support proposals to eliminate cumulative voting.

               o The Funds oppose re-pricing of stock options.

               o The Funds generally consider executive  compensation  questions
               such as  stock  option  plans  and  bonus  plans  to be  ordinary
               business activity.  The Funds analyze stock option plans,  paying
               particular  attention to their dilutive  effect.  While the Funds
               generally support management proposals, the Fund opposes plans it
               considers to be excessive.

      The Funds are required to file new Form N-PX, with its complete proxy
voting record for the 12 months ended June 30th, no later than August 31st of
each year. The Funds' Form N-PX filing will be available (i) without charge,
upon request, by calling the Funds toll-free at 1.800.225.5677 and (ii) on
the SEC's website at www.sec.gov.

|X|   The Investment Advisory Agreements.  The Manager provides investment
advisory and management services to each Fund under an investment advisory
agreement between the Manager and the Trust for each Fund. The Manager
selects securities for the Funds' portfolios and handles their day-to-day
business. The portfolio managers of the Funds are employed by the Manager and
are the persons who are principally responsible for the day-to-day management
of the Funds' portfolios. Other members of the Manager's Teams provide the
portfolio managers with counsel and support in managing the Funds'
portfolios. Similarly, other members of the Manager's Fixed Income Portfolio
Department, particularly portfolio analysts, traders and other portfolio
managers having broad experience with domestic and international government
and fixed-income securities, provide the portfolio managers of the High
Income Fund/VA, Core Bond Fund/VA and Strategic Bond Fund/VA with support in
managing the portfolios of those Funds.

      The agreements require the Manager, at its expense, to provide the
Funds with adequate office space, facilities and equipment. It also requires
the Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the
Funds. Those responsibilities include the compilation and maintenance of
records with respect to operations, the preparation and filing of specified
reports, and composition of proxy materials and registration statements for
continuous public sale of shares of the Funds.

    The Funds pay expenses not expressly assumed by the Manager under the
advisory agreements, or by the Distributor under the General Distributor's
Agreements for Service shares. The advisory agreement lists examples of
expenses paid by the Funds. The major categories relate to interest, taxes,
brokerage commissions, fees to certain Trustees, legal and audit expenses,
custodian and transfer agent expenses, share issuance costs, certain printing
and registration costs and non-recurring expenses, including litigation
costs. The management fees paid by the Funds to the Manager are calculated at
the rates described in the Prospectus, which are applied to the assets of
each of the Funds as a whole. Prior to May 1, 1999, the advisory agreement
for Aggressive Growth Fund/VA did not include a breakpoint above $800
million. Whenever more than one class of shares is issued, the fees are
allocated to each class of shares based upon the relative proportion of a
Fund's net assets represented by that class.

    The Agreements contain no expense limitation. However, from January 1,
2002 to December 17, 2002, the Manager had undertaken to voluntarily reduce
the management fee of Strategic Bond Fund/VA, if the relative performance of
that Fund was at or below the following criteria. If the trailing 12-month
performance of Strategic Bond Fund/VA at the end of any calendar quarter were
ranked by Lipper, Inc. ("Lipper") in the fifth quintile of the Lipper peer
group for that Fund (funds dedicated to variable insurance products in
Lipper's general bond funds category), the Manager had undertaken to reduce
the management fee for that Fund by 0.10% for the following fiscal quarter
and for each quarter thereafter until its performance improved, and if ranked
in the fourth quintile of that peer group, the Manager had undertaken to
reduce the management fee by 0.05% for the following fiscal quarter and for
each quarter thereafter until its performance improved.



- ------------------------------------------------------------------------------

            Management Fees for the Fiscal Year Ended December 31

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Fund                             2002             2003             2004

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Aggressive Growth Fund/VA     $8,292,465       $7,110,272       $7,692,943

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Balanced Fund/VA              $3,758,161       $3,526,680       $4,101,747

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Capital Appreciation          $10,670,415      $9,930,998       $12,193,670
Fund/VA

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Core Bond Fund/VA             $4,896,856       $4,954,407       $4,013,043

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Global Securities Fund/VA     $11,712,612      $12,206,333      $18,297,753

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

High Income Fund/VA           $2,518,441       $3,196,862       $4,058,869

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Main Street Fund(R)/VA          $7,045,796       $7,442,344       $9,708,725

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Main Street Small Cap          $170,358         $338,340        $1,070,988
Fund(R)/VA

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Money Fund/VA                 $1,738,866       $1,424,167        $982,603

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Strategic Bond Fund/VA        $2,771,6432      $3,673,166       $5,203,309

- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

Value Fund/VA                    N/A1            $23,894          $25,294

- ------------------------------------------------------------------------------

1.    Shares of Value Fund/VA were not offered for sale during the periods
      shown.
2.    The Manager voluntarily reimbursed $ 44,031 in management fees under
      the expense limitation described above. Management fees are shown in the
      table before reimbursement.

      The investment advisory agreements state that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment
advisory agreement, the Manager is not liable for any loss sustained by the
Funds resulting from a good faith error or omission on its part with respect
to any of its duties under the agreement with regard to an investment, the
adoption of any investment policy, or the purchase, sale or retention of any
security.

      The agreements permit the Manager to act as investment advisor for any
other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
advisor or general distributor. If the Manager shall no longer act as
investment advisor to a Fund, the Manager may withdraw the right of that Fund
to use the name "Oppenheimer" as part of its name.

|X|   Annual Approval of Investment Advisory Agreements. Each year, the Board
of Trustees, including a majority of the Independent Trustees, is required to
approve the renewal of the investment advisory agreement for each Fund. The
Investment Company Act requires that the Board request and evaluate and the
Manager provide such information as may be reasonably necessary to evaluate
the terms of the investment advisory agreement. The Board employs an
independent consultant to prepare a report that provides such information as
the Board requests for this purpose.

      The Board also receives information about the 12b-1 distribution fees
the Funds pay with respect to Service shares. These distribution fees are
reviewed and approved at a different time of the year.

      The Board reviewed the foregoing information in arriving at its
decision to renew the investment advisory agreement. Among other factors, the
Board considered:

o     The nature, cost, and quality of the services provided to the Funds and
      their shareholders;

o     The profitability of the Funds to the Manager;

o     The investment performance of the Funds in comparison to regular market
      indices

o     Economies of scale that may be available to the Funds from the Manager;

o     Fees paid by other mutual funds for similar services;

o     The value and quality of any other benefits or services received by the
      Funds from their relationship with the Manager, and

o     The direct and indirect benefits the Manager received from its
      relationship with the Funds. These included services provided by
      the Distributor and the Transfer Agent, and brokerage and soft
      dollar arrangements permissible under Section 28(e) of the
      Securities Exchange Act.

      The Board considered that the Manager must be able to pay and retain
high quality personnel at competitive rates to provide services to the Funds.
The Board also considered that maintaining the financial viability of the
Manager is important so that the Manager will be able to continue to provide
quality services to the Funds and their shareholders in adverse times. The
Board also considered the investment performance of other mutual funds
advised by the Manager. The Board is aware that there are alternatives to the
use of the Manager.

      These matters were also considered by the Independent Trustees, meeting
separately from the full Board with experienced counsel to the Funds and
experienced counsel to the Independent Trustees who assisted the Board in its
deliberations. The Funds' counsel and the Independent Trustees' counsel is
independent of the Manager within the meaning and intent of the SEC Rules
regarding the independence of counsel.

      After careful deliberation, the Board, including the Independent
Trustees concluded that it was in the best interest of shareholders to
continue the investment advisory agreement for another year. In arriving at a
decision, the Board did not single out any one factor or group of factors as
being more important than other factors, but considered all factors together.
The Board judged the terms and conditions of the investment advisory
agreement, including the investment advisory fee, in light of all of the
surrounding circumstances.

Portfolio Managers. Each Fund's portfolio is managed by the following:

Fund Name                  Portfolio Manager(s)

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Aggressive Growth Fund/VA  John O'Hare

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Balanced Fund/VA           Emmanuel Ferreira, Christopher Leavy, Angelo
                           Manioudakis, Antulio Bomfim, Geoffrey Caan,
                           Benjamin J. Gord and Charles Moon

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Capital Appreciation       Jane Putnam
Fund/VA

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Core Bond Fund/VA          Angelo Manioudakis, Antulio Bomfim, Geoffrey Caan,
                           Benjamin J. Gord and Charles Moon

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Global Securities Fund/VA  William L. Wilby and Rajeev Bhaman

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

High Income Fund/VA        Dimitrios Kourkoulakos

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Main Street Fund(R)/VA       Nikolaos D. Monoyios and Marc Reinganum

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Main Street Small Cap      Nikolaos D. Monoyios and Mark Zavanelli
Fund(R)/VA

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Money Fund/VA              Barry D. Weiss and Carol E. Wolf

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Strategic Bond Fund/VA     Arthur P. Steinmetz

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Value Fund/VA              Christopher Leavy

- -------------------------------------------------------------------------------


      Each of the above individuals is referred to as "Portfolio Manager" and
collectively they are referred to as the "Portfolio Managers". They are the
persons who are responsible for the day-to-day management of each Fund's
respective investments.

|X|   Other Accounts Managed. In addition to managing the Fund's investment
portfolio, Messrs. O'Hare, Ferreira, Leavy, Manioudakis, Bomfim, Caan, Gord,
Moon, Wilby, Bhaman, Kourkoulakos, Monoyios, Reinganum, Zavanelli, Weiss and
Steinmetz and Mses. Putnam and Wolf or each Portfolio Manager also manages
other investment portfolios and other accounts, all of them on behalf of the
Manager or its affiliates. The following table provides information regarding
those portfolios and accounts as of December 31, 2004, regarding the other
portfolios and accounts managed by a Portfolio Manager. Except for on
registered investment company managed by Messrs. Wilby and Bhaman no
portfolio or account has a performance-base advisory fee:

                                                Total Assets    Other       Total Assets               Total
                                Registered     in Registered    Pooled      in Other Pooled            Assets in
                                Investment      Investment     Investment   Investment       Other     Other
Fund Name and                   Companies      Companies        Vehicles    Vehicles         Accounts  Accounts
Portfolio Managers              Managed        Managed         Managed      Managed*         Managed   Managed*



- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Aggressive Growth Fund/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

John O'Hare                   2                $2,315.1        None            $0          None         $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Balanced Fund/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Emmanuel Ferreira             4                $3,345          None            $0          None         $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Christopher Leavy            14                $7,195.1         1             $18.8        None         $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Angelo Manioudakis           16                $8,911.4         5            $152.9        1           $38.8

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Antulio Bomfim               16                $8,911.4         5            $152.9       1            $38.8

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Geoffrey Caan                16                $8,911.4         5           $152.9       1             $38.8

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Benjamin J. Gord             16                $8,911.4         5           $152.9       1              $38.8

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Charles Moon                 16                $8,911.4         5           $152.9       1              $38.8

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Capital Appreciation
Fund/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Jane Putnam                   6             $13,591,300**      1            $8,307**    None             $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Core Bond Fund/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Angelo Manioudakis           16             $8,911.4          5             $152.9       1             $38.8

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Antulio Bomfim               16             $8,911.4          5             $152.9       1              $38.8

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Geoffrey Caan                16             $8,911.4          5             $152.9       1              $38.8

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Benjamin J. Gord             16      $8,911.4                 5             $152.9       1              $38.8

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Charles Moon                 16      $8,911.4                 5             $152.9       1              $38.8

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

High Income Fund/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Dimitrios Kourkoulakos        3      $4,065.7                None       $0                None           $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Main Street Fund(R)/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Nikolaos D. Monoyios         11      $2,415.7                 1       $16.2                None         $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Marc Reinganum                8      $2,358.6                None       $0                 None         $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Main Street Small Cap
Fund(R)/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Nikolaos D. Monoyios         11      $2,415.7                1       $16.2                    None     $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Mark Zavanelli                3      $3,925.7                None       $0                     None     $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Money Fund/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Barry D. Weiss                6     $25,072.9               None       $0                      None     $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Carol E. Wolf                 6     $25,072.9               None       $0                      None     $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Strategic Bond Fund/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Arthur P. Steinmetz           6     $10,131.2                 3       $48.8                     4    $1,140.9

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Value Fund/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Christopher Leavy            14      $7,195.1                 1       $18.8                    None     $0
*In millions.
**In thousands.



Fund Name and                    Registered Investment    Other Pooled
Portfolio Managers                    Companies      Investment Vehicles    Other Accounts

      Global Securities Fund/VA

      ------------------------------------------------------------------------

      William L. Wilby

      ------------------------------------------------------------------------
      ------------------------------------------------------------------------

      Accounts Managed                 15              1                        None

      ------------------------------------------------------------------------
      ------------------------------------------------------------------------

      Total Assets Managed*         $19,335.9        $19.6                      $0

      ------------------------------------------------------------------------
      ------------------------------------------------------------------------

      Accounts with                     1             None                     None
      Performance-Based
      Advisory Fees

      ------------------------------------------------------------------------
      ------------------------------------------------------------------------

      Total Assets in Accounts       $189.2            $0                      $0
      with Performance-Based
      Advisory Fees*

      ------------------------------------------------------------------------

      Rajeev Bhaman

      ------------------------------------------------------------------------

      Accounts Managed                 15              2                     None

      ------------------------------------------------------------------------

      Total Assets Managed*         $19,335.9        $71.1                   $0

      ------------------------------------------------------------------------

      Accounts with
      Performance-Based
      Advisory Fees                     1             None                  None

      ------------------------------------------------------------------------
      ------------------------------------------------------------------------

      Total Assets in Accounts       $189.2            $0                  $0
      with Performance-Based
      Advisory Fees*

      ------------------------------------------------------------------------

*In millions.

      As indicated above, each of the Portfolio Managers also manages other
funds and accounts. Potentially, at times, those responsibilities could
conflict with the interests of the Funds. That may occur whether the
investment strategies of the other funds or accounts are the same as, or
different from, the Funds' investment objectives and strategies. For example,
a Portfolio Manager may need to allocate investment opportunities between a
Fund and another fund or account having similar objectives or strategies, or
a Portfolio Manager may need to execute transactions for another fund or
account that could have a negative impact on the value of securities held by
a Fund. Not all funds and accounts advised by the Manager have the same
management fee. If the management fee structure of another fund or account is
more advantageous to the Manager than the fee structure of a Fund, the
Manager could have an incentive to favor the other fund or account. However,
the Manager's compliance procedures and Code of Ethics recognize the
Manager's fiduciary obligations to treat all of its clients, including the
Funds, fairly and equitably, and are designed to preclude the Portfolio
Managers from favoring one client over another. It is possible, of course,
that those compliance procedures and the Code of Ethics may not always be
adequate to do so. At various times, the Funds' Portfolio Managers may manage
other funds or accounts with investment objectives and strategies that are
similar to those of the Funds, or may manage funds or accounts with
investment objectives and strategies that are different from those of the
Funds.

|X|   Compensation of the Portfolio Managers. The Funds' Portfolio Managers
are employed and compensated by the Manager, not the Fund. Under the
Manager's compensation program for its portfolio managers and portfolio
analysts, their compensation is based primarily on the investment performance
results of the funds and accounts they manage, rather than on the financial
success of the Manager. This is intended to align the portfolio managers and
analysts' interests with the success of the funds and accounts and their
shareholders. The Manager's compensation structure is designed to attract and
retain highly qualified investment management professionals and to reward
individual and team contributions toward creating shareholder value. As of
December 31, 2004, each Portfolio Managers' compensation consisted of three
elements: a base salary, an annual discretionary bonus and eligibility to
participate in long-term awards of options and appreciation rights in regard
to the common stock of the Manager's holding company parent. Senior portfolio
managers may also be eligible to participate in the Manager's deferred
compensation plan.

      To help the Manager attract and retain talent, the base pay component
of each portfolio manager is reviewed regularly to ensure that it reflects
the performance of the individual, is commensurate with the requirements of
the particular portfolio, reflects any specific competence or specialty of
the individual manager, and is competitive with other comparable positions.
The annual discretionary bonus is determined by senior management of the
Manager and is based on a number of factors, including a fund's pre-tax
performance for periods of up to five years, measured against, an appropriate
Lipper benchmark selected by management. The Lipper benchmark with respect to
each Fund is as follows:

Fund Name                  Lipper Benchmark

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Aggressive Growth Fund/VA  Lipper Mid-Cap Growth Funds

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Balanced Fund/VA           Lipper Mixed Equity - Balanced Funds

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Capital Appreciation       Lipper U.S. Diversified Equity - Large-Cap Core
Fund/VA                    Funds

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Core Bond Fund/VA          Lipper Short-Intermediate Corporate - Intermediate
                           Investment Grade Funds

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Global Securities Fund/VA  Lipper Global Multi-Cap Growth Funds

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

High Income Fund/VA        Lipper High Current Yield Funds

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Main Street Fund(R)/VA       Lipper U.S. Diversified Equity - Large-Cap Core
                           Funds

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Main Street Small Cap      Lipper U.S. Diversified Equity - Small-Cap Core
Fund(R)/VA                   Funds

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Money Fund/VA              Lipper Money Market Instrument Funds

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Strategic Bond Fund/VA     Lipper Multi-Sector Income Funds

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

Value Fund/VA              Lipper U.S. Diversified Equity - Large-Cap Value
                           Funds

- -------------------------------------------------------------------------------


      Other factors include management quality (such as style consistency,
risk management, sector coverage, team leadership and coaching) and
organizational development. The Portfolio Managers' compensation is not based
on the total value of the Fund's portfolio assets, although the Fund's
investment performance may increase those assets. The compensation structure
is also intended to be internally equitable and serve to reduce potential
conflicts of interest between the Fund and other funds and accounts managed
by the Portfolio Managers. Except for one portfolio managed by Messrs. Wilby
and Bhaman, the compensation structure of the other funds and accounts
managed by the Portfolio Managers is the same as the compensation structure
of the Fund, described above. A portion of the Portfolio Managers'
compensation with regard to that portfolio may, under certain circumstances,
include an amount based in part on the amount of the fund`s management fee.

|X|   Ownership of Fund Shares. As of December 31, 2004, the Portfolio
Managers did not beneficially own any shares of the Funds, which are sold
only through insurance companies to their contract owners.

Brokerage Policies of the Funds

Brokerage Provisions of the Investment Advisory Agreements. One of the duties
of the Manager under the investment advisory agreements is to arrange the
portfolio transactions for the Funds. The advisory agreements contain
provisions relating to the employment of broker-dealers to effect the Funds'
portfolio transactions. The Manager is authorized by the advisory agreements
to employ broker-dealers, including "affiliated" brokers, as that term is
defined in the Investment Company Act. The Manager may employ broker-dealers
that the Manager thinks, in its best judgment based on all relevant factors,
will implement the policy of the Funds to obtain, at reasonable expense, the
"best execution" of the Funds' portfolio transactions. "Best execution" means
prompt and reliable execution at the most favorable security price
obtainable. The Manager need not seek competitive commission bidding.
However, it is expected to be aware of the current rates of eligible brokers
and to minimize the commissions paid to the extent consistent with the
interests and policies of the Funds as established by its Board of Trustees.

      Under the investment advisory agreements, in choosing brokers to
execute portfolio transactions for the Funds, the Manager may select brokers
(other than affiliates) that provide brokerage and/or research services for
the Funds and/or the other accounts over which the Manager or its affiliates
have investment discretion. The commissions paid to those brokers may be
higher than another qualified broker would charge, if the Manager makes a
good faith determination that the commission is fair and reasonable in
relation to the services provided.

      Rule 12b-1 under the Investment Company Act prohibits any fund from
compensating a broker or dealer for promoting or selling the Funds' shares by
(1) directing to that broker or dealer any of the Funds' portfolio
transactions, or (2) directing any other remuneration to that broker or
dealer, such as commissions, mark-ups, mark downs or other fees from the
Funds' portfolio transactions, that were effected by another broker or dealer
(these latter arrangements are considered to be a type of "step-out"
transaction). In other words, a fund and its investment adviser cannot use
the Funds' brokerage for the purpose of rewarding broker-dealers for selling
the Funds' shares.


      However, the Rule permits funds to effect brokerage transactions
through firms that also sell fund shares, provided that certain procedures
are adopted to prevent a quid pro quo with respect to portfolio brokerage
allocations. As permitted by the Rule, the Manager has adopted procedures
(and the Funds' Board of Trustees has approved those procedures) that permit
the Funds to direct portfolio securities transactions to brokers or dealers
that also promote or sell shares of the Funds, subject to the "best
execution" considerations discussed above. Those procedures are designed to
prevent: (1) the Manager's personnel who effect the Funds' portfolio
transactions from taking into account a broker's or dealer's promotion or
sales of the Funds shares when allocating the Funds' portfolio transactions,
and (2) the Funds, the Manager and the Distributor from entering into
agreements or understandings under which the Manager directs or is expected
to direct the Funds' brokerage directly, or indirectly such as through a
"step-out" arrangement, to any broker or dealer in consideration of that
broker's or dealer's promotion or sale of the Funds' shares or the shares of
any of the other Oppenheimer funds.

Brokerage Practices Followed by the Manager. The Manager allocates brokerage
for the Funds subject to the provisions of the investment advisory agreements
and the procedures and rules described above. Generally, the Manager's
portfolio traders allocate brokerage based upon recommendations from the
Manager's portfolio managers. In certain instances, portfolio managers may
directly place trades and allocate brokerage. In either case, the Manager's
executive officers supervise the allocation of brokerage.

      Transactions in securities other than those for which an exchange is
the primary market are generally done with principals or market makers. In
transactions on foreign exchanges, the Funds may be required to pay fixed
brokerage commissions and therefore would not have the benefit of negotiated
commissions available in U.S. markets. Brokerage commissions are paid
primarily for transactions in listed securities or for certain fixed-income
agency transactions in the secondary market. Otherwise brokerage commissions
are paid only if it appears likely that a better price or execution can be
obtained by doing so. In an option transaction, the Funds ordinarily use the
same broker for the purchase or sale of the option and any transaction in the
securities to which the option relates.

      Other funds advised by the Manager have investment policies similar to
those of the Funds. Those other funds may purchase or sell the same
securities as the Funds at the same time as the Funds, which could affect the
supply and price of the securities. If two or more funds advised by the
Manager purchase the same security on the same day from the same dealer, the
transactions under those combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed for
each account.

      Most purchases of debt obligations are principal transactions at net
prices. This affects a substantial portion of the portfolio transactions of
Money Fund/VA, High Income Fund/VA, Core Bond Fund/VA and Strategic Bond
Fund/VA. Instead of using a broker for those transactions, the Funds normally
deal directly with the selling or purchasing principal or market maker unless
the Manager determines that a better price or execution can be obtained by
using the services of a broker. Purchases of portfolio securities from
underwriters include a commission or concession paid by the issuer to the
underwriter. Purchases from dealers include a spread between the bid and
asked prices. The Funds seek to obtain prompt execution of these orders at
the most favorable net price.

      The investment advisory agreements permit the Manager to allocate
brokerage for research services. The research services provided by a
particular broker may be useful only to one or more of the advisory accounts
of the Manager and its affiliates. The investment research received for the
commissions of those other accounts may be useful both to one of the Funds
and one or more of the Manager's other accounts. Investment research may be
supplied to the Manager by a third party at the instance of a broker through
which trades are placed.

      Investment research services include information and analysis on
particular companies and industries as well as market or economic trends and
portfolio strategy, market quotations for portfolio evaluations, information
systems, computer hardware and similar products and services. If a research
service also assists the Manager in a non-research capacity (such as
bookkeeping or other administrative functions), then only the percentage or
component that provides assistance to the Manager in the investment
decision-making process may be paid in commission dollars.

      The Board of Trustees permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker
represents to the Manager that: (i) the trade is not from or for the broker's
own inventory, (ii) the trade was executed by the broker on an agency basis
at the stated commission, and (iii) the trade is not a riskless principal
transaction. The Board of Trustees permits the Manager to use concessions on
fixed-price offerings to obtain research, in the same manner as is permitted
for agency transactions.

      The research services provided by brokers broaden the scope and
supplement the research activities of the Manager. That research provides
additional views and comparisons for consideration, and helps the Manager to
obtain market information for the valuation of securities that are either
held in the Funds' portfolio or are being considered for purchase. The
Manager provides information to the Board about the commissions paid to
brokers furnishing such services, together with the Manager's representation
that the amount of such commissions was reasonably related to the value or
benefit of such services.

      The (i) total brokerage commissions paid by the Funds (other than Money
Fund/VA, which paid no brokerage commissions), not including spreads or
concessions on principal transactions on a net trade basis, for the Funds'
fiscal years ended December 31, 2002, 2003 and 2004; and (ii) for the Funds'
fiscal year ended December 31, 2004, the amount of transactions directed to
brokers for research services, and the amount of the commissions paid to
broker-dealers for those services, is shown in the chart below:


- -----------------------------------------------------------------------------------

                                                         Commissions  Transactions
                           Total Brokerage Commissions       Paid       Directed
                                Paid by the Funds            For          For
                                                          Research 2    Research 2

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Fund                        2002       2003      2004        2004         2004

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Aggressive Growth Fund/VA $1,393,475 $3,477,965 $1,221,917  $110,197   $100,551,439

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Balanced Fund/VA          $478,215   $827,890  $469,058    $47,905    $28,943,354

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Capital Appreciation      $1,335,268 $2,183,642 $2,011,561  $166,712   $123,660,658
Fund/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Core Bond Fund/VA         $389,802   $84,234    $87,671       $0           $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Global Securities Fund/VA $2,699,449 $2,836,950 $2,189,386  $242,077   $113,353,949

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

High Income Fund/VA        $4,865     $2,592    $1,548        $0           $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Main Street Fund(R)/VA      $2,349,576 $1,722,472 $2,947,503  $128,377   $171,871,484

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Main Street Small Cap     $136,159   $214,694  $838,394    $17,346    $13,807,155
Fund(R)/VA

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Strategic Bond Fund/VA     $61,906   $63,992    $70,285       $0           $0

- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------

Value Fund/VA               N/A1     $17,817    $8,813       $787       $586,814

- -----------------------------------------------------------------------------------

1.    Shares of Value Fund/VA were not offered for sale during the period.
2.    The amount of  transactions  directed to brokers for  research  services
      and the amount of the  commissions  paid to brokers for those  services are
      shown in these columns.

Distribution and Service Plans (Service Shares and Class 4 Shares)

The Distributor. Under its General Distributor's Agreement with each Fund,
OppenheimerFunds Distributor, Inc. ("OFDI" or the "Distributor") will act as
the principal underwriter for the Funds' Service shares and Class 4 shares
only.

      Each Fund has adopted a Distribution and Service Plan under Rule 12b-1
of the Investment Company Act (a "Plan") for its Service shares and Class 4
shares, although as of December 31, 2004, only Global Securities Fund/VA
offered Class 4 shares. Each Fund that offers Service shares and/or Class 4
shares will make compensation payments to the Distributor in connection with
the distribution and/or servicing of those shares. The Distributor will pay
insurance company separate account sponsors and other entities that offer
and/or provide services to Service shares and Class 4 shares, as described in
the applicable Fund's Prospectus. Each Plan has been approved by a vote of
(i) the Board of Trustees of the Trust, including a majority of the
Independent Trustees, cast in person at a meeting called for the purpose of
voting on that Plan, and (ii) the Manager as the then-sole initial holder of
such shares.

      Under the Plans, the Funds currently use the fees it receives to pay
insurance company separate account sponsors or their affiliates (each is
referred to as a "Recipient") for personal services and account maintenance
services they provide for their customers who hold Service and Class 4
shares. The services include, among others, answering customer inquiries
about the Funds, assisting in establishing and maintaining accounts in the
Funds, and providing other services at the request of a Fund.

      Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net assets of a Fund's Service and Class 4 shares
held by the Recipient for itself and its customers did not exceed a minimum
amount, if any, that may be determined from time to time by a majority of the
Trust's Independent Trustees. The Plans provide for a fee of 0.25% of average
annual net assets (although the Board of Trustees had set the fee at 0.15% of
average net assets for all series prior to May 1, 2003). As of December 31,
2004, the Board had set no minimum asset amount. For the fiscal year ended
December 31, 2004, all payments made under the Service share Plan were paid
by the Distributor, to Recipients (including Recipients affiliated with the
Manager).

      The Service shares class payments during the fiscal year ended December
31, 2004, for all Funds having Service shares outstanding as of that date,
were as follows:


- --------------------------------------------------------------------------

                    Fund                       Service Plan Payments by
                                                         OFDI

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Oppenheimer Aggressive Growth Fund/VA                   $43,863
Service Shares

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Oppenheimer Balanced Fund/VA Service Shares             $99,391

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Oppenheimer Capital Appreciation Fund/VA               $459,798
Service Shares

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Oppenheimer Core Bond Fund/VA Service Shares            $7,476

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Oppenheimer Global Securities Fund/VA                  $617,506
Service Shares

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Oppenheimer Global Securities Fund/VA Class 4           $32,566

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Oppenheimer High Income Fund/VA Service                $253,266
Shares

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Oppenheimer Main Street Fund(R)/VA Service              $655,239
Shares

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Oppenheimer Main Street Small Cap Fund(R)/VA             $279,935
Service Shares

- --------------------------------------------------------------------------
- --------------------------------------------------------------------------

Oppenheimer Strategic Bond Fund/VA Service             $373,995
Shares

- --------------------------------------------------------------------------


      Under the Plans, the Manager and the Distributor may make payments to
affiliates. In their sole discretion, they may also from time to time make
substantial payments from their own resources, which include the profits the
Manager derives from the advisory fees it receives from the Funds, to
compensate financial intermediaries that provide distribution assistance
and/or administrative services or that otherwise promote sales of the Funds'
shares. These payments, some of which may be referred to as "revenue
sharing," may relate to the Funds' inclusion on a financial intermediary's
preferred list of funds offered to its clients.

      Financial intermediaries, brokers and dealers may receive other
payments from the Distributor or the Manager from their own resources in
connection with the promotion and/or sale of shares of the Funds, including
payments to defray expenses incurred in connection with educational seminars
and meetings. The Manager or Distributor may share expenses incurred by
financial intermediaries in conducting training and educational meetings
about aspects of the Funds for employees of the intermediaries or for hosting
client seminars or meetings at which the Funds are discussed. In their sole
discretion, the Manager and/or the Distributor may increase or decrease the
amount of payments they make from their own resources for these purposes.

     Unless  terminated as described  below,  each Plan continues in effect from
year to year but only as long as such  continuance is  specifically  approved at
least annually by the Trust's Board of Trustees and by its Independent  Trustees
by a vote cast in person at a meeting  called for the  purpose of voting on such
continuance. Any Plan may be terminated at any time by the vote of a majority of
the Independent  Trustees or by the vote of the shareholders of a "majority" (as
defined in the  Investment  Company Act) of the  outstanding  Service  shares or
Class 4 shares.  Contract  owners are  purposes  of voting  with  respect to the
Plans.  No Plan may be amended to increase  materially the amount of payments to
be made unless  such  amendment  is  approved  by  contract  owners of the class
affected by the amendment. All material amendments must be approved by the Board
and by a majority of the Independent Trustees.




     While the plans are in effect and Service  shares and/or Class 4 shares are
outstanding, the Treasurer of the Trust must provide separate written reports to
the  Trust's  Board of  Trustees  at least  quarterly  describing  the amount of
payments  and the  purpose of the  payment  made  pursuant  to each Plan.  These
reports are subject to the review and approval of the Independent Trustees.


Performance of the Funds

               Explanation of Performance  Terminology.  The Funds use a variety
               of terms to illustrate their investment performance.  Those terms
               include "cumulative total return," "average annual total return,"
               "average  annual  total  return at net asset  value"  and  "total
               return at net asset value." An  explanation  of how total returns
               are  calculated  is set forth  below.  The charts  below show the
               Funds'  performance as of the Funds' most recent fiscal year end.
               You can obtain  current  performance  information  by calling the
               Funds'  Transfer  Agent  at  1.800.981.2871  or by  visiting  the
               Oppenheimerfunds Internet website at www.oppenheimerfunds.com.

     The Funds'  illustrations of their performance data in advertisements  must
comply with rules of the SEC. Those rules describe the types of performance data
that may be used and how it is to be calculated.  In general,  any advertisement
by a Fund of its performance  data must include the average annual total returns
for the advertised class of shares of that Fund.

     Use of standardized performance calculations enables an investor to compare
the Funds'  performance to the  performance of other funds for the same periods.
However,  a number of  factors  should be  considered  before  using the  Funds'
performance information as a basis for comparison with other investments:

               o  Yields  and  total  returns   measure  the  performance  of  a
               hypothetical  account in a Fund over  various  periods and do not
               show  the  performance  of  each  shareholder's   account.   Your
               account's  performance will vary from the model  performance data
               if you buy or sell shares  during the period,  or you bought your
               shares at a different  time and price than the shares used in the
               model.

               o The Funds'  performance  does not reflect the charges  deducted
               from an investor's  separate account by the insurance  company or
               other sponsor of that separate  account,  which vary from product
               to product.  If these charges were deducted,  performance will be
               lower than as described in the Funds' Prospectus and Statement of
               Additional  Information.  In addition,  the separate accounts may
               have  inception  dates  different  from those of the  Funds.  The
               sponsor  for  your  insurance  product  can  provide  performance
               information that reflects those charges and inception dates.

               o The Funds'  performance  returns  may not reflect the effect of
               taxes on dividends and capital gains distributions.

               o An  investment  in the Funds is not  insured by the FDIC or any
               other government agency.

               o When an investor's shares are redeemed,  they may be worth more
               or less than their original cost.

               o The principal value of the Funds' shares,  its yields and total
               returns are not guaranteed and normally will fluctuate on a daily
               basis.

               o The preceding statement does not apply to Money Fund/VA,  which
               seeks to  maintain a stable  net asset  value of $1.00 per share.
               There can be no assurance  that Money  Fund/VA will be able to do
               so.

               o Yields and total  returns for any given past  period  represent
               historical performance information and are not, and should not be
               considered,  a prediction of future yields or returns. The Funds'
               total  returns  should  not be  expected  to be the  same  as the
               returns  of other  Oppenheimer  funds,  whether or not such other
               funds have the same portfolio managers and/or similar names.

          The performance of each class of shares is shown  separately,  because
     the  performance  of each class of shares will  usually be  different.  The
     Fund's total returns are affected by market conditions, the quality of that
     Fund's  investments,  the  maturity  of  debt  investments,  the  types  of
     investments that Fund holds, and its operating expenses.

          |X| Yields. The Funds use a variety of different yield calculations to
     illustrate its current returns.  Each class of shares  calculates its yield
     separately because of the different expenses that affect each class.

               o  Standardized   Yield.  The  "standardized   yield"  (sometimes
               referred to just as "yield") is shown for a class of shares for a
               stated



               30-day period.  It is not based on actual distributions paid by
               the Fixed Income Funds to shareholders in the 30-day period,  but
               is a hypothetical yield based upon the net investment income from
               the Funds' portfolio investments for that period. It may
               therefore  differ from the "dividend yield" for the same class of
               shares, described below.




                                                      a-b     6
                              Standardized Yield = 2[(---- +1) - 1]
                                                       cd

          Standardized yield is calculated using the following formula set forth
     in rules adopted by the SEC,  designed to assure uniformity in the way that
     all funds calculate their yields:

          The symbols above represent the following factors:

               a = dividends and interest earned during the 30-day period.

               b  =  expenses  accrued  for  the  period  (net  of  any  expense
               assumptions).

               c = the average daily number of shares of that class  outstanding
               during the 30-day period that were entitled to receive dividends.

               d = the  maximum  offering  price per share of that  class on the
               last day of the period, adjusted for undistributed net investment
               income.

          The standardized  yield for a particular 30-day period may differ from
     the yield for other periods.  The SEC formula assumes that the standardized
     yield for a 30-day period occurs at a constant rate for a six-month  period
     and is annualized at the end of the six-month period. Additionally, because
     each class of shares is subject to  different  expenses,  it is likely that
     the standardized yields of the Funds' classes of shares will differ for any
     30-day period.

               o Dividend  Yield.  The Fixed  Income Funds may quote a "dividend
               yield" for each class of its shares.  Dividend  yield is based on
               the  dividends  paid on a  class  of  shares  during  the  actual
               dividend period. To calculate  dividend yield, the dividends of a
               class declared during a stated period are added together, and the
               sum is  multiplied  by 12 (to annualize the yield) and divided by
               the  maximum  offering  price  on the  last  day of the  dividend
               period.  Because the Fixed Income Funds pay their annual dividend
               in March of each  year,  dividend  yield is shown for the 30 days
               ended March 31, 2005. The formula is shown below:

Dividend Yield = Distribution Paid divided by the No. of Days in the Period x
                 No. of Days in the Calendar Year
                 --------------------------------------------------------------
                             Maximum Offering Price (payment date)



Core Bond Fund/VA
Non-Service Shares              3.91%                       4.76%

- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------

Core Bond Fund/VA
Service Shares                  3.63%                       4.49%

- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------

High Income Fund/VA
Non-Service Shares              5.49%                       6.62%

- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------

High Income Fund/VA
Service Shares                  5.24%                       6.51%

- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------

Strategic Bond
Fund/VA                         3.95%                       5.34%
Non-Service Shares

- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------

Strategic Bond
Fund/VA                         3.77%                       5.14%
Service Shares

- ----------------------------------------------------------------------------


o     Money Fund/VA Yields. The current yield for Money Fund/VA is calculated
for a seven-day period of time as follows. First, a base period return is
calculated for the seven-day period by determining the net change in the
value of a hypothetical pre-existing account having one share at the
beginning of the seven-day period. The change includes dividends declared on
the original share and dividends declared on any shares purchased with
dividends on that share, but such dividends are adjusted to exclude any
realized or unrealized capital gains or losses affecting the dividends
declared. Next, the base period return is multiplied by 365/7 to obtain the
current yield to the nearest hundredth of one percent.

      The compounded effective yield for a seven-day period is calculated by
      (1) adding 1 to the base period return (obtained as described above),
      (2) raising the sum to a power equal to 365 divided by 7, and
      (3) subtracting 1 from the result.

      The yield as calculated above may vary for accounts less than
approximately $100 in value due to the effect of rounding off each daily
dividend to the nearest full cent. The calculation of yield under either
procedure described above does not take into consideration any realized or
unrealized gains or losses on the Funds' portfolio securities which may
affect dividends. Therefore, the return on dividends declared during a period
may not be the same on an annualized basis as the yield for that period.


      |X| Total Return Information. There are different types of "total
returns" to measure the Funds' performance. Total return is the change in
value of a hypothetical investment in a Fund over a given period, assuming
that all dividends and capital gains distributions are reinvested in
additional shares and that the investment is redeemed at the end of the
period. Because of differences in expenses for each class of shares, the
total returns for each class are separately measured. The cumulative total
return measures the change in value over the entire period (for example, ten
years). An average annual total return shows the average rate of return for
each year in a period that would produce the cumulative total return over the
entire period. However, average annual total returns do not show actual
year-by-year performance. Each Fund uses standardized calculations for its
total returns as prescribed by the SEC. The methodology is discussed below.


o     Average Annual Total Return. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in
value of a hypothetical initial investment of $1,000 ("P" in the formula
below) held for a number of years ("n" in the formula) to achieve an Ending
Redeemable Value ("ERV" in the formula) of that investment, according to the
following formula:



                                         1/n
                                ( ERV )
                                ( --- ) - 1 = Average Annual Total Return
                                (  P  )


o     Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as
average annual total return, but it does not average the rate of return on an
annual basis. Cumulative total return is determined as follows:




                                ERV - P
                                -------  = Total Return
                                  P


         The Funds' Total Returns for the Periods Ended 12/31/04




 Fund and Class/Inception       1 Year         5 Years        10 Years
  Date                                          (or            (or
                                           life-of-class)  life-of-class)



Aggressive Growth Fund/VA        19.78%         -7.90%          9.30%
Non-Service Shares (8/15/86)



Aggressive Growth Fund/VA        19.43%         -13.77%          N/A
Service Shares (10/16/00)



Balanced Fund/VA                 10.10%          6.05%          10.14%
Non-Service Shares(2/9/87)




Balanced Fund/VA                 9.79%          8.39%           N/A
Service Shares (5/1/02)



Capital Appreciation Fund/VA     6.93%         -2.23%          13.02%
Non-Service Shares (4/3/85)



Capital Appreciation Fund/VA     6.62%         4.99%            N/A
Service Shares (9/18/01)




Core Bond Fund/VA                5.49%         7.03%           7.06%
Non-Service Shares (4/3/85)




Core Bond Fund/VA                5.22%         7.45%           N/A
Service Shares (5/1/02)




Global Securities Fund/VA         19.16%       4.17%          12.58%
Non-Service Shares (11/12/90)




Global Securities Fund/VA         18.88%       1.62%           N/A
Service Shares (7/13/00)




Global Securities Fund/VA        19.19%       38.01%           N/A
Class 3 shares (5/1/03)




Global Securities Fund/VA       N/A 1         N/A 1            N/A 1
Class 4 shares (5/3/04)




High Income Fund/VA             8.97%        5.29%             7.74%
Non-Service Shares (4/30/86)




High Income Fund/VA             8.73%       9.11%              N/A
Service Shares (9/18/01)




Main Street Fund(R)/VA          9.46%      -1.59%             10.53%
Non-Service Shares (7/5/95)




Main Street Fund(R)/VA          9.15%      -2.66%               N/A
Service Shares (7/13/00)




Main Street Small
  Cap Fund(R)/VA               19.42%      3.40%                7.93%
Non-Service Shares (5/1/98)




Main Street Small
   Cap Fund(R)/VA              19.18%      12.55%                 N/A
Service Shares (7/16/01)




Money Fund/VA (4/3/85)         0.98%       2.65%                  3.94%




Strategic Bond Fund/VA         8.67%       8.21%                  8.23%
Non-Service Shares (5/3/93)




Strategic Bond Fund/VA        8.43%        9.01%                   N/A
Service Shares (3/19/01)




Value Fund                    14.50%       21.57%                  N/A
Non-Service Shares (1/2/03)




1. Because  Class 4 shares of Global  Securities  Fund/VA were not offered for
   sales  during  the  full  calendar   year  ended   December  31,  2004,  no
   performance information is included in the table above for Class 4 shares.


Other Performance Comparisons. The Funds may compare their performance
annually to that of an appropriate broadly-based market index in its Annual
Report to shareholders. You can obtain that information by contacting the
Transfer Agent at the addresses or telephone numbers shown on the cover of
this Statement of Additional Information. The Funds may also compare their
performance to that of other investments, including other mutual funds, or
use rankings of its performance by independent ranking entities. Some
examples of these performance comparisons are set forth below.


      |X|   Lipper Rankings. From time to time the Funds may publish the
rankings of their performance by Lipper, Inc. ("Lipper"). Lipper is a
widely-recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Funds, and
ranks their performance for various periods in categories based on investment
styles. The Lipper performance rankings are based on total returns that
include the reinvestment of capital gain distributions and income dividends
but do not take sales charges or taxes into consideration. Lipper also
publishes "peer-group" indices of the performance of all mutual funds in a
category that it monitors and averages of the performance of the funds in
particular categories.

      |X|   Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Funds may include in advertisements and
sales literature performance information about the Funds cited in newspapers
and other periodicals such as The New York Times, The Wall Street Journal,
Barron's, or similar publications. That information may include performance
quotations from other sources, including Lipper and Morningstar. The Funds'
performance may be compared in publications to the performance of various
market indices or other investments, and averages, performance rankings or
other benchmarks prepared by recognized mutual fund statistical services.

      Investors may also wish to compare the returns on the Funds' shares to
the return on fixed-income investments available from banks and thrift
institutions. Those include certificates of deposit, ordinary interest-paying
checking and savings accounts, and other forms of fixed or variable time
deposits, and various other instruments such as Treasury bills. However, the
Funds' returns and share price are not guaranteed or insured by the FDIC or
any other agency and will fluctuate daily, while bank depository obligations
may be insured by the FDIC and may provide fixed rates of return. Repayment
of principal and payment of interest on Treasury securities is backed by the
full faith and credit of the U.S. government.

      From time to time, the Funds may publish rankings or ratings of the
Manager or Transfer Agent, and of the investor services provided by them to
shareholders of the Oppenheimer funds, other than performance rankings of the
Oppenheimer funds themselves. Those ratings or rankings by third parties may
include comparisons of their services to those provided by other mutual fund
families selected by the rating or ranking services. They may be based upon
the opinions of the rating or ranking service itself, using its research or
judgment, or based upon surveys of investors, brokers, insurance sponsors,
shareholders or others.

      From time to time the Funds may include in its advertisements and sales
literature the total return performance of a hypothetical investment account
that includes shares of one or more of the Funds and other Oppenheimer funds.
The combined account may be part of an illustration of an asset allocation
model or similar presentation. The account information may combine total
return performance of the Funds included in the account. Additionally, from
time to time, the funds advertisements and sales literature may include, for
illustrative or comparative purposes, statistical data or other information
about general or specific market and economic conditions. That may include,
for example,

o     information about the performance of certain securities or commodities
      markets or segments of those markets,
o     information about the performance of the economies of particular
      countries or regions,
o     the earnings of companies included in segments of particular
      industries, sectors, securities markets, countries or regions,
o     the availability of different types of securities or offerings of
      securities,
o     information relating to the gross national or gross domestic product of
      the United States or other countries or regions,
o     comparisons of various market sectors or indices to demonstrate
      performance, risk, or other characteristics of the Funds.

ABOUT YOUR ACCOUNT

How to Buy and Sell Shares


      Shares of the Funds are sold to provide benefits under variable life
insurance policies and variable annuity and other insurance company separate
accounts, as explained in the Prospectuses of the Funds and of the insurance
product you have selected. Instructions from an investor to buy or sell
shares of a Fund should be directed to the insurance sponsor for the
investor's separate account, or that insurance sponsor's agent.

|X|   Allocation of Expenses. Each Fund pays expenses related to its daily
operations, such as custodian bank fees, certain Trustees' fees, transfer
agency fees, legal fees and auditing costs. Those expenses are paid out of
each Fund's assets and are not paid directly by shareholders. However, those
expenses reduce the net asset values of shares, and therefore are indirectly
borne by shareholders through their investment.

      For each Fund that has more than one class of shares outstanding, the
methodology for calculating the net asset value, dividends and distributions
of the Fund's share classes recognizes two types of expenses. General
expenses that do not pertain specifically to any one class are allocated pro
rata to the shares of all classes. The allocation is based on the percentage
of a Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of
Additional Information and other materials for current shareholders, fees to
unaffiliated Trustees, custodian expenses, share issuance costs, organization
and start-up costs, interest, taxes and brokerage commissions, and
non-recurring expenses, such as litigation costs.

      Expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of
such expenses include distribution and service plan (12b-1) fees, transfer
and shareholder servicing agent fees and expenses, and shareholder meeting
expenses (to the extent that such expenses pertain only to a specific class).

               Determination of Net Asset Values Per Share. The net asset values
               per share of each class of shares of the Funds are  determined by
               dividing the value of a Fund's net assets attributable to a class
               by the  number of shares of that class by the number of shares of
               that class that are  outstanding.  The  calculation is done as of
               the  close  of  business  of the  Exchange  on each  day that the
               Exchange  is open.  The  Exchange  normally  closes at 4:00 P.M.,
               Eastern  time,  but may close  earlier  on some  other  days (for
               example, in case of weather emergencies or on days falling before
               a U.S.  holiday).  All  references  to time in this  Statement of
               Additional  Information  mean "Eastern time." The Exchange's most
               recent annual  announcement  (which is subject to change)  states
               that it will close on New Year's Day,  Martin  Luther  King,  Jr.
               Day,  Presidents'  Day, Good Friday,  Memorial Day,  Independence
               Day, Labor Day,  Thanksgiving  Day and Christmas Day. It may also
               close on other days.


          Dealers  other than  Exchange  members may conduct  trading in certain
     securities on days on which the Exchange is closed (including  weekends and
     holidays) or after 4:00 P.M. on a regular  business day. Because the Funds'
     net asset values will not be calculated on those days, the Funds' net asset
     values  per  share  may  be  significantly   affected  on  such  days  when
     shareholders  may not purchase or redeem shares.  Additionally,  trading on
     European and Asian stock exchanges and over-the-counter markets normally is
     completed before the close of The Exchange.


          Changes in the values of  securities  traded on foreign  exchanges  or
     markets  as a result  of  events  that  occur  after  the  prices  of those
     securities are determined,  but before the close of The Exchange,  will not
     be  reflected  in the Funds'  calculation  of its net asset values that day
     unless the Manager determines that the event is likely to effect a material
     change in the value of the security.  The Manager, or an internal valuation
     committee  established  by the  Manager,  as  applicable,  may  establish a
     valuation,  under  procedures  established  by the Board and subject to the
     approval,  ratification  and  confirmation by the Board at its next ensuing
     meeting.

               |X|  Securities  Valuation.  The  Funds'  Board of  Trustees  has
               established   procedures   for  the  valuation  of  those  Funds'
               securities.  In general the  procedures  for all Funds other than
               Money Fund/VA are as follows:

               o Equity  securities with readily  available market quotes traded
               on a  U.S.  securities  exchange  or on  Nasdaq(R)are  valued  as
               follows:

               1. if last  sale  information  is  regularly  reported,  they are
               valued at the last reported sale price on the principal  exchange
               on which they are traded or on Nasdaq(R), as applicable,  on that
               day, or

               2. if last sale information is not available on a valuation date,
               they are valued at the last  reported  sale price  preceding  the
               valuation  date if it is within the spread of the  closing  "bid"
               and  "asked"  prices on the  valuation  date or,  if not,  at the
               closing "bid" price on the valuation date.

               o Equity  securities  traded  on a  foreign  securities  exchange
               generally are valued in one of the following ways:

               1. at the last sale price on the  principal  exchange on which it
               is traded,  as reported by such  exchange at its trading  session
               ending at or most recently  prior to the time fixed for valuation
               of securities.  2. at the last sale price obtained by the Manager
               from the report of the  principal  exchange on which the security
               is traded at its last trading  session on or  immediately  before
               the  valuation  date,  or 3. at the mean  between  the  "bid" and
               "asked" prices obtained from the principal  exchange on which the
               security is traded or, on the basis of reasonable  inquiry,  from
               two market makers in the security.

               o Long-term debt securities having a remaining maturity in excess
               of 60 days are  valued by a  portfolio  pricing  service  using a
               methodology  acceptable  to  the  Funds  or  by  the  Manager  by
               averaging the mean between the "bid" and "marked" prices from two
               active and reliable market makers in the security on the basis of
               reasonable inquiry.

               o The following  securities are valued at the price determined by
               a pricing service using a methodology acceptable to the Funds:

               1. debt  instruments  that have a maturity  of more than 397 days
               when issued,

               2. debt  instruments that had a maturity of 397 days or less when
               issued and have a remaining maturity of more than 60 days, and

               3. non-money  market debt  instruments that had a maturity of 397
               days or less when issued and which have a  remaining  maturity of
               60 days or less.

               o The  following  securities  are  valued at cost,  adjusted  for
               amortization of premiums and accretion of discounts to maturity:

               1. money market debt securities  held by a non-money  market fund
               that had a maturity  of 397 days or less when  issued that have a
               remaining maturity of 60 days or less, and

               2.  debt  instruments  held by a money  market  fund  that have a
               remaining maturity of 397 days or less.

               o  Securities  (including   restricted   securities)  not  having
               readily-available  market  quotations  are  valued at fair  value
               determined under the Board's procedures.

          When last sale  information  is not  available,  the  Manager  may use
     pricing services approved by the Board of Trustees. The pricing service may
     use "matrix"  comparisons to the prices for  comparable  instruments on the
     basis of quality, yield and maturity. Other special factors may be involved
     (such  as  the  tax-exempt   status  of  the  interest  paid  by  municipal
     securities). The Manager will monitor the accuracy of the pricing services.
     That monitoring may include  comparing prices used for portfolio  valuation
     to actual sales prices of selected securities.


          A bank,  dealer or pricing  service that the Manager has determined to
     be reliable is generally used to value foreign currency,  including forward
     contracts,  and to convert to U.S. dollars  securities that are denominated
     in foreign currency.


          Puts,  calls,  and  futures  are  valued at the last sale price on the
     principal exchange on which they are traded or on Nasdaq, as applicable. If
     there were no sales  that day,  they shall be valued at the last sale price
     on the  preceding  trading  day if it is within the  spread of the  closing
     "bid" and  "asked"  prices on the  principal  exchange  or on Nasdaq on the
     valuation  date.  If not,  the value  shall be the closing bid price on the
     principal  exchange or on Nasdaq on the valuation date. If the put, call or
     future is not traded on an  exchange  or on  Nasdaq,  it shall be valued by
     averaging the mean between "bid" and "asked" prices obtained by the Manager
     from two active  market  makers.  In certain cases that may be at the "bid"
     price if no "asked" price is available.

          When a Fund writes an option,  an amount equal to the premium received
     is included in that Fund's Statement of Assets and Liabilities as an asset.
     An equivalent  credit is included in the liability  section.  The credit is
     adjusted  ("marked-to-market")  to reflect the current  market value of the
     option.  In determining  the Funds' gain on  investments,  if a call or put
     written by a Fund is  exercised,  the proceeds are increased by the premium
     received.  If a call or put written by a Fund expires, that Fund has a gain
     in the amount of the premium.  If that Fund enters into a closing  purchase
     transaction,  it will have a gain or loss, depending on whether the premium
     received  was more or less than the cost of the closing  transaction.  If a
     Fund exercises a put it holds, the amount that Fund receives on its sale of
     the  underlying  investment is reduced by the amount of premium paid by the
     Funds.



               Money Fund/VA Net Asset  Valuation Per Share.  Money Fund/VA will
               seek to  maintain  a net  asset  value of  $1.00  per  share  for
               purchases and  redemptions.  There can be no assurance it will be
               able to do so. Money Fund/VA operates under Rule 2a-7 under which
               it may use the amortized cost method of valuing their shares. The
               Funds' Board of Trustees has adopted procedures for that purpose.
               The amortized cost method values a security initially at its cost
               and thereafter assumes a constant  amortization of any premium or
               accretion  of  any   discount,   regardless   of  the  impact  of
               fluctuating  interest  rates on the market value of the security.
               This method does not take into account  unrealized  capital gains
               or losses.


          The Funds' Board of Trustees has  established  procedures  intended to
     stabilize  Money  Fund/VA's  net asset  value at $1.00 per share.  If Money
     Fund/VA's net asset value per share were to deviate from $1.00 by more than
     0.5%,  Rule 2a-7 requires the Board  promptly to consider  what action,  if
     any,  should be taken.  If the  Trustees  find that the  extent of any such
     deviation  may  result in  material  dilution  or other  unfair  effects on
     shareholders,  the Board will take whatever steps it considers  appropriate
     to eliminate or reduce such dilution or unfair effects, including,  without
     limitation,  selling portfolio securities prior to maturity, shortening the
     average portfolio maturity, withholding or reducing dividends, reducing the
     outstanding  number of shares of that Fund without monetary  consideration,
     or  calculating  net  asset  value  per  share  by using  available  market
     quotations.

          As long as Money  Fund/VA  uses Rule  2a-7,  it must  abide by certain
     conditions  described  in  the  Prospectus  which  limit  the  maturity  of
     securities  that Fund buys.  Under Rule 2a-7, the maturity of an instrument
     is  generally  considered  to be its stated  maturity (or in the case of an
     instrument called for redemption,  the date on which the redemption payment
     must be made), with special exceptions for certain variable rate demand and
     floating  rate  instruments.  Repurchase  agreements  and  securities  loan
     agreements are, in general,  treated as having maturity equal to the period
     scheduled until repurchase or return, or if subject to demand, equal to the
     notice period.

          While amortized cost method provides certainty in valuation, there may
     be  periods  during  which the value of an  instrument,  as  determined  by
     amortized  cost,  is higher or lower  than the price  Money  Fund/VA  would
     receive if it sold the  instrument.  During  periods of declining  interest
     rates, the daily yield on shares of that Fund may tend to be lower (and net
     investment  income  and  daily  dividends  higher)  than  market  prices or
     estimates of market prices for its portfolio. Thus, if the use of amortized
     cost by the  funds  resulted  in a lower  aggregate  portfolio  value  on a
     particular  day, a  prospective  investor in Money Fund/VA would be able to
     obtain a somewhat  higher yield than would result from investment in a fund
     utilizing solely market values,  and existing  investors in that Fund would
     receive less investment  income than if Money Fund/VA were priced at market
     value. Conversely, during periods of rising interest rates, the daily yield
     on shares of that Fund will tend to be higher and its aggregate value lower
     than that of a portfolio  priced at market value.  A  prospective  investor
     would receive a lower yield than from an  investment in a portfolio  priced
     at market value,  while  existing  investors in Money Fund/VA would receive
     more investment income than if that Fund were priced at market value.


               Payments "In Kind". The Prospectus states that payment for shares
               tendered for  redemption  is  ordinarily  made in cash.  However,
               under certain circumstances,  the Board of Trustees of the Global
               Securities  Fund/VA,  Main Street  Fund(R)/VA  and Strategic Bond
               Fund/VA may determine  that it would be  detrimental  to the best
               interests of the  remaining  shareholders  of those Funds to make
               payment of a redemption  order wholly or partly in cash.  In that
               case,  the Funds may pay the  redemption  proceeds in whole or in
               part by a distribution "in kind" of liquid  portfolio  securities
               from the  portfolio of the Funds,  in lieu of cash.  The Board of
               Trustees  of the  Fund  has  adopted  procedures  for  "in  kind"
               redemptions.  In  accordance  with the  procedures,  the Board of
               Trustees  of a Fund  may be  required  to  approve  an "in  kind"
               redemption  paid to a  shareholder  that  holds 5% or more of the
               shares of any class, or of all outstanding  shares, of that Fund,
               or  to  any  other  shareholder  that  may  be  deemed  to  be an
               "affiliated  person"  under  section  2(a)(3)  of the  Investment
               Company Act.

          Each of Oppenheimer Global Securities Fund/VA, Oppenheimer Main Street
     Fund(R)/VA  and  Oppenheimer  Strategic  Bond  Fund/VA  has  elected  to be
     governed by Rule 18f-1 under the  Investment  Company Act. Under that rule,
     each of Oppenheimer  Global  Securities  Fund/VA,  Oppenheimer  Main Street
     Fund(R)/VA  and  Oppenheimer  Strategic Bond Fund/VA is obligated to redeem
     shares  solely in cash up to the lesser of $250,000 or 1% of the net assets
     of such Fund redeemed during any 90-day period for any one shareholder.  As
     of the date of this Statement of Additional Information, those Funds intend
     to redeem shares in kind only under certain limited  circumstances (such as
     redemptions of substantial  amounts by shareholders  that have consented to
     such in kind  redemptions).  If shares are redeemed in kind,  the redeeming
     shareholder  may incur  brokerage or other costs in selling the securities.
     Each of Oppenheimer  Global  Securities  Fund/VA,  Oppenheimer  Main Street
     Fund(R)/VA and  Oppenheimer  Strategic  Bond Fund/VA will value  securities
     used to pay  redemptions in kind using the same method it uses to value its
     portfolio  securities  described  above under  "Determination  of Net Asset
     Values  Per  Share."  That  valuation  will  be  made  as of the  time  the
     redemption price is determined.

Dividends, Capital Gains and Taxes


Dividends and Distributions.  The Funds have no fixed dividend and there can
be no assurance as to the payment of any dividends or the realization of any
capital gains. The dividends and distributions paid by a Funds will vary from
time to time depending on market conditions, the composition of the Funds'
investment portfolio, and expenses borne by the Fund or borne separately by a
class (if more than one class of shares is outstanding). Dividends are
calculated in the same manner, at the same time, and on the same day for each
class of shares. Dividends on Service shares and Class 4 Shares are expected
to be lower because of the additional expenses for those shares. Dividends
will also differ in amount as a consequence of any difference in the net
asset values of the different classes of shares.

Taxes. The federal tax treatment of each Fund is briefly highlighted in its
Prospectus. The following is only a summary of certain additional tax
considerations generally affecting the Fund. The tax discussion in the
Prospectus and this Statement of Additional Information is based on tax law
in effect on the date of the Prospectus and this Statement of Additional
Information. Those laws and regulations may be changed by legislative,
judicial, or administrative action, sometimes with retroactive effect. State
and local tax treatment may differ from the treatment under the Internal
Revenue Code described below.

Qualification as a Regulated Investment Company. Each Fund has elected to be
taxed as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended. As a regulated investment company, a Fund
is not subject to federal income tax on the portion of its net investment
income (that is, taxable interest, dividends, and other taxable ordinary
income, net of expenses) and capital gain net income (that is, the excess of
net long-term capital gains over net short-term capital losses) that it
distributes to shareholders. That qualification enables a Fund to "pass
through" its income and realized capital gains to shareholders without having
to pay tax on them. The Internal Revenue Code contains a number of complex
tests relating to qualification that the Fund might not meet in a particular
year. If it did not qualify as a regulated investment company, a Fund would
be treated for tax purposes as an ordinary corporation and would receive no
tax deduction for payments made to shareholders.

      To qualify as a regulated investment company, a Fund must distribute at
least 90% of its investment company taxable income (in brief, net investment
income and the excess of net short-term capital gain over net long-term
capital loss) for a taxable year. Distributions by a Fund made during the
taxable year or, under specified circumstances, within 12 months after the
close of the taxable year, will be considered distributions for the taxable
year and will therefore count toward satisfaction of this requirement. In
addition, a Fund must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the
sale or other disposition of stock or securities or foreign currencies (to
the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities)
and certain other income.

      A Fund also must satisfy an asset diversification test in order to
qualify as a regulated investment company. Under that test, at the close of
each quarter of a Fund's taxable year, at least 50% of the value of the
Fund's assets must consist of cash and cash items (including receivables),
U.S. government securities, securities of other regulated investment
companies, and securities of other issuers, as to which a Fund must not have
invested more than 5% of the value of its total assets in securities of each
such issuer and a it must not hold more than 10% of the outstanding voting
securities of each such issuer. No more than 25% of the value of a Fund's
total assets may be invested in the securities of any one issuer (other than
U.S. government securities and securities of other regulated investment
companies), or in two or more issuers which a Fund controls and which are
engaged in the same or similar trades or businesses. For purposes of this
test, obligations issued or guaranteed by certain agencies or
instrumentalities of the U.S. government are treated as U.S. government
securities.

Excise Tax on Regulated Investment Companies. Under the Internal Revenue
Code, by December 31 each year, a Fund must distribute 98% of its taxable
investment income earned from January 1 through December 31 of that year and
98% of its capital gains realized in the period from November 1 of the prior
year through October 31 of the current year. If it does not, a Fund must pay
an excise tax on the amounts not distributed. It is presently anticipated
that a Fund will meet those requirements. To meet this requirement, in
certain circumstances a Fund might be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
However, the Board of Trustees and the Manager might determine in a
particular year that it would be in the best interests of shareholders for a
Fund not to make such distributions at the required levels and to pay the
excise tax on the undistributed amounts. That would reduce the amount of
income or capital gains available for distribution.

Taxes on Foreign Investments. Investment income received by a Fund from
sources within certain foreign countries may be subject to foreign taxes
withheld at the source. The United States has entered into tax treaties with
many foreign countries which entitle a Fund to a reduced rate of, or
exemption from, taxes on such income.


Additional Information About the Funds


               The  Transfer  Agent.   OppenheimerFunds   Services,  the  Funds'
               Transfer  Agent,  is a division of the Manager.  It serves as the
               Transfer  Agent for an annual per account fee. The Transfer Agent
               has   voluntarily   agreed  to  limit  transfer  and  shareholder
               servicing agent fees to 0.35% per annum of shares of any class of
               any Fund.  That  undertaking  may be amended or  withdrawn at any
               time. The Transfer Agent acts as shareholder  servicing agent for
               other Oppenheimer funds. Information about your investment in the
               Funds  through your  variable  annuity  contract,  variable  life
               insurance  policy or other  plan can be  obtained  only from your
               participating insurance company or its servicing agent. The
               Funds'  Transfer  Agent  does  not hold or have  access  to those
               records.  Instructions  for buying or selling shares of the Funds
               should be given to your insurance company or its servicing agent,
               not directly to the Funds or its Transfer Agent.


               The Custodian  Bank.  JPMorgan Chase Bank is the custodian of the
               Funds'   assets.   The   custodian's   responsibilities   include
               safeguarding and controlling the Funds' portfolio  securities and
               handling the delivery of such  securities  to and from the Funds.
               It is the  practice of the Funds to deal with the  custodian in a
               manner uninfluenced by any banking relationship the custodian may
               have  with  the  Manager  and its  affiliates.  The  Funds'  cash
               balances  with  the  custodian  in  excess  of  $100,000  are not
               protected by federal deposit insurance.  Those uninsured balances
               at times may be substantial.


               Independent  Registered Public Accounting Firm. Deloitte & Touche
               LLP serves as the Independent  Registered  Public Accounting Firm
               for the Funds.  They audit the Funds'  financial  statements  and
               perform  other  related  audit  services.  They  also  act as the
               independent  registered  public accounting firm for certain other
               funds  advised  by the  Manager  and its  affiliates.  Audit  and
               non-audit services provided by Deloitte & Touche LLP to the Funds
               must be pre-approved by the Audit Committee.


OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER AGGRESSIVE GROWTH
FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Aggressive Growth Fund/VA, a series of Oppenheimer Variable Account
Funds, including the statement of investments, as of December 31, 2004, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Aggressive Growth Fund/VA as of December 31, 2004, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005

            | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA


STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--99.5%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--25.9%
- --------------------------------------------------------------------------------
AUTO COMPONENTS--1.3%
Gentex Corp.                                           435,400   $    16,118,508
- --------------------------------------------------------------------------------
AUTOMOBILES--1.0%
Harley-Davidson, Inc.                                  205,200        12,465,900
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--6.0%
Cheesecake Factory, Inc. (The) 1                       384,700        12,491,209
- --------------------------------------------------------------------------------
P.F. Chang's China Bistro, Inc. 1                      239,000        13,467,650
- --------------------------------------------------------------------------------
Ruby Tuesday, Inc.                                     359,800         9,383,584
- --------------------------------------------------------------------------------
Shuffle Master, Inc. 1                                 273,700        12,891,270
- --------------------------------------------------------------------------------
Starbucks Corp. 1                                      400,400        24,968,944
                                                                 ---------------
                                                                      73,202,657

- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.8%
Harman International Industries, Inc.                   80,400        10,210,800
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--2.4%
Brunswick Corp.                                        602,400        29,818,800
- --------------------------------------------------------------------------------
MEDIA--2.3%
Getty Images, Inc. 1                                   408,900        28,152,765
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--8.6%
Bed Bath & Beyond, Inc. 1                              497,200        19,803,476
- --------------------------------------------------------------------------------
Chico's FAS, Inc. 1                                    453,700        20,656,961
- --------------------------------------------------------------------------------
O'Reilly Automotive, Inc. 1                            588,897        26,529,810
- --------------------------------------------------------------------------------
PETsMART, Inc.                                         724,400        25,737,932
- --------------------------------------------------------------------------------
Urban Outfitters, Inc. 1                               295,200        13,106,880
                                                                 ---------------
                                                                     105,835,059

- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--3.5%
Coach, Inc. 1                                          577,900        32,593,560
- --------------------------------------------------------------------------------
Polo Ralph Lauren Corp.                                246,500        10,500,900
                                                                 ---------------
                                                                      43,094,460

- --------------------------------------------------------------------------------
CONSUMER STAPLES--2.3%
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--2.3%
Whole Foods Market, Inc.                               296,400        28,261,740
- --------------------------------------------------------------------------------
ENERGY--4.8%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--2.4%
BJ Services Co.                                        258,200        12,016,628
- --------------------------------------------------------------------------------
Smith International, Inc. 1                            322,100        17,525,461
                                                                 ---------------
                                                                      29,542,089

- --------------------------------------------------------------------------------
OIL & GAS--2.4%
Apache Corp.                                           379,000        19,166,030
- --------------------------------------------------------------------------------
XTO Energy, Inc.                                       314,500        11,127,010
                                                                 ---------------
                                                                      30,293,040


                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
FINANCIALS--11.4%
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--2.2%
Commerce Bancorp, Inc.                                 426,500   $    27,466,600
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--6.0%
Chicago Mercantile Exchange (The)                       98,800        22,595,560
- --------------------------------------------------------------------------------
Investors Financial Services Corp.                     452,600        22,620,948
- --------------------------------------------------------------------------------
Legg Mason, Inc.                                       400,000        29,304,000
                                                                 ---------------
                                                                      74,520,508

- --------------------------------------------------------------------------------
INSURANCE--3.2%
AMBAC Financial Group, Inc.                            325,700        26,749,741
- --------------------------------------------------------------------------------
Brown & Brown, Inc.                                    283,700        12,355,135
                                                                 ---------------
                                                                      39,104,876

- --------------------------------------------------------------------------------
HEALTH CARE--17.3%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--3.1%
Gen-Probe, Inc. 1                                      239,500        10,827,795
- --------------------------------------------------------------------------------
Gilead Sciences, Inc. 1                                766,200        26,809,338
                                                                 ---------------
                                                                      37,637,133

- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--6.7%
Bard (C.R.), Inc.                                      330,400        21,138,992
- --------------------------------------------------------------------------------
Cooper Cos., Inc. (The)                                258,000        18,212,220
- --------------------------------------------------------------------------------
Stryker Corp.                                          132,900         6,412,425
- --------------------------------------------------------------------------------
Thermo Electron Corp. 1                                679,300        20,508,067
- --------------------------------------------------------------------------------
Varian Medical Systems, Inc. 1                         388,000        16,777,120
                                                                 ---------------
                                                                      83,048,824

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--7.5%
Coventry Health Care, Inc. 1                           368,450        19,557,326
- --------------------------------------------------------------------------------
Health Management Associates,
Inc., Cl. A                                          1,216,800        27,645,696
- --------------------------------------------------------------------------------
Lincare Holdings, Inc. 1                               377,200        16,087,580
- --------------------------------------------------------------------------------
Patterson Cos., Inc. 1                                 680,000        29,505,200
                                                                 ---------------
                                                                      92,795,802

- --------------------------------------------------------------------------------
INDUSTRIALS--15.3%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.9%
L-3 Communications Holdings, Inc.                      240,400        17,606,896
- --------------------------------------------------------------------------------
Rockwell Collins, Inc.                                 452,300        17,838,712
                                                                 ---------------
                                                                      35,445,608

- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--2.3%
Expeditors International of
Washington, Inc.                                       509,500        28,470,860
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--3.6%
Corporate Executive Board Co.                          376,700        25,216,298
- --------------------------------------------------------------------------------
Stericycle, Inc. 1                                     418,400        19,225,480
                                                                 ---------------
                                                                      44,441,778


            7 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
MACHINERY--2.5%
Actuant Corp., Cl. A 1                                  37,500   $     1,955,625
- --------------------------------------------------------------------------------
Donaldson Co., Inc.                                    582,600        18,981,108
- --------------------------------------------------------------------------------
Oshkosh Truck Corp.                                    143,400         9,805,692
                                                                 ---------------
                                                                      30,742,425

- --------------------------------------------------------------------------------
ROAD & RAIL--1.7%
C.H. Robinson Worldwide, Inc.                          379,500        21,069,840
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--2.3%
Fastenal Co.                                           464,700        28,606,932
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--22.5%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--2.0%
Comverse Technology, Inc. 1                          1,000,700        24,467,115
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--2.7%
CDW Corp.                                              394,000        26,141,900
- --------------------------------------------------------------------------------
National Instruments Corp.                             275,800         7,515,550
                                                                 ---------------
                                                                      33,657,450

- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--1.2%
VeriSign, Inc. 1                                       448,600        15,037,072
- --------------------------------------------------------------------------------
IT SERVICES--7.2%
Affiliated Computer Services,
Inc., Cl. A 1                                          473,500        28,499,965
- --------------------------------------------------------------------------------
Alliance Data Systems Corp. 1                          440,100        20,895,948
- --------------------------------------------------------------------------------
Fiserv, Inc. 1                                         745,600        29,965,664
- --------------------------------------------------------------------------------
Global Payments, Inc.                                  159,700         9,348,838
                                                                 ---------------
                                                                      88,710,415

- --------------------------------------------------------------------------------
OFFICE ELECTRONICS--0.8%
Zebra Technologies Corp., Cl. A 1                      176,300         9,922,164
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.8%
Linear Technology Corp.                                552,000        21,395,520
- --------------------------------------------------------------------------------
SOFTWARE--6.8%
Adobe Systems, Inc.                                    446,000        27,982,040
- --------------------------------------------------------------------------------
Amdocs Ltd. 1                                          737,200        19,351,500
- --------------------------------------------------------------------------------
Autodesk, Inc.                                          73,200         2,777,940
- --------------------------------------------------------------------------------
Electronic Arts, Inc. 1                                303,800        18,738,384
- --------------------------------------------------------------------------------
Kronos, Inc. 1                                         108,100         5,527,153
- --------------------------------------------------------------------------------
Symantec Corp. 1                                       376,300         9,693,488
                                                                 ---------------
                                                                      84,070,505
                                                                 ---------------
Total Common Stocks
(Cost $949,375,860)                                                1,227,607,245


                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.1%
- --------------------------------------------------------------------------------
Blaze Network Products, Inc.,
8% Cv., Series D 1,2,3                               1,147,862   $           873
- --------------------------------------------------------------------------------
BroadBand Office, Inc., Cv.,
Series C 1,2,3                                         211,641                --
- --------------------------------------------------------------------------------
Centerpoint Broadband
Technologies, Inc.:
Cv., Series D 1,2,3                                  1,298,701                --
Cv., Series Z 1,2,3                                    262,439                --
- --------------------------------------------------------------------------------
MicroPhotonix Integration Corp.,
Cv., Series C 1,2,3                                    633,383                --
- --------------------------------------------------------------------------------
Multiplex, Inc., Cv., Series C 1,2,3                 2,330,253           564,154
- --------------------------------------------------------------------------------
Questia Media, Inc., Cv., Series B 1,2,3             2,329,735           969,869
                                                                 ---------------
Total Preferred Stocks
(Cost $62,496,986)                                                     1,534,896

                                                     PRINCIPAL
                                                        AMOUNT
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--0.3%
- --------------------------------------------------------------------------------
Undivided interest of 0.23% in joint repurchase
agreement (Principal Amount/Value $1,443,703,000,
with a maturity value of $1,443,962,867) with UBS
Warburg LLC, 2.16%, dated 12/31/04, to be
repurchased at $3,287,592 on 1/3/05, collateralized
by Federal National Mortgage Assn., 5%--6%,
4/1/34--10/1/34, with a value of
$1,474,609,071 (Cost $3,287,000)                   $ 3,287,000         3,287,000

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $1,015,159,846)                                     99.9%    1,232,429,141
- --------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES                            0.1         1,180,695
                                                   -----------------------------
NET ASSETS                                               100.0%  $ 1,233,609,836
                                                   =============================


            8 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of December 31, 2004 was $1,534,896, which represents
0.12% of the Fund's net assets, of which $1,534,896 is considered restricted.
See Note 5 of Notes to Financial Statements.

3. 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, 2004.
The aggregate fair value of securities of affiliated companies held by the Fund
as of December 31, 2004 amounts to $1,534,896. Transactions during the period in
which the issuer was an affiliate are as follows:

                                                                     SHARES          GROSS        GROSS              SHARES
                                                          DECEMBER 31, 2003      ADDITIONS   REDUCTIONS   DECEMBER 31, 2004
- ---------------------------------------------------------------------------------------------------------------------------

Axsun Technologies, Inc., Cv., Series C                           3,170,523             --   (3,170,523)                 --
Blaze Network Products, Inc., 8% Cv., Series D                    1,147,862             --           --           1,147,862
BroadBand Office, Inc., Cv., Series C                               211,641             --           --             211,641
Centerpoint Broadband Technologies, Inc., Cv., Series D           1,298,701             --           --           1,298,701
Centerpoint Broadband Technologies, Inc., Cv., Series Z             262,439             --           --             262,439
fusionOne, Inc., 8% Non-Cum. Cv., Series D                        2,663,972             --   (2,663,972)                 --
MicroPhotonix Integration Corp., Cv., Series C                      633,383             --           --             633,383
Multiplex, Inc., Cv., Series C                                    2,330,253             --           --           2,330,253
Questia Media, Inc., Cv., Series B                                2,329,735             --           --           2,329,735
                                                                                UNREALIZED     DIVIDEND            REALIZED
                                                                              DEPRECIATION       INCOME                LOSS
- ---------------------------------------------------------------------------------------------------------------------------

Axsun Technologies, Inc., Cv., Series C                                       $         --   $       --   $      35,097,690
Blaze Network Products, Inc., 8% Cv., Series D                                   7,345,444           --                  --
BroadBand Office, Inc., Cv., Series C                                            4,000,015           --                  --
Centerpoint Broadband Technologies, Inc., Cv., Series D                         13,999,997           --                  --
Centerpoint Broadband Technologies, Inc., Cv., Series Z                          6,999,992           --                  --
fusionOne, Inc., 8% Non-Cum. Cv., Series D                                              --           --          13,886,753
MicroPhotonix Integration Corp., Cv., Series C                                   4,000,004           --                  --
Multiplex, Inc., Cv., Series C                                                  16,586,508           --                  --
Questia Media, Inc., Cv., Series B                                               8,030,130           --                  --
                                                                              ---------------------------------------------
                                                                              $ 60,962,090   $       --   $      48,984,443
                                                                              =============================================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            9 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------


- ------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $952,662,860)                                $ 1,230,894,245
Affiliated companies (cost $62,496,986)                                         1,534,896
                                                                          ----------------
                                                                            1,232,429,141
- ------------------------------------------------------------------------------------------
Cash                                                                              300,688
- ------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold                                                                  750,381
Shares of beneficial interest sold                                                576,828
Interest and dividends                                                            191,812
Other                                                                              13,357
                                                                          ----------------
Total assets                                                                1,234,262,207

- ------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed                                            521,138
Shareholder communications                                                         55,262
Legal, auditing and other professional fees                                        32,433
Trustees' compensation                                                             19,178
Distribution and service plan fees                                                 13,448
Custodian fees                                                                      5,255
Transfer and shareholder servicing agent fees                                       1,724
Other                                                                               3,933
                                                                          ----------------
Total liabilities                                                                 652,371

- ------------------------------------------------------------------------------------------
NET ASSETS                                                                $ 1,233,609,836
                                                                          ================

- ------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                $        28,059
- ------------------------------------------------------------------------------------------
Additional paid-in capital                                                  1,804,653,955
- ------------------------------------------------------------------------------------------
Accumulated net investment loss                                                   (13,347)
- ------------------------------------------------------------------------------------------
Accumulated net realized loss on investments                                 (788,328,126)
- ------------------------------------------------------------------------------------------
Net unrealized appreciation on investments                                    217,269,295
                                                                          ----------------
NET ASSETS                                                                $ 1,233,609,836
                                                                          ================

- ------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ------------------------------------------------------------------------------------------
Non-Service Shares:
Net asset value, redemption price per share and offering price per
share (based on net assets of $1,209,459,305 and 27,506,281 shares of
beneficial interest outstanding)                                          $         43.97
- ------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per
share (based on net assets of $24,150,531 and 553,430 shares of
beneficial interest outstanding)                                          $         43.64


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            10 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $4,622)           $    3,356,689
- --------------------------------------------------------------------------------
Interest                                                                113,675
                                                                 ---------------
Total investment income                                               3,470,364

- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees                                                       7,692,943
- --------------------------------------------------------------------------------
Distribution and service plan fees--Service shares                       43,863
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares                                                       10,165
Service shares                                                           10,001
- --------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares                                                       77,471
Service shares                                                            1,237
- --------------------------------------------------------------------------------
Trustees' compensation                                                   23,623
- --------------------------------------------------------------------------------
Custodian fees and expenses                                              23,398
- --------------------------------------------------------------------------------
Other                                                                    55,128
                                                                 ---------------
Total expenses                                                        7,937,829
Less reduction to custodian expenses                                     (1,987)
                                                                 ---------------
Net expenses                                                          7,935,842

- --------------------------------------------------------------------------------
NET INVESTMENT LOSS                                                  (4,465,478)

- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments:
  Unaffiliated companies                                             48,472,613
  Affiliated companies                                              (48,984,443)
Net increase from payment by affiliate                                   94,429
                                                                 ---------------
Net realized loss                                                      (417,401)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on investments                213,639,469

- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS             $  208,756,590
                                                                 ===============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            11 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------


YEAR ENDED DECEMBER 31,                                                      2004              2003
- ----------------------------------------------------------------------------------------------------

OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment loss                                               $    (4,465,478)  $    (4,523,545)
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss)                                                 (417,401)       62,819,476
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)                  213,639,469       175,024,712
                                                                  ----------------------------------
Net increase in net assets resulting from operations                  208,756,590       233,320,643

- ----------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial
interest transactions:
Non-Service shares                                                   (109,692,557)      (98,877,573)
Service shares                                                          9,104,838        10,935,179

- ----------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------
Total increase                                                        108,168,871       145,378,249
- ----------------------------------------------------------------------------------------------------
Beginning of period                                                 1,125,440,965       980,062,716
                                                                  ----------------------------------
End of period (including accumulated net investment loss of
$13,347 for the year ended December 31, 2004)                     $ 1,233,609,836   $ 1,125,440,965
                                                                  ==================================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            12 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,                  2004            2003            2002            2001            2000
- ------------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                  $     36.71     $     29.23     $     40.72     $     70.77     $     82.31
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)                                 (.15) 1         (.15)           (.10)            .23             .53
Net realized and unrealized gain (loss)                      7.41            7.63          (11.16)         (21.38)          (8.59)
                                                      ------------------------------------------------------------------------------
Total from investment operations                             7.26            7.48          (11.26)         (21.15)          (8.06)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                           --              --            (.23)           (.54)             --
Distributions from net realized gain                           --              --              --           (8.36)          (3.48)
                                                      ------------------------------------------------------------------------------
Total dividends and/or distributions to shareholders           --              --            (.23)          (8.90)          (3.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                        $     43.97     $     36.71     $     29.23     $     40.72     $     70.77
                                                      ==============================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                          19.78%          25.59%         (27.79)%        (31.27)%        (11.24)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)              $ 1,209,459     $ 1,113,743     $   979,919     $ 1,621,550     $ 2,595,101
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                     $ 1,124,874     $ 1,041,584     $ 1,240,435     $ 1,898,088     $ 2,978,465
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income (loss)                                (0.39)%         (0.43)%         (0.29)%          0.47%           0.65%
Total expenses                                               0.69% 4         0.70% 4         0.68% 4         0.68% 4         0.64% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                        53%            154%             54%            134%             39%


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            13 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

FINANCIAL HIGHLIGHTS  Continued
- --------------------------------------------------------------------------------


SERVICE SHARES  YEAR ENDED DECEMBER 31,                      2004            2003            2002            2001          2000 1
- -----------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                    $   36.54     $     29.13     $     40.70     $     70.77     $     97.75
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)                                 (.27) 2           -- 3           .16             .19             .20
Net realized and unrealized gain (loss)                      7.37            7.41          (11.53)         (21.36)         (27.18)
                                                        ---------------------------------------------------------------------------
Total from investment operations                             7.10            7.41          (11.37)         (21.17)         (26.98)
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                           --              --            (.20)           (.54)             --
Distributions from net realized gain                           --              --              --           (8.36)             --
                                                        ---------------------------------------------------------------------------
Total dividends and/or distributions to shareholders           --              --            (.20)          (8.90)             --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                          $   43.64     $     36.54     $     29.13     $     40.70     $     70.77
                                                        ===========================================================================

- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 4                          19.43%          25.44%         (28.05)%        (31.31)%        (27.60)%
- -----------------------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)                $  24,151     $    11,698     $       144     $        54     $         1
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                       $  17,579     $     3,858     $        72     $        31     $         1
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 5
Net investment income (loss)                                (0.68)%         (0.72)%         (0.56)%          0.09%           1.14%
Total expenses                                               0.99%           0.95%           1.55%           0.83%           0.64%
Expenses after payments and waivers and reduction
to custodian expenses                                         N/A 6           N/A 6          0.98%            N/A 6           N/A 6
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                        53%            154%             54%            134%             39%


1. For the period from October 16, 2000 (inception of offering) to December 31,
2000.

2. Per share amounts calculated based on the average shares outstanding
during the period.

3. Less than $0.005 per share.

4. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

5. Annualized for periods of less than one full year.

6. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            14 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Aggressive Growth Fund/VA (the Fund) is a separate series of
Oppenheimer Variable Account Funds (the Trust), an open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek capital appreciation by
investing in "growth type" companies. The Trust's investment advisor is
OppenheimerFunds, Inc. (the Manager).

      The Fund offers two classes of shares. Both classes are sold at their
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products. The class of shares designated as Service shares is subject to a
distribution and service plan. Both classes of shares have identical rights and
voting privileges with respect to the Fund in general and exclusive voting
rights on matters that affect that class alone. Earnings, net assets and net
asset value per share may differ due to each class having its own expenses, such
as transfer and shareholder servicing agent fees and shareholder communications,
directly attributable to that class.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.

- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.


            15 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                                  NET UNREALIZED
                                                                    APPRECIATION
                                                                BASED ON COST OF
                                                                  SECURITIES AND
UNDISTRIBUTED    UNDISTRIBUTED             ACCUMULATED         OTHER INVESTMENTS
NET INVESTMENT       LONG-TERM                    LOSS        FOR FEDERAL INCOME
INCOME                    GAIN    CARRYFORWARD 1,2,3,4              TAX PURPOSES
- --------------------------------------------------------------------------------
$--                        $--            $788,249,069              $217,190,229

1. As of December 31, 2004, the Fund had $777,504,238 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of December 31, 2004,
details of the capital loss carryforwards were as follows:

                        EXPIRING
                        ------------------------
                        2009       $ 547,279,416
                        2010         230,224,822
                        ------------------------
                        Total      $ 777,504,238
                                   =============

2. As of December 31, 2004, the Fund had $10,744,831 of post-October losses
available to offset future realized capital gains, if any. Such losses, if
unutilized, will expire in 2013.

3. During the fiscal year ended December 31, 2004, the Fund utilized $9,896,185
of capital loss carryforward to offset capital gains realized in that fiscal
year.

4. During the fiscal year ended December 31, 2003, the Fund utilized $32,872,643
of capital loss carryforward to offset capital gains realized in that fiscal
year.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

                                                  INCREASE TO
                               REDUCTION TO   ACCUMULATED NET
          REDUCTION TO      ACCUMULATED NET     REALIZED LOSS
          PAID-IN CAPITAL   INVESTMENT LOSS    ON INVESTMENTS
          ---------------------------------------------------
          $4,357,702             $4,452,131           $94,429

No distributions were paid during the years ended December 31, 2004 and December
31, 2003.

The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

              Federal tax cost of securities   $ 1,015,238,912
                                               ================
              Gross unrealized appreciation    $   283,313,180
              Gross unrealized depreciation        (66,122,951)
                                               ----------------
              Net unrealized appreciation      $   217,190,229
                                               ================

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other

            16 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

Oppenheimer funds selected by the Trustee. The Fund purchases shares of the
funds selected for deferral by the Trustee in amounts equal to his or her deemed
investment, resulting in a Fund asset equal to the deferred compensation
liability. Such assets are included as a component of "Other" within the asset
section of the Statement of Assets and Liabilities. Deferral of trustees' fees
under the plan will not affect the net assets of the Fund, and will not
materially affect the Fund's assets, liabilities or net investment income per
share. Amounts will be deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.

- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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 $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:

                           YEAR ENDED DECEMBER 31, 2004  YEAR ENDED DECEMBER 31, 2003
                               SHARES           AMOUNT        SHARES           AMOUNT
- --------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                        2,254,599   $   88,253,010     7,581,692   $  249,645,333
Redeemed                   (5,085,553)    (197,945,567)  (10,767,148)    (348,522,906)
                           -----------------------------------------------------------
Net decrease               (2,830,954)  $ (109,692,557)   (3,185,456)  $  (98,877,573)
                           ===========================================================

- --------------------------------------------------------------------------------------
SERVICE SHARES
Sold                          312,167   $   12,156,781       328,184   $   11,390,813
Redeemed                      (78,906)      (3,051,943)      (12,954)        (455,634)
                           -----------------------------------------------------------
Net increase                  233,261   $    9,104,838       315,230   $   10,935,179
                           ===========================================================

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended December 31, 2004, were
$598,039,270 and $679,849,231, respectively.


            17 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million, 0.60% of the next $700 million and 0.58% of average annual
net assets over $1.5 billion.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$19,290 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 per class for class level assets of $10
million or more. Each class is subject to the minimum fee in the event that the
per account fee does not equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FOR SERVICE SHARES. The Fund has adopted a
Distribution and Service Plan for Service shares to pay OppenheimerFunds
Distributor, Inc. (the Distributor), for distribution related services and
personal service and account maintenance for the Fund's Service shares. Under
the Plan, payments are made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Service shares of the Fund. The Distributor
currently uses all of those fees to compensate sponsor(s) of the insurance
product that offers Fund shares, for providing personal service and maintenance
of accounts of their variable contract owners that hold Service shares. The
impact of the service plan is to increase operating expenses of the Service
shares, which results in lower performance compared to the Fund's shares that
are not subject to a service fee. Fees incurred by the Fund under the Plan are
detailed in the Statement of Operations.

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. Following a review of its use of brokerage
commissions for sales that is permitted under its investment advisory agreement,
the Fund's Manager terminated that practice in July 2003. Subsequently, the
Manager paid the Fund $94,429, an amount equivalent to certain of such
commissions incurred in prior years.

      OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees for all classes to 0.35% of average annual net assets per class. This
undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. ILLIQUID OR RESTRICTED SECURITIES

As of December 31, 2004, investments in securities included issues that are
illiquid or restricted. Restricted securities are purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund will not invest more than 15% of
its net assets (determined at the time of purchase and reviewed periodically) in
illiquid or restricted securities. Certain restricted securities, eligible for
resale to qualified institutional investors, are not subject to that limitation.
Information concerning restricted securities is as follows:


                                                            ACQUISITION                   VALUATION AS OF     UNREALIZED
SECURITY                                                          DATES          COST   DECEMBER 31, 2004   DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------------

Blaze Network Products, Inc., 8% Cv., Series D                 10/17/00   $ 7,346,317         $       873   $  7,345,444
BroadBand Office, Inc., Cv., Series C                           8/28/00     4,000,015                  --      4,000,015
Centerpoint Broadband Technologies, Inc., Cv., Series D        10/23/00    13,999,997                  --     13,999,997
Centerpoint Broadband Technologies, Inc., Cv., Series Z         5/26/00     6,999,992                  --      6,999,992
MicroPhotonix Integration Corp., Cv., Series C                   7/6/00     4,000,004                  --      4,000,004
Multiplex, Inc., Cv., Series C                                   2/9/01    17,150,662             564,154     16,586,508
Questia Media, Inc., Cv., Series B                              8/18/00     8,999,999             969,869      8,030,130



            18 | OPPENHEIMER AGGRESSIVE GROWTH FUND/VA

- --------------------------------------------------------------------------------
6. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER BALANCED FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Balanced Fund/VA, a series of Oppenheimer Variable Account Funds,
including the statement of investments, as of December 31, 2004, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Balanced Fund/VA as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.


/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005


STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------

                                                                          VALUE
                                                       SHARES        SEE NOTE 1
- -------------------------------------------------------------------------------
COMMON STOCKS--52.4%
- -------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--8.6%
- -------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--0.8%
McDonald's Corp.                                      154,500   $     4,953,270
- -------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.3%
WCI Communities, Inc. 1                                69,600         2,046,240
- -------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--0.5%
IAC/InterActiveCorp                                   103,600         2,861,432
- -------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--0.1%
Leapfrog Enterprises, Inc. 1                           47,200           641,920
- -------------------------------------------------------------------------------
MEDIA--6.6%
Liberty Media Corp., Cl. A 1                          996,200        10,938,276
- -------------------------------------------------------------------------------
Liberty Media International, Inc., Cl. A 1             46,794         2,163,287
- -------------------------------------------------------------------------------
UnitedGlobalCom, Inc., Cl. A 1                      2,268,484        21,913,555
- -------------------------------------------------------------------------------
Viacom, Inc., Cl. B                                   131,800         4,796,202
                                                                ---------------
                                                                     39,811,320

- -------------------------------------------------------------------------------
SPECIALTY RETAIL--0.3%
Gap, Inc. (The)                                        82,300         1,738,176
- -------------------------------------------------------------------------------
CONSUMER STAPLES--3.7%
- -------------------------------------------------------------------------------
BEVERAGES--1.0%
Constellation Brands, Inc., Cl. A 1                   133,900         6,227,689
- -------------------------------------------------------------------------------
FOOD PRODUCTS--0.7%
Tyson Foods, Inc., Cl. A                              233,800         4,301,920
- -------------------------------------------------------------------------------
TOBACCO--2.0%
Altria Group, Inc.                                    199,600        12,195,560
- -------------------------------------------------------------------------------
Energy--3.7%
- -------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.3%
Halliburton Co.                                        42,600         1,671,624
- -------------------------------------------------------------------------------
OIL & GAS--3.4%
BP plc, ADR                                            50,400         2,943,360
- -------------------------------------------------------------------------------
Kinder Morgan, Inc.                                    34,900         2,552,237
- -------------------------------------------------------------------------------
LUKOIL, Sponsored ADR                                  44,300         5,426,750
- -------------------------------------------------------------------------------
Petroleo Brasileiro SA, Preference                     81,000         2,962,782
- -------------------------------------------------------------------------------
Talisman Energy, Inc.                                 137,700         3,717,894
- -------------------------------------------------------------------------------
Total SA, B Shares                                      1,700           372,570
- -------------------------------------------------------------------------------
TotalFinaElf SA, Sponsored ADR                         24,000         2,636,160
                                                                ---------------
                                                                     20,611,753

- -------------------------------------------------------------------------------
FINANCIALS--10.0%
- -------------------------------------------------------------------------------
CAPITAL MARKETS--0.4%
UBS AG                                                 25,042         2,099,863
- -------------------------------------------------------------------------------
COMMERCIAL BANKS--2.5%
Bank of America Corp.                                 169,968         7,986,796
- -------------------------------------------------------------------------------
Wachovia Corp.                                         74,315         3,908,969
- -------------------------------------------------------------------------------
Wells Fargo & Co.                                      54,600         3,393,390
                                                                ---------------
                                                                     15,289,155


                                                                          VALUE
                                                       SHARES        SEE NOTE 1
- -------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--3.2%
Citigroup, Inc.                                       164,100   $     7,906,338
- -------------------------------------------------------------------------------
JPMorgan Chase & Co.                                  100,500         3,920,505
- -------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.                         70,500         6,167,340
- -------------------------------------------------------------------------------
Morgan Stanley                                         30,600         1,698,912
                                                                ---------------
                                                                     19,693,095

- -------------------------------------------------------------------------------
INSURANCE--2.7%
Assured Guaranty Ltd.                                 181,900         3,577,973
- -------------------------------------------------------------------------------
Genworth Financial, Inc., Cl. A                       258,500         6,979,500
- -------------------------------------------------------------------------------
Prudential Financial, Inc.                            109,000         5,990,640
                                                                ---------------
                                                                     16,548,113

- -------------------------------------------------------------------------------
REAL ESTATE--0.4%
Host Marriott Corp.                                   140,500         2,430,650
- -------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.8%
Freddie Mac                                            67,200         4,952,640
- -------------------------------------------------------------------------------
HEALTH CARE--7.6%
- -------------------------------------------------------------------------------
BIOTECHNOLOGY--1.9%
MedImmune, Inc. 1                                     167,900         4,551,769
- -------------------------------------------------------------------------------
Wyeth                                                 158,300         6,741,997
                                                                ---------------
                                                                     11,293,766

- -------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.7%
Beckman Coulter, Inc.                                  61,000         4,086,390
- -------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.3%
Manor Care, Inc.                                       47,600         1,686,468
- -------------------------------------------------------------------------------
PacifiCare Health Systems, Inc.                        46,800         2,645,136
- -------------------------------------------------------------------------------
Tenet Healthcare Corp. 1                              349,700         3,839,706
                                                                ---------------
                                                                      8,171,310

- -------------------------------------------------------------------------------
PHARMACEUTICALS--3.7%
GlaxoSmithKline plc, ADR                               62,600         2,966,614
- -------------------------------------------------------------------------------
Novartis AG                                            89,813         4,525,798
- -------------------------------------------------------------------------------
Pfizer, Inc.                                          207,600         5,582,364
- -------------------------------------------------------------------------------
Schering-Plough Corp.                                 175,200         3,658,176
- -------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. 1                        170,700         5,600,667
                                                                ---------------
                                                                     22,333,619

- -------------------------------------------------------------------------------
INDUSTRIALS--5.7%
- -------------------------------------------------------------------------------
AEROSPACE & DEFENSE--2.9%
Empresa Brasileira de
Aeronautica SA, ADR                                   101,400         3,390,816
- -------------------------------------------------------------------------------
Honeywell International, Inc.                          83,600         2,960,276
- -------------------------------------------------------------------------------
Orbital Sciences Corp. 1                              557,464         6,594,799
- -------------------------------------------------------------------------------
Raytheon Co.                                          121,800         4,729,494
                                                                ---------------
                                                                     17,675,385


            8 | OPPENHEIMER BALANCED FUND/VA

                                                                          VALUE
                                                       SHARES        SEE NOTE 1
- -------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--1.9%
Cendant Corp.                                         484,500   $    11,327,610
- -------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.9%
General Electric Co.                                   97,900         3,573,350
- -------------------------------------------------------------------------------
Tyco International Ltd.                                48,800         1,744,112
                                                                ---------------
                                                                      5,317,462

- -------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--8.9%
- -------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--2.2%
Hewlett-Packard Co.                                   145,400         3,049,038
- -------------------------------------------------------------------------------
International Business Machines Corp.                 103,500        10,203,030
                                                                ---------------
                                                                     13,252,068

- -------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.8%
Flextronics International Ltd. 1                      347,800         4,806,596
- -------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.3%
Net2Phone, Inc. 1                                     481,500         1,637,100
- -------------------------------------------------------------------------------
IT SERVICES--0.3%
CSG Systems International, Inc.                       115,700         2,163,590
- -------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.3%
Freescale Semiconductor, Inc., Cl. A 1                282,900         5,041,278
- -------------------------------------------------------------------------------
Intel Corp.                                           128,600         3,007,954
                                                                ---------------
                                                                      8,049,232

- -------------------------------------------------------------------------------
SOFTWARE--4.0%
Compuware Corp. 1                                     245,400         1,587,738
- -------------------------------------------------------------------------------
Microsoft Corp.                                       290,000         7,745,900
- -------------------------------------------------------------------------------
Novell, Inc. 1                                        252,700         1,705,725
- -------------------------------------------------------------------------------
Synopsys, Inc. 1                                       39,600           776,952
- -------------------------------------------------------------------------------
Take-Two Interactive Software, Inc.                   355,800        12,378,282
                                                                ---------------
                                                                     24,194,597

- -------------------------------------------------------------------------------
MATERIALS--1.4%
- -------------------------------------------------------------------------------
CHEMICALS--0.4%
Praxair, Inc.                                          58,900         2,600,435
- -------------------------------------------------------------------------------
Sterling Chemicals, Inc. 1,2                               18               671
                                                                ---------------
                                                                      2,601,106

- -------------------------------------------------------------------------------
METALS & MINING--0.7%
Companhia Vale do Rio Doce,
Sponsored ADR                                         115,800         2,823,204
- -------------------------------------------------------------------------------
GrafTech International Ltd. 1                         164,200         1,553,332
                                                                ---------------
                                                                      4,376,536

- -------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.3%
Bowater, Inc.                                          33,700         1,481,789


                                                                          VALUE
                                                       SHARES        SEE NOTE 1
- -------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--1.3%
- -------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.3%
IDT Corp., Cl. B 1                                    494,600   $     7,656,408
- -------------------------------------------------------------------------------
WorldCom, Inc./WorldCom Group 1                       375,000                --
                                                                ---------------
                                                                      7,656,408

- -------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.0%
Leap Wireless International, Inc. 1                     1,707            46,089
- -------------------------------------------------------------------------------
UTILITIES--1.5%
- -------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.2%
AES Corp. (The) 1                                     389,900         5,329,933
- -------------------------------------------------------------------------------
PG&E Corp.                                             58,100         1,933,568
                                                                ---------------
                                                                      7,263,501

- -------------------------------------------------------------------------------
GAS UTILITIES--0.3%
Sempra Energy                                          52,900         1,940,372
                                                                ---------------
Total Common Stocks (Cost $222,624,033)                             317,748,946

                                                        UNITS
- -------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- -------------------------------------------------------------------------------
HF Holdings, Inc. Wts., Exp. 9/27/09 1,2                2,593                26
- -------------------------------------------------------------------------------
Lucent Technologies, Inc. Wts.,
Exp. 12/10/07 1                                         8,881            14,032
- -------------------------------------------------------------------------------
Sterling Chemicals, Inc. Wts.,
Exp. 12/19/08 1,2                                          31               145
- -------------------------------------------------------------------------------
Sun Healthcare Group, Inc. Wts.,
Exp. 2/28/05 1                                          1,241                --
                                                                ---------------
Total Rights, Warrants and Certificates
(Cost $38,932)                                                           14,203

                                                    PRINCIPAL
                                                       AMOUNT
- -------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--5.9%
- -------------------------------------------------------------------------------
Bank One Auto Securitization Trust,
Automobile Receivable Certificates,
Series 2003-1, Cl. A2, 1.29%, 8/21/06         $       428,668           427,907
- -------------------------------------------------------------------------------
BMW Vehicle Owner Trust,
Automobile Loan Certificates,
Series 2004-A, Cl. A2, 1.88%, 10/25/06              1,342,339         1,338,035
- -------------------------------------------------------------------------------
Capital Auto Receivables Asset
Trust, Automobile Mtg.-Backed Nts.,
Series 2004-2, Cl. A3, 3.58%, 1/15/09               1,270,000         1,268,413
- -------------------------------------------------------------------------------
Centex Home Equity Co. LLC, Home
Equity Loan Asset-Backed Certificates:
Series 2003-C, Cl. AF1, 2.14%, 7/25/18                118,828           118,696
Series 2004-A, Cl. AF1, 2.03%, 6/25/19                279,453           278,377
Series 2004-D, Cl. AF1, 2.98%, 4/25/20 2              548,493           546,714


            9 | OPPENHEIMER BALANCED FUND/VA

STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- -------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- -------------------------------------------------------------------------------
Chase Funding Mortgage Loan
Asset-Backed Certificates, Home
Equity Mtg. Obligations:
Series 2002-4, Cl. 1A3, 3.44%,
4/25/23                                       $       176,951   $       176,963
Series 2003-1, Cl. 1A3, 3.14%,
7/25/23                                               519,865           519,594
Series 2003-4, Cl. 1A1, 2.538%,
9/25/17 3                                             105,089           105,145
Series 2003-4, Cl. 1A2, 2.138%,
7/25/18                                               470,000           468,421
Series 2004-1, Cl. 2A1, 2.528%,
9/25/21 3                                             912,702           913,289
- -------------------------------------------------------------------------------
Chase Manhattan Auto Owner Trust,
Automobile Loan Pass-Through
Certificates:
Series 2002-A, Cl. A4, 4.24%, 9/15/08                 270,583           272,276
Series 2003-B, Cl. A2, 1.28%, 3/15/06                 111,861           111,799
- -------------------------------------------------------------------------------
CIT Equipment Collateral,
Equipment Receivable-Backed Nts.,
Series 2004-DFS, Cl. A2, 2.66%,
11/20/06 2                                            900,000           896,169
- -------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust,
Credit Card Receivable Nts., Series
2002-A3, Cl. A3, 4.40%, 5/15/07                     1,050,000         1,057,252
- -------------------------------------------------------------------------------
CitiFinancial Mortgage Securities,
Inc., Home Equity Collateralized
Mtg. Obligations:
Series 2003-2, Cl. AF1, 2.518%,
5/25/33 3                                              62,274            62,315
Series 2003-3, Cl. AF1, 2.538%,
8/25/33 3                                             288,500           288,693
- -------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust,
Inc., Home Equity Mtg. Obligations,
Series 2004-OPT1, Cl. A1B, 2.388%,
9/1/34 2                                              957,943           956,745
- -------------------------------------------------------------------------------
Countrywide Asset-Backed
Certificates, Inc., Home Equity
Asset-Backed Certificates, Series
2002-4, Cl. A1, 2.788%, 2/25/33 3                     247,806           249,209
- -------------------------------------------------------------------------------
DaimlerChrysler Auto Trust,
Automobile Loan Pass-Through
Certificates:
Series 2003-A, Cl. A2, 1.52%, 12/8/05                 344,336           344,301
Series 2003-B, Cl. A2, 1.61%, 7/10/06               1,429,174         1,426,772
Series 2004-B, Cl. A2, 2.48%, 2/8/07 2              1,000,000           997,602
Series 2004-C, Cl. A2, 2.62%, 6/8/07                1,720,000         1,714,720
- -------------------------------------------------------------------------------
Ford Credit Auto Owner Trust,
Automobile Loan Pass-Through
Certificates, Series 2004-A,
Cl. A2, 2.13%, 10/15/06                             2,200,000         2,191,434


                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- -------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- -------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust,
Motorcycle Receivable Nts., Series
2003-3, Cl. A1, 1.50%, 1/15/08                $       768,019   $       765,306
- -------------------------------------------------------------------------------
Honda Auto Receivables Owner
Trust, Automobile Receivable
Obligations:
Series 2003-3, Cl. A2, 1.52%, 4/21/06                 815,279           813,913
Series 2003-4, Cl. A2, 1.58%, 7/17/06               1,186,525         1,183,878
- -------------------------------------------------------------------------------
Household Automotive Trust,
Automobile Loan Certificates,
Series 2003-2, Cl. A2, 1.56%, 12/18/06                483,178           482,223
- -------------------------------------------------------------------------------
M&I Auto Loan Trust, Automobile
Loan Certificates:
Series 2002-1, Cl. A3, 2.49%, 10/22/07                499,345           499,276
Series 2003-1, Cl. A2, 1.60%, 7/20/06                 780,991           779,864
- -------------------------------------------------------------------------------
National City Auto Receivables
Trust, Automobile Receivable
Obligations, Series 2004-A, Cl. A2,
1.50%, 2/15/07                                        830,296           827,374
- -------------------------------------------------------------------------------
Nissan Auto Lease Trust,
Automobile Lease Obligations:
Series 2003-A, Cl. A2, 1.69%, 12/15/05                 77,230            77,230
Series 2004-A, Cl. A2, 2.55%, 1/15/07                 840,000           839,430
- -------------------------------------------------------------------------------
Nissan Auto Receivables Owner
Trust, Automobile Receivable Nts.:
Series 2002-A, Cl. A4, 4.28%, 10/16/06                214,670           215,752
Series 2004-A, Cl. A2, 1.40%, 7/17/06                 941,394           937,610
- -------------------------------------------------------------------------------
Option One Mortgage Loan Trust,
Home Equity Mtg. Obligations, Series
2004-3, Cl. A2, 2.568%, 11/25/34 2,3                  538,440           538,787
- -------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through
Trust, Home Equity Pass-Through
Certificates, Series 2004-5, Cl. AF2,
3.735%, 11/10/34 2                                    340,000           338,869
- -------------------------------------------------------------------------------
Toyota Auto Receivables Owner
Trust, Automobile Mtg.-Backed
Obligations:
Series 2002-B, Cl. A3, 3.76%, 6/15/06                  77,995            78,108
Series 2003-B, Cl. A2, 1.43%, 2/15/06                 315,355           315,162
- -------------------------------------------------------------------------------
USAA Auto Owner Trust,
Automobile Loan Asset-Backed Nts.:
Series 2002-1, Cl. A3, 2.41%, 10/16/06                206,620           206,613
Series 2004-1, Cl. A2, 1.43%, 9/15/06               2,232,894         2,225,786
Series 2004-2, Cl. A2, 2.41%, 2/15/07               1,030,000         1,026,746
Series 2004-3, Cl. A2, 2.79%, 6/15/07                 820,000           818,382
- -------------------------------------------------------------------------------
Volkswagen Auto Lease Trust,
Automobile Lease Asset-Backed
Securities, Series 2004-A, Cl. A2,
2.47%, 1/22/07                                      1,040,000         1,035,247


            10 | OPPENHEIMER BALANCED FUND/VA

                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced
Trust, Automobile Loan Receivable
Certificates:
Series 2003-1, Cl. A2, 1.11%, 12/20/05        $       143,570   $       143,521
Series 2003-2, Cl. A2, 1.55%, 6/20/06                 619,502           618,299
- -------------------------------------------------------------------------------
Wachovia Auto Owner Trust,
Automobile Receivable Nts., Series
2004-B, Cl. A2, 2.40%, 5/21/07                        740,000           736,955
- -------------------------------------------------------------------------------
Wells Fargo Home Equity Trust,
Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B, 2.94%, 9/25/18             1,530,733         1,523,659
- -------------------------------------------------------------------------------
Whole Auto Loan Trust, Automobile
Loan Receivable Certificates:
Series 2003-1, Cl. A2A, 1.40%, 4/15/06                766,394           764,957
Series 2004-1, Cl. A2A, 2.59%, 5/15/07              1,070,000         1,066,063
                                                                ---------------
Total Asset-Backed Securities
(Cost $35,698,339)                                                   35,589,851

- -------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--31.9%
- -------------------------------------------------------------------------------
GOVERNMENT AGENCY--27.6%
- -------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--27.5%
Federal Home Loan Mortgage Corp.:
5%, 1/1/35 4                                       12,183,000        12,099,242
5.50%, 1/1/35 4                                     7,814,000         7,938,540
6.50%, 7/1/28-4/1/34                                1,451,574         1,526,542
7%, 5/1/29-11/1/34                                  9,828,160        10,422,441
7%, 1/1/35 4                                        1,697,000         1,797,759
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Gtd. Real Estate Mtg. Investment
Conduit Multiclass Pass-Through
Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23                    280,065           282,296
Series 2055, Cl. ZM, 6.50%, 5/15/28                   722,759           751,722
Series 2075, Cl. D, 6.50%, 8/15/28                  1,622,217         1,688,728
Series 2080, Cl. Z, 6.50%, 8/15/28                    455,576           469,770
Series 2387, Cl. PD, 6%, 4/15/30                      937,202           971,466
Series 2466, Cl. PD, 6.50%, 4/15/30                   259,674           260,925
Series 2498, Cl. PC, 5.50%, 10/15/14                  134,573           135,726
Series 2500, Cl. FD, 2.903%, 3/15/32 3                269,712           270,770
Series 2526, Cl. FE, 2.803%, 6/15/29 3                331,555           332,748
Series 2551, Cl. FD, 2.803%, 1/15/33 3                265,555           267,375
Series 2551, Cl. TA, 4.50%, 2/15/18                   112,341           112,270
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Interest-Only Stripped Mtg.-Backed
Security:
Series 176, Cl. IO, (0.21)%, 6/1/26 5                 469,447            87,648
Series 183, Cl. IO, (1.41)%, 4/1/27 5                 761,669           147,670
Series 184, Cl. IO, 1.85%, 12/1/26 5                  773,660           143,863
Series 192, Cl. IO, 3.27%, 2/1/28 5                   209,537            38,940
Series 200, Cl. IO, 2.89%, 1/1/29 5                   256,034            49,086
Series 2130, Cl. SC, 12.38%, 3/15/29 5                576,012            60,173
Series 2796, Cl. SD, 19.10%, 7/15/26 5                795,040            80,364


                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal Home Loan Mortgage Corp.,
Principal-Only Stripped Mtg.-Backed
Security, Series 176, Cl. PO, 6.95%,
6/1/26 6                                      $       206,600   $       180,247
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 1/1/20 4                                     5,578,000         5,560,569
5%, 1/1/20-1/1/35 4                                22,693,000        22,586,331
5.50%, 3/1/33-1/1/34                                5,764,934         5,859,441
5.50%, 1/1/35 4                                    22,082,000        22,420,120
6%, 5/1/16-8/1/24                                   8,553,513         8,926,103
6%, 1/1/35 4                                       12,055,000        12,465,617
6.50%, 11/1/27-10/1/30                              1,359,313         1,429,034
6.50%, 1/1/35 4                                    15,978,000        16,756,928
7%, 12/1/31-10/1/34                                11,580,421        12,281,759
7%, 8/1/28-6/1/32 4                                 4,627,104         4,910,937
7.50%, 7/1/30-9/1/30                                1,082,094         1,159,793
8.50%, 7/1/32                                          56,581            61,468
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Collateralized Mtg. Obligations,
Trust 2002-T1, Cl. A2, 7%, 11/25/31                 1,561,930         1,656,130
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Collateralized Mtg. Obligations, Gtd.
Real Estate Mtg. Investment Conduit
Pass-Through Certificates:
Trust 1993-87, Cl. Z, 6.50%, 6/25/23                1,256,369         1,319,246
Trust 1998-63, Cl. PG, 6%, 3/25/27                    256,265           257,487
Trust 2001-50, Cl. NE, 6%, 8/25/30                    508,881           515,913
Trust 2001-70, Cl. LR, 6%, 9/25/30                    489,509           499,106
Trust 2001-72, Cl. NH, 6%, 4/25/30                    397,360           406,372
Trust 2001-74, Cl. PD, 6%, 5/25/30                    169,872           172,177
Trust 2002-50, Cl. PD, 6%, 9/25/27                    278,499           278,685
Trust 2002-77, Cl. WF, 2.81%, 12/18/32 3              426,467           428,987
Trust 2002-94, Cl. MA, 4.50%, 8/25/09                 737,669           739,285
Trust 2003-81, Cl. PA, 5%, 2/25/12                    221,314           222,127
Trust 2004-101, Cl. BG, 5%, 1/25/20                 1,110,000         1,119,713
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed
Security:
Trust 319, Cl. 2, (3.08)%, 2/1/32 5                   469,725            90,287
Trust 2002-47, Cl. NS, 9.28%, 4/25/32 5             1,030,485           108,006
Trust 2002-51, Cl. S, 9.56%, 8/25/32 5                946,229            99,276
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Interest-Only Stripped Mtg.-Backed
Security:
Trust 222, Cl. 2, (2.53)%, 6/1/23 5                 1,519,204           283,050
Trust 233, Cl. 2, (0.80)%, 8/1/23 5                 1,435,014           265,601
Trust 240, Cl. 2, 0.11%, 9/1/23 5                   2,324,143           442,611
Trust 252, Cl. 2, (3.44)%, 11/1/23 5                1,161,785           228,219
Trust 254, Cl. 2, (0.11)%, 1/1/24 5                   584,942           120,874
Trust 273, Cl. 2, 0.09%, 7/1/26 5                     340,774            62,963
Trust 321, Cl. 2, (8.45)%, 3/1/32 5                 4,842,910           962,409
Trust 333, Cl. 2, 1.40%, 3/1/33 5                   4,696,785         1,015,778
Trust 334, Cl. 17, (16.18)%, 2/1/33 5                 777,496           155,868
Trust 2001-81, Cl. S, 13.68%, 1/25/32 5               482,978            58,907


            11 | OPPENHEIMER BALANCED FUND/VA

STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- -------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn.,
Interest-Only Stripped Mtg.-Backed
Security: Continued
Trust 2002-52, Cl. SD, 8.85%, 9/25/32 5       $     1,191,233   $       123,167
Trust 2002-77, Cl. SH, 21.15%,
12/18/32 5                                            619,517            62,738
Trust 2002-9, Cl. MS, 10.62%, 3/25/32 5               703,195            76,703
Trust 2004-54, Cl. DS, 20.40%,
11/25/30 5                                            993,390            90,528
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Principal-Only Stripped Mtg.-Backed
Security, Trust 1993-184, Cl. M,
9.71%, 9/25/23 6                                      480,445           416,075
                                                                ---------------
                                                                    166,812,699

- -------------------------------------------------------------------------------
GNMA/GUARANTEED--0.1%
Government National Mortgage
Assn., 8%, 4/15/23                                    293,164           320,660
- -------------------------------------------------------------------------------
Government National Mortgage
Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, 14.94%,
1/16/27 5                                             920,135            88,003
Series 2002-15, Cl. SM, 9.39%,
2/16/32 5                                           1,047,287           100,973
Series 2002-76, Cl. SY, 9.35%,
12/16/26 5                                          2,108,379           215,071
Series 2004-11, Cl. SM, 10.64%,
1/17/30 5                                             835,059            75,086
                                                                ---------------
                                                                        799,793

- -------------------------------------------------------------------------------
PRIVATE--4.3%
- -------------------------------------------------------------------------------
COMMERCIAL--4.3%
Banc of America Commercial
Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates, Series
2004-6, Cl. A3, 4.512%, 12/10/42                    1,000,000         1,000,000
- -------------------------------------------------------------------------------
Bank of America Mortgage Securities,
Inc., Collateralized Mtg. Obligations
Pass-Through Certificates:
Series 2004-2, Cl. 2A1, 6.50%,
7/20/32                                             1,636,692         1,672,129
Series 2004-8, Cl. 5A1, 6.50%,
5/25/32                                             1,275,323         1,325,141
Series 2004-E, Cl. 2A9, 3.712%,
6/25/34                                               931,642           932,230
Series 2004-G, Cl. 2A1, 2.469%,
8/25/34                                               622,321           621,094
- -------------------------------------------------------------------------------
Countrywide Alternative Loan
Trust, Collateralized Mtg. Obligations,
Series 2004-J9, Cl. 1A1, 2.598%,
10/25/34 3                                          1,299,747         1,301,242


                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- -------------------------------------------------------------------------------
COMMERCIAL Continued
First Union National Bank/Lehman
Brothers/Bank of America Commercial
Mtg. Trust, Pass-Through Certificates,
Series 1998-C2, Cl. A2, 6.56%,
11/18/35                                      $       680,000   $       731,518
- -------------------------------------------------------------------------------
General Motors Acceptance Corp.
Commercial Mtg. Securities, Inc.,
Commercial Mtg. Obligations, Series
2004-C3, Cl. A4, 4.547%, 12/10/41                     640,000           641,684
- -------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Mtg. Pass-Through
Certificates, Series 1997-C1, Cl. A3,
6.869%, 7/15/29                                       506,985           536,679
- -------------------------------------------------------------------------------
GS Mortgage Securities Corp. II,
Commercial Mtg. Pass-Through
Certificates:
Series 2004-C1, Cl. A1, 3.659%,
10/10/28                                              685,259           677,810
Series 2004-GG2, Cl. A3, 4.602%,
8/10/38                                               410,000           418,316
- -------------------------------------------------------------------------------
GSR Mortgage Loan Trust,
Collateralized Mtg. Obligations,
Series 04-12, Cl. 3A1, 4.593%, 12/25/34 2,3         2,018,542         2,021,322
- -------------------------------------------------------------------------------
Mastr Alternative Loan Trust,
Pass-Through Collateralized Mtg.
Obligations, Series 2004-6, Cl. 10A1,
6%, 7/25/34                                         1,893,011         1,954,708
- -------------------------------------------------------------------------------
Mastr Asset Securitization Trust,
Pass-Through Collateralized Mtg.
Obligations, Series 2004-9, Cl. A3,
4.70%, 8/25/34                                      2,476,850         2,478,856
- -------------------------------------------------------------------------------
Mastr Seasoned Securities Trust,
Collateralized Mtg. Obligations,
Series 2004-2, Cl. PT65, 6.50%,
12/1/34 4                                           2,966,000         3,054,517
- -------------------------------------------------------------------------------
Nomura Asset Securities Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl. A1B,
6.59%, 3/15/30                                        780,000           844,183
- -------------------------------------------------------------------------------
Prudential Mortgage Capital Co. II
LLC, Commercial Mtg. Pass-Through
Certificates, Series PRU-HTG 2000-C1,
Cl. A2, 7.306%, 10/6/15                               983,000         1,133,147
- -------------------------------------------------------------------------------
Washington Mutual Mortgage
Securities Corp., Collateralized Mtg.
Pass-Through Certificates, Series
2003-AR12, Cl. A2, 2.446%, 2/25/34 3                   16,547            16,556


            12 | OPPENHEIMER BALANCED FUND/VA

                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- -------------------------------------------------------------------------------
COMMERICIAL Continued
Wells Fargo Mortgage-Backed
Securities Trust, Collateralized Mtg.
Obligations:
Series 2004-DD, Cl. 2A1,
4.548%, 1/25/35                               $     2,260,000   $     2,263,708
Series 2004-N, Cl. A10, 3.803%,
8/25/34 2                                           1,652,090         1,657,524
Series 2004-W, Cl. A2, 4.635%,
11/25/34 3                                            948,941           951,560
                                                                ---------------
                                                                     26,233,924

- -------------------------------------------------------------------------------
OTHER--0.0%
CIT Equipment Collateral, Equipment
Receivable-Backed Nts., Series
2003-EF1, Cl. A2, 1.49%, 12/20/05                      77,989            78,005
                                                                ---------------
Total Mortgage-Backed Obligations
(Cost $193,402,123)                                                 193,924,421

- -------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--6.6%
- -------------------------------------------------------------------------------
Federal Home Loan Bank Bonds,
3.125%, 9/15/06                                     2,155,000         2,153,636
- -------------------------------------------------------------------------------
Federal Home Loan Bank Unsec.
Bonds, 2.75%, 10/15/06                              2,540,000         2,520,993
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp. Unsec. Nts., 6.875%, 9/15/10                  1,500,000         1,714,446
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.
Unsec. Nts.:
4.25%, 7/15/07                                      4,315,000         4,408,066
7.25%, 1/15/10-5/15/30                              4,075,000         4,790,855
- -------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
7.125%, 5/1/30                                        795,000           992,111
Series A, 6.79%, 5/23/12                            7,916,000         9,128,446
- -------------------------------------------------------------------------------
U.S. Treasury Bonds:
5.375%, 2/15/31                                     2,197,000         2,376,365
5.50%, 8/15/28                                        645,000           698,314
STRIPS, 3.37%, 2/15/11 7                              409,000           322,164
STRIPS, 3.86%, 2/15/13 7                              478,000           340,039
- -------------------------------------------------------------------------------
U.S. Treasury Nts.:
2.50%, 9/30/06-10/31/06                             8,960,000         8,882,683
4.25%, 11/15/13-11/15/14                            1,538,000         1,546,678
5.75%, 8/15/10                                        434,000           477,960
                                                                ---------------

Total U.S. Government Obligations
(Cost $40,249,219)                                                   40,352,756

- -------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.1%
- -------------------------------------------------------------------------------
United Mexican States Nts., 7.50%,
1/14/12 (Cost $520,726)                               475,000           539,838
- -------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND
NOTES--13.2%
ABN Amro Bank NV (NY Branch),
7.125% Sub. Nts., Series B, 10/15/93                  400,000   $       461,950
- -------------------------------------------------------------------------------


                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- -------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
Aetna, Inc., 7.375% Sr. Unsec. Nts., 3/1/06   $     1,185,000   $     1,233,951
- -------------------------------------------------------------------------------
Allied Waste North America, Inc.,
8.875% Sr. Nts., Series B, 4/1/08                     540,000           580,500
- -------------------------------------------------------------------------------
Allstate Financial Global Funding
LLC, 4.25% Nts., 9/10/08 9                            245,000           248,094
- -------------------------------------------------------------------------------
Allstate Life Global Funding II,
3.50% Nts., 7/30/07                                   330,000           328,808
- -------------------------------------------------------------------------------
American Express Centurion Bank,
4.375% Nts., 7/30/09                                  435,000           442,381
- -------------------------------------------------------------------------------
American Honda Finance Corp.,
3.85% Nts., 11/6/08 9                                 835,000           833,408
- -------------------------------------------------------------------------------
AT&T Wireless Services, Inc.,
7.50% Sr. Unsec. Nts., 5/1/07                         885,000           961,767
- -------------------------------------------------------------------------------
AXA, 8.60% Unsec. Sub. Nts., 12/15/30                 750,000           987,984
- -------------------------------------------------------------------------------
Bank of America Corp.:
4.875% Sr. Unsec. Nts., 1/15/13                        15,000            15,286
7.80% Jr. Unsec. Sub. Nts., 2/15/10                   400,000           465,659
- -------------------------------------------------------------------------------
Bankers Trust Corp., 7.375%
Unsec. Sub. Nts., 5/1/08                              100,000           111,007
- -------------------------------------------------------------------------------
Beazer Homes USA, Inc., 8.625%
Sr. Unsec. Nts., 5/15/11                              565,000           618,675
- -------------------------------------------------------------------------------
Boeing Capital Corp.:
5.65% Sr. Unsec. Nts., 5/15/06                        180,000           185,670
6.50% Nts., 2/15/12  10                               750,000           841,571
- -------------------------------------------------------------------------------
British Telecommunications plc:
7.875% Nts., 12/15/05                                 770,000           803,285
8.125% Nts., 12/15/10                                 420,000           504,968
- -------------------------------------------------------------------------------
Canadian National Railway Co.,
4.25% Nts., 8/1/09                                    161,000           162,448
- -------------------------------------------------------------------------------
CenterPoint Energy, Inc.:
5.875% Sr. Nts., 6/1/08                               690,000           722,564
8.125% Unsec. Nts., Series B, 7/15/05                 270,000           277,148
- -------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr.
Unsec. Nts., 11/1/08                                1,155,000         1,297,895
- -------------------------------------------------------------------------------
Chesapeake Energy Corp., 7.50%
Sr. Nts., 6/15/14                                     610,000           669,475
- -------------------------------------------------------------------------------
CIGNA Corp., 7.40% Unsec. Nts.,
5/15/07                                             1,410,000         1,515,619
- -------------------------------------------------------------------------------
CIT Group, Inc., 7.75% Sr. Unsec.
Unsub. Nts., 4/2/12                                 1,000,000         1,185,388
- -------------------------------------------------------------------------------
Citigroup, Inc., 6.875% Unsec. Nts.,
2/15/98                                               450,000           514,893
- -------------------------------------------------------------------------------
Citizens Communications Co.,
9.25% Sr. Nts., 5/15/11                               291,000           341,925
- -------------------------------------------------------------------------------
Coca-Cola Co. (The), 7.375%
Unsec. Debs., 7/29/93                                 360,000           457,509
- -------------------------------------------------------------------------------
ConAgra Foods, Inc., 6% Nts.,
9/15/06                                               610,000           635,388
- -------------------------------------------------------------------------------
Conectiv, Inc., 5.30% Unsec. Unsub.
Nts., Series B, 6/1/05                                168,000           169,381


            13 | OPPENHEIMER BALANCED FUND/VA

STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- -------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
Cox Communications, Inc., 7.875%
Unsec. Nts., 8/15/09                          $       760,000   $       863,431
- -------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts.,
10/15/08                                              585,000           631,265
- -------------------------------------------------------------------------------
D.R. Horton, Inc., 6.125% Nts.,
1/15/14                                               555,000           574,425
- -------------------------------------------------------------------------------
DaimlerChrysler North America
Holding Corp., 4.75% Unsec. Nts.,
1/15/08                                             1,090,000         1,114,053
- -------------------------------------------------------------------------------
Delphi Automotive Systems Corp.,
6.50% Nts., 5/1/09                                    500,000           514,400
- -------------------------------------------------------------------------------
Deutsche Telekom International
Finance BV, 8.50% Unsub. Nts.,
6/15/10                                               770,000           918,381
- -------------------------------------------------------------------------------
Dominion Resources, Inc., 8.125%
Sr. Unsub. Nts., 6/15/10                              530,000           624,528
- -------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub.
Nts., 6/1/06                                          580,000           603,983
- -------------------------------------------------------------------------------
Duke Capital LLC, 5.668% Nts.,
8/15/14                                               645,000           666,774
- -------------------------------------------------------------------------------
EOP Operating LP:
6.763% Sr. Unsec. Nts., 6/15/07                       180,000           191,591
8.375% Nts., 3/15/06                                  425,000           448,405
- -------------------------------------------------------------------------------
Federated Department Stores, Inc.,
6.625% Sr. Unsec. Nts., 9/1/08                        810,000           882,514
- -------------------------------------------------------------------------------
FedEx Corp., 2.65% Unsec. Nts.,
4/1/07                                              1,320,000         1,293,538
- -------------------------------------------------------------------------------
FirstEnergy Corp.:
5.50% Sr. Unsub. Nts., Series A,
11/15/06                                              495,000           511,228
7.375% Sr. Unsub. Nts., Series C,
11/15/31                                              565,000           647,246
- -------------------------------------------------------------------------------
Food Lion, Inc., 7.55% Nts., 4/15/07                  785,000           852,939
- -------------------------------------------------------------------------------
Ford Holdings, Inc., 9.30% Unsec.
Unsub. Debs., 3/1/30                                  240,000           282,218
- -------------------------------------------------------------------------------
Ford Motor Co., 7.70% Unsec.
Debs., 5/15/97                                        400,000           387,614
- -------------------------------------------------------------------------------
Ford Motor Credit Co., 7.375%
Nts., 10/28/09                                        255,000           275,339
- -------------------------------------------------------------------------------
France Telecom SA:
7.95% Sr. Unsec. Nts., 3/1/06                         115,000           120,779
8.50% Sr. Unsec. Nts., 3/1/11                         540,000           644,961
9.25% Sr. Unsec. Nts., 3/1/31 3                       230,000           312,708
- -------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts.,
4/15/08                                               425,000           424,320
- -------------------------------------------------------------------------------
Gap, Inc. (The):
6.90% Nts., 9/15/07 2                                 354,000           382,320
10.55% Unsub. Nts., 12/15/08                          141,000           172,373
- -------------------------------------------------------------------------------
General Electric Capital Corp.,
7.25% Nts., Series A, 2/1/05                          400,000           401,310
- -------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts.,
11/30/07                                              950,000           953,687


                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- -------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
General Motors Acceptance Corp.,
7.25% Nts., 3/2/11                            $     1,660,000   $     1,740,108
- -------------------------------------------------------------------------------
General Motors Corp., 8.375% Sr.
Unsec. Debs., 7/15/33                                 280,000           290,907
- -------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The),
7.80% Sr. Unsec. Unsub. Nts.,
Series B, 1/28/10                                     400,000           462,792
- -------------------------------------------------------------------------------
Hartford Financial Services Group,
Inc. (The), 2.375% Nts., 6/1/06                       345,000           338,808
- -------------------------------------------------------------------------------
Hertz Corp. (The), 6.35% Nts.,
6/15/10                                             1,560,000         1,600,650
- -------------------------------------------------------------------------------
Hilton Hotels Corp., 7.95% Sr. Nts.,
4/15/07                                               450,000           489,713
- -------------------------------------------------------------------------------
Household Finance Corp., 8.875%
Sr. Unsec. Nts., 2/15/06                              830,000           878,858
- -------------------------------------------------------------------------------
Huntsman Corp./ICI Chemical Co.
plc, 13.08% Sr. Unsec. Disc. Nts.,
12/31/09 7                                            500,000           282,500
- -------------------------------------------------------------------------------
Hutchison Whampoa International
Ltd., 7.45% Sr. Bonds, 11/24/33 9                     495,000           550,726
- -------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375% Sr.
Sec. Nts., 11/14/08 2,3                               540,000           610,200
- -------------------------------------------------------------------------------
iStar Financial, Inc.:
4.875% Sr. Unsec. Nts., Series B,
1/15/09                                               545,000           553,687
8.75% Sr. Unsec. Nts., 8/15/08                        400,000           456,487
- -------------------------------------------------------------------------------
J.C. Penney Co., Inc., 8% Nts., 3/1/10              1,160,000         1,331,100
- -------------------------------------------------------------------------------
John Hancock Global Funding II,
7.90% Nts., 7/2/10 9                                  947,000         1,110,079
- -------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp.,
10.875% Sr. Nts., Series B, 10/15/06 1,11             250,000           221,875
- -------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec.
Nts., 9/1/12                                          595,000           655,005
- -------------------------------------------------------------------------------
Kraft Foods, Inc., 5.25% Nts., 6/1/07               1,435,000         1,487,320
- -------------------------------------------------------------------------------
Kroger Co. (The), 7.80% Sr. Nts.,
8/15/07                                               905,000           993,094
- -------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts.,
Series B, 5/15/09                                   1,000,000         1,135,205
- -------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.,
7% Nts., 2/1/08                                       765,000           836,410
- -------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr.
Sub. Nts., 2/15/08                                    125,000           135,056
- -------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts.,
3/1/13                                                580,000           615,214
- -------------------------------------------------------------------------------
Liberty Media Corp., 3.50% Nts.,
9/25/06                                               600,000           596,913
- -------------------------------------------------------------------------------
Liberty Property Trust, 5.65% Sr.
Nts., 8/15/14                                         615,000           633,055
- -------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc.,
5.375% Nts., 7/15/14                                  268,000           262,334


            14 | OPPENHEIMER BALANCED FUND/VA

                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- -------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
May Department Stores Co., 3.95%
Nts., 7/15/07                                 $        81,000   $        81,185
- -------------------------------------------------------------------------------
MBNA America Bank NA, 5.375%
Nts., 1/15/08                                         935,000           977,229
- -------------------------------------------------------------------------------
McDonnell Douglas Corp., 6.875%
Unsec. Unsub. Nts., 11/1/06                           160,000           169,432
- -------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 4.125%
Nts., 9/10/09                                       1,280,000         1,280,475
- -------------------------------------------------------------------------------
Metallurg, Inc., 11% Sr. Nts., 12/1/07                450,000           393,750
- -------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12                    570,000           636,656
- -------------------------------------------------------------------------------
National City Bank, 6.20% Sub.
Nts., 12/15/11                                         83,000            91,376
- -------------------------------------------------------------------------------
NiSource Finance Corp.:
3.20% Nts., 11/1/06                                   180,000           178,462
7.875% Sr. Unsec. Nts., 11/15/10                      790,000           929,821
- -------------------------------------------------------------------------------
Northrop Grumman Corp., 7.125%
Sr. Nts., 2/15/11                                     767,000           881,327
- -------------------------------------------------------------------------------
Petroleos Mexicanos, 9.50% Sr. Sub.
Nts., 9/15/27                                         365,000           458,988
- -------------------------------------------------------------------------------
PF Export Receivables Master Trust,
3.748% Sr. Nts., Series B, 6/1/13 9                   424,641           412,316
- -------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695%
Bonds, Series C, 12/18/23 9                           900,000         1,145,817
- -------------------------------------------------------------------------------
Prudential Insurance Co. of America,
8.30% Nts., 7/1/25 9                                  920,000         1,178,061
- -------------------------------------------------------------------------------
PSEG Energy Holdings LLC, 7.75%
Unsec. Nts., 4/16/07 2                                595,000           632,188
- -------------------------------------------------------------------------------
R&B Falcon Corp., 9.50% Sr. Unsec.
Nts., 12/15/08                                        500,000           593,204
- -------------------------------------------------------------------------------
Raytheon Co., 6.50% Unsec. Nts.,
7/15/05                                               225,000           229,049
- -------------------------------------------------------------------------------
Safeway, Inc., 4.80% Sr. Unsec. Nts.,
7/16/07                                             1,445,000         1,480,099
- -------------------------------------------------------------------------------
Spieker Properties LP, 6.75%
Unsec. Unsub. Nts., 1/15/08                           360,000           390,458
- -------------------------------------------------------------------------------
Sprint Capital Corp.:
7.125% Sr. Unsec. Nts., 1/30/06                       595,000           619,028
8.75% Nts., 3/15/32                                   530,000           708,297
- -------------------------------------------------------------------------------
Starwood Hotels & Resorts
Worldwide, Inc., 7.375% Nts., 5/1/07                  470,000           503,488
- -------------------------------------------------------------------------------
Sterling Chemicals, Inc., 10% Sr.
Sec. Nts., 12/19/07 8                                 221,615           222,723
- -------------------------------------------------------------------------------
SunTrust Banks, Inc.:
4% Nts., 10/15/08                                     640,000           646,461
7.75% Unsec. Sub. Nts., 5/1/10                         57,000            66,275
- -------------------------------------------------------------------------------
TCI Communications, Inc., 9.80%
Sr. Unsec. Debs., 2/1/12                            1,145,000         1,477,881
- -------------------------------------------------------------------------------
TECO Energy, Inc., 10.50% Sr.
Unsec. Nts., 12/1/07                                  475,000           549,805


                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- -------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
Telefonos de Mexico SA de CV,
4.50% Nts., 11/19/08                          $       530,000   $       534,857
- -------------------------------------------------------------------------------
Time Warner Cos., Inc., 9.125%
Debs., 1/15/13                                        530,000           682,359
- -------------------------------------------------------------------------------
Time Warner Entertainment Co. LP,
10.15% Sr. Nts., 5/1/12                               500,000           656,851
- -------------------------------------------------------------------------------
Toll Corp., 8.25% Sr. Sub. Nts., 12/1/11              565,000           627,150
- -------------------------------------------------------------------------------
TXU Corp., 4.80% Nts., 11/15/09 9                     555,000           556,591
- -------------------------------------------------------------------------------
Tyco International Group SA:
6.375% Sr. Unsec. Unsub. Nts.,
2/15/06                                               850,000           878,557
6.375% Nts., 10/15/11                                 750,000           829,192
6.75% Sr. Unsub. Nts., 2/15/11                        378,000           424,194
- -------------------------------------------------------------------------------
Univision Communications, Inc.:
2.875% Sr. Unsec. Nts., 10/15/06                      163,000           160,910
3.50% Sr. Unsec. Nts., 10/15/07                       845,000           835,577
- -------------------------------------------------------------------------------
Volkswagen Credit, Inc., 2.33% Nts.,
7/21/05  3,9                                        1,225,000         1,225,103
- -------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec.
Unsub. Nts., 6/15/07                                1,225,000         1,272,553
- -------------------------------------------------------------------------------
Waste Management, Inc.:
7% Sr. Nts., 7/15/28                                  220,000           248,893
7.125% Sr. Unsec. Nts., 10/1/07                       800,000           869,420
- -------------------------------------------------------------------------------
Western Forest Products, Inc.,
15% Sec. Nts., 7/28/09 8,9                            146,000           165,345
- -------------------------------------------------------------------------------
Weyerhaeuser Co., 5.50% Unsec.
Unsub. Nts., 3/15/05                                  250,000           251,163
- -------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec.
Nts., 4/15/06                                       1,230,000         1,307,014
                                                                ---------------
Total Non-Convertible Corporate
Bonds and Notes (Cost $77,208,011)                                   79,998,603

- -------------------------------------------------------------------------------
STRUCTURED NOTES--0.6%
- -------------------------------------------------------------------------------
Deutsche Bank AG, COUNTS Corp.
Sec. Credit Linked Nts., Series 2003-1,
3.78%, 1/7/05 2,3 (Cost $3,550,000)                 3,550,000         3,539,350
- -------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--5.9%
- -------------------------------------------------------------------------------
Undivided interest of 2.49% in joint
repurchase agreement (Principal Amount/Value
$1,443,703,000, with a maturity value of
$1,443,962,867) with UBS Warburg LLC, 2.16%,
dated 12/31/04, to be repurchased at
$36,015,482 on 1/3/05, collateralized by
Federal National Mortgage Assn., 5%--6%,
4/1/34--10/1/34, with a value of
$1,474,609,071 (Cost $36,009,000)                  36,009,000        36,009,000
- -------------------------------------------------------------------------------
Total Investments, at Value (excluding
Investments Purchased with Cash
Collateral from Securities Loaned)
(Cost $609,300,383)                                                 707,716,968


            15 | OPPENHEIMER BALANCED FUND/VA

STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                    PRINCIPAL             VALUE
                                                       AMOUNT        SEE NOTE 1
- -------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED--2.0%
- -------------------------------------------------------------------------------
MASTER FLOATING NOTES--0.2%
Bear Stearns, 2.493%, 1/3/05 12                   $   500,000   $       500,000
- -------------------------------------------------------------------------------
Merrill Lynch Mortgage Capital,
2.413%, 1/3/05 12                                     500,000           500,000
                                                                ---------------
                                                                      1,000,000

- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT--1.8%
Undivided interest of 0.39% in joint repurchase
agreement (Principal Amount/Value $2,800,000,000,
with a maturity value of $2,800,550,669) with
Nomura Securities, 2.36%, dated 12/31/04, to
be repurchased at $10,968,169 on 1/3/05,
collateralized by U.S. Government Mortgage
Agencies, 2.58%-7.50%, 1/15/08-10/15/44,
with a value of $2,908,566,289 12                  10,966,012        10,966,012
                                                                ---------------
Total Investments Purchased with
Cash Collateral from Securities
Loaned (Cost $11,966,012)                                            11,966,012

- -------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $621,266,395)                                     118.6%      719,682,980
- -------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS                   (18.6)     (112,742,772)
                                              ---------------------------------
NET ASSETS                                              100.0%  $   606,940,208
                                              =================================

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. Illiquid security. The aggregate value of illiquid securities as of December
31, 2004 was $13,118,632, which represents 2.16% of the Fund's net assets. See
Note 9 of Notes to Financial Statements.

3. Represents the current interest rate for a variable or increasing rate
security.

4. When-issued security or forward commitment to be delivered and settled after
December 31, 2004. See Note 1 of Notes to Financial Statements.

5. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $5,333,862 or 0.88% of the Fund's net assets
as of December 31, 2004.

6. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these securities
generally increases as interest rates decline and prepayment rates rise. The
price of these securities is typically more volatile than that of coupon-bearing
bonds of the same maturity. Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing of future cash flows.
These securities amount to $596,322 or 0.10% of the Fund's net assets as of
December 31, 2004.

7. Zero coupon bond reflects effective yield on the date of purchase.

8. Interest or dividend is paid-in-kind.

9. 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 $7,425,540 or 1.22% of the Fund's net
assets as of December 31, 2004.

10. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts with an aggregate
market value of $785,467. See Note 6 of Notes to Financial Statements.

11. Issue is in default. See Note 1 of Notes to Financial Statements.

12. The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 10 of Notes to Financial
Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            16 | OPPENHEIMER BALANCED FUND/VA

STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investments, at value (including securities loaned of
$32,538,035) (cost $621,266,395)--see accompanying
statement of investments                                        $   719,682,980
- --------------------------------------------------------------------------------
Cash                                                                    752,712
- --------------------------------------------------------------------------------
Collateral for securities loaned                                     21,172,558
- --------------------------------------------------------------------------------
Unrealized appreciation on swap contracts                                39,477
- --------------------------------------------------------------------------------
Receivables and other assets:
Investments sold on a when-issued basis or forward commitment        34,157,333
Interest, dividends and principal paydowns                            2,698,161
Futures margins                                                         171,264
Shares of beneficial interest sold                                      160,472
Other                                                                     9,836
                                                                ----------------
Total assets                                                        778,844,793

- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Return of collateral for securities loaned                           33,138,570
- --------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $138,238,645 purchased on a
when-issued basis or forward commitment)                            138,452,752
Shares of beneficial interest redeemed                                  202,423
Shareholder communications                                               35,195
Distribution and service plan fees                                       33,267
Trustees' compensation                                                   13,840
Transfer and shareholder servicing agent fees                             1,709
Other                                                                    26,829
                                                                ----------------
Total liabilities                                                   171,904,585

- --------------------------------------------------------------------------------
NET ASSETS                                                      $   606,940,208
                                                                ================

- --------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Par value of shares of beneficial interest                      $        34,997
- --------------------------------------------------------------------------------
Additional paid-in capital                                          477,924,685
- --------------------------------------------------------------------------------
Accumulated net investment income                                     9,981,717
- --------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions                                                20,056,825
- --------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of
assets and liabilities denominated in foreign currencies             98,941,984
                                                                ----------------
NET ASSETS                                                      $   606,940,208
                                                                ================

- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------
Non-Service Shares:
Net asset value, redemption price per share and offering
price per share (based on net assets of $547,290,257
and 31,542,247 shares of beneficial interest outstanding)       $         17.35
- --------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering
price per share (based on net assets of $59,649,951
and 3,455,362 shares of beneficial interest outstanding)        $         17.26

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            17 | OPPENHEIMER BALANCED FUND/VA

STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Interest                                                        $     8,070,767
- --------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $92,103)               5,180,617
- --------------------------------------------------------------------------------
Portfolio lending fees                                                   28,817
                                                                ----------------
Total investment income                                              13,280,201

- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees                                                       4,101,747
- --------------------------------------------------------------------------------
Distribution and service plan fees -- Service shares                     99,391
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares                                                       10,110
Service shares                                                           10,010
- --------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares                                                       34,192
Service shares                                                            2,425
- --------------------------------------------------------------------------------
Custodian fees and expenses                                              20,673
- --------------------------------------------------------------------------------
Trustees' compensation                                                   17,269
- --------------------------------------------------------------------------------
Other                                                                    40,636
                                                                ----------------
Total expenses                                                        4,336,453
Less reduction to custodian expenses                                    (13,820)
                                                                ----------------
Net expenses                                                          4,322,633

- --------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                 8,957,568

- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on:
Investments (including premiums on options exercised)                50,334,810
Closing of futures contracts                                          1,583,889
Closing and expiration of option contracts written                      331,434
Foreign currency transactions                                           197,105
Swap contracts                                                          229,352
Net increase from payment by affiliate                                   13,067
                                                                ----------------
Net realized gain                                                    52,689,657
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments                                                          (6,627,575)
Translation of assets and liabilities denominated in
foreign currencies                                                      340,324
Futures contracts                                                        (4,983)
Option contracts                                                        249,912
Swap contracts                                                           31,513
                                                                ----------------
Net change in unrealized appreciation                                (6,010,809)

- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS            $    55,636,416
                                                                ================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            18 | OPPENHEIMER BALANCED FUND/VA

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------


YEAR ENDED DECEMBER 31,                                                 2004              2003
- -----------------------------------------------------------------------------------------------

OPERATIONS
- -----------------------------------------------------------------------------------------------
Net investment income                                         $    8,957,568    $    8,796,089
- -----------------------------------------------------------------------------------------------
Net realized gain                                                 52,689,657         1,352,031
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation                             (6,010,809)       99,178,424
                                                              ---------------------------------
Net increase in net assets resulting from operations              55,636,416       109,326,544

- -----------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares                                                (5,486,430)      (13,791,025)
Service shares                                                      (294,219)          (86,954)

- -----------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Non-Service shares                                               (31,808,087)      (18,122,603)
Service shares                                                    29,880,516        20,531,465

- -----------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------
Total increase                                                    47,928,196        97,857,427
- -----------------------------------------------------------------------------------------------
Beginning of period                                              559,012,012       461,154,585
                                                              ---------------------------------
End of period (including accumulated net investment income
of $9,981,717 and $5,770,535, respectively)                   $  606,940,208    $  559,012,012
                                                              =================================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            19 | OPPENHEIMER BALANCED FUND/VA

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------


NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,                     2004           2003           2002           2001           2000
- -----------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                   $       15.92     $    13.16     $    15.40     $    16.55     $    17.46
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                            .26 1          .27            .50            .53            .72
Net realized and unrealized gain (loss)                         1.33           2.90          (2.02)          (.19)           .38
                                                       ----------------------------------------------------------------------------
Total from investment operations                                1.59           3.17          (1.52)           .34           1.10
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                            (.16)          (.41)          (.51)          (.64)          (.82)
Distributions from net realized gain                              --             --           (.21)          (.85)         (1.19)
                                                       ----------------------------------------------------------------------------
Total dividends and/or distributions to shareholders            (.16)          (.41)          (.72)         (1.49)         (2.01)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                         $       17.35     $    15.92     $    13.16     $    15.40     $    16.55
                                                       ============================================================================

- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                             10.10%         24.96%        (10.40)%         2.22%          6.44%
- -----------------------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)               $     547,290     $  533,710     $  458,848     $  593,033     $  589,298
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                      $     528,655     $  475,389     $  517,516     $  599,324     $  566,724
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                           1.59%          1.82%          3.31%          3.42%          4.36%
Total expenses                                                  0.74% 4        0.76% 4        0.74% 4        0.76% 4        0.76% 4
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                           68% 5         248%            42%            30%            42%


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$1,460,076,994 and $1,473,590,963, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            20 | OPPENHEIMER BALANCED FUND/VA

SERVICE SHARES  YEAR ENDED DECEMBER 31,                       2004           2003        2002 1
- --------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period                   $     15.87     $    13.14     $   14.51
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                          .23 2          .39           .13
Net realized and unrealized gain (loss)                       1.31           2.74         (1.50)
                                                       -------------------------------------------
Total from investment operations                              1.54           3.13         (1.37)
- --------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                          (.15)          (.40)           --
Distributions from net realized gain                            --             --            --
                                                       -------------------------------------------
Total dividends and/or distributions to shareholders          (.15)          (.40)           --
- --------------------------------------------------------------------------------------------------
Net asset value, end of period                         $     17.26     $    15.87     $   13.14
                                                       ===========================================

- --------------------------------------------------------------------------------------------------
Total Return, at Net Asset Value 3                            9.79%         24.69%        (9.44)%
- --------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)               $    59,650     $   25,302     $   2,306
- --------------------------------------------------------------------------------------------------
Average net assets (in thousands)                      $    39,851     $    9,908     $   1,037
- --------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                         1.41%          1.37%         3.30%
Total expenses                                                1.02% 5        1.01% 5       0.99% 5
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate                                         68% 6         248%           42%


1. For the period from May 1, 2002 (inception of offering) to December 31, 2002.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$1,460,076,994 and $1,473,590,963, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            21 | OPPENHEIMER BALANCED FUND/VA

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Balanced Fund/VA (the Fund), formerly Oppenheimer Multiple
Strategies Fund/VA, is a separate series of Oppenheimer Variable Account Funds
(the Trust), an 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 total investment return, which includes current income and
capital appreciation in the value of its shares. The Trust's investment advisor
is OppenheimerFunds, Inc. (the Manager).

      The Fund offers two classes of shares. Both classes are sold at their
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products. The class of shares designated as Service shares is subject to a
distribution and service plan. Both classes of shares have identical rights and
voting privileges with respect to the Fund in general and exclusive voting
rights on matters that affect that class alone. Earnings, net assets and net
asset value per share may differ due to each class having its own expenses, such
as transfer and shareholder servicing agent fees and shareholder communications,
directly attributable to that class.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in structured notes whose market values,
interest rates and/or redemption prices are linked to the performance of
underlying foreign currencies, interest rate spreads, stock market indices,
prices of individual securities, commodities or other financial instruments or
the occurrence of other specific events. The structured notes are often
leveraged, increasing the volatility of each note's market value relative to the
change in the underlying linked financial element or event. Fluctuations in
value of these securities are recorded as unrealized gains and losses in the
accompanying financial statements. The Fund records a realized gain or loss when
a structured note is sold or matures. As of December 31, 2004, the market value
of these securities comprised 0.6% of the Fund's net assets and resulted in
unrealized cumulative losses of $10,650.


            22 | OPPENHEIMER BALANCED FUND/VA

- --------------------------------------------------------------------------------
SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment
for securities that have been purchased by the Fund on a when-issued basis or
forward commitment can take place up to ten days or more after the trade date.
Normally the settlement date occurs within six months after the trade date;
however, the Fund may, from time to time, purchase securities whose settlement
date extends six months or more beyond trade 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
internally designated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a when-issued
basis or forward commitment may increase the volatility of the Fund's net asset
value to the extent the Fund executes such transactions while remaining
substantially fully invested. The Fund may also sell securities that it
purchased on a when-issued basis or forward commitment prior to settlement of
the original purchase. As of December 31, 2004, the Fund had purchased
$138,238,645 of securities on a when-issued basis or forward commitment and sold
$34,157,333 of securities issued on a when-issued basis or forward commitment.

      In connection with its ability to purchase or sell securities on a
when-issued basis, the Fund may enter into forward roll transactions with
respect to mortgage-related securities. Forward roll transactions require the
sale of securities for delivery in the current month, and a simultaneous
agreement with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Fund
records the incremental difference between the forward purchase and sale of each
forward roll as realized gain (loss) on investments or as fee income in the case
of such transactions that have an associated fee in lieu of a difference in the
forward purchase and sale price.

      Risks of entering into forward roll transactions include the potential
inability of the counterparty to meet the terms of the agreement; the potential
of the Fund to receive inferior securities at redelivery as compared to the
securities sold to the counterparty; counterparty credit risk; and the potential
pay down speed variance between the mortgage-related pools.

- --------------------------------------------------------------------------------
SECURITY CREDIT RISK. The Fund invests in high-yield securities, which may be
subject to a greater degree of credit risk, market fluctuations and loss of
income and principal, and may be more sensitive to economic conditions than
lower-yielding, higher-rated fixed-income securities. The Fund may acquire
securities in default, and is not obligated to dispose of securities whose
issuers subsequently default. As of December 31, 2004, securities with an
aggregate market value of $221,875, representing 0.04% of the Fund's net assets,
were in default.

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

      Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

      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.


            23 | OPPENHEIMER BALANCED FUND/VA

NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.

- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                                  NET UNREALIZED
                                                              APPRECIATION BASED
   UNDISTRIBUTED                                           ON COST OF SECURITIES
   NET             UNDISTRIBUTED          ACCUMULATED      AND OTHER INVESTMENTS
   INVESTMENT          LONG-TERM                 LOSS         FOR FEDERAL INCOME
   INCOME                   GAIN   CARRYFORWARD 1,2,3               TAX PURPOSES
   -----------------------------------------------------------------------------
   $10,362,511       $21,392,409             $803,612                $98,038,867

1. The Fund had $803,612 of straddle losses which were deferred.

2. During the fiscal year ended December 31, 2004, the Fund utilized $28,540,378
of capital loss carryforward to offset capital gains realized in that fiscal
year.

3. During the fiscal year ended December 31, 2003, the Fund did not utilize any
capital loss carryforward.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

                                                        REDUCTION TO
                                INCREASE TO          ACCUMULATED NET
   INCREASE TO              ACCUMULATED NET            REALIZED GAIN
   PAID-IN CAPITAL        INVESTMENT INCOME         ON INVESTMENTS 4
   -----------------------------------------------------------------
   $1,654,641                    $1,034,263               $2,688,904

4. $1,654,641, all of which was long-term capital gain, was distributed in
connection with Fund share redemptions.

The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:

                                          YEAR ENDED          YEAR ENDED
                                   DECEMBER 31, 2004   DECEMBER 31, 2003
   ---------------------------------------------------------------------
   Distributions paid from:
   Ordinary income                        $5,780,649         $13,877,979


            24 | OPPENHEIMER BALANCED FUND/VA

The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

        Federal tax cost of securities              $ 621,634,306
        Federal tax cost of other investments         (16,548,740)
                                                    --------------
        Total federal tax cost                      $ 605,085,566
                                                    ==============

        Gross unrealized appreciation               $ 105,187,798
        Gross unrealized depreciation                  (7,148,931)
                                                    --------------
        Net unrealized appreciation                 $  98,038,867
                                                    ==============

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.

- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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.


            25 | OPPENHEIMER BALANCED FUND/VA

NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST

The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:

                                                              YEAR ENDED DECEMBER 31, 2004        YEAR ENDED DECEMBER 31, 2003
                                                                  SHARES            AMOUNT            SHARES            AMOUNT
- -------------------------------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                                                           2,625,394    $   42,309,798         2,968,658    $   42,421,336
Dividends and/or distributions reinvested                        342,260         5,486,430         1,109,495        13,791,025
Redeemed                                                      (4,948,306)      (79,604,315)       (5,419,511)      (74,334,964)
                                                            -------------------------------------------------------------------
Net decrease                                                  (1,980,652)   $  (31,808,087)       (1,341,358)   $  (18,122,603)
                                                            ===================================================================

- -------------------------------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold                                                           2,003,047    $   32,170,140         1,500,492    $   21,676,028
Dividends and/or distributions reinvested                         18,400           294,219             7,012            86,954
Redeemed                                                        (160,331)       (2,583,843)          (88,818)       (1,231,517)
                                                            -------------------------------------------------------------------
Net increase                                                   1,861,116    $   29,880,516         1,418,686    $   20,531,465
                                                            ===================================================================


- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than U.S. government obligations and short-term obligations, for the year ended
December 31, 2004, were $331,990,724 and $301,035,350, respectively. There were
purchases of $52,280,455 and sales of $43,715,083 of U.S. government and
government agency obligations for the year ended December 31, 2004. In addition,
there were purchases of $1,460,076,994 and sales of $1,473,590,963 of To Be
Announced (TBA) mortgage-related securities for the year ended December 31,
2004.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million and 0.60% of average annual net assets over $800 million.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$19,256 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 per class for class level assets of $10
million or more. Each class is subject to the minimum fee in the event that the
per account fee does not equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FOR SERVICE SHARES. The Fund has adopted a
Distribution and Service Plan for Service shares to pay OppenheimerFunds
Distributor, Inc. (the Distributor), for distribution related services and
personal service and account maintenance for the Fund's Service shares. Under
the Plan, payments are made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Service shares of the Fund. The Distributor
currently uses all of those fees to compensate sponsor(s) of the insurance
product that offers Fund shares, for providing personal service and maintenance
of accounts of their variable contract owners that hold Service shares. The
impact of the service plan is to increase operating expenses of the Service
shares, which results in lower performance compared to the Fund's shares that
are not subject to a service fee. Fees incurred by the Fund under the Plan are
detailed in the Statement of Operations.


            26 | OPPENHEIMER BALANCED FUND/VA

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. Following a review of its use of brokerage
commissions for sales that is permitted under its investment advisory agreement,
the Fund's Manager terminated that practice in July 2003. Subsequently, the
Manager paid the Fund $13,067, an amount equivalent to certain of such
commissions incurred in prior years.

      OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees for all classes to 0.35% of average annual net assets per class. This
undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.

      The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.

      The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.

      As of December 31, 2004, the Fund had no outstanding foreign currency
contracts.

- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS

A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value of stocks and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.

      The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying securities.

      Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.

      Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported in the Statement of Operations.

      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.


            27 | OPPENHEIMER BALANCED FUND/VA

NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS Continued

As of December 31, 2004, the Fund had outstanding futures contracts as follows:

                                                                                UNREALIZED
                               EXPIRATION   NUMBER OF     VALUATION AS OF     APPRECIATION
CONTRACT DESCRIPTION                DATES   CONTRACTS   DECEMBER 31, 2004    (DEPRECIATION)
- -------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
U.S. Long Bonds                   3/21/05         234       $  26,325,000      $   365,428
U.S. Treasury Nts., 10 yr.        3/21/05         253          28,320,188          149,015
                                                                               ------------
                                                                                   514,443
                                                                               ------------
CONTRACTS TO SELL
U.S. Treasury Nts., 2 yr.         3/31/05         156          32,696,625           15,330
U.S. Treasury Nts., 5 yr.         3/21/05         352          38,555,000          (52,265)
                                                                               ------------
                                                                                   (36,935)
                                                                               ------------
                                                                               $   477,508
                                                                               ============


- --------------------------------------------------------------------------------
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. Contracts subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.

      The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.

Written option activity for the year ended December 31, 2004 was as follows:

                                                               CALL OPTIONS
                                                 ---------------------------
                                                  NUMBER OF       AMOUNT OF
                                                  CONTRACTS        PREMIUMS
- ----------------------------------------------------------------------------
Options outstanding as of December 31, 2003           5,287     $   745,373
Options closed or expired                            (2,280)       (331,434)
Options exercised                                    (3,007)       (413,939)
                                                 ---------------------------
Options outstanding as of December 31, 2004              --     $        --
                                                 ===========================


            28 | OPPENHEIMER BALANCED FUND/VA

- --------------------------------------------------------------------------------
8. TOTAL RETURN SWAP CONTRACTS

The Fund may enter into a total return swap transaction to maintain a total
return on a particular investment, or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as notional. The Fund records an increase or decrease to unrealized
gain (loss), in the amount due to or owed by the Fund at termination or
settlement. Total return swaps are subject to risks (if the counterparty fails
to meet its obligations).

As of December 31, 2004, the Fund had entered into the following total return
swap agreements:

                                                          PAID BY             RECEIVED BY
SWAP                               NOTIONAL           THE FUND AT             THE FUND AT    TERMINATION        UNREALIZED
COUNTERPARTY                         AMOUNT     DECEMBER 31, 2004       DECEMBER 31, 2004          DATES      APPRECIATION
- --------------------------------------------------------------------------------------------------------------------------

                                                                    Value of total return
                                                  One-Month LIBOR      of Lehman Brothers
Deutsche Bank AG                 $4,250,000  less 50 basis points              CMBS Index         1/1/05        $   21,173
                                                                    Value of total return
Goldman Sachs                                           One-Month      of Lehman Brothers
Capital Markets LP                4,250,000             LIBOR BBA              CMBS Index        3/31/05            18,304
                                                                                                                ----------
                                                                                                                $   39,477
                                                                                                                ==========


Index abbreviations are as follows:

CMBS          Commercial Mortgage Backed Securities Markets
LIBOR         London-Interbank Offered Rate
LIBOR BBA     London-Interbank Offered Rate British Bankers Association

- --------------------------------------------------------------------------------
9. ILLIQUID SECURITIES

As of December 31, 2004, investments in securities included issues that are
illiquid. 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 will not invest more than 15% of its net assets (determined at the time of
purchase and reviewed periodically) in illiquid securities.

- --------------------------------------------------------------------------------
10. SECURITIES LENDING

The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund also continues to receive
interest or dividends paid on the securities loaned. As of December 31, 2004,
the Fund had on loan securities valued at $32,538,035. Cash of $33,138,570 was
received as collateral for the loans, of which $11,966,012 was invested in
approved instruments.


            29 | OPPENHEIMER BALANCED FUND/VA

NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
11. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER BOND FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Bond Fund/VA, a series of Oppenheimer Variable Account Funds,
including the statement of investments, as of December 31, 2004, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Bond Fund/VA as of December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for the periods
presented, in conformity with accounting principles generally accepted in the
United States of America.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005



STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------

                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- -----------------------------------------------------------------------------------------

ASSET-BACKED SECURITIES--14.3%
- -----------------------------------------------------------------------------------------
Bank One Auto Securitization Trust,
Automobile Receivable Certificates,
Series 2003-1, Cl. A2, 1.29%,
8/21/06                                                   $   1,248,281   $    1,246,064
- -----------------------------------------------------------------------------------------
BMW Vehicle Owner Trust,
Automobile Loan Certificates,
Series 2004-A, Cl. A2, 1.88%,
10/25/06                                                      2,893,286        2,884,008
- -----------------------------------------------------------------------------------------
Capital Auto Receivables Asset
Trust, Automobile Mtg.-Backed
Nts., Series 2004-2, Cl. A3, 3.58%,
1/15/09                                                       2,250,000        2,247,188
- -----------------------------------------------------------------------------------------
Centex Home Equity Co. LLC,
Home Equity Loan Asset-Backed
Certificates:
Series 2003-C, Cl. AF1, 2.14%,
7/25/18                                                         365,095          364,688
Series 2004-A, Cl. AF1, 2.03%,
6/25/19                                                         722,488          719,706
Series 2004-D, Cl. AF1, 2.98%,
4/25/20 1                                                     1,170,118        1,166,324
- -----------------------------------------------------------------------------------------
Chase Funding Mortgage Loan
Asset-Backed Certificates, Home
Equity Mtg. Obligations:
Series 2002-4, Cl. 1A3, 3.44%,
4/25/23                                                         392,162          392,188
Series 2003-1, Cl. 1A3, 3.14%,
7/25/23                                                       1,125,276        1,124,691
Series 2003-4, Cl. 1A1, 2.538%,
9/25/17 2                                                       354,162          354,353
Series 2003-4, Cl. 1A2, 2.138%,
7/25/18                                                         900,000          896,977
- -----------------------------------------------------------------------------------------
Chase Manhattan Auto Owner
Trust, Automobile Loan
Pass-Through Certificates:
Series 2002-A, Cl. A4, 4.24%,
9/15/08                                                         591,900          595,603
Series 2003-B, Cl. A2, 1.28%,
3/15/06                                                         397,999          397,778
- -----------------------------------------------------------------------------------------
CIT Equipment Collateral,
Equipment Receivable-Backed
Nts., Series 2004-DFS, Cl. A2,
2.66%, 11/20/06 1                                             1,840,000        1,832,167
- -----------------------------------------------------------------------------------------
CitiFinancial Mortgage Securities,
Inc., Home Equity Collateralized
Mtg. Obligations:
Series 2003-2, Cl. AF1, 2.518%,
5/25/33 2                                                       209,577          209,712
Series 2003-3, Cl. AF1, 2.538%,
8/25/33 2                                                       841,457          842,020
- -----------------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust,
Inc., Home Equity Mtg. Obligations,
Series 2004-OPT1, Cl. A1B,
2.388%, 9/1/34 1                                              2,104,493        2,101,862


                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- -----------------------------------------------------------------------------------------

ASSET-BACKED SECURITIES Continued
- -----------------------------------------------------------------------------------------
Countrywide Asset-Backed
Certificates, Inc., Home Equity
Asset-Backed Certificates, Series
2002-4, Cl. A1, 2.788%, 2/25/33 2                         $     414,877   $      417,537
- -----------------------------------------------------------------------------------------
DaimlerChrysler Auto Trust,
Automobile Loan Pass-Through
Certificates:
Series 2003-A, Cl. A2, 1.52%, 12/8/05                         1,054,529        1,054,421
Series 2003-B, Cl. A2, 1.61%, 7/10/06                         3,726,266        3,720,003
Series 2004-B, Cl. A2, 2.48%, 2/8/07 1                          670,000          668,393
Series 2004-C, Cl. A2, 2.62%, 6/8/07                          3,330,000        3,319,778
- -----------------------------------------------------------------------------------------
Ford Credit Auto Owner Trust,
Automobile Loan Pass-Through
Certificates, Series 2004-A, Cl. A2,
2.13%, 10/15/06                                               1,100,000        1,095,717
- -----------------------------------------------------------------------------------------
Harley-Davidson Motorcycle Trust,
Motorcycle Receivable Nts., Series
2003-3, Cl. A1, 1.50%, 1/15/08                                2,369,494        2,361,123
- -----------------------------------------------------------------------------------------
Honda Auto Receivables Owner
Trust, Automobile Receivable
Obligations:
Series 2003-3, Cl. A2, 1.52%, 4/21/06                         2,495,247        2,491,068
Series 2003-4, Cl. A2, 1.58%, 7/17/06                         3,083,871        3,076,991
- -----------------------------------------------------------------------------------------
Household Automotive Trust,
Automobile Loan Certificates,
Series 2003-2, Cl. A2, 1.56%,
12/18/06                                                      1,266,104        1,263,603
- -----------------------------------------------------------------------------------------
Lease Investment Flight Trust,
Collateralized Aviation Obligations,
Series 1A, Cl. D2, 8%, 7/15/31 1                              5,356,722          502,193
- -----------------------------------------------------------------------------------------
Litigation Settlement Monetized
Fee Trust, Asset-Backed Certificates,
Series 2001-1A, Cl. A1, 8.33%,
4/25/31 1                                                     4,064,108        4,198,630
- -----------------------------------------------------------------------------------------
M&I Auto Loan Trust, Automobile
Loan Certificates:
Series 2002-1, Cl. A3, 2.49%, 10/22/07                        1,350,430        1,350,242
Series 2003-1, Cl. A2, 1.60%, 7/20/06                         2,053,001        2,050,038
- -----------------------------------------------------------------------------------------
National City Auto Receivables
Trust, Automobile Receivable
Obligations, Series 2004-A, Cl. A2,
1.50%, 2/15/07                                                1,212,883        1,208,615
- -----------------------------------------------------------------------------------------
NC Finance Trust, Collateralized
Mtg. Obligations, Series 1999-I,
Cl. ECFD, 8.75%, 1/25/29 1                                    3,370,016          899,373
- -----------------------------------------------------------------------------------------
Nissan Auto Lease Trust,
Automobile Lease Obligations:
Series 2003-A, Cl. A2, 1.69%,
12/15/05                                                        209,464          209,464
Series 2004-A, Cl. A2, 2.55%,
1/15/07                                                       1,590,000        1,588,921





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- -----------------------------------------------------------------------------------------

ASSET-BACKED SECURITIES Continued
- -----------------------------------------------------------------------------------------
Nissan Auto Receivables Owner
Trust, Automobile Receivable Nts.,
Series 2002-A, Cl. A4, 4.28%,
10/16/06                                                  $     469,590   $      471,958
- -----------------------------------------------------------------------------------------
Option One Mortgage Loan Trust,
Home Equity Mtg. Obligations,
Series 2004-3, Cl. A2, 2.568%,
11/25/34 1,2                                                  1,129,842        1,130,569
- -----------------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through
Trust, Home Equity Pass-Through
Certificates, Series 2004-5, Cl. A F2,
3.735%, 11/10/34 1                                              620,000          617,937
- -----------------------------------------------------------------------------------------
Tobacco Settlement Authority,
Asset-Backed Securities, Series
2001-A, 6.79%, 6/1/10                                         1,930,000        1,924,673
- -----------------------------------------------------------------------------------------
Toyota Auto Receivables Owner
Trust, Automobile Mtg.-Backed
Obligations:
Series 2002-B, Cl. A3, 3.76%, 6/15/06                           239,721          240,067
Series 2003-B, Cl. A2, 1.43%, 2/15/06                           975,302          974,707
- -----------------------------------------------------------------------------------------
USAA Auto Owner Trust, Automobile
Loan Asset-Backed Nts.:
Series 2001-2, Cl. A4, 3.91%, 4/16/07                           462,011          462,934
Series 2002-1, Cl. A3, 2.41%, 10/16/06                          577,258          577,239
Series 2004-2, Cl. A2, 2.41%, 2/15/07                         2,270,000        2,262,828
Series 2004-3, Cl. A2, 2.79%, 6/15/07                         1,540,000        1,536,962
- -----------------------------------------------------------------------------------------
Volkswagen Auto Lease Trust,
Automobile Lease Asset-Backed
Securities, Series 2004-A, Cl. A2,
2.47%, 1/22/07                                                2,190,000        2,179,991
- -----------------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced
Trust, Automobile Loan Receivable
Certificates:
Series 2003-1, Cl. A2, 1.11%,
12/20/05                                                        148,183          148,133
Series 2003-2, Cl. A2, 1.55%,
6/20/06                                                       1,667,494        1,664,255
- -----------------------------------------------------------------------------------------
Wachovia Auto Owner Trust,
Automobile Receivable Nts.,
Series 2004-B, Cl. A2, 2.40%,
5/21/07                                                       1,620,000        1,613,333
- -----------------------------------------------------------------------------------------
Wells Fargo Home Equity Trust,
Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B, 2.94%,
9/25/18                                                       3,358,336        3,342,250
- -----------------------------------------------------------------------------------------
Whole Auto Loan Trust,
Automobile Loan Receivable
Certificates:
Series 2003-1, Cl. A2A, 1.40%,
4/15/06                                                       2,234,176        2,229,987
Series 2004-1, Cl. A2A, 2.59%,
5/15/07                                                       2,000,000        1,992,640
                                                                          ---------------
Total Asset-Backed Securities
(Cost $78,256,358)                                                            72,221,902


                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- -----------------------------------------------------------------------------------------

MORTGAGE-BACKED OBLIGATIONS--54.1%
- -----------------------------------------------------------------------------------------
GOVERNMENT AGENCY--43.3%
- -----------------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--43.1%
Fannie Mae Whole Loan,
Collateralized Mtg. Obligations
Pass-Through Certificates, Trust
004-W9, Cl. 2A2, 7%, 2/25/44 3                            $   1,305,163   $    1,383,877
- -----------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
5%, 1/1/35 3                                                  5,153,000        5,117,573
5.50%, 1/1/35 3                                               1,783,000        1,811,417
6.50%, 7/1/28-4/1/34                                          1,512,292        1,589,756
7%, 3/1/31-11/1/34                                           15,183,200       16,104,550
7%, 4/1/32-1/1/35 3                                           4,290,000        4,544,719
8%, 4/1/16                                                    1,466,570        1,557,217
9%, 8/1/22-5/1/25                                               401,828          447,652
- -----------------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Collateralized Mtg.
Obligations, Pass-Through
Participation Certificates,
Series 151, Cl. F, 9%, 5/15/21                                   72,045           72,086
- -----------------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Gtd. Real Estate Mtg.
Investment Conduit Multiclass
Pass-Through Certificates:
Series 2500, Cl. FD, 2.903%,
3/15/32 2                                                       826,692          829,935
Series 2526, Cl. FE, 2.803%,
6/15/29 2                                                     1,116,913        1,120,933
Series 2551, Cl. FD, 2.803%,
1/15/33 2                                                       897,254          903,404
- -----------------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 176, Cl. IO, (0.21)%, 6/1/26 4                         1,267,751          236,695
Series 183, Cl. IO, (1.41)%, 4/1/27 4                         1,984,500          384,749
Series 184, Cl. IO, 1.81%, 12/1/26 4                          2,036,419          378,674
Series 192, Cl. IO, 3.27%, 2/1/28 4                             485,244           90,177
Series 200, Cl. IO, 2.89%, 1/1/29 4                             592,784          113,646
Series 206, Cl. IO, (16.54)%,
12/1/29 4                                                     1,352,113          245,798
Series 2130, Cl. SC, 12.38%,
3/15/29 4                                                     1,349,514          140,976
Series 2796, Cl. SD, 19.10%,
7/15/26 4                                                     2,071,436          209,384
- -----------------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Principal-Only Stripped
Mtg.-Backed Security, Series
176, Cl. PO, 6.95%, 6/1/26 5                                    516,501          450,616
- -----------------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 1/1/20 3                                              12,307,000       12,268,541
5%, 1/1/20-1/1/35 3                                          22,401,000       22,369,335
5.50%, 3/1/33-1/1/34                                         14,236,928       14,470,326
5.50%, 1/1/35 3                                              20,092,000       20,399,649
6%, 8/1/24                                                    2,296,120        2,389,823
6%, 1/1/35 3                                                 18,725,000       19,362,811
6.50%, 3/1/11                                                    64,829           68,799


                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- ----------------------------------------------------------------------------------------

FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn.: Continued
6.50%, 1/1/35 3                                           $  45,697,000   $   47,924,729
7%, 11/1/25-7/1/34                                           10,186,327       10,811,344
7%, 1/1/35 3                                                 11,749,000       12,450,274
7.50%, 1/1/08-1/1/26                                            139,152          148,799
8%, 5/1/17                                                       16,011           17,450
8.50%, 7/1/32                                                   202,224          219,691
- -----------------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates:
Trust 131, Cl. G, 8.75%, 11/25/05                                18,268           18,547
Trust 1993-87, Cl. Z, 6.50%,
6/25/23                                                       2,683,300        2,817,589
Trust 2001-70, Cl. LR, 6%, 9/25/30                            1,126,397        1,148,481
Trust 2001-72, Cl. NH, 6%, 4/25/30                              908,252          928,849
Trust 2001-74, Cl. PD, 6%, 5/25/30                              383,581          388,786
Trust 2002-50, Cl. PD, 6%, 9/25/27                              630,718          631,141
Trust 2002-77, Cl. WF, 2.81%,
12/18/32 2                                                    1,440,915        1,449,427
Trust 2003-81, Cl. PA, 5%, 2/25/12                              625,637          627,937
Trust 2004-101, Cl. BG, 5%, 1/25/20                           1,908,000        1,924,695
- -----------------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates,
Trust 1989-17, Cl. E, 10.40%,
4/25/19                                                         127,390          142,299
- -----------------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates,
Interest-Only Stripped Mtg.-Backed
Security:
Trust 319, Cl. 2, (3.08)%, 2/1/32 4                             914,601          175,797
Trust 2002-47, Cl. NS, 9.28%,
4/25/32 4                                                     2,682,302          281,133
Trust 2002-51, Cl. S, 9.56%,
8/25/32 4                                                     2,462,362          258,344
- -----------------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Interest-Only Stripped Mtg.-Backed
Security:
Trust 222, Cl. 2, (2.03)%, 6/1/23 4                           3,836,433          714,784
Trust 240, Cl. 2, (1.12)%, 9/1/23 4                           4,450,477          847,552
Trust 252, Cl. 2, (3.44)%, 11/1/23 4                          3,039,360          597,047
Trust 254, Cl. 2, (0.11)%, 1/1/24 4                           1,482,053          306,254
Trust 273, Cl. 2, 0.09%, 7/1/26 4                               920,321          170,042
Trust 303, Cl. IO, (13.36)%, 11/1/29 4                          577,780          112,856
Trust 321, Cl. 2, (8.68)%, 3/1/32 4                          10,036,256        1,994,458
Trust 333, Cl. 2, 2.09%, 3/1/33 4                             3,221,848          696,792
Trust 334, Cl. 17, (16.18)%, 2/1/33 4                         1,641,349          329,047
Trust 2001-81, Cl. S, 13.68%,
1/25/32 4                                                     1,056,260          128,828
Trust 2002-52, Cl. SD, 8.50%,
9/25/32 4                                                     3,113,327          321,902
Trust 2002-77, Cl. SH, 21.15%,
12/18/32 4                                                    1,250,229          126,609
Trust 2004-54, Cl. DS, 20.40%,
11/25/30 4                                                    2,208,796          201,289


                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- ----------------------------------------------------------------------------------------

FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn.,
Principal-Only Stripped Mtg.-Backed
Security, Trust 1993-184, Cl. M,
9.71%, 9/25/23 5                                          $   1,016,567   $      880,366
                                                                          ---------------
                                                                             218,856,256

- -----------------------------------------------------------------------------------------
GNMA/GUARANTEED--0.2%
Government National Mortgage
Assn.:
7%, 1/15/09-5/15/09                                              63,937           67,640
8.50%, 8/15/17-12/15/17                                         521,575          574,537
- -----------------------------------------------------------------------------------------
Government National Mortgage
Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, 14.94%,
1/16/27 4                                                     2,062,394          197,250
Series 2002-15, Cl. SM, 9.39%,
2/16/32 4                                                     2,427,939          234,086
Series 2004-11, Cl. SM, 10.64%,
1/17/30 4                                                     1,906,852          171,457
                                                                          ---------------
                                                                               1,244,970

- -----------------------------------------------------------------------------------------
PRIVATE--10.8%
- -----------------------------------------------------------------------------------------
COMMERCIAL--10.2%
Asset Securitization Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1996-MD6,
Cl. A3, 7.405%, 11/13/29 2                                    1,200,000        1,298,748
- -----------------------------------------------------------------------------------------
Asset Securitization Corp.,
Interest-Only Stripped Mtg.-Backed
Security Collateralized Mtg.
Obligations, Series 1997-D4,
Cl. PS1, 5.54%, 4/14/29 4                                    42,978,868        1,596,437
- -----------------------------------------------------------------------------------------
Banc of America Commercial
Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates, Series
2004-6, Cl. A3, 4.512%, 12/10/42                              1,720,000        1,720,000
- -----------------------------------------------------------------------------------------
Bank of America Mortgage
Securities, Inc., Collateralized
Mtg. Obligations Pass-Through
Certificates:
Series 2004-E, Cl. 2A9, 3.712%,
6/25/34                                                       2,005,519        2,006,786
Series 2004-G, Cl. 2A1, 2.469%,
8/25/34                                                       1,364,127        1,361,438
Series 2004-2, Cl. 2A1, 6.50%,
7/20/32                                                       3,609,116        3,687,259
Series 2004-8, Cl. 5A1, 6.50%,
5/25/32                                                       2,702,672        2,808,246
- -----------------------------------------------------------------------------------------
Capital Lease Funding Securitization
LP, Interest-Only Corporate-Backed
Pass-Through Certificates, Series
1997-CTL1, 9.87%, 6/22/24 4                                  25,279,609          959,280



                          9 | OPPENHEIMER BOND FUND/VA

STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- ----------------------------------------------------------------------------------------

COMMERCIAL Continued
Countrywide Alternative Loan Trust,
Collateralized Mtg. Obligations,
Series 2004-J9, Cl. 1A1, 2.598%,
10/25/34 2                                                $   2,501,567   $    2,504,445
- -----------------------------------------------------------------------------------------
DLJ Mortgage Acceptance Corp.,
Commercial Mtg. Obligations,
Series 1996-CF1, Cl. A3, 7.904%,
3/13/28 2                                                       711,193          723,130
- -----------------------------------------------------------------------------------------
First Union National Bank/
Lehman Brothers/Bank of
America Commercial Mtg. Trust,
Pass-Through Certificates, Series
1998-C2, Cl. A2, 6.56%, 11/18/35                              1,510,000        1,624,400
- -----------------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Commercial Mtg.
Obligations, Series 2004-C3, Cl. A4,
4.547%, 12/10/41                                              1,110,000        1,112,920
- -----------------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Commercial Mtg.
Pass-Through Certificates, Series
1997-C1, Cl. A3, 6.869%, 7/15/29                              1,152,983        1,220,512
- -----------------------------------------------------------------------------------------
GS Mortgage Securities Corp. II,
Commercial Mtg. Pass-Through
Certificates, Series 2004-C1, Cl. A1,
3.659%, 10/10/28                                              1,271,204        1,257,387
- -----------------------------------------------------------------------------------------
GSR Mortgage Loan Trust,
Collateralized Mtg. Obligations,
Series 04-12, Cl. 3A1, 4.593%,
12/25/34 1,2                                                  3,795,193        3,800,420
- -----------------------------------------------------------------------------------------
Lehman Brothers Commercial
Conduit Mortgage Trust, Interest-
Only Stripped Mtg.-Backed Security,
Series 1998-C1, Cl. IO, 6.40%,
2/18/30 4                                                    18,695,717          603,090
- -----------------------------------------------------------------------------------------
Lehman Structured Securities Corp.,
Collateralized Mtg. Obligations,
Series 2002-GE1, Cl. A, 2.514%,
7/26/24 1                                                       415,366          382,093
- -----------------------------------------------------------------------------------------
Mastr Alternative Loan Trust,
Pass-Through Collateralized Mtg.
Obligations, Series 2004-6, Cl
10A1, 6%, 7/25/34                                             3,519,677        3,634,390
- -----------------------------------------------------------------------------------------
Mastr Asset Securitization Trust,
Pass-Through Collateralized Mtg.
Obligations, Series 2004-9, Cl. A3,
4.70%, 8/25/34                                                2,885,183        2,887,520
- -----------------------------------------------------------------------------------------
Mastr Seasoned Securities Trust,
Collateralized Mtg. Obligations,
Series 2004-2, Cl. PT65, 6.50%,
12/1/34 3                                                     5,041,000        5,191,442
- -----------------------------------------------------------------------------------------
Nomura Asset Securities Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl. A1B,
6.59%, 3/15/30                                                1,680,000        1,818,240


                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- ----------------------------------------------------------------------------------------

COMMERCIAL Continued
Salomon Brothers Mortgage
Securities VII, Inc., Interest-Only
Commercial Mtg. Pass-Through
Certificates, Series 1999-C1, Cl. X,
7.85%, 5/18/32 4                                          $ 379,935,952   $    1,538,323
- -----------------------------------------------------------------------------------------
Wells Fargo Mortgage-Backed
Securities Trust, Collateralized
Mtg. Obligations:
Series 2004-DD, Cl. 2 A1, 4.548%,
1/25/35                                                       2,540,000        2,544,167
Series 2004-N, Cl. A10, 3.803%,
8/25/34 1                                                     3,553,553        3,565,241
Series 2004-W, Cl. A2, 4.635%,
11/25/34 2                                                    1,965,129        1,970,554
                                                                          ---------------
                                                                              51,816,468

- -----------------------------------------------------------------------------------------
OTHER--0.1%
CIT Equipment Collateral,
Equipment Receivable-Backed
Nts., Series 2003-EF1, Cl. A2,
1.49%, 12/20/05                                                 226,169          226,215
- -----------------------------------------------------------------------------------------
Salomon Brothers Mortgage
Securities VI, Inc., Interest-Only
Stripped Mtg.-Backed Security,
Series 1987-3, Cl. B, 34.28%,
10/23/17 4                                                       24,848            5,917
- -----------------------------------------------------------------------------------------
Salomon Brothers Mortgage
Securities VI, Inc., Principal-Only
Stripped Mtg.-Backed Security,
Series 1987-3, Cl. A, 9.29%,
10/23/17 5                                                       36,775           33,828
                                                                          ---------------
                                                                                 265,960

- -----------------------------------------------------------------------------------------
RESIDENTIAL--0.5%
Structured Asset Securities Corp.,
Collateralized Mtg. Obligations
Pass-Through Certificates, Series
2002-AL1, Cl. B2, 3.45%, 2/25/32                              2,908,347        2,588,930
                                                                          ---------------
Total Mortgage-Backed Obligations
(Cost $274,406,649)                                                          274,772,584

- -----------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--9.1%
- -----------------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp. Unsec. Nts.:
6.625%, 9/15/09                                              14,525,000       16,260,447
6.875%, 9/15/10                                               7,300,000        8,343,637
- -----------------------------------------------------------------------------------------
Federal National Mortgage Assn.
Unsec. Nts.:
3.01%, 6/2/06 6                                               2,500,000        2,489,780
6.625%, 9/15/09                                               6,010,000        6,717,449
7.25%, 5/15/30                                                1,665,000        2,135,717
- -----------------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
7.125%, 5/1/30                                                2,570,000        3,207,201
Series A, 6.79%, 5/23/12                                      5,659,000        6,525,755



                          10 | OPPENHEIMER BOND FUND/VA

                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- ----------------------------------------------------------------------------------------

U.S. GOVERNMENT OBLIGATIONS Continued
- -----------------------------------------------------------------------------------------
U.S. Treasury Nts., 4.25%, 11/15/14                       $     758,000   $      760,221
                                                                          ---------------
Total U.S. Government Obligations
(Cost $46,186,100)                                                            46,440,207

- -----------------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--0.6%
- -----------------------------------------------------------------------------------------
United Mexican States Nts., 7.50%,
1/14/12 (Cost $2,632,266)                                     2,610,000        2,966,265

- -----------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--40.8%
- -----------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--11.5%
- -----------------------------------------------------------------------------------------
AUTO COMPONENTS--1.1%
Delphi Automotive Systems Corp.,
6.50% Nts., 5/1/09                                            3,195,000        3,287,016
- -----------------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts.,
Series B, 5/15/09                                             2,265,000        2,571,239
                                                                          ---------------
                                                                               5,858,255

- -----------------------------------------------------------------------------------------
AUTOMOBILES--2.9%
American Honda Finance Corp.,
3.85% Nts., 11/6/08 7                                         1,555,000         1,552,036
- -----------------------------------------------------------------------------------------
DaimlerChrysler North America
Holding Corp., 4.75% Unsec. Nts.,
1/15/08                                                       3,645,000        3,725,434
- -----------------------------------------------------------------------------------------
Ford Holdings, Inc., 9.30% Unsec.
Unsub. Debs., 3/1/30                                            460,000          540,918
- -----------------------------------------------------------------------------------------
Ford Motor Credit Co., 7.375% Nts.,
10/28/09                                                        485,000          523,685
- -----------------------------------------------------------------------------------------
General Motors Corp., 8.375% Sr.
Unsec. Debs., 7/15/33                                         2,705,000        2,810,365
- -----------------------------------------------------------------------------------------
Hertz Corp. (The), 6.35% Nts.,
6/15/10                                                       2,960,000        3,037,132
- -----------------------------------------------------------------------------------------
Volkswagen Credit, Inc., 2.33%
Nts., 7/21/05 2,7                                             2,695,000        2,695,226
                                                                          ---------------
                                                                              14,884,796

- -----------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--1.0%
Hilton Hotels Corp., 7.95% Sr. Nts.,
4/15/07                                                       1,025,000        1,115,458
- -----------------------------------------------------------------------------------------
Starwood Hotels & Resorts
Worldwide, Inc., 7.375% Nts., 5/1/07                            805,000          862,356
- -----------------------------------------------------------------------------------------
Yum! Brands, Inc., 8.50% Sr. Unsec.
Nts., 4/15/06                                                 2,785,000        2,959,377
                                                                          ---------------
                                                                               4,937,191

- -----------------------------------------------------------------------------------------
HOUSEHOLD DURABLES--1.2%
Beazer Homes USA, Inc., 8.625%
Sr. Unsec. Nts., 5/15/11                                      1,440,000        1,576,800
- -----------------------------------------------------------------------------------------
D.R. Horton, Inc., 6.125% Nts.,
1/15/14                                                       1,415,000        1,464,525
- -----------------------------------------------------------------------------------------
Lennar Corp., 5.95% Sr. Unsec. Nts.,
3/1/13                                                        1,250,000        1,325,891


                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- ----------------------------------------------------------------------------------------

HOUSEHOLD DURABLES Continued
Toll Corp., 8.25% Sr. Sub. Nts.,
12/1/11                                                   $   1,440,000   $    1,598,400
                                                                          ---------------
                                                                               5,965,616

- -----------------------------------------------------------------------------------------
MEDIA--3.9%
Chancellor Media CCU, 8% Sr.
Unsec. Nts., 11/1/08                                          2,525,000        2,837,390
- -----------------------------------------------------------------------------------------
Cox Communications, Inc.,
7.875% Unsec. Nts., 8/15/09                                   1,695,000        1,925,678
- -----------------------------------------------------------------------------------------
Liberty Media Corp., 3.50% Nts.,
9/25/06                                                       1,660,000        1,651,459
- -----------------------------------------------------------------------------------------
TCI Communications, Inc.,
9.80% Sr. Unsec. Debs., 2/1/12                                2,500,000        3,226,815
- -----------------------------------------------------------------------------------------
Time Warner Cos., Inc., 9.125%
Debs., 1/15/13                                                2,840,000        3,656,415
- -----------------------------------------------------------------------------------------
Time Warner Entertainment Co.
LP, 10.15% Sr. Nts., 5/1/12                                   1,073,000        1,409,602
- -----------------------------------------------------------------------------------------
Univision Communications, Inc.:
2.875% Sr. Unsec. Nts., 10/15/06                                357,000          352,422
3.50% Sr. Unsec. Nts., 10/15/07                               1,860,000        1,839,257
- -----------------------------------------------------------------------------------------
Walt Disney Co. (The), 5.375%
Sr. Unsec. Nts., 6/1/07                                       2,975,000        3,094,271
                                                                          ---------------
                                                                              19,993,309

- -----------------------------------------------------------------------------------------
MULTILINE RETAIL--1.0%
Federated Department Stores,
Inc., 6.625% Sr. Unsec. Nts., 9/1/08                          1,785,000        1,944,800
- -----------------------------------------------------------------------------------------
J.C. Penney Co., Inc., 8% Nts., 3/1/10                        2,640,000        3,029,400
- -----------------------------------------------------------------------------------------
May Department Stores Co.,
3.95% Nts., 7/15/07                                             178,000          178,407
                                                                          ---------------
                                                                               5,152,607

- -----------------------------------------------------------------------------------------
SPECIALTY RETAIL--0.4%
Gap, Inc. (The):
6.90% Nts., 9/15/07 1                                         1,169,000        1,262,520
10.55% Unsub. Nts., 12/15/08                                    466,000          569,685
                                                                          ---------------
                                                                               1,832,205

- -----------------------------------------------------------------------------------------
CONSUMER STAPLES--3.2%
- -----------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.8%
Food Lion, Inc., 7.55% Nts., 4/15/07                          1,815,000        1,972,083
- -----------------------------------------------------------------------------------------
Kroger Co. (The), 7.80% Sr. Nts.,
8/15/07                                                       4,300,000        4,718,566
- -----------------------------------------------------------------------------------------
Safeway, Inc., 4.80% Sr. Unsec. Nts.,
7/16/07                                                       2,440,000        2,499,268
                                                                          ---------------
                                                                               9,189,917

- -----------------------------------------------------------------------------------------
FOOD PRODUCTS--1.4%
ConAgra Foods, Inc., 6% Nts.,
9/15/06                                                       1,320,000        1,374,937
- -----------------------------------------------------------------------------------------
General Mills, Inc., 3.875% Nts.,
11/30/07                                                      2,070,000        2,078,034



                          11 | OPPENHEIMER BOND FUND/VA

STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- ----------------------------------------------------------------------------------------

FOOD PRODUCTS Continued
Kraft Foods, Inc., 5.25% Nts., 6/1/07                     $   3,275,000   $    3,394,407
                                                                          ---------------
                                                                               6,847,378

- -----------------------------------------------------------------------------------------
ENERGY--1.5%
- -----------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.1%
Ocean Rig Norway AS, 10.25% Sr.
Sec. Nts., 6/1/08                                               400,000          414,000
- -----------------------------------------------------------------------------------------
OIL & GAS--1.4%
Chesapeake Energy Corp., 7.50% Sr.
Nts., 6/15/14                                                 1,380,000        1,514,550
- -----------------------------------------------------------------------------------------
Kinder Morgan, Inc., 6.50% Sr. Unsec.
Nts., 9/1/12                                                  1,980,000        2,179,679
- -----------------------------------------------------------------------------------------
Petroleos Mexicanos, 9.50% Sr. Sub.
Nts., 9/15/27                                                 1,730,000        2,175,475
- -----------------------------------------------------------------------------------------
PF Export Receivables Master Trust,
3.748% Sr. Nts., Series B, 6/1/13 7                           1,522,029        1,477,852
                                                                          ---------------
                                                                               7,347,556

- -----------------------------------------------------------------------------------------
FINANCIALS--10.6%
- -----------------------------------------------------------------------------------------
COMMERCIAL BANKS--0.3%
Bank of America Corp., 4.875% Sr.
Unsec. Nts., 1/15/13                                             33,000           33,629
- -----------------------------------------------------------------------------------------
National City Bank, 6.20% Sub. Nts.,
12/15/11                                                        178,000          195,963
- -----------------------------------------------------------------------------------------
SunTrust Banks, Inc.:
4% Nts., 10/15/08                                             1,370,000        1,383,832
7.75% Unsec. Sub. Nts., 5/1/10                                  123,000          143,014
                                                                          ---------------
                                                                               1,756,438

- -----------------------------------------------------------------------------------------
CONSUMER FINANCE--0.3%
Household Finance Corp., 8.875%
Sr. Unsec. Nts., 2/15/06                                      1,435,000        1,519,471
- -----------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--3.3%
American Express Centurion Bank,
4.375% Nts., 7/30/09                                            950,000          966,120
- -----------------------------------------------------------------------------------------
CIT Group, Inc., 7.75% Sr. Unsec.
Unsub. Nts., 4/2/12                                           3,080,000        3,650,995
- -----------------------------------------------------------------------------------------
Franklin Resources, Inc., 3.70% Nts.,
4/15/08                                                       1,430,000        1,427,713
- -----------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.,
7% Nts., 2/1/08                                               1,660,000        1,814,956
- -----------------------------------------------------------------------------------------
Lehman Brothers, Inc., 6.625% Sr.
Sub. Nts., 2/15/08                                              262,000          283,077
- -----------------------------------------------------------------------------------------
MBNA America Bank NA, 5.375%
Nts., 1/15/08                                                 2,050,000        2,142,588
- -----------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., 4.125%
Nts., 9/10/09                                                 2,755,000        2,756,022
- -----------------------------------------------------------------------------------------
Morgan Stanley, 6.60% Nts., 4/1/12                            3,410,000        3,808,769
                                                                          ---------------
                                                                              16,850,240


                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- ----------------------------------------------------------------------------------------

INSURANCE--4.9%
Allstate Financial Global Funding
LLC, 4.25% Nts., 9/10/08 7                                $     520,000   $      526,567
- -----------------------------------------------------------------------------------------
Allstate Life Global Funding II,
3.50% Nts., 7/30/07                                             710,000          707,436
- -----------------------------------------------------------------------------------------
AXA, 8.60% Unsec. Sub. Nts.,
12/15/30                                                      2,520,000        3,319,626
- -----------------------------------------------------------------------------------------
Hartford Financial Services Group,
Inc. (The), 2.375% Nts., 6/1/06                               1,185,000        1,163,733
- -----------------------------------------------------------------------------------------
John Hancock Global Funding II,
7.90% Nts., 7/2/10 7                                          2,554,000        2,993,814
- -----------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc.,
5.375% Nts., 7/15/14                                            506,000          495,303
- -----------------------------------------------------------------------------------------
Nationwide Financial Services,
Inc., 5.90% Nts., 7/1/12                                      3,185,000        3,368,332
- -----------------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695%
Bonds, Series C, 12/18/23 7                                   4,640,000        5,907,323
- -----------------------------------------------------------------------------------------
Prudential Insurance Co. of
America, 8.30% Nts., 7/1/25 7                                 4,875,000        6,242,442
                                                                          ---------------
                                                                              24,724,576

- -----------------------------------------------------------------------------------------
REAL ESTATE--1.8%
iStar Financial, Inc.:
4.875% Sr. Unsec. Nts., Series B,
1/15/09                                                       1,235,000        1,254,685
8.75% Sr. Unsec. Nts., 8/15/08                                  905,000        1,032,802
- -----------------------------------------------------------------------------------------
Liberty Property Trust,
5.65% Sr. Nts., 8/15/14                                       1,330,000        1,369,046
- -----------------------------------------------------------------------------------------
Spieker Properties LP, 6.75%
Unsec. Unsub. Nts., 1/15/08                                   2,400,000        2,603,052
- -----------------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr.
Unsec. Unsub. Nts., 6/15/07                                   2,630,000        2,732,094
                                                                          ---------------
                                                                               8,991,679

- -----------------------------------------------------------------------------------------
HEALTH CARE--1.2%
- -----------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.2%
Aetna, Inc., 7.375% Sr. Unsec.
Nts., 3/1/06                                                  2,730,000        2,842,774
- -----------------------------------------------------------------------------------------
CIGNA Corp., 7.40% Unsec.
Nts., 5/15/07                                                 3,195,000        3,434,328
                                                                          ---------------
                                                                               6,277,102

- -----------------------------------------------------------------------------------------
INDUSTRIALS--3.7%
- -----------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.6%
Boeing Capital Corp., 5.65% Sr.
Unsec. Nts., 5/15/06                                            406,000          418,788
- -----------------------------------------------------------------------------------------
McDonnell Douglas Corp.,
6.875% Unsec. Unsub. Nts., 11/1/06                              366,000          387,576
- -----------------------------------------------------------------------------------------
Northrop Grumman Corp.,
7.125% Sr. Nts., 2/15/11                                      2,210,000        2,539,416
                                                                          ---------------
                                                                               3,345,780


                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- ----------------------------------------------------------------------------------------

AIR FREIGHT & LOGISTICS--0.6%
FedEx Corp., 2.65% Unsec. Nts.,
4/1/07                                                    $   2,975,000   $    2,915,360
- -----------------------------------------------------------------------------------------
BUILDING PRODUCTS--0.1%
Green Star Products, Inc., 10.15%
Bonds, 6/24/10 7                                                682,655          695,451
- -----------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.9%
Allied Waste North America, Inc.,
8.875% Sr. Nts., Series B, 4/1/08                             1,330,000        1,429,750
- -----------------------------------------------------------------------------------------
Protection One, Inc./Protection
One Alarm Monitoring, Inc.,
7.375% Sr. Unsec. Nts., 8/15/05                                 300,000          304,500
- -----------------------------------------------------------------------------------------
Waste Management, Inc.:
7% Sr. Nts., 7/15/28                                            920,000        1,040,825
7.125% Sr. Unsec. Nts., 10/1/07                               1,485,000        1,613,861
                                                                          ---------------
                                                                               4,388,936

- -----------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--1.0%
Hutchison Whampoa International
Ltd., 7.45% Sr. Bonds, 11/24/33 7                              1,675,000        1,863,566
- -----------------------------------------------------------------------------------------
Tyco International Group SA:
6.375% Sr. Unsec. Unsub. Nts.,
2/15/06                                                       1,895,000        1,958,666
6.75% Sr. Unsub. Nts., 2/15/11                                  975,000        1,094,152
                                                                          ---------------
                                                                               4,916,384

- -----------------------------------------------------------------------------------------
ROAD & RAIL--0.5%
Canadian National Railway Co.,
4.25% Nts., 8/1/09                                              358,000          361,220
- -----------------------------------------------------------------------------------------
CSX Corp., 6.25% Unsec. Nts.,
10/15/08                                                      2,012,000        2,171,121
                                                                          ---------------
                                                                               2,532,341

- -----------------------------------------------------------------------------------------
MATERIALS--0.2%
- -----------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.2%
Weyerhaeuser Co., 5.50% Unsec.
Unsub. Nts., 3/15/05                                            873,000          877,062
- -----------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--3.6%
- -----------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--3.1%
British Telecommunications plc:
7.875% Nts., 12/15/05                                         2,525,000        2,634,148
8.125% Nts., 12/15/10                                           215,000          258,495
- -----------------------------------------------------------------------------------------
Citizens Communications Co.,
9.25% Sr. Nts., 5/15/11                                         989,000        1,162,075
- -----------------------------------------------------------------------------------------
Deutsche Telekom International
Finance BV, 8.50% Unsub. Nts.,
6/15/10                                                       2,630,000        3,136,809
- -----------------------------------------------------------------------------------------
France Telecom SA:
7.95% Sr. Unsec. Nts., 3/1/06                                 2,070,000        2,174,030
9.25% Sr. Unsec. Nts., 3/1/31 2                               1,150,000        1,563,540
- -----------------------------------------------------------------------------------------
Sprint Capital Corp.:
7.125% Sr. Unsec. Nts., 1/30/06                               1,345,000        1,399,316
8.75% Nts., 3/15/32                                           1,220,000        1,630,420


                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- ----------------------------------------------------------------------------------------

DIVERSIFIED TELECOMMUNICATION SERVICES Continued
Telefonos de Mexico SA de CV,
4.50% Nts., 11/19/08                                      $   1,750,000   $    1,766,037
                                                                          ---------------
                                                                              15,724,870

- -----------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.5%
AT&T Wireless Services, Inc.,
7.50% Sr. Unsec. Nts., 5/1/07                                 2,395,000        2,602,747
- -----------------------------------------------------------------------------------------
UTILITIES--5.3%
- -----------------------------------------------------------------------------------------
ELECTRIC UTILITIES--4.4%
CenterPoint Energy, Inc.:
5.875% Sr. Nts., 6/1/08                                       2,425,000        2,539,445
8.125% Unsec. Nts., Series B, 7/15/05                           530,000          544,031
- -----------------------------------------------------------------------------------------
Conectiv, Inc., 5.30% Unsec.
Unsub. Nts., Series B, 6/1/05                                   397,000          400,264
- -----------------------------------------------------------------------------------------
Dominion Resources, Inc.,
8.125% Sr. Unsub. Nts., 6/15/10                               3,390,000        3,994,623
- -----------------------------------------------------------------------------------------
DTE Energy Co., 6.45% Sr. Unsub.
Nts., 6/1/06                                                    725,000          754,979
- -----------------------------------------------------------------------------------------
Duke Capital LLC, 5.668% Nts.,
8/15/14                                                       1,380,000        1,426,586
- -----------------------------------------------------------------------------------------
FirstEnergy Corp.:
5.50% Sr. Unsub. Nts., Series A,
11/15/06                                                        995,000        1,027,619
7.375% Sr. Unsub. Nts., Series C,
11/15/31                                                      1,140,000        1,305,949
- -----------------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375%
Sr. Sec. Nts., 11/14/08 1,2                                   1,180,000        1,333,400
- -----------------------------------------------------------------------------------------
MidAmerican Energy Holdings
Co., 5.875% Sr. Unsec. Nts., 10/1/12                          3,750,000        3,979,841
- -----------------------------------------------------------------------------------------
PSEG Energy Holdings LLC,
7.75% Unsec. Nts., 4/16/07 1                                  1,575,000        1,673,438
- -----------------------------------------------------------------------------------------
TECO Energy, Inc., 10.50% Sr.
Unsec. Nts., 12/1/07                                          1,690,000        1,956,178
- -----------------------------------------------------------------------------------------
TXU Corp., 4.80% Nts., 11/15/09 7                             1,260,000        1,263,611
                                                                          ---------------
                                                                              22,199,964

- -----------------------------------------------------------------------------------------
GAS UTILITIES--0.9%
NiSource Finance Corp., 7.875%
Sr. Unsec. Nts., 11/15/10                                     3,920,000        4,613,797
                                                                          ---------------
Total Corporate Bonds and Notes
(Cost $199,200,861)                                                          207,355,028
                                                                  UNITS
- -----------------------------------------------------------------------------------------

RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- -----------------------------------------------------------------------------------------
Pathmark Stores, Inc. Wts.,
Exp. 9/19/10 8 (Cost $14,872)                                     5,408            1,082




STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                              PRINCIPAL            VALUE
                                                                 AMOUNT       SEE NOTE 1
- -----------------------------------------------------------------------------------------

STRUCTURED NOTES--3.0%
- -----------------------------------------------------------------------------------------
Deutsche Bank AG, COUNTS Corp.
Sec. Credit Linked Nts., Series 2003-1,
3.78%, 1/7/05 1,2 (Cost $15,300,000)                      $  15,300,000   $   15,254,100
- -----------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--4.6%
- -----------------------------------------------------------------------------------------
Undivided interest of 1.63% in joint repurchase
agreement (Principal Amount/Value $1,443,703,000,
with a maturity value of $1,443,962,867) with UBS
Warburg LLC, 2.16%, dated 12/31/04, to be repurchased
at $23,491,228 on 1/3/05, collateralized by Federal
National Mortgage Assn., 5%--6%, 4/1/34--10/1/34,
with a value of $1,474,609,071
(Cost $23,487,000)                                           23,487,000       23,487,000
- -----------------------------------------------------------------------------------------
Total Investments, at Value (excluding Investments
Purchased with Cash Collateral from Securities
Loaned) (Cost $639,484,106)                                                  642,498,168

- -----------------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED--8.0%
- -----------------------------------------------------------------------------------------
ASSET-BACKED FLOATING SECURITY--0.5%
Money Market Trust, Series A-2,
2.478%, 1/18/05 9                                             1,000,000        1,000,000
- -----------------------------------------------------------------------------------------
Whitehawk CDO Funding Corp.,
2.56%, 3/15/05 9                                              1,500,000        1,500,000
                                                                          ---------------
                                                                               2,500,000

- -----------------------------------------------------------------------------------------
FUNDING AGREEMENT/GIC--0.2%
Allstate Life Insurance, 2.47%, 1/3/05 9                      1,000,000        1,000,000
- -----------------------------------------------------------------------------------------
MASTER FLOATING NOTES--0.5%
Bear Stearns, 2.493%, 1/3/05 9                                2,500,000        2,500,000
- -----------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--6.8%
Undivided interest of 10.70% in joint repurchase
agreement (Principal Amount/Value $155,205,723,
with a maturity value of $155,232,367) with
Credit Suisse First Boston LLC, 2.06%, dated
12/31/04, to be repurchased at $16,611,609
on 1/3/05, collateralized by AA
Corporate Bonds, 0%-15.73%, 1/1/06-7/16/44,
with a value of $155,312,640 9                               16,608,758       16,608,758
- -----------------------------------------------------------------------------------------
Undivided interest of 0.64% in joint repurchase
agreement (Principal Amount/Value $2,800,000,000,
with a maturity value of $2,800,550,669) with
Nomura Securities, 2.36%, dated 12/31/04, to
be repurchased at $17,829,212 on 1/3/05,
collateralized by U.S. Government Mortgage
Agencies, 2.58%-7.50%, 1/15/08-10/15/44,
with a value of $2,908,566,289 9                             17,825,706       17,825,706
                                                                          ---------------
                                                                              34,434,464
                                                                          ---------------

                                                                                   VALUE
                                                                              SEE NOTE 1
- -----------------------------------------------------------------------------------------
Total Investments Purchased with
Cash Collateral from Securities Loaned
(Cost $40,434,464)                                                        $   40,434,464

- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $679,918,570)                                               134.5%     682,932,632
- -----------------------------------------------------------------------------------------
LIABILITIES IN EXCESS
OF OTHER ASSETS                                                   (34.5)    (175,183,897)
                                                          -------------------------------
NET ASSETS                                                        100.0%  $  507,748,735
                                                          ===============================



FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Illiquid security. The aggregate value of illiquid securities as of December
31, 2004 was $40,388,660, which represents 7.95% of the Fund's net assets. See
Note 8 of Notes to Financial Statements.

2. Represents the current interest rate for a variable or increasing rate
security.

3. When-issued security or forward commitment to be delivered and settled after
December 31, 2004. See Note 1 of Notes to Financial Statements.

4. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $14,368,673 or 2.83% of the Fund's net assets
as of December 31, 2004.

5. Principal-Only Strips represent the right to receive the monthly principal
payments on an underlying pool of mortgage loans. The value of these securities
generally increases as interest rates decline and prepayment rates rise. The
price of these securities is typically more volatile than that of coupon-bearing
bonds of the same maturity. Interest rates disclosed represent current yields
based upon the current cost basis and estimated timing of future cash flows.
These securities amount to $1,364,810 or 0.27% of the Fund's net assets as of
December 31, 2004.

6. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts with an aggregate
market value of $1,991,824. See Note 5 of Notes to Financial Statements.

7. 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 $25,217,888 or 4.97% of the Fund's net
assets as of December 31, 2004.

8. Non-income producing security.

9. The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 9 of Notes to Financial
Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
Investments, at value (including securities loaned of $51,155,830) (cost $679,918,570)
- --see accompanying statement of investments                                                                     $ 682,932,632
- ------------------------------------------------------------------------------------------------------------------------------
Cash                                                                                                                  828,733
- ------------------------------------------------------------------------------------------------------------------------------
Collateral for securities loaned                                                                                   11,586,484
- ------------------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold on a when-issued basis or forward commitment                                                      68,831,464
Interest and principal paydowns                                                                                     5,194,261
Futures margins                                                                                                       321,360
Shares of beneficial interest sold                                                                                    290,800
Other                                                                                                                   9,802
                                                                                                                --------------
Total assets                                                                                                      769,995,536

- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned                                                                         52,020,948
- ------------------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts                                                                              17,661
- ------------------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased on a when-issued basis or forward commitment                                                208,447,267
Shares of beneficial interest redeemed                                                                              1,677,153
Shareholder communications                                                                                             36,833
Trustees' compensation                                                                                                 13,427
Distribution and service plan fees                                                                                      1,687
Transfer and shareholder servicing agent fees                                                                             873
Other                                                                                                                  30,952
                                                                                                                --------------
Total liabilities                                                                                                 262,246,801

- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS                                                                                                      $ 507,748,735
                                                                                                                ==============

- ------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                                                      $      44,136
- ------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                                                        510,879,953
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated net investment income                                                                                  24,100,215
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments                                                                      (30,986,841)
- ------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments                                                                          3,711,272
                                                                                                                --------------
NET ASSETS                                                                                                      $ 507,748,735
                                                                                                                ==============

- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ------------------------------------------------------------------------------------------------------------------------------
Non-Service Shares:
Net asset value, redemption price per share and offering price per share (based on net assets of $504,243,728
and 43,830,804 shares of beneficial interest outstanding)                                                       $       11.50
- ------------------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share (based on net assets of $3,505,007
and 305,477 shares of beneficial interest outstanding)                                                          $       11.47


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------
Interest                                               $ 20,877,006
- --------------------------------------------------------------------
Fee income                                                4,365,468
- --------------------------------------------------------------------
Portfolio lending fees                                       90,936
                                                       -------------
Total investment income                                  25,333,410

- --------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------
Management fees                                           4,013,043
- --------------------------------------------------------------------
Distribution and service plan fees--Service shares            7,476
- --------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares                                           10,097
Service shares                                                   17
- --------------------------------------------------------------------
Shareholder communications:
Non-Service shares                                           48,974
Service shares                                                  255
- --------------------------------------------------------------------
Custodian fees and expenses                                  24,715
- --------------------------------------------------------------------
Trustees' compensation                                       14,913
- --------------------------------------------------------------------
Other                                                        34,434
                                                       -------------
Total expenses                                            4,153,924
Less reduction to custodian expenses                         (7,487)
                                                       -------------
Net expenses                                              4,146,437

- --------------------------------------------------------------------
NET INVESTMENT INCOME                                    21,186,973

- --------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------
Net realized gain on:
Investments                                               9,864,921
Closing of futures contracts                              4,887,384
Closing and expiration of swaption contracts                384,215
                                                       -------------
Net realized gain                                        15,136,520
- --------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments                                              (7,820,176)
Futures contracts                                           379,959
Swap contracts                                              (31,511)
                                                       -------------
Net change in unrealized appreciation                    (7,471,728)

- --------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS   $ 28,851,765
                                                       =============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.




STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,                                                                            2004             2003
- -------------------------------------------------------------------------------------------------------------------------

OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Net investment income                                                                    $   21,186,973   $   28,002,301
- -------------------------------------------------------------------------------------------------------------------------
Net realized gain                                                                            15,136,520       14,994,207
- -------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation                                                        (7,471,728)       2,326,132
                                                                                         --------------------------------
Net increase in net assets resulting from operations                                         28,851,765       45,322,640

- -------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares                                                                          (27,226,980)     (40,547,869)
Service shares                                                                                 (159,134)        (196,017)

- -------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest transactions:
Non-Service shares                                                                         (115,482,453)    (111,087,827)
Service shares                                                                                 (303,187)       1,355,244

- -------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------------------------
Total decrease                                                                             (114,319,989)    (105,153,829)
- -------------------------------------------------------------------------------------------------------------------------
Beginning of period                                                                         622,068,724      727,222,553
                                                                                         --------------------------------
End of period (including accumulated net investment income of $24,100,215
and $27,335,903, respectively)                                                           $  507,748,735   $  622,068,724
                                                                                         ================================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,                2004          2003          2002          2001          2000
- --------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                  $   11.42     $   11.31     $   11.21     $   11.25     $   11.52
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                       .43 1         .51           .65           .81           .94
Net realized and unrealized gain (loss)                     .18           .23           .27           .03          (.29)
Payment from affiliate                                       --            --           .01            --            --
                                                      --------------------------------------------------------------------
Total from investment operations                            .61           .74           .93           .84           .65
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                       (.53)         (.63)         (.83)         (.88)         (.92)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                        $   11.50     $   11.42     $   11.31     $   11.21     $   11.25
                                                      ====================================================================

- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
- --------------------------------------------------------------------------------------------------------------------------
Total return at net asset value 2                          5.49%         6.78%         9.02%         7.79%         6.10%
Total return before payment from affiliate 3                N/A           N/A          8.93%          N/A           N/A

- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)              $ 504,244     $ 618,234     $ 724,787     $ 693,701     $ 562,345
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                     $ 552,293     $ 691,931     $ 686,932     $ 638,820     $ 557,873
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income before payment from affiliate        3.82%         4.03%         5.91% 3       7.93%         7.94%
Net investment income after payment from affiliate          N/A           N/A          6.07%          N/A           N/A
Total expenses                                             0.75% 5       0.73% 5       0.73% 5       0.77% 5       0.76% 5
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                      95% 6        101%          157%          186%          260%


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

3. The Manager voluntarily reimbursed the Class $1,107,704 from an error in the
calculation of the Fund's net asset value per share.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$2,841,348,053 and $2,925,500,296, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


SERVICE SHARES  YEAR ENDED DECEMBER 31,                  2004         2003       2002 1
- --------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------
Net asset value, beginning of period                  $ 11.39      $ 11.30      $ 10.46
- --------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income                                     .40 2        .43          .11
Net realized and unrealized gain                          .18          .28          .72
Payment from affiliate                                     --           --          .01
                                                      --------------------------------------
Total from investment operations                          .58          .71          .84
- --------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                     (.50)        (.62)          --
- --------------------------------------------------------------------------------------------
Net asset value, end of period                        $ 11.47      $ 11.39      $ 11.30
                                                      ======================================

- --------------------------------------------------------------------------------------------
TOTAL RETURN:
- --------------------------------------------------------------------------------------------
Total return at net asset value 3                        5.22%        6.56%        8.03%
Total return before payment from affiliate 4              N/A          N/A         7.94%

- --------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)              $ 3,505      $ 3,835      $ 2,435
- --------------------------------------------------------------------------------------------
Average net assets (in thousands)                     $ 3,002      $ 3,903      $   834
- --------------------------------------------------------------------------------------------
Ratios to average net assets: 5
Net investment income before payment from affiliate      3.55%        3.73%        4.37% 4
Net investment income after payment from affiliate        N/A          N/A         5.04%
Total expenses                                           0.99% 6      0.98% 6      0.98% 6,7
- --------------------------------------------------------------------------------------------
Portfolio turnover rate                                    95% 8       101%         157%


1. For the period from May 1, 2002 (inception of offering) to December 31, 2002.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. The Manager voluntarily reimbursed the Class $3,723 from an error in the
calculation of the Fund's net asset value per share.

5. Annualized for periods of less than one full year.

6. Reduction to custodian expenses less than 0.01%.

7. Voluntary waiver of transfer agent fees less than 0.01%.

8. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$2,841,348,053 and $2,925,500,296, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Bond Fund/VA (the Fund) is a separate series of Oppenheimer Variable
Account Funds (the Trust), an open-end management investment company registered
under the Investment Company Act of 1940, as amended. The Fund's main investment
objective is to seek a high level of current income. The Trust's investment
advisor is OppenheimerFunds, Inc. (the Manager).

      The Fund offers two classes of shares. Both classes are sold at their
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products. The class of shares designated as Service shares is subject to a
distribution and service plan. Both classes of shares have identical rights and
voting privileges with respect to the Fund in general and exclusive voting
rights on matters that affect that class alone. Earnings, net assets and net
asset value per share may differ due to each class having its own expenses, such
as transfer and shareholder servicing agent fees and shareholder communications,
directly attributable to that class.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in structured notes whose market values,
interest rates and/or redemption prices are linked to the performance of
underlying foreign currencies, interest rate spreads, stock market indices,
prices of individual securities, commodities or other financial instruments or
the occurrence of other specific events. The structured notes are often
leveraged, increasing the volatility of each note's market value relative to the
change in the underlying linked financial element or event. Fluctuations in
value of these securities are recorded as unrealized gains and losses in the
accompanying financial statements. The Fund records a realized gain or loss when
a structured note is sold or matures. As of December 31, 2004, the market value
of these securities comprised 3.0% of the Fund's net assets and resulted in
unrealized cumulative losses of $45,900.

- --------------------------------------------------------------------------------
SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment
for securities that have been purchased by the Fund on a when-issued basis or
forward commitment can take place up to ten days or more after the trade date.
Normally the settlement date occurs within six months after the trade date;
however, the Fund may, from time to time, purchase securities whose settlement
date extends six months or more beyond trade 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
internally designated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a when-issued
basis or forward commitment may increase the volatility of the Fund's net asset
value to the extent the Fund executes such transactions while




remaining substantially fully invested. The Fund may also sell securities that
it purchased on a when-issued basis or forward commitment prior to settlement of
the original purchase. As of December 31, 2004, the Fund had purchased
$208,447,267 of securities on a when-issued basis or forward commitment and sold
$68,831,464 of securities issued on a when-issued basis or forward commitment.

      In connection with its ability to purchase or sell securities on a
when-issued basis, the Fund may enter into forward roll transactions with
respect to mortgage-related securities. Forward roll transactions require the
sale of securities for delivery in the current month, and a simultaneous
agreement with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Fund
records the incremental difference between the forward purchase and sale of each
forward roll as realized gain (loss) on investments or as fee income in the case
of such transactions that have an associated fee in lieu of a difference in the
forward purchase and sale price.

      Risks of entering into forward roll transactions include the potential
inability of the counterparty to meet the terms of the agreement; the potential
of the Fund to receive inferior securities at redelivery as compared to the
securities sold to the counterparty; counterparty credit risk; and the potential
pay down speed variance between the mortgage-related pools.

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.

- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                                       NET UNREALIZED
                                                                         APPRECIATION
                                                                     BASED ON COST OF
                                                                       SECURITIES AND
           UNDISTRIBUTED    UNDISTRIBUTED    ACCUMULATED            OTHER INVESTMENTS
           NET INVESTMENT       LONG-TERM           LOSS           FOR FEDERAL INCOME
           INCOME                    GAIN   CARRYFORWARD 1,2,3,4         TAX PURPOSES
           --------------------------------------------------------------------------

           $ 25,178,703              $ --   $ 30,220,954                  $ 1,876,687


1. As of December 31, 2004, the Fund had $29,885,554 of net capital loss
carryforward available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of December 31, 2004,
details of the capital loss carryforward were as follows:

                        EXPIRING
                        -----------------------
                        2010       $ 29,885,554

2. As of December 31, 2004, the Fund had $335,400 of post-October losses
available to offset future realized capital gains, if any. Such losses, if
unutilized, will expire in 2013.

3. During the fiscal year ended December 31, 2004, the Fund utilized $9,566,561
of capital loss carryforward to offset capital gains realized in that fiscal
year.

4. During the fiscal year ended December 31, 2003, the Fund utilized $18,880,076
of capital loss carryforward to offset capital gains realized in that fiscal
year.




NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

              INCREASE TO          INCREASE TO
              ACCUMULATED      ACCUMULATED NET
              NET INVESTMENT     REALIZED LOSS
              INCOME            ON INVESTMENTS
              --------------------------------
              $ 2,963,453       $ 2,963,453

The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:

                                                YEAR ENDED          YEAR ENDED
                                         DECEMBER 31, 2004   DECEMBER 31, 2003
              ----------------------------------------------------------------
              Distributions paid from:
              Ordinary income            $ 27,386,114        $ 40,743,886

The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

              Federal tax cost of securities          $ 680,941,048
              Federal tax cost of other investments     (48,656,076)
                                                      -------------
              Total federal tax cost                  $ 632,284,972
                                                      =============
              Gross unrealized appreciation           $  11,161,154
              Gross unrealized depreciation              (9,284,467)
                                                      -------------
              Net unrealized appreciation             $   1,876,687
                                                      =============

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.




- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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 $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:

                                            YEAR ENDED DECEMBER 31, 2004    YEAR ENDED DECEMBER 31, 2003
                                                SHARES            AMOUNT         SHARES           AMOUNT
- --------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                                          1,867,203   $   21,055,436      6,666,784   $   75,024,613
Dividends and/or distributions reinvested     2,424,486       27,226,980      3,719,988       40,547,869
Redeemed                                    (14,578,269)    (163,764,869)   (20,335,565)    (226,660,309)
                                            -------------------------------------------------------------
Net decrease                                (10,286,580)  $ (115,482,453)    (9,948,793)  $ (111,087,827)
                                            =============================================================

- ---------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold                                            132,217   $    1,497,198        507,273   $    5,712,858
Dividends and/or distributions reinvested        14,183          159,134         18,016          196,017
Redeemed                                       (177,573)      (1,959,519)      (404,048)      (4,553,631)
                                            -------------------------------------------------------------
Net increase (decrease)                         (31,173)  $     (303,187)       121,241   $    1,355,244
                                            =============================================================


- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than U.S. government obligations and short-term obligations, for the year ended
December 31, 2004, were $298,410,160 and $338,058,617, respectively. There were
purchases of $157,786,344 and sales of $233,884,344 of U.S. government and
government agency obligations for the year ended December 31, 2004. In addition,
there were purchases of $2,841,348,053 and sales of $2,925,500,296 of To Be
Announced (TBA) mortgage-related securities for the year ended December 31,
2004.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million, 0.60% on the next $200 million and 0.50% of average annual
net assets over $1 billion.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.




NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued

TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$10,076 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 per class for class level assets of $10
million or more. Each class is subject to the minimum fee in the event that the
per account fee does not equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FOR SERVICE SHARES. The Fund has adopted a
Distribution and Service Plan for Service shares to pay OppenheimerFunds
Distributor, Inc. (the Distributor), for distribution related services and
personal service and account maintenance for the Fund's Service shares. Under
the Plan, payments are made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Service shares of the Fund. The Distributor
currently uses all of those fees to compensate sponsor(s) of the insurance
product that offers Fund shares, for providing personal service and maintenance
of accounts of their variable contract owners that hold Service shares. The
impact of the service plan is to increase operating expenses of the Service
shares, which results in lower performance compared to the Fund's shares that
are not subject to a service fee. Fees incurred by the Fund under the Plan are
detailed in the Statement of Operations.

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. OFS has voluntarily agreed to limit transfer
and shareholder servicing agent fees for all classes to 0.35% of average annual
net assets per class. This undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS

A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value of stocks and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.

      The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying securities.

      Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.

      Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported in the Statement of Operations.

      Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.


As of December 31, 2004, the Fund had outstanding futures contracts as follows:

                                                                              UNREALIZED
                             EXPIRATION   NUMBER OF     VALUATION AS OF     APPRECIATION
CONTRACT DESCRIPTION              DATES   CONTRACTS   DECEMBER 31, 2004   (DEPRECIATION)
- ----------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
U.S. Long Bonds                 3/21/05         552        $ 62,100,000        $ 682,292
U.S. Treasury Nts., 10 yr.      3/21/05          25           2,798,438           11,234
                                                                               ----------
                                                                                 693,526
                                                                               ==========
CONTRACTS TO SELL
U.S. Treasury Nts., 2 yr.       3/31/05         363          76,082,531           71,569
U.S. Treasury Nts., 5 yr.       3/21/05         343          37,569,219          (50,224)
                                                                               ----------
                                                                                  21,345
                                                                               ----------
                                                                               $ 714,871
                                                                               ==========


- --------------------------------------------------------------------------------
6. CREDIT SWAP CONTRACTS

The Fund may enter into a credit swap transaction to maintain a total return on
a particular investment or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as a notional principal amount. The Fund records an increase or
decrease to unrealized gain (loss), in the amount due to or owed by the Fund at
termination or settlement. Credit swaps are subject to credit risks (if the
counterparty fails to meet its obligations). The Fund pays an annual interest
fee on the notional amount in exchange for the counterparty paying in a
potential credit event.

During the year ended December 31, 2004, the Fund entered into transactions to
hedge credit risk. Information regarding the credit swaps is as follows:


                                         EXPIRATION       NOTIONAL     VALUATION AS OF     UNREALIZED
CONTRACT DESCRIPTION                           DATE         AMOUNT   DECEMBER 31, 2004   DEPRECIATION
- -----------------------------------------------------------------------------------------------------

Morgan Stanley Capital Services, Inc.,
Dow Jones CDX.NA.IG.3 Index
Credit Bonds                                3/20/10   $ 30,000,000           $ (87,327)      $ 87,327


- --------------------------------------------------------------------------------
7. TOTAL RETURN SWAP CONTRACTS

The Fund may enter into a total return swap transaction to maintain a total
return on a particular investment, or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as notional. The Fund records an increase or decrease to unrealized
gain (loss), in the amount due to or owed by the Fund at termination or
settlement. Total return swaps are subject to risks (if the counterparty fails
to meet its obligations).

As of December 31, 2004, the Fund had entered into the following total return
swap agreements:

                                      NOTIONAL   PAID BY THE FUND AT   RECEIVED BY THE FUND AT   TERMINATION     UNREALIZED
SWAP COUNTERPARTY                       AMOUNT     DECEMBER 31, 2004         DECEMBER 31, 2004         DATES   APPRECIATION
- ---------------------------------------------------------------------------------------------------------------------------

                                                                                      Value of
                                                           One-Month           total return of
                                                          LIBOR less           Lehman Brothers
Deutsche Bank AG                   $ 7,500,000       50 basis points                CMBS Index        1/1/05       $ 37,365
                                                                                      Value of
                                                                               total return of
                                                           One-Month           Lehman Brothers
Goldman Sachs Capital Markets LP     7,500,000             LIBOR BBA                CMBS Index       3/31/05         32,301
                                                                                                                   --------
                                                                                                                   $ 69,666
                                                                                                                   ========

Index abbreviations are as follows:
CMBS      Commercial Mortgage Backed Securities Markets
LIBOR     London-Interbank Offered Rate
LIBOR BBA London-Interbank Offered Rate British Bankers Association




NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
8. ILLIQUID SECURITIES

As of December 31, 2004, investments in securities included issues that are
illiquid. 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 will not invest more than 15% of its net assets (determined at the time of
purchase and reviewed periodically) in illiquid securities.

- --------------------------------------------------------------------------------
9. SECURITIES LENDING

The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund also continues to receive
interest or dividends paid on the securities loaned. As of December 31, 2004,
the Fund had on loan securities valued at $51,155,830. Cash of $52,020,948 was
received as collateral for the loans, of which $40,434,464 was invested in
approved instruments.

- --------------------------------------------------------------------------------
10. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER CAPITAL APPRECIATION
FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Capital Appreciation Fund/VA, a series of Oppenheimer Variable
Account Funds, including the statement of investments, as of December 31, 2004,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Capital Appreciation Fund/VA as of December 31, 2004, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005



STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
BIOTECHNOLOGY Continued
MedImmune, Inc. 1                                      124,600   $     3,377,906
                                                                 ---------------
                                                                      62,874,583

- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--4.4%
Medtronic, Inc.                                        787,700        39,125,059
- --------------------------------------------------------------------------------
Millipore Corp. 1                                      364,700        18,165,707
- --------------------------------------------------------------------------------
PerkinElmer, Inc.                                      396,300         8,912,787
- --------------------------------------------------------------------------------
Stryker Corp.                                          286,900        13,842,925
- --------------------------------------------------------------------------------
Varian Medical Systems, Inc. 1                          89,500         3,869,980
- --------------------------------------------------------------------------------
Waters Corp. 1                                          83,500         3,906,965
                                                                 ---------------
                                                                      87,823,423

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--0.4%
Laboratory Corp. of America Holdings 1                  77,300         3,851,086
- --------------------------------------------------------------------------------
Pharmaceutical Product Development, Inc. 1              70,600         2,915,074
- --------------------------------------------------------------------------------
Quest Diagnostics, Inc.                                 21,200         2,025,660
                                                                 ---------------
                                                                       8,791,820

- --------------------------------------------------------------------------------
PHARMACEUTICALS--8.2%
Abbott Laboratories                                     86,400         4,030,560
- --------------------------------------------------------------------------------
Eli Lilly & Co.                                        307,000        17,422,250
- --------------------------------------------------------------------------------
Johnson & Johnson                                      633,600        40,182,912
- --------------------------------------------------------------------------------
Merck & Co., Inc.                                      403,867        12,980,285
- --------------------------------------------------------------------------------
Novartis AG                                            497,588        25,074,129
- --------------------------------------------------------------------------------
Pfizer, Inc.                                         1,437,300        38,648,997
- --------------------------------------------------------------------------------
Roche Holdings AG                                       45,716         5,262,707
- --------------------------------------------------------------------------------
Teva Pharmaceutical Industries
Ltd., Sponsored ADR                                    707,396        21,122,845
                                                                 ---------------
                                                                     164,724,685

- --------------------------------------------------------------------------------
INDUSTRIALS--13.0%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.3%
Empresa Brasileira de Aeronautica SA, ADR              325,000        10,868,000
- --------------------------------------------------------------------------------
Honeywell International, Inc.                          217,600         7,705,216
- --------------------------------------------------------------------------------
L-3 Communications Holdings, Inc.                      127,900         9,367,396
- --------------------------------------------------------------------------------
Lockheed Martin Corp.                                  284,300        15,792,865
- --------------------------------------------------------------------------------
Northrop Grumman Corp.                                 111,700         6,072,012
- --------------------------------------------------------------------------------
Rockwell Collins, Inc.                                  37,700         1,486,888
- --------------------------------------------------------------------------------
United Technologies Corp.                              154,700        15,988,245
                                                                 ---------------
                                                                      67,280,622

- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--2.0%
Expeditors International of Washington, Inc.           180,500        10,086,340
- --------------------------------------------------------------------------------
FedEx Corp.                                            122,600        12,074,874


                                                                          VALUE
                                                        SHARES       SEE NOTE 1
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS Continued
United Parcel Service, Inc., Cl. B                     213,100   $    18,211,526
                                                                 ---------------
                                                                      40,372,740

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.9%
Manpower, Inc.                                          96,300         4,651,290
- --------------------------------------------------------------------------------
Waste Management, Inc.                                 464,900        13,919,106
                                                                 ---------------
                                                                      18,570,396

- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.1%
Rockwell Automation, Inc.                               47,300         2,343,715
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--5.9%
General Electric Co.                                 2,802,900       102,305,850
- --------------------------------------------------------------------------------
Tyco International Ltd.                                467,600        16,712,024
                                                                 ---------------
                                                                     119,017,874

- --------------------------------------------------------------------------------
MACHINERY--0.8%
Ingersoll-Rand Co., Cl. A                              186,300        14,959,890
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--22.4%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--4.1%
Cisco Systems, Inc. 1                                2,029,200        39,163,560
- --------------------------------------------------------------------------------
Lucent Technologies, Inc. 1                          1,925,200         7,238,752
- --------------------------------------------------------------------------------
Motorola, Inc.                                         645,800        11,107,760
- --------------------------------------------------------------------------------
Nokia Corp., Sponsored ADR                             957,200        14,999,324
- --------------------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson,
Sponsored ADR 1                                        313,900         9,884,711
                                                                 ---------------
                                                                      82,394,107

- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--3.9%
Dell, Inc. 1                                           474,300        19,987,002
- --------------------------------------------------------------------------------
EMC Corp. 1                                            249,300         3,707,091
- --------------------------------------------------------------------------------
International Business
Machines Corp.                                         472,700        46,598,766
- --------------------------------------------------------------------------------
Sun Microsystems, Inc. 1                             1,462,200         7,866,636
                                                                 ---------------
                                                                      78,159,495

- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.5%
Agilent Technologies, Inc. 1                           496,200        11,958,420
- --------------------------------------------------------------------------------
Ingram Micro, Inc., Cl. A 1                            381,000         7,924,800
- --------------------------------------------------------------------------------
Tektronix, Inc.                                        357,800        10,809,138
                                                                 ---------------
                                                                      30,692,358

- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--1.6%
VeriSign, Inc. 1                                        44,400         1,488,288
- --------------------------------------------------------------------------------
Yahoo!, Inc. 1                                         796,600        30,015,888
                                                                 ---------------
                                                                      31,504,176

- --------------------------------------------------------------------------------
IT SERVICES--0.3%
Accenture Ltd., Cl. A 1                                231,400         6,247,800


            8 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA

                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--3.7%
Altera Corp. 1                                         149,800   $     3,100,860
- --------------------------------------------------------------------------------
Analog Devices, Inc.                                   251,600         9,289,072
- --------------------------------------------------------------------------------
Broadcom Corp., Cl. A 1                                321,000        10,361,880
- --------------------------------------------------------------------------------
Intel Corp.                                          1,578,100        36,911,759
- --------------------------------------------------------------------------------
Texas Instruments, Inc.                                601,500        14,808,930
                                                                 ---------------
                                                                      74,472,501

- --------------------------------------------------------------------------------
SOFTWARE--7.3%
Adobe Systems, Inc.                                    374,100        23,471,034
- --------------------------------------------------------------------------------
Cadence Design Systems, Inc. 1                         517,200         7,142,532
- --------------------------------------------------------------------------------
Citrix Systems, Inc. 1                                 393,500         9,652,555
- --------------------------------------------------------------------------------
Mercury Interactive Corp. 1                            222,800        10,148,540
- --------------------------------------------------------------------------------
Microsoft Corp.                                      2,760,400        73,730,284
- --------------------------------------------------------------------------------
Novell, Inc. 1                                         323,400         2,182,950
- --------------------------------------------------------------------------------
SAP AG, Sponsored ADR                                  499,000        22,060,789
                                                                 ---------------
                                                                     148,388,684

- --------------------------------------------------------------------------------
MATERIALS--2.7%
- --------------------------------------------------------------------------------
CHEMICALS--2.6%
Air Products & Chemicals, Inc.                         258,600        14,991,042
- --------------------------------------------------------------------------------
Dow Chemical Co.                                        88,800         4,396,488
- --------------------------------------------------------------------------------
E.I. DuPont de Nemours & Co.                           288,500        14,150,925
- --------------------------------------------------------------------------------
Praxair, Inc.                                          455,600        20,114,740
                                                                 ---------------
                                                                      53,653,195

- --------------------------------------------------------------------------------
METALS & MINING--0.1%
Alcan, Inc.                                             38,800         1,902,752
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--1.3%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.1%
Sprint Corp.                                           450,800        11,202,380
- --------------------------------------------------------------------------------
Telefonos de Mexico SA de CV,
Sponsored ADR                                          294,600        11,289,072
                                                                 ---------------
                                                                      22,491,452

- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.2%
AT&T Corp.                                             196,900         3,752,914
                                                                 ---------------
Total Common Stocks
(Cost $1,800,967,668)                                              1,960,795,091

                                                                           VALUE
                                                         UNITS        SEE NOTE 1
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- --------------------------------------------------------------------------------
Lucent Technologies, Inc. Wts.,
Exp. 12/10/07 1 (Cost $0)                               84,120   $       132,910

                                                     PRINCIPAL
                                                        AMOUNT
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--3.1%
- --------------------------------------------------------------------------------
Undivided interest of 4.34% in joint
repurchase agreement (Principal Amount/Value
$1,443,703,000, with a maturity value of
$1,443,962,867) with UBS Warburg LLC, 2.16%,
dated 12/31/04, to be repurchased at
$62,698,284 on 1/3/05, collateralized by
Federal National Mortgage Assn., 5%--6%,
4/1/34--10/1/34, with a value of
$1,474,609,071 (Cost $62,687,000)                 $ 62,687,000       62,687,000

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $1,863,654,668)                                    100.2%   2,023,615,001
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS
OF OTHER ASSETS                                           (0.2)      (4,692,277)
                                                  ------------------------------
NET ASSETS                                               100.0%  $2,018,922,724
                                                  ==============================

FOOTNOTE TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            9 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA

STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------


- ----------------------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------------------
Investments, at value (cost $1,863,654,668)--see accompanying statement of investments                $ 2,023,615,001
- ----------------------------------------------------------------------------------------------------------------------
Cash                                                                                                          294,467
- ----------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold                                                                                            4,968,096
Interest and dividends                                                                                      1,981,833
Shares of beneficial interest sold                                                                          1,782,291
Other                                                                                                          18,729
                                                                                                      ----------------
Total assets                                                                                            2,032,660,417

- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased                                                                                      12,631,037
Shares of beneficial interest redeemed                                                                        819,695
Distribution and service plan fees                                                                            141,957
Shareholder communications                                                                                     61,796
Trustees' compensation                                                                                         27,565
Transfer and shareholder servicing agent fees                                                                   1,773
Other                                                                                                          53,870
                                                                                                      ----------------
Total liabilities                                                                                          13,737,693

- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS                                                                                            $ 2,018,922,724
                                                                                                      ================

- ----------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                                            $        54,633
- ----------------------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                                              2,126,705,195
- ----------------------------------------------------------------------------------------------------------------------
Accumulated net investment income                                                                          17,399,802
- ----------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions                           (285,201,028)
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies                                                                         159,964,122
                                                                                                      ----------------
NET ASSETS                                                                                            $ 2,018,922,724
                                                                                                      ================

- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ----------------------------------------------------------------------------------------------------------------------
Non-Service Shares:
Net asset value, redemption price per share and offering price per share (based
on net assets of $1,770,273,281 and 47,863,861 shares of beneficial interest outstanding)             $         36.99
- ----------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share (based
on net assets of $248,649,443 and 6,769,088 shares of beneficial interest outstanding)                $         36.73


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            10 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA

STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------


- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $167,336)                                              $    30,583,919
- ----------------------------------------------------------------------------------------------------------------------
Interest                                                                                                      821,751
                                                                                                      ----------------
Total investment income                                                                                    31,405,670

- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------------------------------------
Management fees                                                                                            12,193,670
- ----------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares                                                            459,798
- ----------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares                                                                                             10,276
Service shares                                                                                                 10,036
- ----------------------------------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares                                                                                             90,788
Service shares                                                                                                 11,222
- ----------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses                                                                                    48,830
- ----------------------------------------------------------------------------------------------------------------------
Trustees' compensation                                                                                         35,958
- ----------------------------------------------------------------------------------------------------------------------
Other                                                                                                          79,122
                                                                                                      ----------------
Total expenses                                                                                             12,939,700
Less reduction to custodian expenses                                                                           (5,579)
                                                                                                      ----------------
Net expenses                                                                                               12,934,121

- ----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                                                      18,471,549

- ----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on:
Investments                                                                                                81,657,867
Foreign currency transactions                                                                               1,248,945
Net increase from payment by affiliate                                                                        153,724
                                                                                                      ----------------
Net realized gain                                                                                          83,060,536
- ----------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments                                                                                                25,551,439
Translation of assets and liabilities denominated in foreign currencies                                     1,809,774
                                                                                                      ----------------
Net change in unrealized appreciation                                                                      27,361,213

- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                                                  $   128,893,298
                                                                                                      ================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            11 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                                       2004               2003
- ----------------------------------------------------------------------------------------------------------------------

OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------
Net investment income                                                               $   18,471,549    $     5,758,596
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss)                                                                83,060,536       (149,446,395)
- ----------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)                                    27,361,213        558,998,061
                                                                                    ----------------------------------
Net increase in net assets resulting from operations                                   128,893,298        415,310,262

- ----------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares                                                                      (5,404,905)        (5,643,286)
Service shares                                                                            (357,596)           (84,026)

- ----------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Non-Service shares                                                                     (53,964,830)       (18,705,242)
Service shares                                                                         114,818,206         87,031,915

- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
Total increase                                                                         183,984,173        477,909,623
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period                                                                  1,834,938,551      1,357,028,928
                                                                                    ----------------------------------
End of period (including accumulated net investment income of $17,399,802
and $5,752,602, respectively)                                                       $2,018,922,724    $ 1,834,938,551
                                                                                    ==================================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            12 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
NON-SERVICE SHARES   YEAR ENDED DECEMBER 31,                  2004           2003            2002            2001            2000
- ------------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                   $     34.70    $     26.62     $     36.58     $     46.63     $     49.84
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                          .35 1          .12             .11             .18             .27
Net realized and unrealized gain (loss)                       2.05           8.07           (9.89)          (5.86)            .02
                                                       -----------------------------------------------------------------------------
Total from investment operations                              2.40           8.19           (9.78)          (5.68)            .29
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                          (.11)          (.11)           (.18)           (.27)           (.06)
Distributions from net realized gain                            --             --              --           (4.10)          (3.44)
                                                       -----------------------------------------------------------------------------
Total dividends and/or distributions to shareholders          (.11)          (.11)           (.18)          (4.37)          (3.50)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                         $     36.99    $     34.70     $     26.62     $     36.58     $     46.63
                                                       =============================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                            6.93%         30.94%         (26.86)%        (12.58)%         (0.23)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)               $ 1,770,273    $ 1,715,240     $ 1,338,769     $ 1,975,345     $ 2,095,803
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                      $ 1,708,511    $ 1,468,297     $ 1,630,430     $ 2,000,314     $ 1,922,099
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                         0.99%          0.39%           0.35%           0.51%           0.66%
Total expenses                                                0.66% 4        0.67% 4         0.66% 4         0.68% 4         0.67% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                         44%            48%             32%             45%             38%


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            13 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA

FINANCIAL HIGHLIGHTS  Continued
- --------------------------------------------------------------------------------


SERVICE SHARES   YEAR ENDED DECEMBER 31,                      2004          2003             2002        2001 1
- ------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                   $     34.53    $    26.53      $     36.56       $ 31.66
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                          .29 2         .08              .20            -- 3
Net realized and unrealized gain (loss)                       1.99          8.02           (10.05)         4.90
                                                       -----------------------------------------------------------
Total from investment operations                              2.28          8.10            (9.85)         4.90
- ------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                          (.08)         (.10)            (.18)           --
Distributions from net realized gain                            --            --               --            --
                                                       -----------------------------------------------------------
Total dividends and/or distributions to shareholders          (.08)         (.10)            (.18)           --
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                         $     36.73    $    34.53      $     26.53       $ 36.56
                                                       ===========================================================

- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 4                            6.62%        30.69%          (27.09)%       15.51%
- ------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)               $   248,649    $  119,699      $    18,260       $    90
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                      $   184,273    $   48,178      $     6,263       $    16
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 5
Net investment income                                         0.85%         0.14%            0.26%         0.11%
Total expenses                                                0.91% 6       0.94% 6          0.81% 6,7     0.81% 6
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                         44%           48%              32%           45%


1. For the period from September 18, 2001 (inception of offering) to December
31, 2001.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Less than $0.005 per share.

4. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

5. Annualized for periods of less than one full year.

6. Reduction to custodian expenses less than 0.01%.

7. Voluntary waiver of transfer agent fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            14 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Capital Appreciation Fund/VA (the Fund) is a separate series of
Oppenheimer Variable Account Funds (the Trust), an open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek capital appreciation by
investing in securities of well-known, established companies. The Trust's
investment advisor is OppenheimerFunds, Inc. (the Manager).

      The Fund offers two classes of shares. Both classes are sold at their
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products. The class of shares designated as Service shares is subject to a
distribution and service plan. Both classes of shares have identical rights and
voting privileges with respect to the Fund in general and exclusive voting
rights on matters that affect that class alone. Earnings, net assets and net
asset value per share may differ due to each class having its own expenses, such
as transfer and shareholder servicing agent fees and shareholder communications,
directly attributable to that class.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

      Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

      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.


            15 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA

NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.

- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                                NET UNREALIZED
                                                                  APPRECIATION
                                                              BASED ON COST OF
                                                                SECURITIES AND
    UNDISTRIBUTED     UNDISTRIBUTED           ACCUMULATED    OTHER INVESTMENTS
    NET INVESTMENT        LONG-TERM                  LOSS   FOR FEDERAL INCOME
    INCOME                     GAIN    CARRYFORWARD 1,2,3         TAX PURPOSES
    --------------------------------------------------------------------------
    $17,418,420                 $--          $277,090,190         $151,853,324

1. As of December 31, 2004, the Fund had $277,090,190 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of December 31, 2004,
details of the capital loss carryforwards were as follows:

                            EXPIRING
                            -------------------------
                            2010         $ 83,313,825
                            2011          193,776,365
                                         ------------
                            Total        $277,090,190
                                         ============

2. During the fiscal year ended December 31, 2004, the Fund utilized $83,521,467
of capital loss carryforward to offset capital gains realized in that fiscal
year.

3. During the fiscal year ended December 31, 2003, the Fund did not utilize any
capital loss carryforward.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

                        REDUCTION TO               REDUCTION TO
                        ACCUMULATED             ACCUMULATED NET
                        NET INVESTMENT            REALIZED LOSS
                        INCOME                   ON INVESTMENTS
                        ---------------------------------------
                        $1,061,848                   $1,061,848


            16 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA

The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:

                                           YEAR ENDED               YEAR ENDED
                                    DECEMBER 31, 2004        DECEMBER 31, 2003
    --------------------------------------------------------------------------
    Distributions paid from:
    Ordinary income                        $5,762,501               $5,727,312

 The aggregate cost of securities and other investments and the composition of
 unrealized appreciation and depreciation of securities and other investments
 for federal income tax purposes as of December 31, 2004 are noted below. The
 primary difference between book and tax appreciation or depreciation of
 securities and other investments, if applicable, is attributable to the tax
 deferral of losses or tax realization of financial statement unrealized gain or
 loss.

    Federal tax cost of securities           $1,871,765,466
                                             ===============
    Gross unrealized appreciation            $  290,087,257
    Gross unrealized depreciation              (138,233,933)
                                             ---------------
    Net unrealized appreciation              $  151,853,324
                                             ===============

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.

- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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.


            17 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA

NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST

The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:

                                                YEAR ENDED DECEMBER 31, 2004      YEAR ENDED DECEMBER 31, 2003
                                                    SHARES            AMOUNT          SHARES            AMOUNT
- ---------------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                                             5,578,990    $  194,357,727      11,371,657    $  330,561,752
Dividends and/or distributions reinvested          155,940         5,404,905         223,231         5,643,286
Redeemed                                        (7,294,682)     (253,727,462)    (12,455,978)     (354,910,280)
                                                ---------------------------------------------------------------
Net decrease                                    (1,559,752)   $  (53,964,830)       (861,090)   $  (18,705,242)
                                                ===============================================================

- ---------------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold                                             3,992,696    $  138,774,693       2,961,561    $   92,475,323
Dividends and/or distributions reinvested           10,365           357,596           3,339            84,026
Redeemed                                          (700,538)      (24,314,083)       (186,681)       (5,527,434)
                                                ---------------------------------------------------------------
Net increase                                     3,302,523      $114,818,206       2,778,219    $   87,031,915
                                                ===============================================================


- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended December 31, 2004, were
$926,341,824 and $809,068,289, respectively.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million and 0.60% of average annual net assets over $800 million.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$20,206 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 per class for class level assets of $10
million or more. Each class is subject to the minimum fee in the event that the
per account fee does not equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FOR SERVICE SHARES. The Fund has adopted a
Distribution and Service Plan for Service shares to pay OppenheimerFunds
Distributor, Inc. (the Distributor), for distribution related services and
personal service and account maintenance for the Fund's Service shares. Under
the Plan, payments are made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Service shares of the Fund. The Distributor
currently uses all of those fees to compensate sponsor(s) of the insurance
product that offers Fund shares, for providing personal service and maintenance
of accounts of their variable contract owners that hold Service shares. The
impact of the service plan is to increase operating expenses of the Service
shares, which results in lower performance compared to the Fund's shares that
are not subject to a service fee. Fees incurred by the Fund under the Plan are
detailed in the Statement of Operations.


            18 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. Following a review of its use of brokerage
commissions for sales that is permitted under its investment advisory agreement,
the Fund's Manager terminated that practice in July 2003. Subsequently, the
Manager paid the Fund $153,724, an amount equivalent to certain of such
commissions incurred in prior years.

      OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees for all classes to 0.35% of average annual net assets per class. This
undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.

      The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.

      The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.

      As of December 31, 2004, the Fund had no outstanding foreign currency
contracts.

- --------------------------------------------------------------------------------
6. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.

EX-99 4 sai2497.htm SAI - PART 2 OF 4 sai part 2 of 4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER GLOBAL SECURITIES
FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Global Securities Fund/VA, a series of Oppenheimer Variable Account
Funds, including the statement of investments, as of December 31, 2004, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Global Securities Fund/VA as of December 31, 2004, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005


STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                       SHARES         SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--94.9%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--16.9%
- --------------------------------------------------------------------------------
AUTOMOBILES--1.3%
Porsche AG, Preferred                                  22,868       $ 14,506,586
- --------------------------------------------------------------------------------
Toyota Motor Corp.                                    667,900         27,277,577
                                                                    ------------
                                                                      41,784,163

- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--1.3%
International Game Technology                         568,100         19,531,278
                                                                    ------------
Starbucks Corp. 1                                     334,400         20,853,184
                                                                    ------------
                                                                      40,384,462

- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.4%
Sharp Corp.                                           806,000         13,159,344
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--0.4%
Amazon.com, Inc. 1                                    279,100         12,361,339
- --------------------------------------------------------------------------------
MEDIA--8.6%
Grupo Televisa SA, Sponsored
GDR                                                   405,299         24,520,590
- --------------------------------------------------------------------------------
JC Decaux SA 1                                        492,604         14,382,403
- --------------------------------------------------------------------------------
Pearson plc                                         1,950,238         23,532,707
- --------------------------------------------------------------------------------
Reed Elsevier plc                                   1,423,866         13,135,346
- --------------------------------------------------------------------------------
Singapore Press Holdings Ltd.                       5,887,640         16,590,997
- --------------------------------------------------------------------------------
Sirius Satellite Radio, Inc. 1                     13,387,014        102,410,657
- --------------------------------------------------------------------------------
Societe Television Francaise  1                       351,960         11,457,716
- --------------------------------------------------------------------------------
Television Broadcasts Ltd.                          4,743,832         22,032,541
- --------------------------------------------------------------------------------
Wolters Kluwer NV                                     738,450         14,825,209
- --------------------------------------------------------------------------------
WPP Group plc                                       1,068,520         11,754,828
- --------------------------------------------------------------------------------
Zee Telefilms Ltd.                                  4,876,300         19,193,350
                                                                    ------------
                                                                     273,836,344

- --------------------------------------------------------------------------------
SPECIALTY RETAIL--4.3%
Circuit City Stores, Inc./
Circuit City Group                                  1,281,249         20,038,734
- --------------------------------------------------------------------------------
Gap, Inc. (The)                                       522,500         11,035,200
- --------------------------------------------------------------------------------
Hennes & Mauritz AB, B Shares                       1,955,900         68,135,981
- --------------------------------------------------------------------------------
New Dixons Group plc                                8,998,110         26,258,740
- --------------------------------------------------------------------------------
RadioShack Corp.                                      320,600         10,541,328
                                                                    ------------
                                                                     136,009,983

- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--0.6%
Coach, Inc. 1                                         172,400          9,723,360
- --------------------------------------------------------------------------------
LVMH Moet Hennessey
Louis Vuitton                                         108,870          8,338,758
                                                                    ------------
                                                                      18,062,118
- --------------------------------------------------------------------------------
CONSUMER STAPLES--7.4%
- --------------------------------------------------------------------------------
BEVERAGES--1.5%
Companhia de Bebidas das
Americas, ADR                                         563,415         15,961,547


                                                                           VALUE
                                                       SHARES         SEE NOTE 1
- --------------------------------------------------------------------------------
BEVERAGES Continued
Diageo plc                                            406,400       $  5,797,243
- --------------------------------------------------------------------------------
Fomento Economico Mexicano
SA de CV, UBD                                       2,863,600         15,036,019
- --------------------------------------------------------------------------------
Grupo Modelo SA de CV,
Series C                                            3,951,400         10,868,388
                                                                    ------------
                                                                      47,663,197

- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.0%
Boots Group plc                                     1,010,620         12,718,608

- --------------------------------------------------------------------------------
Carrefour SA                                          180,410          8,592,587

- --------------------------------------------------------------------------------
Seven-Eleven Japan Co. Ltd.                           321,000         10,118,376
                                                                    ------------
                                                                      31,429,571

- --------------------------------------------------------------------------------
FOOD PRODUCTS--1.0%
Cadbury Schweppes plc                               3,289,501         30,630,265
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--2.5%
Hindustan Lever Ltd.                                5,411,000         17,862,399
- --------------------------------------------------------------------------------
Reckitt Benckiser plc                               2,002,937         60,527,259
                                                                    ------------
                                                                      78,389,658

- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--1.0%
Gillette Co.                                          513,100         22,976,618
- --------------------------------------------------------------------------------
Shiseido Co. Ltd.                                     734,000         10,629,999
                                                                    ------------
                                                                      33,606,617

- --------------------------------------------------------------------------------
TOBACCO--0.4%
Altria Group, Inc.                                    133,000          8,126,300
- --------------------------------------------------------------------------------
ITC Ltd.                                              115,900          3,492,197
                                                                    ------------
                                                                      11,618,497

- --------------------------------------------------------------------------------
ENERGY--7.6%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--3.2%
GlobalSantaFe Corp.                                   895,100         29,636,761
- --------------------------------------------------------------------------------
Technip SA                                            174,520         32,261,411
- --------------------------------------------------------------------------------
Transocean, Inc. 1                                    901,700         38,223,063
                                                                    ------------
                                                                     100,121,235

- --------------------------------------------------------------------------------
OIL & GAS--4.4%
BP plc, ADR                                           407,969         23,825,390
- --------------------------------------------------------------------------------
Burlington Resources, Inc.                            324,400         14,111,400
- --------------------------------------------------------------------------------
ChevronTexaco Corp.                                   466,944         24,519,229
- --------------------------------------------------------------------------------
Encana Corp.                                          356,817         20,369,973
- --------------------------------------------------------------------------------
ENI SpA                                               532,000         13,319,886
- --------------------------------------------------------------------------------
Husky Energy, Inc.                                  1,009,715         28,863,447
- --------------------------------------------------------------------------------
Oil & Natural Gas Corp. Ltd.                          190,670          3,594,746
- --------------------------------------------------------------------------------
Total SA, B Shares                                     57,630         12,630,122
                                                                    ------------
                                                                     141,234,193




                                                                           VALUE
                                                      SHARES          SEE NOTE 1
- --------------------------------------------------------------------------------
FINANCIALS--17.7%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--0.3%
Northern Trust Corp.                                 200,100        $  9,720,858
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--8.2%
ABN Amro Holding NV                                1,125,400          29,813,845
- --------------------------------------------------------------------------------
Anglo Irish Bank Corp.                               742,166          18,057,321
- --------------------------------------------------------------------------------
Australia & New Zealand
Banking Group Ltd.                                   841,550          13,583,038
- --------------------------------------------------------------------------------
Commerce Bancorp, Inc.                                91,900           5,918,360
- --------------------------------------------------------------------------------
HSBC Holdings plc 3                                1,790,887          30,644,174
- --------------------------------------------------------------------------------
HSBC Holdings plc 3                                  205,000           3,459,567
- --------------------------------------------------------------------------------
ICICI Bank Ltd., Sponsored ADR                     1,198,250          24,144,738
- --------------------------------------------------------------------------------
Resona Holdings, Inc. 1                            6,040,000          12,219,640
- --------------------------------------------------------------------------------
Royal Bank of Scotland
Group plc (The)                                    1,823,287          61,329,317
- --------------------------------------------------------------------------------
Societe Generale, Cl. A                              280,020          28,336,943
- --------------------------------------------------------------------------------
Wachovia Corp.                                       599,029          31,508,925
                                                                    ------------
                                                                     259,015,868

- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--5.1%
3i Group plc                                         903,406          11,551,442
- --------------------------------------------------------------------------------
American Express Co.                                 415,900          23,444,283
- --------------------------------------------------------------------------------
Citigroup, Inc.                                      201,566           9,711,450
- --------------------------------------------------------------------------------
Credit Saison Co. Ltd.                               479,600          17,511,466
- --------------------------------------------------------------------------------
Investor AB, B Shares                                611,109           7,770,595
- --------------------------------------------------------------------------------
JPMorgan Chase & Co.                               1,242,563          48,472,383
- --------------------------------------------------------------------------------
MBNA Corp.                                           963,250          27,154,018
- --------------------------------------------------------------------------------
MLP AG                                               343,647           6,801,006
- --------------------------------------------------------------------------------
Schwab (Charles) Corp.                               888,300          10,624,068
                                                                    ------------
                                                                     163,040,711

- --------------------------------------------------------------------------------
INSURANCE--4.1%
ACE Ltd.                                             647,871          27,696,485
- --------------------------------------------------------------------------------
Aegon NV                                           1,642,107          22,387,295
- --------------------------------------------------------------------------------
Allianz AG                                           220,600          29,130,474
- --------------------------------------------------------------------------------
Berkshire Hathaway, Inc., Cl. B 1                      7,250          21,286,000
- --------------------------------------------------------------------------------
Everest Re Group Ltd.                                127,300          11,400,988
- --------------------------------------------------------------------------------
Manulife Financial Corp.                             373,713          17,279,723
                                                                    ------------
                                                                     129,180,965

- --------------------------------------------------------------------------------
HEALTH CARE--12.8%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--3.6%
Affymetrix, Inc. 1                                   413,600          15,117,080
- --------------------------------------------------------------------------------
Amgen, Inc. 1                                        456,900          29,310,135
- --------------------------------------------------------------------------------
Applera Corp./Applied
Biosystems Group                                     498,500          10,423,635
- --------------------------------------------------------------------------------
Genentech, Inc. 1                                    262,700          14,301,388
- --------------------------------------------------------------------------------
Genzyme Corp.
(General Division) 1                                 246,600          14,320,062


                                                                           VALUE
                                                      SHARES          SEE NOTE 1
- --------------------------------------------------------------------------------
BIOTECHNOLOGY Continued
Gilead Sciences, Inc. 1                              698,360        $ 24,435,616
- --------------------------------------------------------------------------------
Human Genome Sciences, Inc. 1                        302,400           3,634,848
- --------------------------------------------------------------------------------
Millennium Pharmaceuticals, Inc. 1                   291,700           3,535,404
                                                                    ------------
                                                                     115,078,168

- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--1.5%
Essilor International SA                             178,810          14,011,685
- --------------------------------------------------------------------------------
Nektar Therapeutics 1,2                              314,361           5,090,133
- --------------------------------------------------------------------------------
Smith & Nephew plc                                 2,623,390          26,845,349
                                                                    ------------
                                                                      45,947,167

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.6%
Express Scripts, Inc. 1                              162,800          12,444,432
- --------------------------------------------------------------------------------
IMS Health, Inc.                                     529,900          12,298,979
- --------------------------------------------------------------------------------
Quest Diagnostics, Inc.                              272,100          25,999,155
                                                                    ------------
                                                                      50,742,566

- -------------------------------------------------------------------------------
PHARMACEUTICALS--6.1%
AstraZeneca plc                                      267,000           9,683,274
- --------------------------------------------------------------------------------
Chugai Pharmaceutical Co. Ltd.                       754,800          12,478,103
- --------------------------------------------------------------------------------
Eli Lilly & Co.                                      160,100           9,085,675
- --------------------------------------------------------------------------------
Novartis AG                                          404,244          20,370,399
- --------------------------------------------------------------------------------
Pfizer, Inc.                                         657,719          17,686,064
- --------------------------------------------------------------------------------
Roche Holdings AG                                    310,265          35,716,901
- --------------------------------------------------------------------------------
Sanofi-Synthelabo SA                                 691,494          55,266,885
- --------------------------------------------------------------------------------
Schering-Plough Corp.                                785,200          16,394,976
- --------------------------------------------------------------------------------
Shionogi & Co. Ltd.                                1,266,000          17,506,802
                                                                    ------------
                                                                     194,189,079

- ------------------------------------------------------------------------------
INDUSTRIALS--4.5%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.0%
Boeing Co.                                           279,300          14,459,361
- --------------------------------------------------------------------------------
Empresa Brasileira de
Aeronautica SA, ADR                                  920,934          30,796,033
- --------------------------------------------------------------------------------
Lockheed Martin Corp.                                237,200          13,176,460
- --------------------------------------------------------------------------------
Northrop Grumman Corp.                               251,200          13,655,232
- --------------------------------------------------------------------------------
Raytheon Co.                                         577,600          22,428,208
                                                                    ------------
                                                                      94,515,294

- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.1%
JGC Corp.                                            490,000           4,480,628
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.9%
Hutchison Whampoa Ltd.                             1,415,000          13,243,950
- --------------------------------------------------------------------------------
Siemens AG                                           189,018          16,021,697
                                                                    ------------
                                                                      29,265,647

- --------------------------------------------------------------------------------
MACHINERY--0.4%
Hyundai Heavy Industries Co. Ltd.                    342,470          11,396,920






STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                      SHARES          SEE NOTE 1
- --------------------------------------------------------------------------------
MARINE--0.1%
Peninsular & Oriental Steam
Navigation Co.                                          586,910   $    3,352,258
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--19.7%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--5.8%
Alcatel SA 1                                          1,046,470       16,376,510
- --------------------------------------------------------------------------------
Cisco Systems, Inc. 1                                   924,600       17,844,780
- --------------------------------------------------------------------------------
Corning, Inc. 1                                       1,238,400       14,575,968
- --------------------------------------------------------------------------------
JDS Uniphase Corp. 1                                  4,530,200       14,360,734
- --------------------------------------------------------------------------------
Juniper Networks, Inc. 1                                430,700       11,710,733
- --------------------------------------------------------------------------------
QUALCOMM, Inc.                                          690,500       29,277,200
- --------------------------------------------------------------------------------
Scientific-Atlanta, Inc.                                317,200       10,470,772
- --------------------------------------------------------------------------------
Telefonaktiebolaget LM
Ericsson, B Shares 1                                 21,949,100       70,021,507
                                                                  --------------
                                                                     184,638,204

- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--1.5%
International Business
Machines Corp.                                          304,117       29,979,854
- --------------------------------------------------------------------------------
Sun Microsystems, Inc. 1                              3,464,000       18,636,320
                                                                  --------------
                                                                      48,616,174

- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.8%
Hoya Corp.                                               70,400        7,948,941
- --------------------------------------------------------------------------------
Keyence Corp.                                            50,200       11,248,092
- --------------------------------------------------------------------------------
Murata Manufacturing Co. Ltd.                           222,100       12,463,010
- --------------------------------------------------------------------------------
Nidec Corp.                                              48,300        5,887,255
- --------------------------------------------------------------------------------
Omron Corp.                                             134,000        3,197,326
- --------------------------------------------------------------------------------
Tandberg ASA                                          1,405,950       17,468,029
                                                                  --------------
                                                                      58,212,653

- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.3%
Yahoo Japan Corp. 1                                       1,762        8,460,076
- --------------------------------------------------------------------------------
IT SERVICES--1.6%
Amadeus Global Travel
Distribution SA                                       1,419,001       14,600,839
- --------------------------------------------------------------------------------
Infosys Technologies Ltd.                               738,140       35,472,152
                                                                  --------------
                                                                      50,072,991

- --------------------------------------------------------------------------------
OFFICE ELECTRONICS--0.4%
Canon, Inc.                                             208,000       11,264,629
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--4.4%
Advanced Micro Devices, Inc. 1                        1,920,800       42,296,016
- --------------------------------------------------------------------------------
Altera Corp. 1                                          254,000        5,257,800
- --------------------------------------------------------------------------------
National Semiconductor Corp. 1                        1,125,800       20,208,110
- --------------------------------------------------------------------------------
Nikon Corp.                                           1,192,415       14,787,233
- --------------------------------------------------------------------------------
Samsung Electronics Co.                                  62,740       27,303,294
- --------------------------------------------------------------------------------
Silicon Laboratories, Inc. 1                            158,800        5,607,228


                                                                           VALUE
                                                      SHARES          SEE NOTE 1
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Continued
Taiwan Semiconductor
Manufacturing Co. Ltd. 2                             15,313,223   $   24,402,580
                                                                  --------------
                                                                     139,862,261

- --------------------------------------------------------------------------------
SOFTWARE--3.9%
BEA Systems, Inc. 1                                   1,408,805       12,482,012
- --------------------------------------------------------------------------------
Cadence Design Systems, Inc. 1                          888,770       12,273,914
- --------------------------------------------------------------------------------
Electronic Arts, Inc. 1                                  81,442        5,023,343
- --------------------------------------------------------------------------------
Novell, Inc. 1                                        1,827,226       12,333,776
- --------------------------------------------------------------------------------
Red Hat, Inc. 1                                         402,100        5,368,035
- --------------------------------------------------------------------------------
SAP AG                                                  170,738       30,448,323
- --------------------------------------------------------------------------------
Symantec Corp. 1                                        633,000       16,306,080
- --------------------------------------------------------------------------------
Trend Micro, Inc.                                       341,000       18,519,702
- --------------------------------------------------------------------------------
Veritas Software Corp. 1                                319,100        9,110,305
                                                                  --------------
                                                                     121,865,490

- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--7.3%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.7%
France Telecom SA                                       903,108       29,903,100
- --------------------------------------------------------------------------------
Tele Norte Leste Participacoes SA                            78            1,368
- --------------------------------------------------------------------------------
Tele Norte Leste Participacoes
SA, Preference                                        1,387,785       23,199,418
                                                                  --------------
                                                                      53,103,886

- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--5.6%
Hutchison Telecommunications
International Ltd. 1                                     18,720           16,859
- --------------------------------------------------------------------------------
KDDI Corp.                                                8,604       46,349,253
- --------------------------------------------------------------------------------
SK Telecom Co. Ltd., ADR                                874,960       19,467,860
- --------------------------------------------------------------------------------
Vodafone Group plc                                   41,162,730      111,627,608
                                                                  --------------
                                                                     177,461,580

- --------------------------------------------------------------------------------
UTILITIES--1.0%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.4%
Energias de Portugal SA                               2,729,106        8,272,266
- --------------------------------------------------------------------------------
Fortum Oyj                                              256,200        4,743,026
                                                                  --------------
                                                                      13,015,292

- --------------------------------------------------------------------------------
GAS UTILITIES--0.6%
Gail India Ltd.                                         324,270        1,720,936
- --------------------------------------------------------------------------------
Hong Kong & China Gas Co. Ltd.                        8,035,000       16,591,628
                                                                  --------------
                                                                      18,312,564
                                                                  --------------

Total Common Stocks
(Cost $2,080,377,086)                                              3,005,102,915





                                                         PRINCIPAL             VALUE
                                                            AMOUNT        SEE NOTE 1
- ------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--4.8%
- ------------------------------------------------------------------------------------

Undivided interest of 10.58% in joint repurchase
agreement (Principal Amount/Value $1,443,703,000,
with a maturity value of $1,443,962,867) with UBS
Warburg LLC, 2.16%, dated 12/31/04, to be
repurchased at $152,800,499 on 1/3/05,
collateralized by Federal National Mortgage
Assn., 5%--6%, 4/1/34--10/1/34, with
a value of $1,474,609,071
(Cost $152,773,000)                                 $  152,773,000    $  152,773,000

- ------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $2,233,150,086)                                         99.7%    3,157,875,915
- ------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES                                0.3         9,821,293
                                                    --------------------------------
NET ASSETS                                                   100.0%   $3,167,697,208
                                                    ================================


FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of December 31, 2004 was $29,492,713, which represents
0.93% of the Fund's net assets, of which $5,090,133 is considered restricted.
See Note 6 of Notes to Financial Statements.

3. The Fund holds securities which have been issued by the same entity and that
trade on separate exchanges.

- --------------------------------------------------------------------------------
GEOGRAPHIC HOLDINGS (Unaudited)
- --------------------------------------------------------------------------------

DISTRIBUTION OF INVESTMENTS REPRESENTING GEOGRAPHIC HOLDINGS, AS A PERCENTAGE OF
TOTAL INVESTMENTS AT VALUE, IS AS FOLLOWS:

GEOGRAPHIC HOLDINGS                                         VALUE       PERCENT
- --------------------------------------------------------------------------------
United States                                      $1,255,621,619          39.8%
United Kingdom                                        466,673,375          14.8
Japan                                                 265,507,452           8.4
France                                                231,558,120           7.3
Sweden                                                145,928,083           4.6
India                                                 105,480,518           3.3
Germany                                                96,908,086           3.1
Brazil                                                 69,958,366           2.2
The Netherlands                                        67,026,349           2.1
Canada                                                 66,513,143           2.1
Korea, Republic of South                               58,168,074           1.8
Switzerland                                            56,087,300           1.8
Hong Kong                                              51,884,978           1.6
Mexico                                                 50,424,997           1.6
Bermuda                                                39,097,473           1.2
Taiwan                                                 24,402,580           0.8
Ireland                                                18,057,321           0.6
Norway                                                 17,468,029           0.6
Singapore                                              16,590,997           0.5
Spain                                                  14,600,839           0.5
Australia                                              13,583,038           0.4
Italy                                                  13,319,886           0.4
Portugal                                                8,272,266           0.3
Finland                                                 4,743,026           0.2
                                                   -----------------------------
Total                                              $3,157,875,915         100.0%
                                                   =============================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------


- ---------------------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------------------

Investments, at value (cost $2,233,150,086)--see accompanying statement of investments   $ 3,157,875,915
- ---------------------------------------------------------------------------------------------------------
Cash                                                                                              70,058
- ---------------------------------------------------------------------------------------------------------
Cash--foreign currencies (cost $2,287,816)                                                     2,318,287
- ---------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest and dividends                                                                         5,682,367
Shares of beneficial interest sold                                                             3,273,141
Investments sold                                                                                 587,702
Other                                                                                             32,367
                                                                                        ----------------
Total assets                                                                               3,169,839,837

- ---------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed                                                         1,560,266
Distribution and service plan fees                                                               210,215
Custodian fees                                                                                   124,870
Foreign capital gains tax                                                                        106,918
Trustees' compensation                                                                            50,045
Shareholder communications                                                                        36,185
Transfer and shareholder servicing agent fees                                                      3,455
Other                                                                                             50,675
                                                                                         ---------------
Total liabilities                                                                              2,142,629

- ---------------------------------------------------------------------------------------------------------
NET ASSETS                                                                               $ 3,167,697,208
                                                                                         ================

- ---------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Par value of shares of beneficial interest                                               $       107,376
- ---------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                                 2,361,502,185
- ---------------------------------------------------------------------------------------------------------
Accumulated net investment income                                                             13,762,145
- ---------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions              (132,454,462)
- ---------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies                                                            924,779,964
                                                                                         ----------------
NET ASSETS                                                                               $ 3,167,697,208
                                                                                         ================

- ---------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Non-Service Shares:
Net asset value, redemption price per share and offering price per share (based on
net assets of $2,518,866,995 and 85,355,332 shares of beneficial interest outstanding)            $29.51
- ---------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share (based on
net assets of $346,402,810 and 11,809,440 shares of beneficial interest outstanding)              $29.33
- ---------------------------------------------------------------------------------------------------------
Class 3 Shares:
Net asset value, redemption price per share and offering price per share (based on
net assets of $265,043,754 and 8,937,735 shares of beneficial interest outstanding)               $29.65
- ---------------------------------------------------------------------------------------------------------
Class 4 Shares:
Net asset value, redemption price per share and offering price per share (based on
net assets of $37,383,649 and 1,273,510 shares of beneficial interest outstanding)                $29.35
- ---------------------------------------------------------------------------------------------------------


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $4,284,789)        $  46,732,962
- --------------------------------------------------------------------------------
Interest                                                              1,850,524
                                                                  -------------
Total investment income                                              48,583,486

- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees                                                      18,297,753
- --------------------------------------------------------------------------------
Distribution and service plan fees:
Service shares                                                          617,506
Class 4 shares                                                           32,566
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares                                                       10,282
Service shares                                                           10,036
Class 3 shares                                                           10,026
Class 4 shares                                                            5,016
- --------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares                                                       89,139
Service shares                                                            8,396
Class 3 shares                                                            6,834
Class 4 shares                                                              382
- --------------------------------------------------------------------------------
Custodian fees and expenses                                             571,468
- --------------------------------------------------------------------------------
Trustees' compensation                                                   70,320
- --------------------------------------------------------------------------------
Other                                                                   114,362
                                                                  --------------
Total expenses                                                       19,844,086
Less reduction to custodian expenses                                    (11,719)
                                                                  --------------
Net expenses                                                         19,832,367

- --------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                28,751,119

- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
- --------------------------------------------------------------------------------
Net realized gain on:
Investments                                                         137,644,145
Foreign currency transactions                                        41,371,491
Net increase from payment by affiliate                                   70,760
                                                                  -------------
Net realized gain                                                   179,086,396
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments (net of foreign capital gains tax of $106,918)          280,226,888
Translation of assets and liabilities denominated in foreign
  currencies                                                         50,820,961
                                                                  --------------
Net change in unrealized appreciation                               331,047,849
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS              $ 538,885,364
                                                                  ==============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.




STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                      2004               2003
- -----------------------------------------------------------------------------------------------------

OPERATIONS
- -----------------------------------------------------------------------------------------------------
Net investment income                                             $    28,751,119    $    18,395,967
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss)                                              179,086,396        (67,064,035)
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)                  331,047,849        777,963,383
                                                                  -----------------------------------
Net increase in net assets resulting from operations                  538,885,364        729,295,315

- -----------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares                                                    (30,456,227)       (13,324,089)
Service shares                                                         (2,439,240)          (449,100)
Class 3 shares                                                         (2,221,201)                --
Class 4 shares                                                                 --                 --

- -----------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial
interest transactions:
Non-Service shares                                                   (177,302,804)        79,623,681
Service shares                                                        130,991,549         77,667,391
Class 3 shares                                                         80,796,251        121,430,754
Class 4 shares                                                         32,377,319                 --

- -----------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------
Total increase                                                        570,631,011        994,243,952
- -----------------------------------------------------------------------------------------------------
Beginning of period                                                 2,597,066,197      1,602,822,245
                                                                  -----------------------------------
End of period (including accumulated net investment income of
$13,762,145 and $14,682,479, respectively)                        $ 3,167,697,208    $ 2,597,066,197
                                                                  ===================================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.




FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,                  2004           2003           2002           2001          2000
- -------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                   $    25.08     $    17.70     $    22.84     $    30.33     $    33.41
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                         .26 1          .19            .16            .17            .27
Net realized and unrealized gain (loss)                      4.49           7.34          (5.19)         (3.85)          1.82
                                                       ------------------------------------------------------------------------
Total from investment operations                             4.75           7.53          (5.03)         (3.68)          2.09
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                         (.32)          (.15)          (.11)          (.19)          (.09)
Distributions from net realized gain                           --             --             --          (3.62)         (5.08)
                                                       ------------------------------------------------------------------------
Total dividends and/or distributions to shareholders         (.32)          (.15)          (.11)         (3.81)         (5.17)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                         $    29.51     $    25.08     $    17.70     $    22.84     $    30.33
                                                       ========================================================================

- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                          19.16%         43.02%        (22.13)%       (12.04)%         5.09%
- -------------------------------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)               $2,518,867     $2,280,752     $1,549,993     $1,905,890     $2,136,420
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                      $2,451,188     $1,751,226     $1,776,289     $1,918,335     $2,116,100
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                        1.01%          0.99%          0.80%          0.70%          0.83%
Total expenses                                               0.66% 4        0.67% 4        0.67% 4        0.70% 4        0.68% 4
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                        30%            34%            34%            39%            50%


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.




FINANCIAL HIGHLIGHTS  Continued
- --------------------------------------------------------------------------------

SERVICE SHARES  YEAR ENDED DECEMBER 31,                    2004           2003           2002           2001       2000 1
- --------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                   $  24.96       $  17.61       $  22.78       $  30.30       $32.65
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                       .20 2          .12            .12            .21         .03
Net realized and unrealized gain (loss)                    4.46           7.36          (5.19)         (3.92)      (2.38)
                                                       -------------------------------------------------------------------
Total from investment operations                           4.66           7.48          (5.07)         (3.71)      (2.35)
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                       (.29)          (.13)          (.10)          (.19)         --
Distributions from net realized gain                         --             --             --          (3.62)         --
                                                       -------------------------------------------------------------------
Total dividends and/or distributions to shareholders       (.29)          (.13)          (.10)         (3.81)         --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                         $  29.33       $  24.96       $  17.61       $  22.78       $30.30
                                                       ===================================================================

- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                        18.88%         42.86%        (22.37)%       (12.17)%     (7.20)%
- --------------------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)               $346,403       $168,739       $ 52,830       $ 20,467       $ 983
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                      $247,490       $ 91,800       $ 34,847       $  8,502       $ 325
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                      0.77%          0.68%          0.51%          0.44%       0.60%
Total expenses                                             0.91% 5        0.93% 5        0.90% 5        0.85% 5     0.83% 5
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                      30%            34%            34%            39%         50%


1. For the period from July 13, 2000 (inception of offering) to December 31,
2000.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


                   16 | OPPENHEIMER GLOBAL SECURITIES FUND/VA


CLASS 3 SHARES   YEAR ENDED DECEMBER 31,                    2004             2003 1
- --------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------
Net asset value, beginning of period                     $ 25.19            $ 17.55
- --------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                        .26 2              .07
Net realized and unrealized gain                            4.52               7.57
                                                         ----------------------------
Total from investment operations                            4.78               7.64
- --------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                        (.32)                --
Distributions from net realized gain                          --                 --
                                                         -----------------------------
Total dividends and/or distributions to shareholders        (.32)                --
- --------------------------------------------------------------------------------------
Net asset value, end of period                           $ 29.65            $ 25.19
                                                         =============================

- --------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                         19.19%             43.53%
- --------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------
Net assets, end of period (in thousands)                 $265,044           $147,576
- --------------------------------------------------------------------------------------
Average net assets (in thousands)                        $199,388           $80,579
- --------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                       1.00%              0.73%
Total expenses                                              0.66% 5            0.68% 5
- --------------------------------------------------------------------------------------
Portfolio turnover rate                                       30%                34%


1. For the period from May 1, 2003 (inception of offering) to December 31, 2003.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





FINANCIAL HIGHLIGHTS  Continued
- --------------------------------------------------------------------------------

CLASS 4 SHARES   PERIOD ENDED DECEMBER 31,                          2004 1
- -----------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period                               $ 25.21
- -----------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                                  .09 2
Net realized and unrealized gain                                      4.05
                                                                   ----------

Total from investment operations                                      4.14
- -----------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                                    --
Distributions from net realized gain                                    --
                                                                   ----------
Total dividends and/or distributions to shareholders                    --
- -----------------------------------------------------------------------------
Net asset value, end of period                                     $ 29.35

- -----------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                                   16.42%
- -----------------------------------------------------------------------------

- -----------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Net assets, end of period (in thousands)                           $37,384
- -----------------------------------------------------------------------------
Average net assets (in thousands)                                  $19,774
- -----------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                                 0.53%
Total expenses                                                        0.94% 5
- -----------------------------------------------------------------------------
Portfolio turnover rate                                                 30%

1. For the period from May 3, 2004 (inception of offering) to December 31, 2004.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.






NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Global Securities Fund/VA (the Fund) is a separate series of
Oppenheimer Variable Account Funds (the Trust), an 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 its assets in securities of
foreign issuers, "growth-type" companies, cyclical industries and special
situations that are considered to have appreciation possibilities. The Trust's
investment advisor is OppenheimerFunds, Inc. (the Manager).

      The Fund offers Non-Service, Service, Class 3 and Class 4 shares. All
classes are sold at their offering price, which is the net asset value per
share, to separate investment accounts of participating insurance companies as
an underlying investment for variable life insurance policies, variable annuity
contracts or other investment products. All classes of shares have identical
rights and voting privileges with respect to the Fund in general and exclusive
voting rights on matters that affect that class alone. Earnings, net assets and
net asset value per share may differ due to each class having its own expenses,
such as transfer and shareholder servicing agent fees and shareholder
communications, directly attributable to that class. The classes of shares
designated as Service shares and Class 4 shares are subject to a distribution
and service plan. The Fund assesses a 1% fee on the proceeds of Class 3 and
Class 4 shares that are redeemed (either by selling or exchanging to another
Oppenheimer fund or other investment option offered through your variable life
insurance or variable annuity contract) within 60 days of their purchase. The
fee, which is retained by the Fund, is accounted for as an addition to paid-in
capital.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

      Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net






NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

unrealized foreign exchange gains and losses arise from changes in the values of
assets and liabilities, including investments in securities at fiscal period
end, resulting from changes in exchange rates.

      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.

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.

- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                               NET UNREALIZED
                                                                 APPRECIATION
                                                             BASED ON COST OF
                                                               SECURITIES AND
    UNDISTRIBUTED   UNDISTRIBUTED           ACCUMULATED     OTHER INVESTMENTS
    NET INVESTMENT      LONG-TERM                  LOSS    FOR FEDERAL INCOME
    INCOME                   GAIN  CARRYFORWARD 1,2,3,4          TAX PURPOSES
   --------------------------------------------------------------------------
   $32,197,430                $--         $ 130,533,912          $904,456,195

1. As of December 31, 2004, the Fund had $130,358,556 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of December 31, 2004,
details of the capital loss carryforwards were as follows:

                        EXPIRING
                        --------------------------
                        2010         $ 24,452,753
                        2011          105,905,803
                                     ------------
                        Total        $130,358,556
                                     ============

2. The Fund had $94,954 of post-October foreign currency losses which were
deferred.

3. The Fund had $80,402 of post-October passive foreign investment company
losses which were deferred.

4. During the fiscal year ended December 31, 2004, the Fund utilized
$170,421,832 of capital loss carryforward to offset capital gains realized in
that fiscal year.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.





      INCREASE TO            INCREASE TO
      ACCUMULATED        ACCUMULATED NET
      NET INVESTMENT       REALIZED LOSS
      INCOME              ON INVESTMENTS
      ----------------------------------
      $5,445,215              $5,445,215

The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:

                                         YEAR ENDED           YEAR ENDED
                                  DECEMBER 31, 2004    DECEMBER 31, 2003
      ------------------------------------------------------------------
      Distributions paid from:
      Ordinary income                   $35,116,668          $13,773,189

The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

      Federal tax cost of securities                    $ 2,253,473,856
      Federal tax cost of other investments                   2,287,816
                                                        ---------------
      Total federal tax cost                            $ 2,255,761,672
                                                        ===============
      Gross unrealized appreciation                     $   940,496,257
      Gross unrealized depreciation                         (36,040,062)
                                                        ---------------
      Net unrealized appreciation                       $   904,456,195
                                                        ===============

Certain foreign countries impose a tax on capital gains which is accrued by the
Fund based on unrealized appreciation, if any, on affected securities. The tax
is paid when the gain is realized.

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.

- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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 $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:


                                              YEAR ENDED DECEMBER 31, 2004 1        YEAR ENDED DECEMBER 31, 2003 2
                                                   SHARES             AMOUNT           SHARES               AMOUNT
- -------------------------------------------------------------------------------------------------------------------
NON-SERVICE SHARES

Sold                                           23,590,376      $ 610,109,742       56,815,585      $ 1,050,428,269
Dividends and/or distributions reinvested       1,203,327         30,456,227          828,612           13,324,089
Redeemed                                      (30,383,126)      (817,868,773)     (54,266,655)        (984,128,677)
                                             ----------------------------------------------------------------------
Net increase (decrease)                        (5,589,423)     $(177,302,804)       3,377,542      $    79,623,681
                                             ======================================================================

- -------------------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold                                            6,516,321      $ 168,136,666        9,204,619      $   180,268,510
Dividends and/or distributions reinvested          96,757          2,439,240           28,051              449,100
Redeemed                                       (1,562,747)       (39,584,357)      (5,472,867)        (103,050,219)
                                             ----------------------------------------------------------------------
Net increase                                    5,050,331      $ 130,991,549        3,759,803      $    77,667,391
                                             ======================================================================

- -------------------------------------------------------------------------------------------------------------------
CLASS 3 SHARES
Sold                                            3,286,454      $  85,761,974        6,450,195      $   132,821,158
Dividends and/or distributions reinvested          87,346          2,221,201               --                   --
Redeemed                                         (293,439)        (7,186,924) 3      (592,821)         (11,390,404)
                                             ----------------------------------------------------------------------
Net increase                                    3,080,361      $  80,796,251        5,857,374      $   121,430,754
                                             ======================================================================

- -------------------------------------------------------------------------------------------------------------------
CLASS 4 SHARES
Sold                                            1,345,840      $  34,232,416               --      $            --
Dividends and/or distributions reinvested              --                 --               --                   --
Redeemed                                          (72,330)        (1,855,097) 3            --                   --
                                             ----------------------------------------------------------------------
Net increase                                    1,273,510      $  32,377,319               --      $            --
                                             ======================================================================


1. For the year ended December 31, 2004, for Non-Service, Service and Class 3
shares and for the period from May 3, 2004 (inception of offering) to December
31, 2004, for Class 4 shares.

2. For the year ended December 31, 2003, for Non-Service and Service shares and
for the period from May 1, 2003 (inception of offering) to December 31, 2003,
for Class 3 shares.

3. Net of redemption fees of $34,168 and $5,752 for Class 3 and Class 4 shares,
respectively.

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended December 31, 2004, were
$854,707,319 and $843,096,565, respectively.





- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million and 0.60% of average annual net assets over $800 million.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$34,406 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 per class for class level assets of $10
million or more. Each class is subject to the minimum fee in the event that the
per account fee does not equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FOR SERVICE AND CLASS 4 SHARES. The Fund has
adopted a Distribution and Service Plan for Service share class and Class 4
shares to pay OppenheimerFunds Distributor, Inc. (the Distributor), for
distribution related services and personal service and account maintenance for
the Fund's Service class and Class 4 shares. Under the Plan, payments are made
quarterly at an annual rate of up to 0.25% of the average annual net assets of
Service share class and Class 4 shares of the Fund. The Distributor currently
uses all of those fees to compensate sponsor(s) of the insurance product that
offers Fund shares, for providing personal service and maintenance of accounts
of their variable contract owners that hold Service class and Class 4 shares.
The impact of the service plan is to increase operating expenses of the Service
class and Class 4 shares, which results in lower performance compared to the
Fund's shares that are not subject to a service fee. Fees incurred by the Fund
under the Plan are detailed in the Statement of Operations.

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. Following a review of its use of brokerage
commissions for sales that is permitted under its investment advisory agreement,
the Fund's Manager terminated that practice in July 2003. Subsequently, the
Manager paid the Fund $70,760, an amount equivalent to certain of such
commissions incurred in prior years.

      OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees for all classes to 0.35% of average annual net assets per class. This
undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.

      The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.

      The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.

      As of December 31, 2004, the Fund had no outstanding foreign currency
contracts.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
6. ILLIQUID OR RESTRICTED SECURITIES

As of December 31, 2004, investments in securities included issues that are
illiquid or restricted. Restricted securities are purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund will not invest more than 15% of
its net assets (determined at the time of purchase and reviewed periodically) in
illiquid or restricted securities. Certain restricted securities, eligible for
resale to qualified institutional investors, are not subject to that limitation.
Information concerning restricted securities is as follows:

                     ACQUISITION                 VALUATION AS OF     UNREALIZED
SECURITY                    DATE         COST  DECEMBER 31, 2004   APPRECIATION
- -------------------------------------------------------------------------------
Nektar Therapeutics      6/25/03   $3,568,000         $5,090,133     $1,522,133

- --------------------------------------------------------------------------------
7. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER HIGH INCOME FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer High Income Fund/VA, a series of Oppenheimer Variable Account Funds,
including the statement of investments, as of December 31, 2004, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer High Income Fund/VA as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005


STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------

                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--0.3%
- --------------------------------------------------------------------------------
Consumer Credit Reference Index
Securities Program, Credit Card
Asset-Backed Certificates,
Series 2002-B, Cl. FX, 10.421%,
3/22/07 1                                          $     500,000   $     514,941
- --------------------------------------------------------------------------------
Norse CBO Ltd., 9.342% Sub. Bonds,
Series 1A, Cl. C2, 8/13/10 1                           1,500,000       1,470,000
                                                                   -------------
Total Asset-Backed Securities
(Cost $1,997,606)                                                      1,984,941

- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--0.1%
- --------------------------------------------------------------------------------
First Chicago/Lennar Trust 1,
Commercial Mtg. Pass-Through
Certificates, Series 1997-CHL1, Cl. D,
7.863%, 4/29/39 1,2                                      300,000         305,672
- --------------------------------------------------------------------------------
Salomon Brothers Mortgage Securities
VII, Inc., Commercial Mtg. Pass-Through
Certificates, Series 1996-B, Cl. 1,
4.357%, 4/25/26 1,2                                       21,630          19,967
                                                                   -------------
Total Mortgage-Backed Obligations
(Cost $297,992)                                                          325,639

- --------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--77.9%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--23.0%
- --------------------------------------------------------------------------------
AUTO COMPONENTS--2.5%
ArvinMeritor, Inc., 8.75% Sr. Unsec
Unsub. Nts., 3/1/12                                    1,800,000       2,088,000
- --------------------------------------------------------------------------------
Collins & Aikman Floorcoverings, Inc.,
9.75% Sr. Sub. Nts., Series B, 2/15/10                   800,000         864,000
- --------------------------------------------------------------------------------
Cooper Standard Automotive Group:
7% Sr. Nts., 12/15/12 3                                  180,000         183,600
8.375% Sr. Sub. Nts., 12/15/14 3                         710,000         711,775
- --------------------------------------------------------------------------------
Dana Corp., 10.125% Nts., 3/15/10 1                      500,000         566,790
- --------------------------------------------------------------------------------
Dura Operating Corp.:
8.625% Sr. Nts., Series B, 4/15/12                     1,000,000       1,045,000
9% Sr. Sub. Nts., Series B, 5/1/09 [EUR]                 100,000         129,129
9% Sr. Unsec. Sub. Nts., Series D, 5/1/09                200,000         199,000
- --------------------------------------------------------------------------------
Eagle-Picher, Inc., 9.75% Sr. Nts., 9/1/13             1,200,000       1,206,000
- --------------------------------------------------------------------------------
Goodyear Tire & Rubber Co. (The),
7.857% Nts., 8/15/11                                   1,500,000       1,530,000
- --------------------------------------------------------------------------------
Keystone Automotive Operations, Inc.,
9.75% Sr. Unsec. Sub. Nts., 11/1/13                      200,000         215,000
- --------------------------------------------------------------------------------
Lear Corp., 8.11% Sr. Unsec. Nts.,
Series B, 5/15/09                                      1,300,000       1,475,767
- --------------------------------------------------------------------------------
Metaldyne Corp.:
10% Sr. Nts., 11/1/13 3                                  500,000         477,500
11% Sr. Sub. Nts., 6/15/12                               750,000         626,250
- --------------------------------------------------------------------------------
Stoneridge, Inc., 11.50% Sr. Nts., 5/1/12              1,200,000       1,401,000


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
AUTO COMPONENTS Continued
Tenneco Automotive, Inc.:
8.625% Sr. Sub. Nts., 11/15/14 3                   $   1,100,000   $   1,149,500
10.25% Sr. Sec. Nts., Series B, 7/15/13                  900,000       1,066,500
- --------------------------------------------------------------------------------
United Components, Inc., 9.375%
Sr. Sub. Nts., 6/15/13                                   400,000         436,000
- --------------------------------------------------------------------------------
Visteon Corp., 7% Sr. Unsec. Nts.,
3/10/14                                                  200,000         192,000
                                                                   -------------
                                                                      15,562,811

- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--5.9%
Apcoa, Inc., 9.25% Sr. Unsec. Sub. Nts.,
3/15/08                                                  940,000         925,900
- --------------------------------------------------------------------------------
Aztar Corp., 9% Sr. Unsec. Sub. Nts.,
8/15/11                                                  450,000         498,375
- --------------------------------------------------------------------------------
Boyd Gaming Corp., 8.75% Sr. Sub. Nts.,
4/15/12                                                  800,000         894,000
- --------------------------------------------------------------------------------
Capital Gaming International, Inc.,
11.50% Promissory Nts., 8/1/1995 1,4,5                     9,500              --
- --------------------------------------------------------------------------------
Carrols Corp., 9% Sr. Sub. Nts., 1/15/13 3               270,000         280,800
- --------------------------------------------------------------------------------
Domino's, Inc., 8.25% Sr. Unsec. Sub.
Nts., 7/1/11                                             875,000         960,313
- --------------------------------------------------------------------------------
Gaylord Entertainment Co., 8% Sr. Nts.,
11/15/13                                                 500,000         542,500
- --------------------------------------------------------------------------------
Hilton Hotels Corp.:
7.625% Nts., 12/1/12                                     500,000         585,602
7.625% Nts., 5/15/08                                     400,000         443,340
- --------------------------------------------------------------------------------
Hollywood Park, Inc., 9.25% Sr. Unsec.
Sub. Nts., Series B, 2/15/07                           1,000,000       1,022,500
- --------------------------------------------------------------------------------
Intrawest Corp., 7.50% Sr. Unsec. Nts.,
10/15/13                                                 917,000         980,044
- --------------------------------------------------------------------------------
Isle of Capri Casinos, Inc.:
7% Sr. Unsec. Sub. Nts., 3/1/14                          800,000         820,000
9% Sr. Sub. Nts., 3/15/12                                600,000         664,500
- --------------------------------------------------------------------------------
John Q. Hammons Hotels, Inc., 8.875%
Sr. Nts., Series B, 5/15/12                              900,000       1,021,500
- --------------------------------------------------------------------------------
La Quinta Properties, Inc., 7%
Sr. Sec. Nts., 8/15/12                                   500,000         531,250
- --------------------------------------------------------------------------------
Mandalay Resort Group, 10.25% Sr.
Unsec. Sub. Nts., Series B, 8/1/07                       800,000         908,000
- --------------------------------------------------------------------------------
MGM Mirage, Inc.:
5.875% Sr. Nts., 2/27/14                                 600,000         592,500
8.375% Sr. Unsec. Sub. Nts., 2/1/11                      900,000       1,019,250
9.75% Sr. Unsec. Sub. Nts., 6/1/07                       800,000         892,000
- --------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority:
6.375% Sr. Sub. Nts., 7/15/09                            800,000         826,000
8% Sr. Sub. Nts., 4/1/12                                 700,000         763,000
- --------------------------------------------------------------------------------
NCL Corp., 10.625% Sr. Nts., 7/15/14 3                   600,000         603,000
- --------------------------------------------------------------------------------
Park Place Entertainment Corp.:
7.875% Sr. Sub. Nts., 3/15/10                          1,500,000       1,696,875
9.375% Sr. Unsec. Sub. Nts., 2/15/07                   1,500,000       1,657,500




STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE Continued
Penn National Gaming, Inc., 8.875%
Sr. Sub. Nts., 3/15/10                             $     600,000   $     657,750
- --------------------------------------------------------------------------------
Pinnacle Entertainment, Inc., 8.25%
Sr. Unsec. Sub. Nts., 3/15/12                          1,350,000       1,441,125
- --------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 8.75%
Sr. Unsub. Nts., 2/2/11                                  600,000         711,750
- --------------------------------------------------------------------------------
Six Flags, Inc.:
8.875% Sr. Unsec. Nts., 2/1/10                           800,000         814,000
9.625% Sr. Nts., 6/1/14                                   57,000          57,570
9.75% Sr. Nts., 4/15/13                                1,000,000       1,020,000
- --------------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide,
Inc., 7.875% Sr. Nts., 5/1/12                          1,500,000       1,721,250
- --------------------------------------------------------------------------------
Station Casinos, Inc.:
6.50% Sr. Unsec. Sub. Nts., 2/1/14                     2,300,000       2,374,750
9.875% Sr. Unsec. Sub. Nts., 7/1/10                      600,000         634,500
- --------------------------------------------------------------------------------
Sun International Hotels Ltd., 8.875%
Sr. Unsec. Sub. Nts., 8/15/11                          1,000,000       1,097,500
- --------------------------------------------------------------------------------
Universal City Development Partners
Ltd., 11.75% Sr. Nts., 4/1/10                          1,000,000       1,186,250
- --------------------------------------------------------------------------------
Vail Resorts, Inc., 6.75% Sr. Sub. Nts.,
2/15/14                                                  900,000         920,250
- --------------------------------------------------------------------------------
Venetian Casino Resort LLC/Las Vegas
Sands, Inc., 11% Sec. Nts., 6/15/10                      850,000         974,313
- --------------------------------------------------------------------------------
Wynn Las Vegas LLC/Wynn Las Vegas
Capital Corp., 6.625% Nts., 12/1/14 3                  3,400,000       3,383,000
                                                                   -------------
                                                                      36,122,757

- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--1.8%
Beazer Homes USA, Inc., 8.375%
Sr. Nts., 4/15/12                                        500,000         552,500
- --------------------------------------------------------------------------------
Blount, Inc., 8.875% Sr. Sub. Nts.,
8/1/12                                                   775,000         844,750
- --------------------------------------------------------------------------------
D.R. Horton, Inc., 9.75% Sr. Sub.
Nts., 9/15/10                                            300,000         364,500
- --------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 8.875%
Sr. Sub. Nts., 4/1/12                                    800,000         888,000
- --------------------------------------------------------------------------------
KB Home:
8.625% Sr. Sub. Nts., 12/15/08                           150,000         170,250
9.50% Sr. Unsec. Sub. Nts., 2/15/11                      350,000         386,750
- --------------------------------------------------------------------------------
Meritage Corp., 9.75% Sr. Unsec. Nts.,
6/1/11                                                 1,200,000       1,332,000
- --------------------------------------------------------------------------------
Norcraft Cos. LP, 9% Sr. Sub. Nts.,
11/1/11 1                                                300,000         325,500
- --------------------------------------------------------------------------------
Sealy Mattress Co., 8.25% Sr. Sub. Nts.,
6/15/14                                                1,400,000       1,491,000
- --------------------------------------------------------------------------------
Standard Pacific Corp., 9.25% Sr.
Sub. Nts., 4/15/12                                       700,000         815,500
- --------------------------------------------------------------------------------
Toll Corp., 8.25% Sr. Sub. Nts., 12/1/11                 500,000         555,000


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES Continued
WCI Communities, Inc.:
9.125% Sr. Sub. Nts., 5/1/12                       $     800,000   $     892,000
10.625% Sr. Unsec. Sub. Nts., 2/15/11                    600,000         669,000
- --------------------------------------------------------------------------------
William Lyon Homes, Inc., 10.75%
Sr. Nts., 4/1/13                                         800,000         903,000
- --------------------------------------------------------------------------------
Williams Scotsman, Inc., 9.875%
Sr. Unsec. Nts., 6/1/07                                1,000,000       1,005,000
                                                                   -------------
                                                                      11,194,750

- --------------------------------------------------------------------------------
MEDIA--10.6%
Adelphia Communications Corp.:
7.875% Sr. Unsec. Nts., 5/1/09 4,5                       360,000         336,600
8.125% Sr. Nts., Series B, 7/15/03 4,5                 1,000,000         945,000
8.375% Sr. Nts., Series B, 2/1/08 4,5                  1,000,000         947,500
10.875% Sr. Unsec. Nts., 10/1/10 4,5                   1,000,000         995,000
- --------------------------------------------------------------------------------
Allbritton Communications Co., 7.75%
Sr. Unsec. Sub. Nts., 12/15/12                           700,000         728,000
- --------------------------------------------------------------------------------
AMC Entertainment, Inc.:
8% Sr. Unsec. Sub. Nts., 3/1/14                        1,050,000       1,050,000
9.50% Sr. Unsec. Sub. Nts., 2/1/11                     1,192,000       1,238,190
- --------------------------------------------------------------------------------
American Media Operations, Inc.:
8.875% Sr. Unsec. Sub. Nts., 1/15/11                     900,000         961,875
10.25% Sr. Unsec. Sub. Nts., Series B,
5/1/09                                                   600,000         635,250
- --------------------------------------------------------------------------------
Block Communications, Inc., 9.25%
Sr. Sub. Nts., 4/15/09                                   600,000         657,000
- --------------------------------------------------------------------------------
Cablevision Systems New York Group,
8% Sr. Nts., 4/15/12 3                                   500,000         536,250
- --------------------------------------------------------------------------------
Carmike Cinemas, Inc., 7.50% Sr. Sub.
Nts., 2/15/14                                            850,000         874,438
- --------------------------------------------------------------------------------
CBD Media LLC/CBD Finance, Inc.,
8.625% Sr. Sub. Nts., 6/1/11                             200,000         212,500
- --------------------------------------------------------------------------------
Charter Communications Holdings II
LLC, 10.25% Sr. Unsec. Nts., 9/15/10                     700,000         745,500
- --------------------------------------------------------------------------------
Charter Communications Holdings
LLC/Charter Communications Holdings
Capital Corp.:
0%/11.75% Sr. Unsec.
Sub. Disc. Nts., 5/15/11 6                               475,000         351,500
8.375% Sr. Nts., Second Lien, 4/30/14 3                6,400,000       6,784,000
- --------------------------------------------------------------------------------
Cinemark USA, Inc., 9% Sr. Unsec. Sub.
Nts., 2/1/13                                             400,000         458,500
- --------------------------------------------------------------------------------
Cinemark, Inc., 0%/9.75% Sr. Unsec.
Disc. Nts., 3/15/14 6                                  1,800,000       1,368,000
- --------------------------------------------------------------------------------
Corus Entertainment, Inc., 8.75% Sr.
Sub. Nts., 3/1/12                                        800,000         882,000
- --------------------------------------------------------------------------------
CSC Holdings, Inc., 7.625% Sr. Unsec.
Unsub. Nts., Series B, 4/1/11                          1,900,000       2,056,750
- --------------------------------------------------------------------------------
Dex Media East LLC/Dex Media East
Finance Co., 9.875% Sr. Unsec. Nts.,
11/15/09                                                 800,000         915,000





                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
Dex Media West LLC, 5.875% Sr. Nts.,
11/15/11 3                                         $   1,800,000   $   1,800,000
- --------------------------------------------------------------------------------
Dex Media West LLC/Dex Media West
Finance Co.:
8.50% Sr. Nts., 8/15/10                                  700,000         782,250
9.875% Sr. Sub. Nts., 8/15/13                          1,172,000       1,356,590
- --------------------------------------------------------------------------------
Dex Media, Inc., 8% Unsec. Nts.,
11/15/13                                               3,550,000       3,860,625
- --------------------------------------------------------------------------------
DirecTV Holdings LLC/DirecTV
Financing Co., Inc., 8.375% Sr. Unsec.
Nts., 3/15/13                                          3,400,000       3,829,250
- --------------------------------------------------------------------------------
EchoStar DBS Corp.:
6.625% Sr. Nts., 10/1/14 3                             2,350,000       2,391,125
9.125% Sr. Nts., 1/15/09                               1,895,000       2,093,975
- --------------------------------------------------------------------------------
Emmis Operating Co., 6.875% Sr. Unsec.
Sub. Nts., 5/15/12                                     1,200,000       1,261,500
- --------------------------------------------------------------------------------
Entravision Communications Corp.,
8.125% Sr. Sub. Nts., 3/15/09                            600,000         643,500
- --------------------------------------------------------------------------------
Granite Broadcasting Corp., 9.75%
Sr. Sec. Nts., 12/1/10                                 1,257,000       1,206,720
- --------------------------------------------------------------------------------
Gray Television, Inc., 9.25% Sr. Sub. Nts.,
12/15/11                                                 500,000         562,500
- --------------------------------------------------------------------------------
Lamar Media Corp., 7.25% Sr. Unsec.
Sub. Nts., 1/1/13                                        200,000         217,000
- --------------------------------------------------------------------------------
Lin Television Corp., 6.50% Sr. Sub. Nts.,
5/15/13                                                  500,000         516,875
- --------------------------------------------------------------------------------
LodgeNet Entertainment Corp.,
9.50% Sr. Sub. Debs., 6/15/13                            400,000         444,000
- --------------------------------------------------------------------------------
Mediacom LLC/Mediacom Capital
Corp., 9.50% Sr. Unsec. Nts., 1/15/13                  1,257,000       1,267,999
- --------------------------------------------------------------------------------
MediaNews Group, Inc.:
6.375% Sr. Sub. Nts., 4/1/14                           1,400,000       1,393,000
6.875% Sr. Unsec. Sub. Nts., 10/1/13                     500,000         515,000
- --------------------------------------------------------------------------------
News America Holdings, Inc., 8.875%
Sr. Debs., 4/26/23                                       625,000         814,644
- --------------------------------------------------------------------------------
PanAmSat Corp., 9% Sr. Nts., 8/15/14 3                 2,000,000       2,242,500
- --------------------------------------------------------------------------------
PRIMEDIA, Inc.:
8% Sr. Nts., 5/15/13                                   1,700,000       1,757,375
8.875% Sr. Unsec. Nts., 5/15/11                           57,000          60,563
- --------------------------------------------------------------------------------
R.H. Donnelley Financial Corp. I:
8.875% Sr. Nts., 12/15/10 3                              700,000         784,000
10.875% Sr. Sub. Nts., 12/15/12 3                      1,000,000       1,192,500
- --------------------------------------------------------------------------------
Radio One, Inc., 8.875% Sr. Unsec. Sub.
Nts., Series B, 7/1/11                                   800,000         875,000
- --------------------------------------------------------------------------------
Rainbow National Services LLC, 8.75%
Sr. Nts., 9/1/12 3                                     1,800,000       1,984,500
- --------------------------------------------------------------------------------
Rogers Cable, Inc., 6.75% Sr. Sec. Second
Priority Nts., 3/15/15 3                                 500,000         513,750
- --------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 8%
Sr. Unsec. Sub. Nts., 3/15/12                          1,600,000       1,708,000


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
Spanish Broadcasting System, Inc.,
9.625% Sr. Unsec. Sub. Nts., 11/1/09               $     600,000   $     631,500
- --------------------------------------------------------------------------------
Vertis, Inc.:
9.75% Sr. Sec. Nts., 4/1/09                              500,000         545,000
10.875% Sr. Unsec. Nts., Series B,
6/15/09                                                  650,000         708,500
- --------------------------------------------------------------------------------
WMG Holdings Corp.:
0%/9.50% Sr. Disc. Nts., 12/15/14 3,6                  2,000,000       1,287,500
6.905% Sr. Nts., 12/15/11 2,3                            900,000         911,250
- --------------------------------------------------------------------------------
WRC Media, Inc./Weekly Reader Corp./
CompassLearning, Inc., 12.75%
Sr. Sub. Nts., 11/15/09                                1,100,000       1,051,875
                                                                   -------------
                                                                      64,889,219

- --------------------------------------------------------------------------------
MULTILINE RETAIL--0.1%
Saks, Inc.:
8.25% Sr. Unsec. Nts., 11/15/08                          250,000         275,000
9.875% Nts., 10/1/11                                     300,000         357,000
                                                                   -------------
                                                                         632,000

- --------------------------------------------------------------------------------
SPECIALTY RETAIL--1.1%
Asbury Automotive Group, Inc., 9%
Sr. Sub. Nts., 6/15/12                                   600,000         633,000
- --------------------------------------------------------------------------------
Atlantic Broadband Finance LLC, 9.375%
Sr. Sub. Nts., 1/15/14 3                                 500,000         486,250
- --------------------------------------------------------------------------------
AutoNation, Inc., 9% Sr. Unsec. Nts.,
8/1/08                                                 1,200,000       1,377,000
- --------------------------------------------------------------------------------
Boise Cascade LLC/Boise Cascade
Finance Corp., 7.125% Sr. Sub. Nts.,
10/15/14 3                                               950,000       1,009,375
- --------------------------------------------------------------------------------
Building Materials Corp. of America,
8% Sr. Nts, 12/1/08                                      300,000         310,500
- --------------------------------------------------------------------------------
Eye Care Centers of America, Inc.,
9.125% Sr. Unsec. Sub. Nts., 5/1/08                      400,000         402,000
- --------------------------------------------------------------------------------
Finlay Fine Jewelry Corp., 8.375%
Sr. Unsec. Nts., 6/1/12                                  600,000         651,000
- --------------------------------------------------------------------------------
Hollywood Entertainment Corp.,
9.625% Sr. Sub. Nts., 3/15/11                            300,000         319,500
- --------------------------------------------------------------------------------
Petco Animal Supplies, Inc., 10.75%
Sr. Sub. Nts., 11/1/11                                   750,000         881,250
- --------------------------------------------------------------------------------
Rent-A-Center, Inc., 7.50% Sr. Unsec.
Sub. Nts., Series B, 5/1/10                              350,000         364,438
                                                                   -------------
                                                                       6,434,313

- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--1.0%
Invista, Inc., 9.25% Sr. Nts., 5/1/12 3                2,500,000       2,800,000
- --------------------------------------------------------------------------------
Levi Strauss & Co.:
7% Unsec. Nts., 11/1/06                                  800,000         844,000
9.75% Sr. Nts., 1/15/15 3                              1,100,000       1,094,500
11.625% Sr. Unsec. Nts., 1/15/08                         100,000         105,500





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS Continued
Oxford Industries, Inc.,
8.875% Sr. Nts., 6/1/11                            $     500,000   $     539,375
- --------------------------------------------------------------------------------
Russell Corp., 9.25% Sr. Nts., 5/1/10                    600,000         646,500
                                                                   -------------
                                                                       6,029,875

- --------------------------------------------------------------------------------
CONSUMER STAPLES--3.1%
- --------------------------------------------------------------------------------
BEVERAGES--0.1%
Constellation Brands, Inc., 8.125%
Sr. Sub. Nts., 1/15/12                                   500,000         545,625
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.6%
Great Atlantic & Pacific Tea Co., Inc.
(The), 9.125% Sr. Nts., 12/15/11                         457,000         430,723
- --------------------------------------------------------------------------------
Ingles Markets, Inc., 8.875% Sr. Unsec.
Sub. Nts., 12/1/11                                        57,000          61,275
- --------------------------------------------------------------------------------
Jean Coutu Group (PJC), Inc. (The):
7.625% Sr. Nts., 8/1/12 3                                650,000         690,625
8.50% Sr. Sub. Nts., 8/1/14 3                          1,100,000       1,133,000
- --------------------------------------------------------------------------------
Real Time Data Co., 11% Disc. Nts.,
5/31/09 1,4,5,7                                          476,601              --
- --------------------------------------------------------------------------------
Rite Aid Corp.:
8.125% Sr. Sec. Nts., 5/1/10                             900,000         956,250
9.50% Sr. Sec. Nts., 2/15/11                             450,000         496,125
                                                                   -------------
                                                                       3,767,998

- --------------------------------------------------------------------------------
FOOD PRODUCTS--2.0%
American Seafoods Group LLC,
10.125% Sr. Sub. Nts., 4/15/10                           500,000         537,500
- --------------------------------------------------------------------------------
Burns Philp Capital Property Ltd.,
9.75% Sr. Unsec. Sub. Nts., 7/15/12                      400,000         442,000
- --------------------------------------------------------------------------------
Chiquita Brands International, Inc.,
7.50% Sr. Nts., 11/1/14 1                                300,000         305,250
- --------------------------------------------------------------------------------
Del Monte Corp.:
8.625% Sr. Sub. Nts., 12/15/12                         1,000,000       1,125,000
9.25% Sr. Unsec. Sub. Nts., 5/15/11                      100,000         110,000
- --------------------------------------------------------------------------------
Doane Pet Care Co.:
9.75% Sr. Unsec. Sub. Nts., 5/15/07                      400,000         396,000
10.75% Sr. Nts., 3/1/10                                1,500,000       1,612,500
- --------------------------------------------------------------------------------
Dole Food Co., Inc.:
8.625% Sr. Nts., 5/1/09                                  900,000         983,250
8.875% Sr. Unsec. Nts., 3/15/11                          400,000         437,000
- --------------------------------------------------------------------------------
Hines Nurseries, Inc., 10.25% Sr. Unsec.
Sub. Nts., 10/1/11                                       600,000         658,500
- --------------------------------------------------------------------------------
Pinnacle Foods Holding Corp.:
8.25% Sr. Sub. Nts., 12/1/13 3                           500,000         478,750
8.25% Sr. Sub. Nts., 12/1/13 3                           600,000         574,500
- --------------------------------------------------------------------------------
Smithfield Foods, Inc.:
7.625% Sr. Unsec. Sub. Nts., 2/15/08                     925,000         994,375
8% Sr. Nts., Series B, 10/15/09                          900,000       1,001,250


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
FOOD PRODUCTS Continued
Swift & Co., 10.125% Sr. Nts., 10/1/09             $   1,000,000   $   1,120,000
- --------------------------------------------------------------------------------
United Biscuits Finance plc, 10.625%
Sr. Sub. Nts., 4/15/11 [EUR]                           1,000,000       1,440,805
                                                                   -------------
                                                                      12,216,680

- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.4%
Church & Dwight Co., Inc., 6%
Sr. Sub. Nts., 12/15/12 3                                500,000         511,250
- --------------------------------------------------------------------------------
Playtex Products, Inc.:
8% Sr. Sec. Nts., 3/1/11                               1,000,000       1,097,500
9.375% Sr. Unsec. Sub. Nts., 6/1/11                      700,000         750,750
                                                                   -------------
                                                                       2,359,500

- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.0%
Elizabeth Arden, Inc., 7.75% Sr. Unsec.
Sub. Nts., 1/15/14                                       300,000         319,500

- --------------------------------------------------------------------------------
ENERGY--7.0%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--1.1%
BRL Universal Equipment Corp., 8.875%
Sr. Sec. Nts., 2/15/08                                   750,000         792,188
- --------------------------------------------------------------------------------
Dresser, Inc., 9.375% Sr. Sub. Nts.,
4/15/11                                                  400,000         440,000
- --------------------------------------------------------------------------------
Grant Prideco, Inc., 9% Sr. Unsec. Nts.,
12/15/09                                                 300,000         333,750
- --------------------------------------------------------------------------------
Hanover Compress Co., 8.625% Sr. Nts.,
12/15/10                                                 700,000         768,250
- --------------------------------------------------------------------------------
Hanover Equipment Trust 2001A,
8.50% Sr. Sec. Nts., Series A, 9/1/08                    500,000         540,000
- --------------------------------------------------------------------------------
Hornbeck Offshore Services, Inc.,
6.125% Sr. Nts., 12/1/14 3                               750,000         757,500
- --------------------------------------------------------------------------------
Ocean Rig Norway AS, 10.25% Sr. Sec.
Nts., 6/1/08                                           1,350,000       1,397,250
- --------------------------------------------------------------------------------
Petroleum Helicopters, Inc., 9.375% Sr.
Nts., 5/1/09                                             600,000         660,000
- --------------------------------------------------------------------------------
Universal Compression, Inc., 7.25% Sr.
Unsec. Sub. Nts., 5/15/10 1                              800,000         858,000
                                                                   -------------
                                                                       6,546,938

- --------------------------------------------------------------------------------
OIL & GAS--5.9%
ANR Pipeline Co., 8.875% Sr. Nts.,
3/15/10                                                  400,000         450,000
- --------------------------------------------------------------------------------
Chesapeake Energy Corp.:
6.375% Sr. Nts., 6/15/15 3                               550,000         567,875
6.875% Sr. Unsec. Nts., 1/15/16                        1,120,000       1,178,800
9% Sr. Nts., 8/15/12                                     300,000         344,250
- --------------------------------------------------------------------------------
El Paso Corp., 7.875% Sr. Unsec. Nts.,
6/15/12                                                3,057,000       3,213,671
- --------------------------------------------------------------------------------
El Paso Energy Corp., 7.625% Nts.,
7/15/11                                                  350,000         364,000





                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
OIL & GAS Continued
El Paso Production Holding Co.,
7.75% Sr. Unsec. Nts., 6/1/13                      $   3,000,000   $   3,157,500
- --------------------------------------------------------------------------------
EXCO Resources, Inc., 7.25% Sr. Nts.,
1/15/11                                                  800,000         860,000
- --------------------------------------------------------------------------------
Forest Oil Corp., 7.75% Sr. Nts., 5/1/14               1,000,000       1,092,500
- --------------------------------------------------------------------------------
Frontier Oil Corp., 6.625% Sr. Nts.,
10/1/11 3                                                450,000         461,250
- --------------------------------------------------------------------------------
MarkWest Energy Partners
LP/MarkWest Energy Finance Corp.,
6.875% Sr. Nts., 11/1/14 3                               250,000         255,000
- --------------------------------------------------------------------------------
Newfield Exploration Co.:
6.625% Sr. Unsec. Sub. Nts., 9/1/14 3                  1,300,000       1,381,250
8.375% Sr. Sub. Nts., 8/15/12                            600,000         675,000
- --------------------------------------------------------------------------------
Plains Exploration & Production Co.,
7.125% Sr. Nts., 6/15/14                                 600,000         657,000
- --------------------------------------------------------------------------------
Premcor Refining Group, Inc.:
6.75% Sr. Nts., 5/1/14                                   700,000         747,250
9.50% Sr. Nts., 2/1/13                                 1,000,000       1,165,000
- --------------------------------------------------------------------------------
Range Resources Corp., 7.375%
Sr. Sub. Nts., 7/15/13                                   400,000         431,000
- --------------------------------------------------------------------------------
Southern Natural Gas Co.:
7.35% Nts., 2/15/31                                      600,000         625,500
8% Sr. Unsub. Nts., 3/1/32 1                             900,000         986,625
8.875% Sr. Nts., 3/15/10                                 700,000         787,500
- --------------------------------------------------------------------------------
Stone Energy Corp.:
6.75% Sr. Sub. Nts., 12/15/14 3                          360,000         360,900
8.25% Sr. Unsec. Sub. Nts., 12/15/11                   1,600,000       1,736,000
- --------------------------------------------------------------------------------
Teekay Shipping Corp., 8.875% Sr. Nts.,
7/15/11                                                  575,000         669,875
- --------------------------------------------------------------------------------
Tennessee Gas Pipeline Co., 7.50%
Bonds, 4/1/17                                          2,915,000       3,228,363
- --------------------------------------------------------------------------------
Tesoro Petroleum Corp.:
8% Sr. Sec. Nts., 4/15/08                              1,000,000       1,092,500
9.625% Sr. Sub. Nts., 4/1/12                             557,000         643,335
- --------------------------------------------------------------------------------
Transcontinental Gas Pipe Line Corp.:
6.125% Nts., 1/15/05                                     200,000         200,000
8.875% Sr. Unsub. Nts., Series B, 7/15/12                200,000         244,250
- --------------------------------------------------------------------------------
Whiting Petroleum Corp., 7.25% Sr. Sub.
Nts., 5/1/12                                             800,000         840,000
- --------------------------------------------------------------------------------
Williams Cos., Inc. (The):
7.125% Nts., 9/1/11                                    2,550,000       2,798,625
7.625% Nts., 7/15/19                                   1,400,000       1,547,000
8.75% Unsec. Nts., 3/15/32                             1,900,000       2,192,125
- --------------------------------------------------------------------------------
Williams Holdings of Delaware, Inc.,
6.50% Nts., 12/1/08                                      300,000         315,000
- --------------------------------------------------------------------------------
XTO Energy, Inc., 7.50% Sr. Nts.,
4/15/12                                                1,000,000       1,171,886
                                                                   -------------
                                                                      36,440,830


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
FINANCIALS--1.9%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--1.0%
American Color Graphics, Inc., 10%
Sr. Sec. Nts., 6/15/10                             $     400,000   $     339,500
- --------------------------------------------------------------------------------
BCP Caylux Holdings Luxembourg
SCA, 9.625% Sr. Sub. Nts., 6/15/14 3                   2,400,000       2,718,000
- --------------------------------------------------------------------------------
Berry Plastics Corp., 10.75% Sr. Sub.
Nts., 7/15/12                                          1,600,000       1,840,000
- --------------------------------------------------------------------------------
DeCrane Aircraft Holdings, Inc., 12%
Sr. Unsec. Sub. Nts., Series B, 9/30/08                1,550,000       1,046,250
                                                                   -------------
                                                                       5,943,750

- --------------------------------------------------------------------------------
COMMERCIAL BANKS--0.1%
Bank Plus Corp., 12% Sr. Nts., 7/18/07                   517,000         555,775
- --------------------------------------------------------------------------------
Western Financial Bank, 9.625% Unsec.
Sub. Debs., 5/15/12                                      400,000         458,000
                                                                   -------------
                                                                       1,013,775

- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--0.3%
Affinia Group, Inc., 9% Sr. Sub. Nts.,
11/30/14 3                                               450,000         471,375
- --------------------------------------------------------------------------------
Global Cash Access LLC/Global Cash
Finance Corp., 8.75% Sr. Sub. Nts.,
3/15/12 1                                                575,000         622,438
- --------------------------------------------------------------------------------
Universal City Florida:
7.20% Sr. Nts., 5/1/10 1,2                               270,000         282,150
8.375% Sr. Nts., 5/1/10 1                                270,000         281,475
                                                                   -------------
                                                                       1,657,438

- --------------------------------------------------------------------------------
REAL ESTATE--0.5%
American Casino & Entertainment
Properties LLC, 7.85% Sr. Sec. Nts.,
2/1/12                                                   800,000         854,000
- --------------------------------------------------------------------------------
Felcor Lodging LP, 9% Sr. Nts., 6/1/11                   837,000         952,088
- --------------------------------------------------------------------------------
HMH Properties, Inc., 7.875% Sr. Nts.,
Series B, 8/1/08                                         441,000         455,333
- --------------------------------------------------------------------------------
MeriStar Hospitality Corp.:
9.125% Sr. Unsec. Nts., 1/15/11                          457,000         495,845
10.50% Sr. Unsec. Nts., 6/15/09                          350,000         383,250
                                                                   -------------
                                                                       3,140,516

- --------------------------------------------------------------------------------
HEALTH CARE--5.7%
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.8%
Dade Behring Holdings, Inc., 11.91% Sr.
Unsec. Sub. Nts., 10/3/10                                177,358         198,198
- --------------------------------------------------------------------------------
Fisher Scientific International, Inc.,
8.125% Sr. Sub. Nts., 5/1/12                             782,000         871,930
- --------------------------------------------------------------------------------
HMP Equity Holdings Corp., 17.95%
Sr. Disc. Nts., 5/15/08 8                              2,000,000       1,332,500





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES Continued
Inverness Medical Innovations, Inc.,
8.75% Sr. Sub. Nts., 2/15/12 1                     $     600,000   $     630,000
- --------------------------------------------------------------------------------
Sybron Dental Specialties, Inc.,
8.125% Sr. Sub. Nts., 6/15/12                            700,000         766,500
- --------------------------------------------------------------------------------
Universal Hospital Services, Inc.,
10.125% Sr. Unsec. Nts., 11/1/11                         800,000         836,000
                                                                   -------------
                                                                       4,635,128

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--4.8%
Alderwoods Group, Inc., 7.75% Sr. Nts.,
9/15/12 3                                                950,000       1,030,750
- --------------------------------------------------------------------------------
AmeriPath, Inc., 10.50% Sr. Unsec. Sub.
Nts., 4/1/13                                             700,000         747,250
- --------------------------------------------------------------------------------
Beverly Enterprises, Inc., 7.875% Sr. Sub.
Nts., 6/15/14 1                                          600,000         646,500
- --------------------------------------------------------------------------------
Community Health Systems, Inc.,
6.50% Sr. Sub. Nts., 12/15/12 3                          900,000         911,250
- --------------------------------------------------------------------------------
Extendicare Health Services, Inc.:
6.875% Sr. Sub. Nts., 5/1/14                             600,000         615,000
9.50% Sr. Unsec. Sub. Nts., 7/1/10                       500,000         562,500
- --------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust II,
7.875% Nts., 2/1/08                                    1,600,000       1,740,000
- --------------------------------------------------------------------------------
Genesis HealthCare Corp., 8% Sr. Sub.
Nts., 10/15/13                                           400,000         436,000
- --------------------------------------------------------------------------------
HCA, Inc.:
6.30% Sr. Unsec. Nts., 10/1/12                         3,200,000       3,250,387
6.375% Nts., 1/15/15                                   1,100,000       1,106,481
7.50% Bonds, 11/6/33                                     600,000         613,903
7.875% Sr. Nts., 2/1/11                                  305,000         336,366
8.75% Sr. Nts., 9/1/10                                   400,000         457,752
- --------------------------------------------------------------------------------
HealthSouth Corp.:
7.625% Nts., 6/1/12                                    1,000,000       1,010,000
10.75% Sr. Unsec. Sub. Nts., 10/1/08                     357,000         378,420
- --------------------------------------------------------------------------------
Magellan Health Services, Inc., 9.375%
Sr. Unsec. Nts., Series A, 11/15/08                    1,867,643       2,042,735
- --------------------------------------------------------------------------------
Medquest, Inc., 11.875% Sr. Unsec. Sub.
Nts., Series B, 8/15/12 1                                700,000         826,000
- --------------------------------------------------------------------------------
National Nephrology Assn., 9% Sr. Sub.
Nts., 11/1/11 3                                          200,000         232,500
- --------------------------------------------------------------------------------
NDCHealth Corp., 10.50% Sr. Unsec.
Sub. Nts., 12/1/12                                       600,000         648,000
- --------------------------------------------------------------------------------
PacifiCare Health Systems, Inc.,
10.75% Sr. Unsec. Unsub. Nts., 6/1/09                    714,000         828,240
- --------------------------------------------------------------------------------
Quintiles Transnational Corp.,
10% Sr. Sub. Nts., 10/1/13 1                             600,000         675,000
- --------------------------------------------------------------------------------
Rotech Healthcare, Inc., 9.50%
Sr. Unsec. Sub. Nts., 4/1/12 1                           600,000         663,000
- --------------------------------------------------------------------------------
Stewart Enterprises, Inc., 10.75%
Sr. Unsec. Sub. Nts., 7/1/08                           1,800,000       1,957,500


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES Continued
Tenet Healthcare Corp.:
6.375% Sr. Nts., 12/1/11                           $   1,660,000   $   1,547,950
7.375% Nts., 2/1/13                                       57,000          55,575
9.875% Sr. Nts., 7/1/14 3                              1,500,000       1,642,500
- --------------------------------------------------------------------------------
Triad Hospitals, Inc.:
7% Sr. Nts., 5/15/12                                     900,000         951,750
7% Sr. Sub. Nts., 11/15/13                             1,120,000       1,150,800
- --------------------------------------------------------------------------------
US Oncology, Inc.:
9% Sr. Nts., 8/15/12 3                                   650,000         729,625
10.75% Sr. Sub. Nts., 8/15/14 3                          650,000         755,625
- --------------------------------------------------------------------------------
Vicar Operating, Inc., 9.875%
Sr. Sub. Nts., 12/1/09                                 1,000,000       1,100,000
                                                                   -------------
                                                                      29,649,359

- --------------------------------------------------------------------------------
PHARMACEUTICALS--0.1%
Valeant Pharmaceuticals International,
Inc., 7% Sr. Nts., 12/15/11                              800,000         836,000

- --------------------------------------------------------------------------------
INDUSTRIALS--7.3%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.1%
Alliant Techsystems, Inc., 8.50%
Sr. Unsec. Sub. Nts., 5/15/11                            900,000         990,000
- --------------------------------------------------------------------------------
BE Aerospace, Inc.:
8% Sr. Unsec. Sub. Nts., Series B, 3/1/08                300,000         301,875
8.875% Sr. Unsec. Sub. Nts., 5/1/11                       57,000          59,850
- --------------------------------------------------------------------------------
L-3 Communications Corp.:
5.875% Sr. Sub. Nts., 1/15/15 3                        1,000,000       1,002,500
7.625% Sr. Sub. Nts., 6/15/12                            800,000         882,000
- --------------------------------------------------------------------------------
Rexnord Corp., 10.125% Sr. Unsec. Sub.
Nts., 12/15/12                                           700,000         794,500
- --------------------------------------------------------------------------------
TD Funding Corp., 8.375% Sr. Sub. Nts.,
7/15/11                                                  800,000         862,000
- --------------------------------------------------------------------------------
TRW Automotive, Inc.:
9.375% Sr. Nts., 2/15/13                                 580,000         675,700
11% Sr. Sub. Nts., 2/15/13                               454,000         549,340
- --------------------------------------------------------------------------------
Vought Aircraft Industries, Inc., 8%
Sr. Nts., 7/15/11                                        300,000         293,250
                                                                   -------------
                                                                       6,411,015

- --------------------------------------------------------------------------------
AIRLINES--0.3%
America West Airlines, Inc., 10.75%
Sr. Nts., 9/1/05                                       1,000,000       1,002,500
- --------------------------------------------------------------------------------
ATA Holdings Corp., 13% Sr. Unsec.
Nts., 2/1/09 4,5                                       1,575,000         905,625
                                                                   -------------
                                                                       1,908,125

- --------------------------------------------------------------------------------
BUILDING PRODUCTS--0.4%
Associated Materials, Inc., 9.75%
Sr. Sub. Nts., 4/15/12                                   700,000         785,750





                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
BUILDING PRODUCTS Continued
Goodman Global Holding Co., Inc.,
7.875% Sr. Sub. Nts., 12/15/12 3                   $     360,000   $     358,200
- --------------------------------------------------------------------------------
Green Star Products, Inc., 10.15%
Bonds, 6/24/10 3                                         284,439         289,771
- --------------------------------------------------------------------------------
Jacuzzi Brands, Inc., 9.625%
Sr. Sec. Nts., 7/1/10                                    544,000         606,560
- --------------------------------------------------------------------------------
North America Energy Partners, Inc.,
8.75% Sr. Unsec. Nts., 12/1/11                           300,000         307,500
                                                                   -------------
                                                                       2,347,781

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--1.9%
Allied Waste North America, Inc.:
7.375% Sr. Sec. Nts., Series B, 4/15/14                  300,000         288,750
7.875% Sr. Nts., 4/15/13                                 800,000         824,000
8.50% Sr. Sub. Nts., 12/1/08                           1,000,000       1,065,000
8.875% Sr. Nts., Series B, 4/1/08                      1,500,000       1,612,500
9.25% Sr. Sec. Debs., Series B, 9/1/12                 1,700,000       1,848,750
- --------------------------------------------------------------------------------
American Pad & Paper Co., 13% Sr. Sub.
Nts., Series B, 11/15/05 1,4,5                           200,000              --
- --------------------------------------------------------------------------------
Cenveo Corp., 7.875% Sr. Sub. Nts.,
12/1/13                                                1,600,000       1,496,000
- --------------------------------------------------------------------------------
Comforce Operating, Inc., 12%
Sr. Nts., Series B, 12/1/07                              350,000         345,625
- --------------------------------------------------------------------------------
Corrections Corp. of America:
7.50% Sr. Nts., 5/1/11                                   500,000         536,875
9.875% Sr. Nts., 5/1/09                                  500,000         557,500
- --------------------------------------------------------------------------------
Hydrochem Industrial Services, Inc.,
10.375% Sr. Sub. Nts., 8/1/07 1                          250,000         253,125
- --------------------------------------------------------------------------------
Kindercare Learning Centers, Inc.,
9.50% Sr. Sub. Nts., 2/15/09                             576,000         581,040
- --------------------------------------------------------------------------------
Mail-Well I Corp., 9.625% Sr. Nts.,
3/15/12 1                                                700,000         771,750
- --------------------------------------------------------------------------------
Protection One, Inc./Protection One
Alarm Monitoring, Inc., 7.375%
Sr. Unsec. Nts., 8/15/05                                 900,000         913,500
- --------------------------------------------------------------------------------
Synagro Technologies, Inc., 9.50%
Sr. Sub. Nts., 4/1/09                                    700,000         766,500
                                                                   -------------
                                                                      11,860,915

- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.1%
Integrated Electrical Services, Inc.,
9.375% Sr. Sub. Nts., Series C, 2/1/09                    58,000          54,810
- --------------------------------------------------------------------------------
URS Corp., 11.50% Sr. Unsec. Nts.,
9/15/09                                                  455,000         525,525
                                                                   -------------
                                                                         580,335

- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.5%
Belden & Blake Corp., 8.75%
Sr. Sec. Nts., 7/15/12 1                                 650,000         663,000


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT Continued
Dayton Superior Corp., 13%
Sr. Unsec. Sub. Nts., 6/15/09                      $     100,000   $     104,500
- --------------------------------------------------------------------------------
General Cable Corp., 9.50%
Sr. Nts., 11/15/10                                       500,000         567,500
- --------------------------------------------------------------------------------
Tennessee Gas Pipeline Co., 7%
Sr. Unsec. Debs., 10/15/28                             1,500,000       1,511,250
                                                                   -------------
                                                                       2,846,250

- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.0%
Great Lakes Dredge & Dock Co., 7.75%
Sr. Unsec. Sub. Nts., 12/15/13                           250,000         228,750
- --------------------------------------------------------------------------------
MACHINERY--1.6%
AGCO Corp., 9.50% Sr. Unsec. Nts.,
5/1/08                                                 1,000,000       1,070,000
- --------------------------------------------------------------------------------
Douglas Dynamics LLC, 7.75% Sr. Nts.,
1/15/12 3                                                600,000         611,250
- --------------------------------------------------------------------------------
Dresser-Rand Group, Inc., 7.375%
Sr. Sub. Nts., 11/1/14 3                                 300,000         307,500
- --------------------------------------------------------------------------------
Manitowoc Co., Inc. (The):
7.125% Sr. Nts., 11/1/13                                 150,000         163,125
10.50% Sr. Sub. Nts., 8/1/12                             800,000         924,000
- --------------------------------------------------------------------------------
Milacron Escrow Corp., 11.50%
Sr. Sec. Nts., 5/15/11 1                               1,200,000       1,278,000
- --------------------------------------------------------------------------------
Navistar International Corp., 7.50%
Sr. Nts., 6/15/11                                        800,000         862,000
- --------------------------------------------------------------------------------
NMHG Holding Co., 10% Sr. Nts.,
5/15/09                                                  600,000         666,000
- --------------------------------------------------------------------------------
SPX Corp., 7.50% Sr. Nts., 1/1/13                        900,000         981,000
- --------------------------------------------------------------------------------
Terex Corp.:
7.375% Sr. Unsec. Sub. Nts., 1/15/14                     500,000         538,750
9.25% Sr. Unsec. Sub. Nts., 7/15/11                      800,000         902,000
10.375% Sr. Unsec. Sub. Nts., Series B,
4/1/11                                                   500,000         562,500
- --------------------------------------------------------------------------------
Trinity Industries, Inc., 6.50% Sr. Nts.,
3/15/14                                                1,000,000       1,005,000
                                                                   -------------
                                                                       9,871,125

- --------------------------------------------------------------------------------
MARINE--0.4%
CP Ships Ltd., 10.375% Sr. Nts., 7/15/12               1,000,000       1,158,750
- --------------------------------------------------------------------------------
Millenium Seacarriers, Inc., 12%
Sr. Sec. Nts., 7/15/05 1,4,5                             700,000          16,870
- --------------------------------------------------------------------------------
Navigator Gas Transport plc, 10.50%
First Priority Ship Mtg. Nts., 6/30/07 1,4,5           1,000,000         756,250
- --------------------------------------------------------------------------------
Pacific & Atlantic Holdings, Inc., 3.75%
Sec. Nts., 12/31/07 3,7                                  429,249         198,571
                                                                   -------------
                                                                       2,130,441





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
ROAD & RAIL--0.6%
Kansas City Southern Railway Co.
(The), 7.50% Sr. Nts., 6/15/09                     $     500,000   $     527,500
- --------------------------------------------------------------------------------
Stena AB:
7% Sr. Nts., 12/1/16 3                                 1,700,000       1,691,500
7.50% Sr. Unsec. Nts., 11/1/13                           928,000         976,720
9.625% Sr. Nts., 12/1/12                                 600,000         681,000
                                                                   -------------
                                                                       3,876,720

- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--0.2%
United Rentals, Inc., 7% Sr. Sub. Nts.,
2/15/14                                                1,500,000       1,410,000
- --------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE--0.2%
Horizon Lines LLC, 9% Nts., 11/1/12 3                    600,000         648,000
- --------------------------------------------------------------------------------
Worldspan LP/Worldspan Financial
Corp., 9.625% Sr. Nts., 6/15/11                          550,000         550,000
                                                                   -------------
                                                                       1,198,000

- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--2.6%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.4%
Lucent Technologies, Inc., 6.45%
Unsec. Debs., 3/15/29                                  1,700,000       1,547,000
- --------------------------------------------------------------------------------
Orion Network Systems, Inc., 12.50%
Sr. Unsub. Disc. Nts., 1/15/07 1,4,5                   1,150,000         603,750
                                                                   -------------
                                                                       2,150,750

- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.1%
Seagate Technology Hdd Holdings, 8%
Sr. Nts., 5/15/09                                        700,000         759,500
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.9%
Flextronics International Ltd., 6.25%
Sr. Sub. Nts., 11/15/14 3                              2,300,000       2,288,500
- --------------------------------------------------------------------------------
Ingram Micro, Inc., 9.875% Sr. Unsec.
Sub. Nts., 8/15/08                                     1,200,000       1,311,000
- --------------------------------------------------------------------------------
LCE Acquisition Corp., 9% Sr. Sub. Nts.,
8/1/14 3                                                 875,000         951,563
- --------------------------------------------------------------------------------
Sensus Metering System, Inc., 8.625%
Sr. Unsec. Sub. Nts., 12/15/13                         1,000,000       1,030,000
                                                                   -------------
                                                                       5,581,063

- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.0%
Exodus Communications, Inc., 10.75%
Sr. Nts., 12/15/09 1,4,5 [EUR]                           846,550          11,507
- --------------------------------------------------------------------------------
Globix Corp., 11% Sr. Nts., 5/1/08 7                      71,480          66,119
- --------------------------------------------------------------------------------
NorthPoint Communications Group,
Inc., 12.875% Nts., 2/15/10 1,4,5                        240,208              --
- --------------------------------------------------------------------------------
PSINet, Inc., 10.50% Sr. Unsec. Nts.,
12/1/06 1,4,5 [EUR]                                    1,000,000          54,370
                                                                   -------------
                                                                         131,996


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
IT SERVICES--0.3%
Iron Mountain, Inc.:
7.75% Sr. Sub. Nts., 1/15/15                       $     400,000   $     408,000
8.625% Sr. Unsec. Sub. Nts., 4/1/13                    1,000,000       1,067,500
- --------------------------------------------------------------------------------
Titan Corp. (The), 8% Sr. Sub. Nts.,
5/15/11                                                  400,000         428,000
                                                                   -------------
                                                                       1,903,500

- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--0.9%
AMI Semiconductor, Inc., 10.75%
Sr. Unsec. Sub. Nts., 2/1/13                             682,000         804,760
- --------------------------------------------------------------------------------
Amkor Technology, Inc.:
7.75% Sr. Nts., 5/15/13                                  120,000         113,400
9.25% Sr. Unsec. Sub. Nts., 2/15/08                    1,000,000       1,027,500
- --------------------------------------------------------------------------------
Freescale Semiconductor, Inc., 7.125%
Sr. Unsec. Nts., 7/15/14                               1,300,000       1,417,000
- --------------------------------------------------------------------------------
Huntsman International LLC, 7.375%
Sr. Sub. Nts., 1/1/15 3                                1,550,000       1,561,625
- --------------------------------------------------------------------------------
MagnaChip Semiconductor Ltd., 8%
Sr. Sub. Nts., 12/15/14 3                                181,000         189,598
                                                                   -------------
                                                                       5,113,883

- --------------------------------------------------------------------------------
MATERIALS--11.5%
- --------------------------------------------------------------------------------
CHEMICALS--3.8%
Avecia Group plc, 11% Sr. Unsec. Nts.,
7/1/09                                                   117,000         121,095
- --------------------------------------------------------------------------------
ClimaChem, Inc., 10.75% Sr. Unsec. Nts.,
Series B, 12/1/07                                        250,000         167,500
- --------------------------------------------------------------------------------
Compass Minerals Group, Inc., 10%
Sr. Sub. Nts., 8/15/11                                 1,200,000       1,356,000
- --------------------------------------------------------------------------------
Crompton Corp., 9.875% Sr. Nts.,
8/1/12 3                                                 800,000         920,000
- --------------------------------------------------------------------------------
Equistar Chemicals LP/
Equistar Funding Corp.:
8.75% Sr. Unsec. Nts., 2/15/09                           400,000         450,000
10.125% Sr. Unsec. Nts., 9/1/08                           57,000          65,978
10.625% Sr. Unsec. Nts., 5/1/11                        1,800,000       2,097,000
- --------------------------------------------------------------------------------
Huntsman Co. LLC:
11.625% Sr. Unsec. Nts., 10/15/10                         57,000          67,688
11.75% Sr. Nts., 7/15/12 3                             1,300,000       1,543,750
- --------------------------------------------------------------------------------
Huntsman Corp./ICI Chemical Co. plc:
10.125% Sr. Unsec. Sub. Nts.,
7/1/09 [EUR]                                              60,838          88,698
10.125% Sr. Unsec. Sub. Nts., 7/1/09 9                 1,645,000       1,739,588
13.09% Sr. Unsec. Disc. Nts., 12/31/09 8                 400,000         226,000
- --------------------------------------------------------------------------------
Huntsman International LLC, 9.875%
Sr. Nts., 3/1/09                                       2,000,000       2,205,000
- --------------------------------------------------------------------------------
IMC Global, Inc.:
7.625% Bonds, 11/1/05 1                                    3,000           3,075
10.875% Sr. Unsec. Nts., 8/1/13 1                         57,000          71,535
10.875% Sr. Unsec. Nts., Series B, 6/1/08                 11,627          14,011





                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
CHEMICALS Continued
Innophos, Inc., 8.875% Sr. Sub. Nts.,
8/15/14 1                                          $     800,000   $     868,000
- --------------------------------------------------------------------------------
ISP Chemco, Inc., 10.25% Sr. Unsec. Sub.
Nts., 7/1/11                                             500,000         567,500
- --------------------------------------------------------------------------------
ISP Holdings, Inc., 10.625% Sr. Sec. Nts.,
12/15/09                                                 300,000         333,750
- --------------------------------------------------------------------------------
KI Holdings, Inc., 0%/9.875%
Sr. Disc. Nts., 11/15/14 3,6                             750,000         483,750
- --------------------------------------------------------------------------------
Lyondell Chemical Co.:
9.50% Sec. Nts., 12/15/08                                 57,000          62,130
9.50% Sr. Sec. Nts., 12/15//08                           100,000         109,000
9.625% Sr. Sec. Nts., Series A, 5/1/07                 1,300,000       1,436,500
9.80% Debs., 2/1/20                                      900,000       1,030,500
9.875% Sec. Nts., Series B, 5/1/07                       420,000         442,050
10.50% Sr. Sec. Nts., 6/1/13                             300,000         358,500
11.125% Sr. Sec. Nts., 7/15/12                           300,000         357,750
- --------------------------------------------------------------------------------
Millennium America, Inc., 9.25%
Sr. Unsec. Sub. Nts., 6/15/08                            711,627         813,034
- --------------------------------------------------------------------------------
PCI Chemicals Canada, 10%
Sr. Sec. Nts., 12/31/08                                  319,909         340,703
- --------------------------------------------------------------------------------
Pioneer Cos., Inc., 6.05%
Sr. Sec. Nts., 12/31/06 2                                101,304         106,876
- --------------------------------------------------------------------------------
PolyOne Corp.:
8.875% Sr. Unsec. Nts., 5/1/12                         1,550,000       1,693,375
10.625% Sr. Unsec. Nts., 5/15/10                         357,000         403,410
- --------------------------------------------------------------------------------
Resolution Performance Products LLC:
8% Sr. Sec. Nts., 12/15/09                               450,000         486,000
13.50% Sr. Unsec. Sub. Nts., 11/15/10                    300,000         327,750
- --------------------------------------------------------------------------------
Rhodia SA, 10.25% Sr. Unsec.
Nts., 6/1/10                                             500,000         565,000
- --------------------------------------------------------------------------------
Rockwood Specialties Group, Inc.:
7.50% Sr. Sub. Nts., 11/15/14 3                          400,000         417,000
10.625% Sr. Unsec. Sub. Nts., 5/15/11                    400,000         462,000
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc., 10%
Sr. Sec. Nts., 12/19/07 7                                409,135         411,181
- --------------------------------------------------------------------------------
Westlake Chemical Corp., 8.75%
Sr. Nts., 7/15/11                                        260,000         295,100
                                                                   -------------
                                                                      23,562,140

- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.1%
Texas Industries, Inc., 10.25%
Sr. Unsec. Nts., 6/15/11                                 800,000         940,000
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING--2.9%
Crown Euro Holdings SA, 9.50%
Sr. Sec. Nts., 3/1/11                                    900,000       1,030,500
- --------------------------------------------------------------------------------
Graham Packaging Co., Inc.:
8.50% Sr. Nts., 10/15/12 3                               350,000         369,250
9.875% Sub. Nts., 10/15/14 3                             600,000         643,500


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING Continued
Graphic Packaging International Corp.:
8.50% Sr. Nts., 8/15/11                            $   1,000,000   $   1,097,500
9.50% Sr. Sub. Nts., 8/15/13                             700,000         799,750
- --------------------------------------------------------------------------------
Jefferson Smurfit Corp.:
7.50% Sr. Unsec. Unsub. Nts., 6/1/13                     350,000         375,375
8.25% Sr. Unsec. Nts., 10/1/12                           900,000         985,500
- --------------------------------------------------------------------------------
MDP Acquisitions plc, 9.625%
Sr. Nts., 10/1/12                                        800,000         896,000
- --------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc.:
7.75% Sr. Sec. Nts., 5/15/11                           1,000,000       1,087,500
8.25% Sr. Unsec. Nts., 5/15/13                           557,000         615,485
8.75% Sr. Sec. Nts., 11/15/12                          1,350,000       1,528,875
8.875% Sr. Sec. Nts., 2/15/09                          1,300,000       1,418,625
- --------------------------------------------------------------------------------
Pliant Corp., 0%/11.125% Sr. Sec.
Disc. Nts., 6/15/09 6                                    600,000         557,250
- --------------------------------------------------------------------------------
Solo Cup Co., 8.50% Sr. Sub. Nts.,
2/15/14                                                1,500,000       1,567,500
- --------------------------------------------------------------------------------
Stone Container Corp.:
8.375% Sr. Nts., 7/1/12                                  750,000         821,250
9.25% Sr. Unsec. Nts., 2/1/08                          1,000,000       1,110,000
9.75% Sr. Unsec. Nts., 2/1/11                          1,000,000       1,100,000
- --------------------------------------------------------------------------------
Stone Container Finance Co. of Canada
II, 7.375% Sr. Unsec. Nts., 7/15/14                      600,000         642,000
- --------------------------------------------------------------------------------
TriMas Corp., 9.875% Sr. Unsec. Sub. Nts.,
6/15/12 1                                              1,000,000       1,065,000
                                                                   -------------
                                                                      17,710,860

- --------------------------------------------------------------------------------
METALS & MINING--2.7%
AK Steel Corp.:
7.75% Sr. Unsec. Nts., 6/15/12                           557,000         576,495
7.875% Sr. Unsec. Nts., 2/15/09                          300,000         307,125
- --------------------------------------------------------------------------------
Arch Western Finance LLC, 6.75%
Sr. Nts., 7/1/13                                         800,000         830,000
- --------------------------------------------------------------------------------
California Steel Industries, Inc., 6.125%
Sr. Nts., 3/15/14                                        800,000         798,000
- --------------------------------------------------------------------------------
Century Aluminum Co., 7.50% Sr. Nts.,
8/15/14 3                                              1,300,000       1,391,000
- --------------------------------------------------------------------------------
Foundation PA Coal Co., 7.25% Sr. Nts.,
8/1/14 3                                                 650,000         695,500
- --------------------------------------------------------------------------------
IMCO Recycling, Inc., 10.375%
Sr. Sec. Nts., 10/15/10                                  700,000         798,000
- --------------------------------------------------------------------------------
International Steel Group, Inc.,
6.50% Sr. Nts., 4/15/14                                  300,000         323,250
- --------------------------------------------------------------------------------
IPSCO, Inc., 8.75% Sr. Nts., 6/1/13                      300,000         345,000
- --------------------------------------------------------------------------------
Ispat Inland ULC, 9.75% Sr. Sec. Nts.,
4/1/14                                                 1,364,000       1,691,360
- --------------------------------------------------------------------------------
Jorgensen (Earle M.) Co., 9.75%
Sr. Sec. Nts., 6/1/12                                    800,000         904,000





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
METALS & MINING Continued
Kaiser Aluminum & Chemical Corp.,
10.875% Sr. Nts., Series B, 10/15/06 4,5           $   1,000,000   $     887,500
- --------------------------------------------------------------------------------
Koppers Industry, Inc., 9.875%
Sr. Sec. Nts., 10/15/13                                  900,000       1,030,500
- --------------------------------------------------------------------------------
Massey Energy Co., 6.625% Sr. Nts.,
11/15/10                                                 400,000         420,000
- --------------------------------------------------------------------------------
Metallurg, Inc., 11% Sr. Nts., 12/1/07                   740,000         647,500
- --------------------------------------------------------------------------------
Northwest Pipeline Corp., 8.125%
Sr. Nts., 3/1/10                                         200,000         222,250
- --------------------------------------------------------------------------------
Oregon Steel Mills, Inc., 10% Sr. Nts.,
7/15/09                                                1,300,000       1,452,750
- --------------------------------------------------------------------------------
Peabody Energy Corp., 6.875%
Sr. Unsec. Nts., Series B, 3/15/13                     1,000,000       1,087,500
- --------------------------------------------------------------------------------
Steel Dynamics, Inc., 9.50% Sr. Nts.,
3/15/09                                                  400,000         440,000
- --------------------------------------------------------------------------------
UCAR Finance, Inc., 10.25% Sr. Nts.,
2/15/12 1                                                400,000         459,000
- --------------------------------------------------------------------------------
United States Steel Corp.:
9.75% Sr. Nts., 5/15/10                                  505,000         578,225
10.75% Sr. Nts., 8/1/08                                  389,000         459,993
                                                                   -------------
                                                                      16,344,948

- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--2.0%
Abitibi-Consolidated, Inc., 8.55% Nts.,
8/1/10                                                   300,000         326,625
- --------------------------------------------------------------------------------
Appleton Papers, Inc., 8.125% Sr. Nts.,
6/15/11                                                  600,000         649,500
- --------------------------------------------------------------------------------
Buckeye Technologies, Inc.,
8.50% Sr. Nts., 10/1/13                                  350,000         381,500
- --------------------------------------------------------------------------------
Georgia-Pacific Corp.:
7.75% Sr. Unsec. Nts., 11/15/29                        2,000,000       2,250,000
8.125% Sr. Unsec. Nts., 5/15/11                        2,200,000       2,541,000
9.375% Sr. Unsec. Nts., 2/1/13                         1,600,000       1,872,000
- --------------------------------------------------------------------------------
Inland Fiber Group LLC, 9.625%
Sr. Unsec. Nts., 11/15/07 1,4,5                          300,000         136,500
- --------------------------------------------------------------------------------
Norske Skog Canada Ltd., 7.375%
Sr. Unsec. Nts., 3/1/14                                  600,000         628,500
- --------------------------------------------------------------------------------
Riverside Forest Products Ltd., 7.875%
Sr. Unsec. Sub. Nts., 3/1/14                             600,000         663,000
- --------------------------------------------------------------------------------
Tekni-Plex, Inc., 8.75% Sr. Sec. Nts.,
11/15/13 3                                             1,557,000       1,557,000
- --------------------------------------------------------------------------------
Tembec Industries, Inc.:
7.75% Sr. Nts., 3/15/12                                  700,000         680,750
8.50% Sr. Unsec. Nts., 2/1/11                             57,000          57,570
- --------------------------------------------------------------------------------
Western Forest Products, Inc., 15%
Sec. Nts., 7/28/09 3,7                                   417,000         472,253
                                                                   -------------
                                                                      12,216,198


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--9.6%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--3.7%
American Tower Corp.:
7.125% Sr. Unsec. Nts., 10/15/12 3                 $     500,000   $     513,750
9.375% Sr. Nts., 2/1/09 9                                161,000         171,063
- --------------------------------------------------------------------------------
Citizens Communications Co.:
6.25% Sr. Nts., 1/15/13                                1,400,000       1,417,500
9% Sr. Unsec. Unsub. Nts., 8/15/31                       600,000         688,500
9.25% Sr. Nts., 5/15/11                                  800,000         940,000
- --------------------------------------------------------------------------------
Crown Castle International Corp.,
7.50% Sr. Nts., 12/1/13                                  900,000         972,000
- --------------------------------------------------------------------------------
MCI, Inc.:
6.908% Sr. Unsec. Nts., 5/1/07 2                       2,729,000       2,800,636
7.688% Sr. Unsec. Nts., 5/1/09 2                       1,000,000       1,037,500
- --------------------------------------------------------------------------------
PSINet, Inc., 11% Sr. Nts., 8/1/09 1,4,5                 886,049          13,291
- --------------------------------------------------------------------------------
Qwest Capital Funding, Inc., 7.90%
Unsec. Nts., 8/15/10                                   1,657,000       1,681,855
- --------------------------------------------------------------------------------
Qwest Communications International,
Inc., 7.25% Sr. Nts., 2/15/11 3                          600,000         618,000
- --------------------------------------------------------------------------------
Qwest Corp.:
6.875% Unsec. Debs., 9/15/33                           1,000,000         925,000
9.125% Nts., 3/15/12 3                                 2,500,000       2,900,000
- --------------------------------------------------------------------------------
Qwest Services Corp.:
14% Nts., 12/15/10 2,3                                 4,800,000       5,796,000
14.50% Nts., 12/15/14 3                                1,700,000       2,159,000
- --------------------------------------------------------------------------------
Teligent, Inc., 11.50% Sr. Nts., 12/1/07 1,4,5           400,000              --
- --------------------------------------------------------------------------------
Time Warner Telecom LLC/Time Warner
Telecom, Inc., 9.75% Sr. Nts., 7/15/08                   100,000         101,750
- --------------------------------------------------------------------------------
Winstar Communications, Inc., 12.75%
Sr. Nts., 4/15/10 1,4,5                                1,000,000              --
                                                                   -------------
                                                                      22,735,845

- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--5.9%
Alamosa Delaware, Inc.:
8.50% Sr. Nts., 1/31/12                                1,000,000       1,097,500
11% Sr. Unsec. Nts., 7/31/10                              57,000          67,403
12.50% Sr. Unsec. Nts., 2/1/11                           100,000         113,500
- --------------------------------------------------------------------------------
American Cellular Corp., 10% Sr. Nts.,
Series B, 8/1/11                                         200,000         172,500
- --------------------------------------------------------------------------------
American Tower Corp., 7.50% Sr. Nts.,
5/1/12                                                 1,650,000       1,740,750
- --------------------------------------------------------------------------------
American Tower Escrow Corp., 12.25%
Sr. Sub. Disc. Nts., 8/1/08 8                          1,400,000       1,053,500
- --------------------------------------------------------------------------------
AT&T Corp., 9.05% Sr. Unsec. Nts.,
11/15/11 2                                             3,250,000       3,757,813
- --------------------------------------------------------------------------------
CellNet Data Systems, Inc., Sr. Unsec.
Disc. Nts., 10/1/07 1,4,5                              1,834,000              --
- --------------------------------------------------------------------------------
Centennial Cellular Operating Co.
LLC/Centennial Communications Corp.,
10.125% Sr. Nts., 6/15/13                              1,700,000       1,916,750





                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES Continued
Crown Castle International Corp.,
10.75% Sr. Nts., 8/1/11                            $   2,050,000   $   2,234,500
- --------------------------------------------------------------------------------
Dobson Cellular Systems, 8.375%
Sec. Nts., 11/1/11 3                                     270,000         280,125
- --------------------------------------------------------------------------------
Dobson Communications Corp.,
8.875% Sr. Nts., 10/1/13                                 507,000         358,703
- --------------------------------------------------------------------------------
IWO Escrow Co., Sr. Sec. Nts.,
1/15/12 2,3,9                                            220,000         222,750
- --------------------------------------------------------------------------------
Nextel Communications, Inc.,
7.375% Sr. Nts., 8/1/15                                6,490,000       7,171,450
- --------------------------------------------------------------------------------
Nextel Partners, Inc.:
8.125% Sr. Nts., 7/1/11                                  700,000         780,500
12.50% Sr. Nts., 11/15/09                              1,162,000       1,321,775
- --------------------------------------------------------------------------------
Rogers Wireless Communications, Inc.:
6.375% Sec. Nts., 3/1/14                               2,400,000       2,388,000
7.50% Sr. Sec. Nts., 3/15/15 3                           900,000         954,000
8% Sr. Sub. Nts., 12/15/12 3                             800,000         850,000
- --------------------------------------------------------------------------------
Rural Cellular Corp.:
8.25% Sr. Sec. Nts., 3/15/12                             775,000         823,438
9.75% Sr. Sub. Nts., 1/15/10                             457,000         415,870
9.875% Sr. Nts., 2/1/10                                1,100,000       1,124,750
- --------------------------------------------------------------------------------
SBA Communications Corp., 8.50%
Sr. Nts., 12/1/12 3                                    1,150,000       1,178,750
- --------------------------------------------------------------------------------
SBA Telecommunications, Inc./SBA
Communications Corp., 0%/9.75%
Sr. Disc. Nts., 12/15/11 6                             2,357,000       1,997,558
- --------------------------------------------------------------------------------
Triton PCS, Inc., 8.50%
Sr. Unsec. Nts., 6/1/13                                1,300,000       1,261,000
- --------------------------------------------------------------------------------
UbiquiTel Operating Co., 9.875%
Sr. Nts., 3/1/11                                       1,100,000       1,240,250
- --------------------------------------------------------------------------------
US Unwired, Inc., 10% Sr. Sec. Nts.,
6/15/12                                                  500,000         566,250
- --------------------------------------------------------------------------------
Western Wireless Corp., 9.25%
Sr. Unsec. Nts., 7/15/13                               1,057,000       1,154,773
                                                                   -------------
                                                                      36,244,158

- --------------------------------------------------------------------------------
UTILITIES--6.2%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--3.9%
AES Corp. (The), 8.75% Sr. Sec. Nts.,
5/15/13 3                                              1,150,000       1,312,438
- --------------------------------------------------------------------------------
Allegheny Energy, Inc., 7.75% Nts.,
8/1/05                                                   300,000         305,625
- --------------------------------------------------------------------------------
Caithness Coso Funding Corp.,
9.05% Sr. Sec. Nts., Series B, 12/15/09                  366,797         405,311
- --------------------------------------------------------------------------------
Calpine Corp., 7.625% Sr. Nts., 4/15/06                  360,000         355,500
- --------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25%
Sr. Nts., Series B, 9/1/10                             1,600,000       1,786,640
- --------------------------------------------------------------------------------
CMS Energy Corp.:
7.50% Sr. Nts., 1/15/09                                  357,000         381,990
7.75% Sr. Nts., 8/1/10                                   400,000         439,500
9.875% Sr. Unsec. Nts., 10/15/07                       1,400,000       1,571,500


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES Continued
CMS Energy X-TRAS Pass-Through
Trust I, 7% Sr. Unsec. Pass-Through
Certificates, 1/15/05                              $     500,000   $     500,000
- --------------------------------------------------------------------------------
ESI Tractebel Acquisition Corp.,
7.99% Sec. Bonds, Series B, 12/30/11 1                   882,000         935,834
- --------------------------------------------------------------------------------
Midwest Generation LLC, 8.75%
Sr. Sec. Nts., 5/1/34                                  3,600,000       4,104,000
- --------------------------------------------------------------------------------
Mirant Americas Generation LLC,
8.30% Sr. Unsec. Nts., 5/1/11 4,5                        200,000         212,500
- --------------------------------------------------------------------------------
MSW Energy Holdings II LLC/MSW
Energy Finance Co. II, Inc., 7.375%
Sr. Sec. Nts., Series B, 9/1/10                          700,000         738,500
- --------------------------------------------------------------------------------
MSW Energy Holdings LLC/MSW
Energy Finance Co., Inc., 8.50%
Sr. Sec. Nts., 9/1/10                                    400,000         440,000
- --------------------------------------------------------------------------------
NRG Energy, Inc., 8% Sr. Sec. Nts.,
12/15/13 3                                             2,500,000       2,737,500
- --------------------------------------------------------------------------------
Reliant Energy, Inc., 6.75% Sr. Sec. Nts.,
12/15/14                                                 900,000         898,875
- --------------------------------------------------------------------------------
Reliant Resources, Inc.:
9.25% Sr. Sec. Nts., 7/15/10                           1,657,000       1,855,840
9.50% Sr. Sec. Nts., 7/15/13                           1,600,000       1,826,000
- --------------------------------------------------------------------------------
Teco Energy, Inc., 7.20% Unsec. Unsub.
Nts., 5/1/11                                           2,000,000       2,200,000
- --------------------------------------------------------------------------------
Texas Genco LLC, 6.875% Sr. Nts.,
12/15/14 3                                             1,100,000       1,142,625
                                                                   -------------
                                                                      24,150,178

- --------------------------------------------------------------------------------
GAS UTILITIES--0.3%
AmeriGas Partners LP/AmeriGas Eagle
Finance Corp., 8.875% Sr. Unsec. Nts.,
Series B, 5/20/11 10                                   1,400,000       1,533,000
- --------------------------------------------------------------------------------
SEMCO Energy, Inc., 7.125% Sr. Nts.,
5/15/08                                                  400,000         430,109
                                                                   -------------
                                                                       1,963,109

- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--1.9%
AES Red Oak LLC:
8.54% Sr. Sec. Bonds, Series A, 11/30/19               1,031,898       1,163,465
9.20% Sr. Sec. Bonds, Series B, 11/30/29                 500,000         563,750
- --------------------------------------------------------------------------------
Consumers Energy Co.:
6.25% Nts., 9/15/06                                      300,000         313,344
6.375% Sr. Sec. Nts., 2/1/08                             450,000         481,506
7.375% Nts., 9/15/23                                     350,000         362,054
- --------------------------------------------------------------------------------
Dynegy Holdings, Inc.:
6.875% Sr. Unsec. Unsub. Nts., 4/1/11                  3,340,000       3,231,450
8.75% Sr. Nts., 2/15/12                                1,857,000       1,954,493
10.125% Sr. Sec. Nts., 7/15/13 3                       1,850,000       2,127,500
- --------------------------------------------------------------------------------
Mirant Mid-Atlantic LLC, 8.625%
Sec. Pass-Through Certificates,
Series A, 6/30/12                                        797,235         885,429





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER Continued
NorthWestern Corp., 5.875%
Sr. Sec. Nts., 11/1/14 3                           $     580,000   $     596,223
                                                                   -------------
                                                                      11,679,214

- --------------------------------------------------------------------------------
WATER UTILITIES--0.1%
National Waterworks, Inc., 10.50%
Sr. Unsec. Sub. Nts., Series B, 12/1/12                  300,000         339,000
                                                                   -------------
Total Corporate Bonds and Notes
(Cost $450,525,393)                                                  478,080,198

                                                          SHARES
- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.6%
- --------------------------------------------------------------------------------
AmeriKing, Inc., 13% Cum. Sr.
Exchangeable, Non-Vtg. 1,5,7                              13,764              --
- --------------------------------------------------------------------------------
Dobson Communications Corp., 6% Cv.,
Series F (converts into Dobson
Communications Corp., Cl. A common
stock), Non-Vtg. 3                                           800          56,071
- --------------------------------------------------------------------------------
e.spire Communications, Inc., 12.75%
Jr. Redeemable, Non-Vtg. 1,5,7                               498              50
- --------------------------------------------------------------------------------
Eagle-Picher Holdings, Inc., 11.75% Cum.
Exchangeable, Series B, Non-Vtg. 1,5                       8,000         698,000
- --------------------------------------------------------------------------------
ICG Holdings, Inc.,
14.25% Exchangeable, Non-Vtg. 1,5,7                          342              --
- --------------------------------------------------------------------------------
McLeodUSA, Inc., 2.50% Cv., Series A 5                     3,258          11,875
- --------------------------------------------------------------------------------
Pacific & Atlantic Holdings, Inc., 7.50%
Cum. Cv., Series A 1,5,7                                  22,013          44,026
- --------------------------------------------------------------------------------
Paxson Communications Corp.:
14.25% Cum. Jr. Exchangeable,
Non-Vtg. 1,7                                                  92         678,500
14.25% Cum. Jr. Exchangeable,
Non-Vtg. 1,5,7                                                --             561
- --------------------------------------------------------------------------------
PTV, Inc., 10% Cum., Series A, Non-Vtg.                       22              75
- --------------------------------------------------------------------------------
Rural Cellular Corp., 11.375% Cum.,
Series B, Non-Vtg. 1,5,7                                   1,177         915,118
- --------------------------------------------------------------------------------
Sovereign Real Estate Investment Trust,
12% Non-Cum., Series A 1                                  10,000       1,517,500
                                                                   -------------
Total Preferred Stocks (Cost $4,490,451)                               3,921,776

- --------------------------------------------------------------------------------
COMMON STOCKS--1.6%
- --------------------------------------------------------------------------------
AboveNet, Inc. 5                                             159           5,088
- --------------------------------------------------------------------------------
Broadwing Corp.                                              460           4,191
- --------------------------------------------------------------------------------
Cebridge Connections Holding LLC 5                         2,645              --
- --------------------------------------------------------------------------------
Charles River Laboratories
International, Inc. 5                                      8,360         384,644
- --------------------------------------------------------------------------------
Chesapeake Energy Corp.                                  100,909       1,664,999
- --------------------------------------------------------------------------------
Covad Communications Group, Inc. 5                        20,660          44,419
- --------------------------------------------------------------------------------
Crunch Equity Holdings, Cl. A 1,5                            301         390,333
- --------------------------------------------------------------------------------
Dobson Communications Corp., Cl. A 5                      43,391          74,633


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
Globix Corp. 5                                            11,467   $      41,281
- --------------------------------------------------------------------------------
Gulfstream Holding, Inc. 1,5                                  56              --
- --------------------------------------------------------------------------------
Horizon Natural Resources Co. 1,5                         20,000              --
- --------------------------------------------------------------------------------
ICO Global Communication
Holdings Ltd. 5                                           42,107          21,475
- --------------------------------------------------------------------------------
iPCS, Inc. 5                                               9,973         304,177
- --------------------------------------------------------------------------------
Leap Wireless International, Inc. 5                        1,913          51,651
- --------------------------------------------------------------------------------
Magellan Health Services, Inc. 5                           9,965         340,404
- --------------------------------------------------------------------------------
Manitowoc Co., Inc. (The)                                  1,039          39,118
- --------------------------------------------------------------------------------
MCI, Inc.                                                  1,629          32,841
- --------------------------------------------------------------------------------
NTL, Inc. 5                                               18,902       1,379,090
- --------------------------------------------------------------------------------
Orbital Sciences Corp. 5                                   2,235          26,440
- --------------------------------------------------------------------------------
Pioneer Cos., Inc. 5                                      20,688         429,276
- --------------------------------------------------------------------------------
Polymer Group, Inc., Cl. A 5                              24,040         456,760
- --------------------------------------------------------------------------------
Prandium, Inc. 1,5                                        62,829             691
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. 1,5                                 396          14,751
- --------------------------------------------------------------------------------
Telewest Global, Inc. 5                                   96,326       1,693,411
- --------------------------------------------------------------------------------
Telus Corp.                                                1,079          31,183
- --------------------------------------------------------------------------------
TVMAX Holdings, Inc. 1,5                                   7,500          44,625
- --------------------------------------------------------------------------------
UnitedGlobalCom, Inc., Cl. A 5                           143,824       1,389,340
- --------------------------------------------------------------------------------
Viatel Holding Ltd. (Bermuda) 1,5                          2,701           3,241
- --------------------------------------------------------------------------------
Western Forest Products, Inc. 5                           85,047         472,030
- --------------------------------------------------------------------------------
Williams Cos., Inc. (The)                                 20,000         325,800
- --------------------------------------------------------------------------------
WRC Media Corp. 1,5                                        1,353              27
- --------------------------------------------------------------------------------
XO Communications, Inc. 5                                  2,646           8,044
                                                                   -------------
Total Common Stocks (Cost $8,602,957)                                  9,673,963

                                                           UNITS
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.2%
- --------------------------------------------------------------------------------
American Tower Corp. Wts.,
Exp. 8/1/08 3,5                                            1,400         322,700
- --------------------------------------------------------------------------------
ASAT Finance LLC Wts., Exp. 11/1/06 1,5                      500               4
- --------------------------------------------------------------------------------
Citigroup, Inc. Litigation Wts.,
Exp. 12/31/50 5                                           15,626          22,189
- --------------------------------------------------------------------------------
COLO.com, Inc. Wts., Exp. 3/15/10 1,5                        600               6
- --------------------------------------------------------------------------------
Concentric Network Corp. Wts.,
Exp. 12/15/07 1,5                                            750              --
- --------------------------------------------------------------------------------
Covergent Communications, Inc. Wts.,
Exp. 4/1/08 1,5                                            2,000              20
- --------------------------------------------------------------------------------
DeCrane Aircraft Holdings, Inc. Wts.,
Exp. 9/30/08 1,5                                           1,750              --
- --------------------------------------------------------------------------------
Diva Systems Corp. Wts., Exp. 3/1/08 1,5                   1,500              --
- --------------------------------------------------------------------------------
e.spire Communications, Inc. Wts.,
Exp. 11/1/05 1,5                                             475               5
- --------------------------------------------------------------------------------
Horizon PCS, Inc. Wts., Exp. 10/1/10 1,5                   1,300              --





                                                                           VALUE
                                                           UNITS      SEE NOTE 1
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES Continued
- --------------------------------------------------------------------------------
Huntsman Co. LLC Wts.,
Exp. 5/15/11 1,5                                           1,000   $     470,500
- --------------------------------------------------------------------------------
ICG Communications, Inc. Wts.,
Exp. 9/15/05 1,5                                           5,940              59
- --------------------------------------------------------------------------------
ICO Global Communication
Holdings Ltd. Wts.:
Exp. 5/16/06 1,5                                          10,561              53
Exp. 5/16/06 1,5                                              16              --
- --------------------------------------------------------------------------------
Imperial Credit Industries, Inc. Wts.,
Exp. 1/31/08 1,5                                           5,148              --
- --------------------------------------------------------------------------------
Insilco Corp. Wts., Exp. 8/15/07 1,5                         765              --
- --------------------------------------------------------------------------------
iPCS, Inc. Wts., Exp. 6/15/10 1,5                            750               8
- --------------------------------------------------------------------------------
Leap Wireless International, Inc. Wts.,
Exp. 4/15/10 1,5                                             550               6
- --------------------------------------------------------------------------------
Long Distance International, Inc. Wts.,
Exp. 4/13/08 1,5                                             800              --
- --------------------------------------------------------------------------------
Loral Space & Communications Ltd. Wts.,
Exp. 1/15/07 1,5                                             800               8
- --------------------------------------------------------------------------------
McLeodUSA, Inc. Wts., Exp. 4/16/07 5                       7,220           1,516
- --------------------------------------------------------------------------------
Millenium Seacarriers, Inc. Wts.,
Exp. 7/15/05 1,5                                           1,500              15
- --------------------------------------------------------------------------------
Ntelos, Inc. Wts., Exp. 8/15/10 1,5                        1,000              10
- --------------------------------------------------------------------------------
Pathmark Stores, Inc. Wts., Exp. 9/19/10 5                20,000           4,000
- --------------------------------------------------------------------------------
Protection One, Inc. Wts., Exp. 6/30/05 1,5                1,600              --
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. Wts.,
Exp. 12/19/08 1,5                                            647           3,017
- --------------------------------------------------------------------------------
Transocean, Inc. Wts., Exp. 5/1/09 3,5                     1,000         453,125
- --------------------------------------------------------------------------------
XO Communications, Inc., Cl. A Wts.,
Exp. 1/16/10 5                                             5,300           3,578
- --------------------------------------------------------------------------------
XO Communications, Inc., Cl. B Wts.,
Exp. 1/16/10 5                                             3,975           1,908
- --------------------------------------------------------------------------------
XO Communications, Inc., Cl. C Wts.,
Exp. 1/16/10 5                                             3,975           1,550
                                                                   -------------
Total Rights, Warrants and Certificates
(Cost $256,478)                                                        1,284,277

                                                       PRINCIPAL
                                                          AMOUNT
- --------------------------------------------------------------------------------
STRUCTURED NOTES--7.9%
- --------------------------------------------------------------------------------
Bear Stearns Cos., Inc. (The), High
Yield Index Linked Nts., 0%, 5/8/05 8              $   6,000,000       6,128,400
- --------------------------------------------------------------------------------
Dow Jones CDX High Yield Index
Pass-Through Certificates:
Series 3-1, 7.75%, 12/29/09 3,11                      11,000,000      11,323,125
Series 3-3, 8%, 12/29/09 3,11                         17,400,000      17,867,625
Series 3-4, 10.50%, 12/29/09 3,11                     11,500,000      11,765,938

                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.,
High Yield Targeted Return Index
Securities, Series 2004-1,
8.218%, 8/1/15 1,10,11                             $     953,488   $   1,063,481
                                                                   -------------
Total Structured Notes (Cost $46,981,804)                             48,148,569

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--9.6%
- --------------------------------------------------------------------------------
Undivided interest of 4.07% in joint repurchase
agreement (Principal Amount/Value
$1,443,703,000, with a maturity value of
$1,443,962,867) with UBS Warburg LLC, 2.16%,
dated 12/31/04, to be repurchased at $58,766,576
on 1/3/05, collateralized by Federal National
Mortgage Assn., 5%--6%, 4/1/34--10/1/34, with a
value of $1,474,609,071 (Cost $58,756,000)            58,756,000      58,756,000

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $571,908,681)                                         98.2%    602,175,363
- --------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES                              1.8      11,242,358
                                                   -----------------------------
NET ASSETS                                                 100.0%  $ 613,417,721
                                                   =============================

FOOTNOTES TO STATEMENT OF INVESTMENTS

PRINCIPAL AMOUNT IS REPORTED IN U.S. DOLLARS, EXCEPT FOR THOSE DENOTED IN THE
FOLLOWING CURRENCY:

EUR   EURO

1. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of December 31, 2004 was $23,784,798, which represents
3.88% of the Fund's net assets, of which $691 is considered restricted. See Note
8 of Notes to Financial Statements.

2. Represents the current interest rate for a variable or increasing 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 $132,039,023 or 21.53% of the Fund's net
assets as of December 31, 2004.

4. Issue is in default. See Note 1 of Notes to Financial Statements.

5. Non-income producing security.

6. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.

7. Interest or dividend is paid-in-kind.

8. Zero coupon bond reflects effective yield on the date of purchase.

9. When-issued security or forward commitment to be delivered and settled after
December 31, 2004. See Note 1 of Notes to Financial Statements.

10. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts with an aggregate
market value of $363,592. See Note 6 of Notes to Financial Statements.

11. Interest rate represents a weighted average rate comprised of the interest
rates of the underlying securities.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Investments, at value (cost $571,908,681)--see accompanying statement of investments                     $ 602,175,363
- -----------------------------------------------------------------------------------------------------------------------
Cash                                                                                                         1,323,413
- -----------------------------------------------------------------------------------------------------------------------
Cash--foreign currencies (cost $5,025)                                                                           5,025
- -----------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest, dividends and principal paydowns                                                                   9,052,296
Shares of beneficial interest sold                                                                           1,245,171
Investments sold                                                                                               225,785
Other                                                                                                            8,576
                                                                                                         --------------
Total assets                                                                                               614,035,629

- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts                                                                       90,514
- -----------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased on a when-issued basis or forward commitment                                             220,000
Shares of beneficial interest redeemed                                                                         153,752
Distribution and service plan fees                                                                              77,618
Shareholder communications                                                                                      26,663
Trustees' compensation                                                                                          12,530
Futures margins                                                                                                  5,000
Transfer and shareholder servicing agent fees                                                                    1,733
Other                                                                                                           30,098
                                                                                                         --------------
Total liabilities                                                                                              617,908

- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS                                                                                               $ 613,417,721
                                                                                                         ==============

- -----------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                                               $      69,751
- -----------------------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                                                 656,159,098
- -----------------------------------------------------------------------------------------------------------------------
Accumulated net investment income                                                                           37,454,171
- -----------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions                            (110,525,544)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities denominated in
 foreign currencies                                                                                         30,260,245
                                                                                                         --------------
NET ASSETS                                                                                               $ 613,417,721
                                                                                                         ==============

- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- -----------------------------------------------------------------------------------------------------------------------
Non-Service shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $479,405,199 and 54,454,794 shares of beneficial interest outstanding)           $        8.80
- -----------------------------------------------------------------------------------------------------------------------
Service shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $134,012,522 and 15,296,009 shares of beneficial interest outstanding)           $        8.76


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------
INVESTMENT INCOME
- ---------------------------------------------------------------------------------------
Interest (net of foreign withholding taxes of $617)                       $ 43,139,671
- ---------------------------------------------------------------------------------------
Portfolio lending fees                                                           6,683
                                                                          -------------
Total investment income                                                     43,146,354

- ---------------------------------------------------------------------------------------
EXPENSES
- ---------------------------------------------------------------------------------------
Management fees                                                              4,058,869
- ---------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares                             253,266
- ---------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares                                                              10,157
Service shares                                                                  10,042
- ---------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares                                                              52,908
Service shares                                                                  12,135
- ---------------------------------------------------------------------------------------
Custodian fees and expenses                                                     19,333
- ---------------------------------------------------------------------------------------
Trustees' compensation                                                          16,825
- ---------------------------------------------------------------------------------------
Other                                                                           56,941
                                                                          -------------
Total expenses                                                               4,490,476
Less reduction to custodian expenses                                           (14,793)
                                                                          -------------
Net expenses                                                                 4,475,683

- ---------------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                       38,670,671

- ---------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ---------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments                                                                   (613,058)
Closing of futures contracts                                                    64,322
Foreign currency transactions                                                  327,659
Swap contracts                                                                (461,773)
                                                                          -------------
Net realized loss                                                             (682,850)
- ---------------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments                                                                 10,248,803
Translation of assets and liabilities denominated in foreign currencies         45,315
Futures contracts                                                               76,370
Swap contracts                                                                 (90,514)
                                                                          -------------
Net change in unrealized appreciation                                       10,279,974

- ---------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                      $ 48,267,795
                                                                          =============


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                                               2004           2003
- --------------------------------------------------------------------------------------------------------------------------

OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income                                                                         $ 38,670,671   $ 36,198,271
- --------------------------------------------------------------------------------------------------------------------------
Net realized loss                                                                                 (682,850)    (3,373,657)
- --------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)                                            10,279,974     60,265,270
                                                                                              ----------------------------
Net increase in net assets resulting from operations                                            48,267,795     93,089,884

- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares                                                                             (29,416,204)   (26,819,814)
Service shares                                                                                  (5,469,874)    (1,672,018)

- --------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest transactions:
Non-Service shares                                                                             (10,547,360)    76,658,765
Service shares                                                                                  54,117,983     51,833,851

- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
Total increase                                                                                  56,952,340    193,090,668
- --------------------------------------------------------------------------------------------------------------------------
Beginning of period                                                                            556,465,381    363,374,713
                                                                                              ----------------------------
End of period (including accumulated net investment income of $37,454,171 and
$33,660,739, respectively)                                                                    $613,417,721   $556,465,381
                                                                                              ============================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,                2004            2003            2002            2001            2000
- ----------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period              $        8.61     $      7.51     $      8.54     $      9.27     $     10.72
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                       .58 1           .60             .58             .84            1.00
Net realized and unrealized gain (loss)                     .15            1.09            (.76)           (.62)          (1.36)
                                                  --------------------------------------------------------------------------------
Total from investment operations                            .73            1.69            (.18)            .22            (.36)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                       (.54)           (.59)           (.85)           (.95)          (1.09)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                    $        8.80     $      8.61     $      7.51     $      8.54     $      9.27
                                                  ================================================================================

- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                         8.97%          23.96%          (2.40)%          1.97%          (3.74)%
- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)          $     479,405     $   480,112     $   345,670     $   344,788     $   333,533
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                 $     460,877     $   396,858     $   335,894     $   347,723     $   329,260
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                      6.91%           8.31%           8.29%           9.94%          10.47%
Total expenses                                             0.75% 4         0.76% 4         0.77% 4         0.79% 4         0.79% 4
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                      51%             48%             75%             46%             31%


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


            23 | OPPENHEIMER HIGH INCOME FUND/VA


FINANCIAL HIGHLIGHTS  Continued
- --------------------------------------------------------------------------------

SERVICE SHARES  YEAR ENDED DECEMBER 31,                   2004             2003             2002             2001 1
- ----------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period              $       8.58     $       7.49     $       8.54       $       8.40
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                      .56 2            .61              .88                .20
Net realized and unrealized gain (loss)                    .15             1.06            (1.08)              (.06)
                                                  --------------------------------------------------------------------
Total from investment operations                           .71             1.67             (.20)               .14
- ----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                      (.53)            (.58)            (.85)                --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                    $       8.76     $       8.58     $       7.49       $       8.54
                                                  ====================================================================

- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                        8.73%           23.79%           (2.67)%             1.67%
- ----------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)          $    134,013     $     76,354     $     17,705       $          3
- ----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                 $    101,464     $     41,246     $      5,602       $          2
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                     6.63%            7.84%            8.91%             12.51%
Total expenses                                            1.01% 5          1.04% 5          1.02% 5,6          0.96% 5
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                     51%              48%              75%                46%


1. For the period from September 18, 2001 (inception of offering) to December
31, 2001.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

6. Voluntary waiver of transfer agent fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer High Income Fund/VA (the Fund) is a separate series of Oppenheimer
Variable Account Funds (the Trust), an 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 investment
in high-yield fixed-income securities. The Trust's investment advisor is
OppenheimerFunds, Inc. (the Manager).

      The Fund offers two classes of shares. Both classes are sold at their
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products. The class of shares designated as Service shares is subject to a
distribution and service plan. Both classes of shares have identical rights and
voting privileges with respect to the Fund in general and exclusive voting
rights on matters that affect that class alone. Earnings, net assets and net
asset value per share may differ due to each class having its own expenses, such
as transfer and shareholder servicing agent fees and shareholder communications,
directly attributable to that class.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in structured notes whose market values,
interest rates and/or redemption prices are linked to the performance of
underlying foreign currencies, interest rate spreads, stock market indices,
prices of individual securities, commodities or other financial instruments or
the occurrence of other specific events. The structured notes are often
leveraged, increasing the volatility of each note's market value relative to the
change in the underlying linked financial element or event. Fluctuations in
value of these securities are recorded as unrealized gains and losses in the
accompanying financial statements. The Fund records a realized gain or loss when
a structured note is sold or matures. As of December 31, 2004, the market value
of these securities comprised 7.9% of the Fund's net assets and resulted in
unrealized cumulative gains of $1,166,765.

- --------------------------------------------------------------------------------
SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment
for securities that have been purchased by the Fund on a when-issued basis or
forward commitment can take place up to ten days or more after the trade date.
Normally the settlement date occurs within six months after the trade date;
however, the Fund may, from time to time, purchase securities whose settlement
date extends six months or more beyond trade 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
internally designated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a when-issued
basis or forward





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

commitment may increase the volatility of the Fund's net asset value to the
extent the Fund executes such transactions while remaining substantially fully
invested. The Fund may also sell securities that it purchased on a when-issued
basis or forward commitment prior to settlement of the original purchase. As of
December 31, 2004, the Fund had purchased $220,000 of securities on a
when-issued basis or forward commitment.

- --------------------------------------------------------------------------------
SECURITY CREDIT RISK. The Fund invests in high-yield securities, which may be
subject to a greater degree of credit risk, market fluctuations and loss of
income and principal, and may be more sensitive to economic conditions than
lower-yielding, higher-rated fixed-income securities. The Fund may acquire
securities in default, and is not obligated to dispose of securities whose
issuers subsequently default. As of December 31, 2004, securities with an
aggregate market value of $6,822,262, representing 1.11% of the Fund's net
assets, were in default.

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

      Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

      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.

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.

- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.




                                                                 NET UNREALIZED
                                                                   APPRECIATION
                                                               BASED ON COST OF
                                                                 SECURITIES AND
 UNDISTRIBUTED     UNDISTRIBUTED             ACCUMULATED      OTHER INVESTMENTS
 NET INVESTMENT        LONG-TERM                    LOSS     FOR FEDERAL INCOME
 INCOME                     GAIN    CARRYFORWARD 1,2,3,4           TAX PURPOSES
 ------------------------------------------------------------------------------
 $37,883,370                 $--            $108,492,664            $28,050,771

1. As of December 31, 2004, the Fund had $107,323,569 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of December 31, 2004,
details of the capital loss carryforwards were as follows:

                          EXPIRING
                          -------------------------
                          2006        $   3,401,577
                          2007            4,933,260
                          2008           11,572,833
                          2009           22,696,701
                          2010           56,061,391
                          2011            8,529,303
                          2012              128,504
                                      -------------
                          Total       $ 107,323,569
                                      =============

2. As of December 31, 2004, the Fund had $1,169,095 of post-October losses
available to offset future realized capital gains, if any. Such losses, if
unutilized, will expire in 2013.

3. During the fiscal year ended December 31, 2004, the Fund did not utilize any
capital loss carryforward.

4. During the fiscal year ended December 31, 2003, the Fund did not utilize any
capital loss carryforward.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

      INCREASE TO                         INCREASE TO
      ACCUMULATED                     ACCUMULATED NET
      NET INVESTMENT                    REALIZED LOSS
      INCOME                           ON INVESTMENTS
      -----------------------------------------------
      $8,839                                   $8,839

The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:

                                         YEAR ENDED              YEAR ENDED
                                  DECEMBER 31, 2004       DECEMBER 31, 2003
   ------------------------------------------------------------------------
   Distributions paid from:
   Ordinary income                      $34,886,078             $28,491,832

The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

            Federal tax cost of securities           $  573,928,234
            Federal tax cost of other investments         6,176,172
                                                     ---------------
            Total federal tax cost                   $  580,104,406
                                                     ===============

            Gross unrealized appreciation            $   42,282,791
            Gross unrealized depreciation               (14,232,020)
                                                     ---------------
            Net unrealized appreciation              $   28,050,771
                                                     ===============




NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.

- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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 $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:

                                                     YEAR ENDED DECEMBER 31, 2004       YEAR ENDED DECEMBER 31, 2003
                                                         SHARES            AMOUNT           SHARES            AMOUNT
- ---------------------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                                                 23,243,919     $ 196,620,675       28,774,062     $ 229,684,313
Dividends and/or distributions reinvested             3,591,722        29,416,204        3,719,807        26,819,814
Redeemed                                            (28,128,136)     (236,584,239)     (22,801,608)     (179,845,362)
                                                   ------------------------------------------------------------------
Net increase (decrease)                              (1,292,495)    $ (10,547,360)       9,692,261     $  76,658,765
                                                   ==================================================================


                                                     YEAR ENDED DECEMBER 31, 2004       YEAR ENDED DECEMBER 31, 2003
                                                         SHARES            AMOUNT           SHARES            AMOUNT
- ---------------------------------------------------------------------------------------------------------------------

SERVICE SHARES
Sold                                                 12,247,468     $ 103,415,502       13,073,333     $ 104,602,083
Dividends and/or distributions reinvested               669,507         5,469,874          232,224         1,672,018
Redeemed                                             (6,517,361)      (54,767,393)      (6,772,325)      (54,440,250)
                                                   ------------------------------------------------------------------
Net increase                                          6,399,614     $  54,117,983        6,533,232     $  51,833,851
                                                   ==================================================================


- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended December 31, 2004, were
$314,901,839 and $240,904,813, respectively.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million, 0.60% on the next $200 million and 0.50% of average annual
net assets over $1 billion.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$20,130 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 per class for class level assets of $10
million or more. Each class is subject to the minimum fee in the event that the
per account fee does not equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FOR SERVICE SHARES. The Fund has adopted a
Distribution and Service Plan for Service shares to pay OppenheimerFunds
Distributor, Inc. (the Distributor), for distribution related services and
personal service and account maintenance for the Fund's Service shares. Under
the Plan, payments are made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Service shares of the Fund. The Distributor
currently uses all of those fees to compensate sponsor(s) of the insurance
product that offers Fund shares, for providing personal service and maintenance
of accounts of their variable contract owners that hold Service shares. The
impact of the service plan is to increase operating expenses of the Service
shares, which results in lower performance compared to the Fund's shares that
are not subject to a service fee. Fees incurred by the Fund under the Plan are
detailed in the Statement of Operations.

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. OFS has voluntarily agreed to limit transfer
and shareholder servicing agent fees for all classes to 0.35% of average annual
net assets per class. This undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.




NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS Continued

      The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.

      The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.

      As of December 31, 2004, the Fund had no outstanding foreign currency
contracts.

- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS

A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value of stocks and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.

      The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying securities.

      Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.

      Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported in the Statement of Operations.

      Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.

As of December 31, 2004, the Fund had outstanding futures contracts as follows:

                                    EXPIRATION    NUMBER OF     VALUATION AS OF     UNREALIZED
CONTRACT DESCRIPTION                      DATE    CONTRACTS   DECEMBER 31, 2004   APPRECIATION
- ----------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
Standard & Poor's 500 Index            3/17/05           20          $6,068,500        $82,250


- --------------------------------------------------------------------------------
7. INTEREST RATE SWAP CONTRACTS

The Fund may enter into an interest rate swap transaction to maintain a total
return or yield spread on a particular investment, or portion of its portfolio,
or for other non-speculative purposes. Interest rate swaps involve the exchange
of commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The coupon payments are based on an agreed
upon principal amount and a specified index. Because the principal amount





is not exchanged, it represents neither an asset nor a liability to either
counterparty, and is referred to as notional. The Fund records an increase or
decrease to unrealized gain (loss), in the amount due to or owed by the Fund at
termination or settlement.

      Interest rate swaps are subject to credit risk (if the counterparty fails
to meet its obligations) and interest rate risk. The Fund could be obligated to
pay more under its swap agreements than it receives under them, as a result of
interest rate changes.

As of December 31, 2004, the Fund had entered into the following interest rate
swap agreements:

                                           FIXED RATE    FLOATING RATE
                                              PAID BY      RECEIVED BY
                             NOTIONAL     THE FUND AT      THE FUND AT       FLOATING   TERMINATION      UNREALIZED
SWAP COUNTERPARTY              AMOUNT   DEC. 31, 2004    DEC. 31, 2004     RATE INDEX          DATE    DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------

                                                                          Three-Month
Deutshe Bank AG           $20,000,000           4.11%            2.41%     LIBOR flat       12/2/09         $90,514


Index abbreviation is as follows:
LIBOR London-Interbank Offered Rate

- --------------------------------------------------------------------------------
8. ILLIQUID OR RESTRICTED SECURITIES

As of December 31, 2004, investments in securities included issues that are
illiquid or restricted. Restricted securities are purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund will not invest more than 15% of
its net assets (determined at the time of purchase and reviewed periodically) in
illiquid or restricted securities. Certain restricted securities, eligible for
resale to qualified institutional investors, are not subject to that limitation.
Information concerning restricted securities is as follows:

                       Acquisition                    Valuation as of       Unrealized
Security                     Dates         Cost     December 31, 2004     Depreciation
- --------------------------------------------------------------------------------------

Prandium, Inc.     3/19/99-7/19/02     $738,000                  $691         $737,309


- --------------------------------------------------------------------------------
9. SECURITIES LENDING

The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund also continues to receive
interest or dividends paid on the securities loaned. As of December 31, 2004,
the Fund had no securities on loan.

- --------------------------------------------------------------------------------
10. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,



NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
10. LITIGATION Continued

consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER MAIN STREET FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Main Street Fund/VA, a series of Oppenheimer Variable Account Funds,
including the statement of investments, as of December 31, 2004, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Main Street Fund/VA as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005


STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------

                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

COMMON STOCKS--98.8%
- --------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--12.4%
- --------------------------------------------------------------------------------------
AUTO COMPONENTS--0.2%
Aftermarket Technology Corp. 1                                  252   $         4,057
- --------------------------------------------------------------------------------------
ArvinMeritor, Inc.                                            9,900           221,463
- --------------------------------------------------------------------------------------
Autoliv, Inc.                                                27,400         1,323,420
- --------------------------------------------------------------------------------------
Dana Corp.                                                   65,200         1,129,916
- --------------------------------------------------------------------------------------
Delphi Corp.                                                 16,100           145,222
- --------------------------------------------------------------------------------------
Goodyear Tire & Rubber Co. 1                                 53,600           785,776
- --------------------------------------------------------------------------------------
Lear Corp.                                                    1,800           109,818
- --------------------------------------------------------------------------------------
Visteon Corp.                                                26,800           261,836
                                                                      ----------------
                                                                            3,981,508

- --------------------------------------------------------------------------------------
AUTOMOBILES--0.5%
Ford Motor Co.                                              254,415         3,724,636
- --------------------------------------------------------------------------------------
General Motors Corp.                                         42,900         1,718,574
- --------------------------------------------------------------------------------------
Harley-Davidson, Inc.                                        42,800         2,600,100
- --------------------------------------------------------------------------------------
Thor Industries, Inc.                                         3,400           125,970
- --------------------------------------------------------------------------------------
Winnebago Industries, Inc.                                    9,700           378,882
                                                                      ----------------
                                                                            8,548,162

- --------------------------------------------------------------------------------------
DISTRIBUTORS--0.0%
Genuine Parts Co.                                             7,700           339,262
- --------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--1.3%
Applebee's International, Inc.                               12,100           320,045
- --------------------------------------------------------------------------------------
Aztar Corp. 1                                                 2,900           101,268
- --------------------------------------------------------------------------------------
Caesars Entertainment, Inc. 1                                45,900           924,426
- --------------------------------------------------------------------------------------
CBRL Group, Inc.                                             19,900           832,815
- --------------------------------------------------------------------------------------
CEC Entertainment, Inc. 1                                    24,300           971,271
- --------------------------------------------------------------------------------------
Choice Hotels International, Inc.                             3,300           191,400
- --------------------------------------------------------------------------------------
Darden Restaurants, Inc.                                      7,700           213,598
- --------------------------------------------------------------------------------------
International Game Technology                                74,900         2,575,062
- --------------------------------------------------------------------------------------
Isle of Capri Casinos, Inc. 1                                 1,500            38,475
- --------------------------------------------------------------------------------------
Jack in the Box, Inc. 1                                       5,400           199,098
- --------------------------------------------------------------------------------------
Mandalay Resort Group                                        19,600         1,380,428
- --------------------------------------------------------------------------------------
Marriott International, Inc., Cl. A                          48,300         3,041,934
- --------------------------------------------------------------------------------------
McDonald's Corp.                                            159,350         5,108,761
- --------------------------------------------------------------------------------------
MGM Mirage, Inc. 1                                            7,700           560,098
- --------------------------------------------------------------------------------------
P.F. Chang's China Bistro, Inc. 1                             2,700           152,145
- --------------------------------------------------------------------------------------
Rare Hospitality International, Inc. 1                        7,000           223,020
- --------------------------------------------------------------------------------------
Sonic Corp. 1                                                 2,800            85,400
- --------------------------------------------------------------------------------------
Starbucks Corp. 1                                            26,300         1,640,068
- --------------------------------------------------------------------------------------
Yum! Brands, Inc.                                            37,700         1,778,686
                                                                      ----------------
                                                                           20,337,998


                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

HOUSEHOLD DURABLES--0.8%
American Greetings Corp., Cl. A                              21,700   $       550,095
- --------------------------------------------------------------------------------------
Beazer Homes USA, Inc.                                        2,100           307,041
- --------------------------------------------------------------------------------------
Black & Decker Corp.                                         14,700         1,298,451
- --------------------------------------------------------------------------------------
Cavco Industries, Inc. 1                                        815            36,634
- --------------------------------------------------------------------------------------
Ethan Allen Interiors, Inc.                                  10,100           404,202
- --------------------------------------------------------------------------------------
Furniture Brands International, Inc.                          6,700           167,835
- --------------------------------------------------------------------------------------
Harman International Industries, Inc.                         5,200           660,400
- --------------------------------------------------------------------------------------
Hovnanian Enterprises, Inc., Cl. A  1                         1,700            84,184
- --------------------------------------------------------------------------------------
KB Home                                                      11,800         1,231,920
- --------------------------------------------------------------------------------------
Leggett & Platt, Inc.                                        23,400           665,262
- --------------------------------------------------------------------------------------
Lennar Corp., Cl. B                                           9,160           478,244
- --------------------------------------------------------------------------------------
M.D.C. Holdings, Inc.                                        13,133         1,135,217
- --------------------------------------------------------------------------------------
Meritage Homes Corp. 1                                        8,200           924,140
- --------------------------------------------------------------------------------------
Newell Rubbermaid, Inc.                                      70,000         1,693,300
- --------------------------------------------------------------------------------------
NVR, Inc. 1                                                     800           615,520
- --------------------------------------------------------------------------------------
Ryland Group, Inc. (The)                                     13,600           782,544
- --------------------------------------------------------------------------------------
Stanley Works (The)                                          11,800           578,082
- --------------------------------------------------------------------------------------
Whirlpool Corp.                                               8,800           609,048
                                                                      ----------------
                                                                           12,222,119

- --------------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--0.7%
Amazon.com, Inc. 1                                           24,400         1,080,676
- --------------------------------------------------------------------------------------
eBay, Inc. 1                                                 71,000         8,255,880
- --------------------------------------------------------------------------------------
IAC/InterActiveCorp 1                                        94,400         2,607,328
                                                                      ----------------
                                                                           11,943,884

- --------------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--0.2%
Action Performance Cos., Inc.                                31,100           341,789
- --------------------------------------------------------------------------------------
Eastman Kodak Co.                                            17,500           564,375
- --------------------------------------------------------------------------------------
Hasbro, Inc.                                                 33,800           655,044
- --------------------------------------------------------------------------------------
Leapfrog Enterprises, Inc. 1                                  3,000            40,800
- --------------------------------------------------------------------------------------
Marvel Enterprises, Inc. 1                                   18,200           372,736
- --------------------------------------------------------------------------------------
Nautilus Group, Inc. (The)                                    7,400           178,858
- --------------------------------------------------------------------------------------
Polaris Industries, Inc.                                      5,600           380,912
- --------------------------------------------------------------------------------------
SCP Pool Corp.                                                5,600           178,640
                                                                      ----------------
                                                                            2,713,154

- --------------------------------------------------------------------------------------
MEDIA--3.7%
Charter Communications, Inc., Cl. A 1                       169,900           380,576
- --------------------------------------------------------------------------------------
Clear Channel Communications, Inc.                           76,700         2,568,683
- --------------------------------------------------------------------------------------
Comcast Corp., Cl. A 1                                      388,115        12,916,467
- --------------------------------------------------------------------------------------
EchoStar Communications Corp.,
Cl. A                                                        40,100         1,332,924
- --------------------------------------------------------------------------------------
Fox Entertainment Group, Inc.,
A Shares 1                                                    2,800            87,528
- --------------------------------------------------------------------------------------
Gannett Co., Inc.                                             7,300           596,410
- --------------------------------------------------------------------------------------
Getty Images, Inc. 1                                          8,000           550,800



                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

MEDIA Continued
Knight-Ridder, Inc.                                           9,700   $       649,318
- --------------------------------------------------------------------------------------
Martha Stewart Living Omnimedia,
Inc., Cl. A 1                                                15,300           444,006
- --------------------------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The)                                 39,000         3,570,060
- --------------------------------------------------------------------------------------
NTL, Inc. 1                                                   4,000           291,840
- --------------------------------------------------------------------------------------
Pixar, Inc. 1                                                 1,600           136,976
- --------------------------------------------------------------------------------------
Time Warner, Inc. 1                                         794,900        15,452,856
- --------------------------------------------------------------------------------------
Viacom, Inc., Cl. B                                         249,046         9,062,784
- --------------------------------------------------------------------------------------
Walt Disney Co. (The)                                       409,700        11,389,660
- --------------------------------------------------------------------------------------
Westwood One, Inc. 1                                         18,400           495,512
                                                                      ----------------
                                                                           59,926,400

- --------------------------------------------------------------------------------------
MULTILINE RETAIL--0.9%
Dillard's, Inc., Cl. A                                       23,600           634,132
- --------------------------------------------------------------------------------------
Federated Department Stores, Inc.                            43,800         2,531,202
- --------------------------------------------------------------------------------------
J.C. Penney Co., Inc. (Holding Co.)                          79,900         3,307,860
- --------------------------------------------------------------------------------------
Kmart Holding Corp. 1                                         9,900           979,605
- --------------------------------------------------------------------------------------
Kohl's Corp. 1                                                3,500           172,095
- --------------------------------------------------------------------------------------
Neiman Marcus Group, Inc.
(The), Cl. A                                                  1,500           107,310
- --------------------------------------------------------------------------------------
Nordstrom, Inc.                                              26,800         1,252,364
- --------------------------------------------------------------------------------------
Sears Roebuck & Co.                                          33,000         1,683,990
- --------------------------------------------------------------------------------------
Target Corp.                                                 69,300         3,598,749
                                                                      ----------------
                                                                           14,267,307

- --------------------------------------------------------------------------------------
SPECIALTY RETAIL--3.7%
Abercrombie & Fitch Co., Cl. A                               33,700         1,582,215
- --------------------------------------------------------------------------------------
Aeropostale, Inc. 1                                          23,000           676,890
- --------------------------------------------------------------------------------------
American Eagle Outfitters, Inc.                              29,300         1,380,030
- --------------------------------------------------------------------------------------
AnnTaylor Stores Corp. 1                                     21,600           465,048
- --------------------------------------------------------------------------------------
AutoNation, Inc. 1                                           16,200           311,202
- --------------------------------------------------------------------------------------
Barnes & Noble, Inc. 1                                       15,700           506,639
- --------------------------------------------------------------------------------------
bebe stores, inc.                                             4,650           125,457
- --------------------------------------------------------------------------------------
Bed Bath & Beyond, Inc. 1                                    36,700         1,461,761
- --------------------------------------------------------------------------------------
Best Buy Co., Inc.                                           41,700         2,477,814
- --------------------------------------------------------------------------------------
Blockbuster, Inc., Cl. B                                     56,956           501,782
- --------------------------------------------------------------------------------------
Borders Group, Inc.                                          45,100         1,145,540
- --------------------------------------------------------------------------------------
Children's Place Retail Stores, Inc. 1                        6,000           222,180
- --------------------------------------------------------------------------------------
Christopher & Banks Corp.                                     3,400            62,730
- --------------------------------------------------------------------------------------
Circuit City Stores, Inc./
Circuit City Group                                           93,500         1,462,340
- --------------------------------------------------------------------------------------
Claire's Stores, Inc.                                        42,400           901,000
- --------------------------------------------------------------------------------------
Electronics Boutique Holdings Corp. 1                         5,500           236,170
- --------------------------------------------------------------------------------------
Finish Line, Inc. (The), Cl. A                                7,600           139,080
- --------------------------------------------------------------------------------------
Gap, Inc. (The)                                             142,300         3,005,376
- --------------------------------------------------------------------------------------
Hollywood Entertainment Corp. 1                              11,200           146,608
- --------------------------------------------------------------------------------------
Home Depot, Inc.                                            442,100        18,895,354


                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

SPECIALTY RETAIL Continued
Hot Topic, Inc. 1                                            13,100   $       225,189
- --------------------------------------------------------------------------------------
Limited Brands, Inc.                                        107,400         2,472,348
- --------------------------------------------------------------------------------------
Lowe's Cos., Inc.                                            65,600         3,777,904
- --------------------------------------------------------------------------------------
Men's Wearhouse, Inc. (The) 1                                 5,300           169,388
- --------------------------------------------------------------------------------------
Michaels Stores, Inc.                                        35,000         1,048,950
- --------------------------------------------------------------------------------------
Office Depot, Inc. 1                                         77,900         1,352,344
- --------------------------------------------------------------------------------------
Pacific Sunwear of California, Inc. 1                        43,775           974,432
- --------------------------------------------------------------------------------------
Petco Animal Supplies, Inc. 1                                 3,500           138,180
- --------------------------------------------------------------------------------------
PETsMART, Inc.                                                9,500           337,535
- --------------------------------------------------------------------------------------
Pier 1 Imports, Inc.                                          1,400            27,580
- --------------------------------------------------------------------------------------
Rent-A-Center, Inc. 1                                         4,200           111,300
- --------------------------------------------------------------------------------------
Sherwin-Williams Co.                                         25,000         1,115,750
- --------------------------------------------------------------------------------------
Staples, Inc.                                               126,500         4,264,315
- --------------------------------------------------------------------------------------
Talbots, Inc. (The)                                          20,100           547,323
- --------------------------------------------------------------------------------------
Tiffany & Co.                                                19,200           613,824
- --------------------------------------------------------------------------------------
TJX Cos., Inc. (The)                                        129,500         3,254,335
- --------------------------------------------------------------------------------------
Too, Inc. 1                                                  12,800           313,088
- --------------------------------------------------------------------------------------
Toys R Us, Inc. 1                                            69,100         1,414,477
- --------------------------------------------------------------------------------------
Urban Outfitters, Inc. 1                                      7,800           346,320
- --------------------------------------------------------------------------------------
Zale Corp. 1                                                 23,500           701,945
                                                                      ----------------
                                                                           58,911,743

- --------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--0.4%
Coach, Inc. 1                                                19,000         1,071,600
- --------------------------------------------------------------------------------------
Deckers Outdoor Corp. 1                                       2,000            93,980
- --------------------------------------------------------------------------------------
Jones Apparel Group, Inc.                                    29,000         1,060,530
- --------------------------------------------------------------------------------------
Nike, Inc., Cl. B                                            19,000         1,723,110
- --------------------------------------------------------------------------------------
Timberland Co., Cl. A 1                                      19,400         1,215,798
- --------------------------------------------------------------------------------------
VF Corp.                                                     15,500           858,390
                                                                      ----------------
                                                                            6,023,408

- --------------------------------------------------------------------------------------
CONSUMER STAPLES--8.7%
- --------------------------------------------------------------------------------------
BEVERAGES--2.3%
Anheuser-Busch Cos., Inc.                                    49,600         2,516,208
- --------------------------------------------------------------------------------------
Brown-Forman Corp., Cl. B                                     2,200           107,096
- --------------------------------------------------------------------------------------
Coca-Cola Co. (The)                                         360,800        15,020,104
- --------------------------------------------------------------------------------------
Pepsi Bottling Group, Inc. (The)                             43,100         1,165,424
- --------------------------------------------------------------------------------------
PepsiAmericas, Inc.                                           3,500            74,340
- --------------------------------------------------------------------------------------
PepsiCo, Inc.                                               352,150        18,382,230
                                                                      ----------------
                                                                           37,265,402

- --------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--2.3%
BJ's Wholesale Club, Inc. 1                                  20,500           597,165
- --------------------------------------------------------------------------------------
Costco Wholesale Corp.                                       47,000         2,275,270
- --------------------------------------------------------------------------------------
Kroger Co. (The) 1                                           41,700           731,418
- --------------------------------------------------------------------------------------
Rite Aid Corp. 1                                             76,700           280,722



STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

FOOD & STAPLES RETAILING Continued
Safeway, Inc. 1                                              33,400   $       659,316
- --------------------------------------------------------------------------------------
SUPERVALU, Inc.                                              30,800         1,063,216
- --------------------------------------------------------------------------------------
Sysco Corp.                                                 106,500         4,065,105
- --------------------------------------------------------------------------------------
Wal-Mart Stores, Inc.                                       435,000        22,976,700
- --------------------------------------------------------------------------------------
Walgreen Co.                                                 91,300         3,503,181
- --------------------------------------------------------------------------------------
Whole Foods Market, Inc.                                      4,000           381,400
                                                                      ----------------
                                                                           36,533,493

- --------------------------------------------------------------------------------------
FOOD PRODUCTS--0.6%
Archer-Daniels-Midland Co.                                   40,300           899,093
- --------------------------------------------------------------------------------------
ConAgra Foods, Inc.                                          11,400           335,730
- --------------------------------------------------------------------------------------
Corn Products International, Inc.                             6,800           364,208
- --------------------------------------------------------------------------------------
Heinz (H.J.) Co.                                             81,000         3,158,190
- --------------------------------------------------------------------------------------
Kellogg Co.                                                   2,400           107,184
- --------------------------------------------------------------------------------------
Kraft Foods, Inc., Cl. A 1                                   41,500         1,477,815
- --------------------------------------------------------------------------------------
Pilgrim's Pride Corp., Cl. B                                  3,300           101,244
- --------------------------------------------------------------------------------------
Sara Lee Corp.                                              105,000         2,534,700
- --------------------------------------------------------------------------------------
Smithfield Foods, Inc. 1                                      1,400            41,426
- --------------------------------------------------------------------------------------
Tyson Foods, Inc., Cl. A                                     56,300         1,035,920
- --------------------------------------------------------------------------------------
Wm. Wrigley Jr. Co.                                           5,200           359,788
                                                                      ----------------
                                                                           10,415,298

- --------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--1.8%
Clorox Co. (The)                                              7,000           412,510
- --------------------------------------------------------------------------------------
Energizer Holdings, Inc. 1                                   10,800           536,652
- --------------------------------------------------------------------------------------
Kimberly-Clark Corp.                                         55,000         3,619,550
- --------------------------------------------------------------------------------------
Nu Skin Asia Pacific, Inc., Cl. A                            12,900           327,402
- --------------------------------------------------------------------------------------
Procter & Gamble Co. (The)                                  419,700        23,117,076
- --------------------------------------------------------------------------------------
Rayovac Corp. 1                                               7,200           220,032
                                                                      ----------------
                                                                           28,233,222

- --------------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.4%
Avon Products, Inc.                                          31,600         1,222,920
- --------------------------------------------------------------------------------------
Estee Lauder Cos., Inc. (The), Cl. A                         51,300         2,348,001
- --------------------------------------------------------------------------------------
Gillette Co.                                                 80,400         3,600,312
- --------------------------------------------------------------------------------------
NBTY, Inc. 1                                                  2,200            52,822
                                                                      ----------------
                                                                            7,224,055

- --------------------------------------------------------------------------------------
TOBACCO--1.3%
Altria Group, Inc.                                          327,500        20,010,250
- --------------------------------------------------------------------------------------
Reynolds American, Inc.                                       7,800           613,080
- --------------------------------------------------------------------------------------
UST, Inc.                                                    10,900           524,399
                                                                      ----------------
                                                                           21,147,729


                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

ENERGY--7.7%
- --------------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.5%
Atwood Oceanics, Inc. 1                                       3,000   $       156,300
- --------------------------------------------------------------------------------------
BJ Services Co.                                              17,200           800,488
- --------------------------------------------------------------------------------------
Cal Dive International, Inc. 1                               14,200           578,650
- --------------------------------------------------------------------------------------
Diamond Offshore Drilling, Inc.                              35,700         1,429,785
- --------------------------------------------------------------------------------------
Grant Prideco, Inc. 1                                        28,300           567,415
- --------------------------------------------------------------------------------------
Halliburton Co.                                              33,700         1,322,388
- --------------------------------------------------------------------------------------
Hydril Co. 1                                                  1,800            81,918
- --------------------------------------------------------------------------------------
Lone Star Technologies, Inc. 1                                7,600           254,296
- --------------------------------------------------------------------------------------
Oil States International, Inc. 1                             28,700           553,623
- --------------------------------------------------------------------------------------
Precision Drilling Corp. 1                                    6,300           397,092
- --------------------------------------------------------------------------------------
Pride International, Inc. 1                                  11,700           240,318
- --------------------------------------------------------------------------------------
Smith International, Inc. 1                                   6,900           375,429
- --------------------------------------------------------------------------------------
Universal Compression Holdings, Inc. 1                       13,600           474,776
                                                                      ----------------
                                                                            7,232,478

- --------------------------------------------------------------------------------------
OIL & GAS--7.2%
Amerada Hess Corp.                                           20,500         1,688,790
- --------------------------------------------------------------------------------------
Apache Corp.                                                 43,500         2,199,795
- --------------------------------------------------------------------------------------
Ashland, Inc.                                                 9,900           577,962
- --------------------------------------------------------------------------------------
Cabot Oil & Gas Corp., Cl. A                                  1,900            84,075
- --------------------------------------------------------------------------------------
Canadian Natural Resources Ltd.                              60,700         2,596,399
- --------------------------------------------------------------------------------------
Chesapeake Energy Corp.                                      47,500           783,750
- --------------------------------------------------------------------------------------
ChevronTexaco Corp.                                         304,000        15,963,040
- --------------------------------------------------------------------------------------
Cimarex Energy Co. 1                                         10,439           395,638
- --------------------------------------------------------------------------------------
ConocoPhillips                                               88,021         7,642,863
- --------------------------------------------------------------------------------------
Devon Energy Corp.                                           48,300         1,879,836
- --------------------------------------------------------------------------------------
El Paso Corp.                                                17,500           182,000
- --------------------------------------------------------------------------------------
EOG Resources, Inc.                                          19,300         1,377,248
- --------------------------------------------------------------------------------------
Exxon Mobil Corp.                                         1,106,516        56,720,010
- --------------------------------------------------------------------------------------
Forest Oil Corp. 1                                            8,000           253,760
- --------------------------------------------------------------------------------------
Frontier Oil Corp.                                          115,900         3,089,894
- --------------------------------------------------------------------------------------
General Maritime Corp. 1                                     12,600           503,370
- --------------------------------------------------------------------------------------
Houston Exploration Co. 1                                    12,500           703,875
- --------------------------------------------------------------------------------------
Kerr-McGee Corp.                                             12,300           710,817
- --------------------------------------------------------------------------------------
Murphy Oil Corp.                                              5,400           434,430
- --------------------------------------------------------------------------------------
Newfield Exploration Co. 1                                   14,500           856,225
- --------------------------------------------------------------------------------------
Noble Energy, Inc.                                           13,900           857,074
- --------------------------------------------------------------------------------------
Occidental Petroleum Corp.                                   31,900         1,861,684
- --------------------------------------------------------------------------------------
OMI Corp.                                                    28,700           483,595
- --------------------------------------------------------------------------------------
Paramount Resources Ltd. 1                                  155,200         3,484,439
- --------------------------------------------------------------------------------------
Patina Oil & Gas Corp.                                        6,900           258,750
- --------------------------------------------------------------------------------------
Petroleum Development Corp. 1                                 4,600           177,422
- --------------------------------------------------------------------------------------
Pioneer Natural Resources Co.                                 8,600           301,860
- --------------------------------------------------------------------------------------
Plains Exploration & Production Co. 1                         9,200           239,200


                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

OIL & GAS Continued
Premcor, Inc.                                                 5,400   $       227,718
- --------------------------------------------------------------------------------------
Southwestern Energy Co. 1                                     4,000           202,760
- --------------------------------------------------------------------------------------
Sunoco, Inc.                                                 20,800         1,699,568
- --------------------------------------------------------------------------------------
Talisman Energy, Inc.                                        91,000         2,456,996
- --------------------------------------------------------------------------------------
Teekay Shipping Corp.                                        14,100           593,751
- --------------------------------------------------------------------------------------
Tesoro Corp. 1                                               34,100         1,086,426
- --------------------------------------------------------------------------------------
Unocal Corp.                                                 43,400         1,876,616
- --------------------------------------------------------------------------------------
Valero Energy Corp.                                          27,200         1,234,880
- --------------------------------------------------------------------------------------
Vintage Petroleum, Inc.                                       7,400           167,906
- --------------------------------------------------------------------------------------
Williams Cos., Inc. (The)                                    34,800           566,892
                                                                      ----------------
                                                                          116,421,314

- --------------------------------------------------------------------------------------
FINANCIALS--21.7%
- --------------------------------------------------------------------------------------
CAPITAL MARKETS--0.4%
Bank of New York Co., Inc. (The)                            101,400         3,388,788
- --------------------------------------------------------------------------------------
Mellon Financial Corp.                                       29,800           927,078
- --------------------------------------------------------------------------------------
Northern Trust Corp.                                         27,700         1,345,666
                                                                      ----------------
                                                                            5,661,532

- --------------------------------------------------------------------------------------
COMMERCIAL BANKS--6.9%
Associated Banc-Corp.                                         3,400           112,914
- --------------------------------------------------------------------------------------
Astoria Financial Corp.                                      15,600           623,532
- --------------------------------------------------------------------------------------
Bank of America Corp.                                       800,402        37,610,890
- --------------------------------------------------------------------------------------
Banknorth Group, Inc.                                        34,400         1,259,040
- --------------------------------------------------------------------------------------
BB&T Corp.                                                   36,300         1,526,415
- --------------------------------------------------------------------------------------
Comerica, Inc.                                               44,900         2,739,798
- --------------------------------------------------------------------------------------
Compass Bancshares, Inc.                                      8,900           433,163
- --------------------------------------------------------------------------------------
Fifth Third Bancorp                                          39,200         1,853,376
- --------------------------------------------------------------------------------------
First Horizon National Corp.                                  4,900           211,239
- --------------------------------------------------------------------------------------
Golden West Financial Corp.                                  15,500           952,010
- --------------------------------------------------------------------------------------
Hibernia Corp., Cl. A                                        26,200           773,162
- --------------------------------------------------------------------------------------
Huntington Bancshares, Inc.                                  16,500           408,870
- --------------------------------------------------------------------------------------
Independence Community
Bank Corp.                                                   12,900           549,282
- --------------------------------------------------------------------------------------
Indymac Mortgage Holdings, Inc.                              10,900           375,505
- --------------------------------------------------------------------------------------
KeyCorp                                                      66,300         2,247,570
- --------------------------------------------------------------------------------------
M&T Bank Corp.                                               13,600         1,466,624
- --------------------------------------------------------------------------------------
National City Corp.                                          52,900         1,986,395
- --------------------------------------------------------------------------------------
North Fork Bancorporation, Inc.                              33,256           959,436
- --------------------------------------------------------------------------------------
PNC Financial Services Group, Inc.                           39,000         2,240,160
- --------------------------------------------------------------------------------------
R&G Financial Corp., Cl. B                                    2,500            97,200
- --------------------------------------------------------------------------------------
Regions Financial Corp.                                      21,605           768,922
- --------------------------------------------------------------------------------------
Silicon Valley Bancshares 1                                   5,200           233,064
- --------------------------------------------------------------------------------------
Sterling Financial Corp. (Western US)                         1,100            43,186
- --------------------------------------------------------------------------------------
SunTrust Banks, Inc.                                         42,300         3,125,124
- --------------------------------------------------------------------------------------
U.S. Bancorp                                                464,270        14,540,936


                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------


COMMERCIAL BANKS Continued
UnionBanCal Corp.                                            39,800   $     2,566,304
- --------------------------------------------------------------------------------------
Wachovia Corp.                                              245,200        12,897,520
- --------------------------------------------------------------------------------------
Washington Mutual, Inc.                                      41,100         1,737,708
- --------------------------------------------------------------------------------------
Webster Financial Corp.                                       6,700           339,288
- --------------------------------------------------------------------------------------
Wells Fargo & Co.                                           263,600        16,382,740
- --------------------------------------------------------------------------------------
Zions Bancorp                                                10,500           714,315
                                                                      ----------------
                                                                          111,775,688

- --------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--8.5%
Affiliated Managers Group, Inc. 1                            11,850           802,719
- --------------------------------------------------------------------------------------
American Capital Strategies Ltd.                             15,100           503,585
- --------------------------------------------------------------------------------------
American Express Co.                                        132,100         7,446,477
- --------------------------------------------------------------------------------------
Bear Stearns Cos., Inc. (The)                                34,900         3,570,619
- --------------------------------------------------------------------------------------
Capital One Financial Corp.                                  27,200         2,290,512
- --------------------------------------------------------------------------------------
Chicago Mercantile Exchange (The)                               400            91,480
- --------------------------------------------------------------------------------------
CIT Group, Inc.                                              34,000         1,557,880
- --------------------------------------------------------------------------------------
Citigroup, Inc.                                             967,088        46,594,300
- --------------------------------------------------------------------------------------
E*TRADE Financial Corp. 1                                    72,500         1,083,875
- --------------------------------------------------------------------------------------
Federated Investors, Inc., Cl. B                              5,500           167,200
- --------------------------------------------------------------------------------------
Franklin Resources, Inc.                                      7,900           550,235
- --------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The)                              20,400         2,122,416
- --------------------------------------------------------------------------------------
JPMorgan Chase & Co.                                        811,644        31,662,232
- --------------------------------------------------------------------------------------
Knight Trading Group, Inc. 1                                  2,500            27,375
- --------------------------------------------------------------------------------------
Legg Mason, Inc.                                              4,150           304,029
- --------------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.                               26,400         2,309,472
- --------------------------------------------------------------------------------------
MBNA Corp.                                                  168,100         4,738,739
- --------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc.                                   150,200         8,977,454
- --------------------------------------------------------------------------------------
Moody's Corp.                                                 5,900           512,415
- --------------------------------------------------------------------------------------
Morgan Stanley                                              236,100        13,108,272
- --------------------------------------------------------------------------------------
Principal Financial Group, Inc. (The)                        68,500         2,804,390
- --------------------------------------------------------------------------------------
Schwab (Charles) Corp.                                      219,400         2,624,024
- --------------------------------------------------------------------------------------
SEI Investments Co.                                           7,800           327,054
- --------------------------------------------------------------------------------------
SLM Corp.                                                    16,700           891,613
- --------------------------------------------------------------------------------------
State Street Corp.                                           20,800         1,021,696
- --------------------------------------------------------------------------------------
T. Rowe Price Group, Inc.                                    13,000           808,600
- --------------------------------------------------------------------------------------
WFS Financial, Inc.                                             400            20,312
                                                                      ----------------
                                                                          136,918,975

- --------------------------------------------------------------------------------------
INSURANCE--4.0%
ACE Ltd.                                                     28,000         1,197,000
- --------------------------------------------------------------------------------------
AFLAC, Inc.                                                  87,200         3,474,048
- --------------------------------------------------------------------------------------
Allmerica Financial Corp. 1                                   9,700           318,451
- --------------------------------------------------------------------------------------
Allstate Corp.                                              106,600         5,513,352
- --------------------------------------------------------------------------------------
AMBAC Financial Group, Inc.                                   3,400           279,242
- --------------------------------------------------------------------------------------
American Financial Group, Inc.                               11,800           369,458
- --------------------------------------------------------------------------------------
American International Group, Inc.                          451,540        29,652,632





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

INSURANCE Continued
AmerUs Group Co.                                              3,700   $       167,610
- --------------------------------------------------------------------------------------
Aon Corp.                                                    61,600         1,469,776
- --------------------------------------------------------------------------------------
Chubb Corp.                                                  12,400           953,560
- --------------------------------------------------------------------------------------
Cincinnati Financial Corp.                                   17,070           755,518
- --------------------------------------------------------------------------------------
Fidelity National Financial, Inc.                            39,659         1,811,227
- --------------------------------------------------------------------------------------
First American Corp. (The)                                   10,000           351,400
- --------------------------------------------------------------------------------------
Hartford Financial Services
Group, Inc. (The)                                            48,600         3,368,466
- --------------------------------------------------------------------------------------
Jefferson-Pilot Corp.                                         8,000           415,680
- --------------------------------------------------------------------------------------
LandAmerica Financial Group, Inc.                             7,900           426,047
- --------------------------------------------------------------------------------------
Lincoln National Corp.                                       29,600         1,381,728
- --------------------------------------------------------------------------------------
Loews Corp.                                                  24,300         1,708,290
- --------------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc.                                  31,100         1,023,190
- --------------------------------------------------------------------------------------
MBIA, Inc.                                                   15,700           993,496
- --------------------------------------------------------------------------------------
MetLife, Inc.                                                33,600         1,361,136
- --------------------------------------------------------------------------------------
Nationwide Financial Services,
Inc., Cl. A                                                  17,400           665,202
- --------------------------------------------------------------------------------------
Old Republic International Corp.                             10,400           263,120
- --------------------------------------------------------------------------------------
Progressive Corp.                                             7,300           619,332
- --------------------------------------------------------------------------------------
Reinsurance Group of America, Inc.                           22,000         1,065,900
- --------------------------------------------------------------------------------------
RenaissanceRe Holdings Ltd.                                   6,500           338,520
- --------------------------------------------------------------------------------------
Safeco Corp.                                                 21,300         1,112,712
- --------------------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The)                          17,400           645,018
- --------------------------------------------------------------------------------------
StanCorp Financial Group, Inc.                                4,900           404,250
- --------------------------------------------------------------------------------------
Torchmark Corp.                                              12,000           685,680
- --------------------------------------------------------------------------------------
UICI                                                          2,600            88,140
- --------------------------------------------------------------------------------------
Universal American Financial Corp. 1                          1,000            15,470
- --------------------------------------------------------------------------------------
UnumProvident Corp.                                          64,600         1,158,924
                                                                      ----------------
                                                                           64,053,575

- --------------------------------------------------------------------------------------
REAL ESTATE--0.0%
St. Joe Co. (The)                                             3,600           231,120
- --------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--1.9%
Countrywide Financial Corp.                                  77,498         2,868,201
- --------------------------------------------------------------------------------------
Fannie Mae                                                  195,000        13,885,950
- --------------------------------------------------------------------------------------
Freddie Mac                                                 148,000        10,907,600
- --------------------------------------------------------------------------------------
Fremont General Corp.                                        33,200           835,976
- --------------------------------------------------------------------------------------
MGIC Investment Corp.                                        25,200         1,736,532
- --------------------------------------------------------------------------------------
Radian Group, Inc.                                           22,700         1,208,548
                                                                      ----------------
                                                                           31,442,807

- --------------------------------------------------------------------------------------
HEALTH CARE--12.4%
- --------------------------------------------------------------------------------------
BIOTECHNOLOGY--1.1%
Amgen, Inc. 1                                               145,500         9,333,825
- --------------------------------------------------------------------------------------
Applera Corp./Applied
Biosystems Group                                             45,800           957,678
- --------------------------------------------------------------------------------------
Gen-Probe, Inc. 1                                            11,400           515,394


                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

BIOTECHNOLOGY Continued
Millennium Pharmaceuticals, Inc. 1                           43,800   $       530,856
- --------------------------------------------------------------------------------------
Onyx Pharmaceuticals, Inc. 1                                  2,600            84,214
- --------------------------------------------------------------------------------------
United Therapeutics Corp. 1                                   8,000           361,200
- --------------------------------------------------------------------------------------
Wyeth                                                       148,800         6,337,392
                                                                      ----------------
                                                                           18,120,559

- --------------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--1.4%
Bausch & Lomb, Inc.                                           8,700           560,802
- --------------------------------------------------------------------------------------
Baxter International, Inc.                                   19,000           656,260
- --------------------------------------------------------------------------------------
Becton, Dickinson & Co.                                      44,900         2,550,320
- --------------------------------------------------------------------------------------
Biomet, Inc.                                                  4,700           203,933
- --------------------------------------------------------------------------------------
Boston Scientific Corp. 1                                    32,500         1,155,375
- --------------------------------------------------------------------------------------
Dade Behring Holdings, Inc. 1                                 2,000           112,000
- --------------------------------------------------------------------------------------
Hospira, Inc. 1                                              35,380         1,185,230
- --------------------------------------------------------------------------------------
Idexx Laboratories, Inc. 1                                    1,200            65,508
- --------------------------------------------------------------------------------------
Inamed Corp. 1                                                1,700           107,525
- --------------------------------------------------------------------------------------
Medtronic, Inc.                                             194,100         9,640,947
- --------------------------------------------------------------------------------------
PerkinElmer, Inc.                                            50,600         1,137,994
- --------------------------------------------------------------------------------------
Respironics, Inc. 1                                           1,800            97,848
- --------------------------------------------------------------------------------------
Stryker Corp.                                                65,900         3,179,675
- --------------------------------------------------------------------------------------
Thermo Electron Corp. 1                                      44,300         1,337,417
- --------------------------------------------------------------------------------------
Varian Medical Systems, Inc. 1                               12,900           557,796
- --------------------------------------------------------------------------------------
VISX, Inc. 1                                                  9,800           253,526
- --------------------------------------------------------------------------------------
Wright Medical Group, Inc. 1                                  5,200           148,200
                                                                      ----------------
                                                                           22,950,356

- --------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--2.4%
Advisory Board Co. (The) 1                                    2,900           106,952
- --------------------------------------------------------------------------------------
Aetna, Inc.                                                  26,700         3,330,825
- --------------------------------------------------------------------------------------
Amedisys, Inc. 1                                              2,800            90,692
- --------------------------------------------------------------------------------------
AmerisourceBergen Corp.                                      20,200         1,185,336
- --------------------------------------------------------------------------------------
Andrx Corp. 1                                                15,900           347,097
- --------------------------------------------------------------------------------------
Caremark Rx, Inc. 1                                          29,300         1,155,299
- --------------------------------------------------------------------------------------
Cerner Corp. 1                                                3,300           175,461
- --------------------------------------------------------------------------------------
CIGNA Corp.                                                  37,600         3,067,032
- --------------------------------------------------------------------------------------
Covance, Inc. 1                                              16,700           647,125
- --------------------------------------------------------------------------------------
Coventry Health Care, Inc. 1                                 19,950         1,058,946
- --------------------------------------------------------------------------------------
DaVita, Inc. 1                                                1,700            67,201
- --------------------------------------------------------------------------------------
eResearch Technology, Inc. 1                                  4,900            77,665
- --------------------------------------------------------------------------------------
Express Scripts, Inc. 1                                       2,200           168,168
- --------------------------------------------------------------------------------------
Gentiva Health Services, Inc. 1                               1,000            16,720
- --------------------------------------------------------------------------------------
HCA, Inc.                                                     8,200           327,672
- --------------------------------------------------------------------------------------
Humana, Inc. 1                                               36,200         1,074,778
- --------------------------------------------------------------------------------------
IMS Health, Inc.                                             10,800           250,668
- --------------------------------------------------------------------------------------
Laboratory Corp. of America
Holdings 1                                                   14,700           732,354




                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

HEALTH CARE PROVIDERS & SERVICES Continued
LCA-Vision, Inc.                                             14,400   $       336,816
- --------------------------------------------------------------------------------------
McKesson Corp.                                               19,200           604,032
- --------------------------------------------------------------------------------------
Medco Health Solutions, Inc. 1                               51,281         2,133,290
- --------------------------------------------------------------------------------------
PacifiCare Health Systems, Inc. 1                            28,000         1,582,560
- --------------------------------------------------------------------------------------
Pediatrix Medical Group, Inc. 1                              12,300           787,815
- --------------------------------------------------------------------------------------
Quest Diagnostics, Inc.                                      18,900         1,805,895
- --------------------------------------------------------------------------------------
Select Medical Corp.                                          8,200           144,320
- --------------------------------------------------------------------------------------
Sierra Health Services, Inc. 1                                8,600           473,946
- --------------------------------------------------------------------------------------
Sunrise Senior Living, Inc. 1                                 4,900           227,164
- --------------------------------------------------------------------------------------
UnitedHealth Group, Inc.                                    120,624        10,618,531
- --------------------------------------------------------------------------------------
WellChoice, Inc. 1                                           11,000           587,400
- --------------------------------------------------------------------------------------
WellPoint, Inc. 1                                            43,900         5,048,500
                                                                      ----------------
                                                                           38,230,260

- --------------------------------------------------------------------------------------
PHARMACEUTICALS--7.5%
Abbott Laboratories                                         191,500         8,933,475
- --------------------------------------------------------------------------------------
Allergan, Inc.                                               17,400         1,410,618
- --------------------------------------------------------------------------------------
Barr Pharmaceuticals, Inc. 1                                 13,200           601,128
- --------------------------------------------------------------------------------------
Bristol-Myers Squibb Co.                                    389,100         9,968,742
- --------------------------------------------------------------------------------------
Eli Lilly & Co.                                             161,700         9,176,475
- --------------------------------------------------------------------------------------
Endo Pharmaceuticals Holdings, Inc. 1                        40,400           849,208
- --------------------------------------------------------------------------------------
Eon Labs, Inc. 1                                             15,700           423,900
- --------------------------------------------------------------------------------------
Forest Laboratories, Inc. 1                                  68,100         3,054,966
- --------------------------------------------------------------------------------------
Johnson & Johnson                                           497,506        31,551,831
- --------------------------------------------------------------------------------------
Merck & Co., Inc.                                           483,600        15,542,904
- --------------------------------------------------------------------------------------
Pfizer, Inc.                                              1,406,800        37,828,852
- --------------------------------------------------------------------------------------
Schering-Plough Corp.                                        49,500         1,033,560
                                                                      ----------------
                                                                          120,375,659

- --------------------------------------------------------------------------------------
INDUSTRIALS--10.2%
- --------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.7%
Boeing Co.                                                   70,500         3,649,785
- --------------------------------------------------------------------------------------
General Dynamics Corp.                                       16,600         1,736,360
- --------------------------------------------------------------------------------------
Goodrich Corp.                                                7,800           254,592
- --------------------------------------------------------------------------------------
Honeywell International, Inc.                                62,500         2,213,125
- --------------------------------------------------------------------------------------
Lockheed Martin Corp.                                        25,500         1,416,525
- --------------------------------------------------------------------------------------
Northrop Grumman Corp.                                       59,100         3,212,676
- --------------------------------------------------------------------------------------
Precision Castparts Corp.                                     1,000            65,680
- --------------------------------------------------------------------------------------
Raytheon Co.                                                 34,600         1,343,518
- --------------------------------------------------------------------------------------
Rockwell Collins, Inc.                                        2,200            86,768
- --------------------------------------------------------------------------------------
United Defense Industries, Inc. 1                            10,800           510,300
- --------------------------------------------------------------------------------------
United Technologies Corp.                                   130,800        13,518,180
                                                                      ----------------
                                                                           28,007,509

                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

AIR FREIGHT & LOGISTICS--0.5%
EGL, Inc. 1                                                  19,500   $       582,855
- --------------------------------------------------------------------------------------
Expeditors International of
Washington, Inc.                                              6,900           385,572
- --------------------------------------------------------------------------------------
FedEx Corp.                                                  22,600         2,225,874
- --------------------------------------------------------------------------------------
United Parcel Service, Inc., Cl. B                           56,100         4,794,306
                                                                      ----------------
                                                                            7,988,607

- --------------------------------------------------------------------------------------
AIRLINES--0.2%
Alaska Air Group, Inc. 1                                     11,000           368,390
- --------------------------------------------------------------------------------------
AMR Corp. 1                                                  71,700           785,115
- --------------------------------------------------------------------------------------
Continental Airlines, Inc., Cl. B 1                          35,800           484,732
- --------------------------------------------------------------------------------------
Delta Air Lines, Inc. 1                                      80,200           599,896
- --------------------------------------------------------------------------------------
Northwest Airlines Corp., Cl. A 1                            21,500           234,995
                                                                      ----------------
                                                                            2,473,128

- --------------------------------------------------------------------------------------
BUILDING PRODUCTS--0.2%
American Standard Cos., Inc. 1                               15,600           644,592
- --------------------------------------------------------------------------------------
Masco Corp.                                                  32,300         1,179,919
- --------------------------------------------------------------------------------------
USG Corp. 1                                                  16,500           664,455
                                                                      ----------------
                                                                            2,488,966

- --------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.6%
Brink's Co. (The)                                             4,100           162,032
- --------------------------------------------------------------------------------------
Cendant Corp.                                               168,200         3,932,516
- --------------------------------------------------------------------------------------
Cintas Corp.                                                 15,200           666,672
- --------------------------------------------------------------------------------------
Copart, Inc. 1                                               16,200           426,384
- --------------------------------------------------------------------------------------
Corporate Executive Board Co.                                 4,200           281,148
- --------------------------------------------------------------------------------------
Dun & Bradstreet Corp. 1                                      6,900           411,585
- --------------------------------------------------------------------------------------
Equifax, Inc.                                                17,200           483,320
- --------------------------------------------------------------------------------------
Gevity HR, Inc.                                               2,500            51,400
- --------------------------------------------------------------------------------------
ITT Educational Services, Inc. 1                              7,400           351,870
- --------------------------------------------------------------------------------------
Miller (Herman), Inc.                                         4,900           135,387
- --------------------------------------------------------------------------------------
Pitney Bowes, Inc.                                            8,500           393,380
- --------------------------------------------------------------------------------------
Republic Services, Inc.                                      15,800           529,932
- --------------------------------------------------------------------------------------
Resources Connection, Inc. 1                                  2,400           130,344
- --------------------------------------------------------------------------------------
Robert Half International, Inc.                              39,100         1,150,713
- --------------------------------------------------------------------------------------
Sotheby's Holdings, Inc., Cl. A 1                             8,000           145,280
- --------------------------------------------------------------------------------------
Waste Management, Inc.                                       39,700         1,188,618
                                                                      ----------------
                                                                           10,440,581

- --------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.0%
Shaw Group, Inc. (The) 1                                     13,200           235,620
- --------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.4%
American Power Conversion Corp.                              24,900           532,860
- --------------------------------------------------------------------------------------
Cooper Industries Ltd., Cl. A                                 9,400           638,166
- --------------------------------------------------------------------------------------
Emerson Electric Co.                                         44,800         3,140,480
- --------------------------------------------------------------------------------------
Hubbell, Inc., Cl. B                                          1,500            78,450




STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

ELECTRICAL EQUIPMENT Continued
Molex, Inc., Cl. A                                           20,750   $       552,988
- --------------------------------------------------------------------------------------
Rockwell Automation, Inc.                                    19,100           946,405
                                                                      ----------------
                                                                            5,889,349

- --------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--5.1%
3M Co.                                                      150,800        12,376,156
- --------------------------------------------------------------------------------------
General Electric Co.                                      1,855,200        67,714,800
- --------------------------------------------------------------------------------------
Textron, Inc.                                                 9,900           730,620
- --------------------------------------------------------------------------------------
Tyco International Ltd.                                      23,000           822,020
                                                                      ----------------
                                                                           81,643,596

- --------------------------------------------------------------------------------------
MACHINERY--1.2%
Briggs & Stratton Corp.                                       1,600            66,528
- --------------------------------------------------------------------------------------
Caterpillar, Inc.                                            33,100         3,227,581
- --------------------------------------------------------------------------------------
Cummins, Inc.                                                12,500         1,047,375
- --------------------------------------------------------------------------------------
Danaher Corp.                                                14,100           809,481
- --------------------------------------------------------------------------------------
Deere & Co.                                                  36,000         2,678,400
- --------------------------------------------------------------------------------------
Dover Corp.                                                  13,400           561,996
- --------------------------------------------------------------------------------------
Illinois Tool Works, Inc.                                    35,400         3,280,872
- --------------------------------------------------------------------------------------
Ingersoll-Rand Co., Cl. A                                    25,800         2,071,740
- --------------------------------------------------------------------------------------
Mueller Industries, Inc.                                      6,000           193,200
- --------------------------------------------------------------------------------------
Navistar International Corp. 1                               18,200           800,436
- --------------------------------------------------------------------------------------
Paccar, Inc.                                                 23,050         1,855,064
- --------------------------------------------------------------------------------------
Pall Corp.                                                   16,900           489,255
- --------------------------------------------------------------------------------------
Parker-Hannifin Corp.                                        10,300           780,122
- --------------------------------------------------------------------------------------
SPX Corp.                                                    33,500         1,342,010
- --------------------------------------------------------------------------------------
Terex Corp. 1                                                 3,000           142,950
- --------------------------------------------------------------------------------------
Toro Co. (The)                                                5,600           455,560
- --------------------------------------------------------------------------------------
Wabash National Corp. 1                                       9,100           245,063
                                                                      ----------------
                                                                           20,047,633

- --------------------------------------------------------------------------------------
ROAD & RAIL--0.2%
Burlington Northern Santa Fe Corp.                            8,800           416,328
- --------------------------------------------------------------------------------------
CNF Transportation, Inc.                                     18,000           901,800
- --------------------------------------------------------------------------------------
CSX Corp.                                                     5,900           236,472
- --------------------------------------------------------------------------------------
Genesee & Wyoming, Inc., Cl. A 1                              1,100            30,943
- --------------------------------------------------------------------------------------
Hunt (J.B.) Transport Services, Inc.                         19,600           879,060
- --------------------------------------------------------------------------------------
Norfolk Southern Corp.                                        8,300           300,377
- --------------------------------------------------------------------------------------
Ryder Systems, Inc.                                          17,000           812,090
- --------------------------------------------------------------------------------------
Swift Transportation Co., Inc. 1                             23,400           502,632
                                                                      ----------------
                                                                            4,079,702

- --------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--0.1%
W.W. Grainger, Inc.                                          13,000           866,060


                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

INFORMATION TECHNOLOGY--18.9%
- --------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--3.4%
ADTRAN, Inc.                                                 24,000   $       459,360
- --------------------------------------------------------------------------------------
Avaya, Inc. 1                                                98,300         1,690,760
- --------------------------------------------------------------------------------------
Brocade Communications
Systems, Inc. 1                                              70,700           540,148
- --------------------------------------------------------------------------------------
Ciena Corp. 1                                               147,100           491,314
- --------------------------------------------------------------------------------------
Cisco Systems, Inc. 1                                     1,260,300        24,323,790
- --------------------------------------------------------------------------------------
CommScope, Inc. 1                                             5,000            94,500
- --------------------------------------------------------------------------------------
Comverse Technology, Inc. 1                                  60,000         1,467,000
- --------------------------------------------------------------------------------------
Ditech Communications Corp. 1                                 3,300            49,335
- --------------------------------------------------------------------------------------
Extreme Networks, Inc. 1                                     26,900           176,195
- --------------------------------------------------------------------------------------
Harris Corp.                                                  6,100           376,919
- --------------------------------------------------------------------------------------
Juniper Networks, Inc. 1                                    144,300         3,923,517
- --------------------------------------------------------------------------------------
Lucent Technologies, Inc. 1                                 649,300         2,441,368
- --------------------------------------------------------------------------------------
Motorola, Inc.                                              258,700         4,449,640
- --------------------------------------------------------------------------------------
Polycom, Inc. 1                                              12,200           284,504
- --------------------------------------------------------------------------------------
QUALCOMM, Inc.                                              292,600        12,406,240
- --------------------------------------------------------------------------------------
Scientific-Atlanta, Inc.                                     38,000         1,254,380
- --------------------------------------------------------------------------------------
Sonus Networks, Inc. 1                                       20,100           115,173
- --------------------------------------------------------------------------------------
Tellabs, Inc. 1                                              32,400           278,316
                                                                      ----------------
                                                                           54,822,459

- --------------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--4.8%
Apple Computer, Inc. 1                                       27,400         1,764,560
- --------------------------------------------------------------------------------------
Avid Technology, Inc. 1                                       3,500           216,125
- --------------------------------------------------------------------------------------
Dell, Inc. 1                                                523,200        22,047,648
- --------------------------------------------------------------------------------------
Electronics for Imaging, Inc. 1                               6,300           109,683
- --------------------------------------------------------------------------------------
Hewlett-Packard Co.                                         741,000        15,538,770
- --------------------------------------------------------------------------------------
International Business
Machines Corp.                                              295,500        29,130,390
- --------------------------------------------------------------------------------------
Lexmark International, Inc., Cl. A 1                         32,600         2,771,000
- --------------------------------------------------------------------------------------
Maxtor Corp. 1                                               71,600           379,480
- --------------------------------------------------------------------------------------
NCR Corp. 1                                                  17,800         1,232,294
- --------------------------------------------------------------------------------------
Storage Technology Corp. 1                                   30,600           967,266
- --------------------------------------------------------------------------------------
Sun Microsystems, Inc. 1                                    656,900         3,534,122
- --------------------------------------------------------------------------------------
Western Digital Corp. 1                                      33,500           363,140
                                                                      ----------------
                                                                           78,054,478

- --------------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.6%
Agilent Technologies, Inc. 1                                100,000         2,410,000
- --------------------------------------------------------------------------------------
Amphenol Corp., Cl. A 1                                      31,500         1,157,310
- --------------------------------------------------------------------------------------
Arrow Electronics, Inc. 1                                     1,600            38,880
- --------------------------------------------------------------------------------------
CDW Corp.                                                     9,200           610,420
- --------------------------------------------------------------------------------------
Cognex Corp.                                                  5,400           150,660
- --------------------------------------------------------------------------------------
Diebold, Inc.                                                   900            50,157
- --------------------------------------------------------------------------------------
Dionex Corp. 1                                                1,100            62,337



                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

ELECTRONIC EQUIPMENT & INSTRUMENTS Continued
Electro Scientific Industries, Inc. 1                           800   $        15,808
- --------------------------------------------------------------------------------------
Ingram Micro, Inc., Cl. A 1                                  37,600           782,080
- --------------------------------------------------------------------------------------
Jabil Circuit, Inc. 1                                        39,500         1,010,410
- --------------------------------------------------------------------------------------
Littlefuse, Inc. 1                                            3,000           102,480
- --------------------------------------------------------------------------------------
Molex, Inc.                                                  23,600           708,000
- --------------------------------------------------------------------------------------
MTS Systems Corp.                                             1,100            37,191
- --------------------------------------------------------------------------------------
Sanmina-SCI Corp. 1                                         104,700           886,809
- --------------------------------------------------------------------------------------
Symbol Technologies, Inc.                                     5,500            95,150
- --------------------------------------------------------------------------------------
Tech Data Corp. 1                                            19,700           894,380
- --------------------------------------------------------------------------------------
Trimble Navigation Ltd. 1                                     6,800           224,672
- --------------------------------------------------------------------------------------
UNOVA, Inc. 1                                                 3,400            85,986
                                                                      ----------------
                                                                            9,322,730

- --------------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.6%
DoubleClick, Inc. 1                                          25,200           196,056
- --------------------------------------------------------------------------------------'
EarthLink, Inc. 1                                            50,500           581,760
- --------------------------------------------------------------------------------------
InfoSpace, Inc. 1                                            13,600           646,680
- --------------------------------------------------------------------------------------
Internet Security Systems, Inc. 1                            22,000           511,500
- --------------------------------------------------------------------------------------
MicroStrategy, Inc., Cl. A 1                                  4,500           271,125
- --------------------------------------------------------------------------------------
Openwave Systems, Inc. 1                                     10,700           165,422
- --------------------------------------------------------------------------------------
United Online, Inc. 1                                        40,100           462,353
- --------------------------------------------------------------------------------------
ValueClick, Inc. 1                                           21,400           285,262
- --------------------------------------------------------------------------------------
VeriSign, Inc. 1                                             16,300           546,376
- --------------------------------------------------------------------------------------
WebEx Communications, Inc. 1                                  3,700            87,986
- --------------------------------------------------------------------------------------
Websense, Inc. 1                                             11,300           573,136
- --------------------------------------------------------------------------------------
Yahoo!, Inc. 1                                              141,800         5,343,024
                                                                      ----------------
                                                                            9,670,680

- --------------------------------------------------------------------------------------
IT SERVICES--0.9%
Acxiom Corp.                                                 24,600           646,980
- --------------------------------------------------------------------------------------
Affiliated Computer Services,
Inc., Cl. A 1                                                30,600         1,841,814
- --------------------------------------------------------------------------------------
Automatic Data Processing, Inc.                              88,300         3,916,105
- --------------------------------------------------------------------------------------
BISYS Group, Inc. (The) 1                                     1,500            24,675
- --------------------------------------------------------------------------------------
CheckFree Corp. 1                                            34,200         1,302,336
- --------------------------------------------------------------------------------------
Computer Sciences Corp. 1                                    40,500         2,282,985
- --------------------------------------------------------------------------------------
Convergys Corp. 1                                            26,700           400,233
- --------------------------------------------------------------------------------------
CSG Systems International, Inc. 1                             1,300            24,310
- --------------------------------------------------------------------------------------
Electronic Data Systems Corp.                                79,000         1,824,900
- --------------------------------------------------------------------------------------
First Data Corp.                                             50,200         2,135,508
- --------------------------------------------------------------------------------------
Sabre Holdings Corp.                                         41,200           912,992
                                                                      ----------------
                                                                           15,312,838

- --------------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--3.8%
Advanced Micro Devices, Inc. 1                               82,900         1,825,458
- --------------------------------------------------------------------------------------
Agere Systems, Inc., Cl. A 1                                160,300           219,611
- --------------------------------------------------------------------------------------
Altera Corp. 1                                               62,200         1,287,540


                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Continued
Analog Devices, Inc.                                         88,800   $     3,278,496
- --------------------------------------------------------------------------------------
Applied Materials, Inc. 1                                   255,100         4,362,210
- --------------------------------------------------------------------------------------
Applied Micro Circuits Corp. 1                               80,800           340,168
- --------------------------------------------------------------------------------------
Atmel Corp. 1                                               286,900         1,124,648
- --------------------------------------------------------------------------------------
Broadcom Corp., Cl. A  1                                      7,500           242,100
- --------------------------------------------------------------------------------------
Cabot Microelectronics Corp. 1                               13,700           548,685
- --------------------------------------------------------------------------------------
Cree, Inc. 1                                                 35,300         1,414,824
- --------------------------------------------------------------------------------------
Cymer, Inc. 1                                                 4,900           144,746
- --------------------------------------------------------------------------------------
Freescale Semiconductor, Inc., Cl. A  1                      35,800           637,956
- --------------------------------------------------------------------------------------
Freescale Semiconductor, Inc., Cl. B  1                      28,343           520,377
- --------------------------------------------------------------------------------------
Integrated Circuit Systems, Inc. 1                            1,100            23,012
- --------------------------------------------------------------------------------------
Integrated Device Technology, Inc. 1                         25,600           295,936
- --------------------------------------------------------------------------------------
Intel Corp.                                               1,132,100        26,479,819
- --------------------------------------------------------------------------------------
International Rectifier Corp. 1                                 500            22,285
- --------------------------------------------------------------------------------------
Intersil Corp., Cl. A                                        54,700           915,678
- --------------------------------------------------------------------------------------
KLA-Tencor Corp. 1                                           19,800           922,284
- --------------------------------------------------------------------------------------
Lam Research Corp. 1                                         34,700         1,003,177
- --------------------------------------------------------------------------------------
Linear Technology Corp.                                      83,800         3,248,088
- --------------------------------------------------------------------------------------
LSI Logic Corp. 1                                            83,400           457,032
- --------------------------------------------------------------------------------------
Maxim Integrated Products, Inc.                              37,100         1,572,669
- --------------------------------------------------------------------------------------
Micrel, Inc. 1                                               15,100           166,402
- --------------------------------------------------------------------------------------
Microchip Technology, Inc.                                   34,100           909,106
- --------------------------------------------------------------------------------------
Micron Technology, Inc. 1                                   150,700         1,861,145
- --------------------------------------------------------------------------------------
National Semiconductor Corp. 1                               95,600         1,716,020
- --------------------------------------------------------------------------------------
PMC-Sierra, Inc. 1                                            3,200            36,000
- --------------------------------------------------------------------------------------
Rambus, Inc. 1                                               19,100           439,300
- --------------------------------------------------------------------------------------
Semtech Corp. 1                                              18,600           406,782
- --------------------------------------------------------------------------------------
Silicon Image, Inc. 1                                        15,100           248,546
- --------------------------------------------------------------------------------------
Teradyne, Inc. 1                                             12,800           218,496
- --------------------------------------------------------------------------------------
Texas Instruments, Inc.                                     165,900         4,084,458
- --------------------------------------------------------------------------------------
Xilinx, Inc.                                                 15,400           456,610
                                                                      ----------------
                                                                           61,429,664

- --------------------------------------------------------------------------------------
SOFTWARE--4.8%
Activision, Inc. 1                                           29,000           585,220
- --------------------------------------------------------------------------------------
Adobe Systems, Inc.                                          19,800         1,242,252
- --------------------------------------------------------------------------------------
Amdocs Ltd. 1                                                22,200           582,750
- --------------------------------------------------------------------------------------
Autodesk, Inc.                                               40,400         1,533,180
- --------------------------------------------------------------------------------------
BEA Systems, Inc. 1                                          51,500           456,290
- --------------------------------------------------------------------------------------
BMC Software, Inc. 1                                         48,200           896,520
- --------------------------------------------------------------------------------------
Computer Associates
International, Inc.                                          38,900         1,208,234
- --------------------------------------------------------------------------------------
Compuware Corp. 1                                             6,500            42,055
- --------------------------------------------------------------------------------------
Electronic Arts, Inc. 1                                      32,600         2,010,768
- --------------------------------------------------------------------------------------
FactSet Research Systems, Inc.                                4,300           251,292
- --------------------------------------------------------------------------------------
Fair Isaac Corp.                                             12,900           473,172



STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

SOFTWARE Continued
FileNet Corp. 1                                               8,700   $       224,112
- --------------------------------------------------------------------------------------
Macrovision Corp. 1                                           7,600           195,472
- --------------------------------------------------------------------------------------
McAfee, Inc. 1                                               39,300         1,136,949
- --------------------------------------------------------------------------------------
MICROS Systems, Inc. 1                                        1,300           101,478
- --------------------------------------------------------------------------------------
Microsoft Corp.                                           1,803,700        48,176,827
- --------------------------------------------------------------------------------------
Oracle Corp. 1                                              858,100        11,773,132
- --------------------------------------------------------------------------------------
Quest Software, Inc. 1                                        2,400            38,280
- --------------------------------------------------------------------------------------
RSA Security, Inc. 1                                         27,000           541,620
- --------------------------------------------------------------------------------------
Siebel Systems, Inc. 1                                       61,700           647,850
- --------------------------------------------------------------------------------------
Sybase, Inc. 1                                               57,600         1,149,120
- --------------------------------------------------------------------------------------
Synopsys, Inc. 1                                             30,900           606,258
- --------------------------------------------------------------------------------------
Take-Two Interactive Software, Inc. 1                        14,700           511,413
- --------------------------------------------------------------------------------------
THQ, Inc. 1                                                  22,500           516,150
- --------------------------------------------------------------------------------------
TIBCO Software, Inc. 1                                       75,800         1,011,172
- --------------------------------------------------------------------------------------
Veritas Software Corp. 1                                     36,800         1,050,640
                                                                      ----------------
                                                                           76,962,206

- --------------------------------------------------------------------------------------
MATERIALS--2.6%
- --------------------------------------------------------------------------------------
CHEMICALS--1.1%
Cabot Corp.                                                   5,400           208,872
- --------------------------------------------------------------------------------------
Dow Chemical Co.                                             38,200         1,891,282
- --------------------------------------------------------------------------------------
E.I. DuPont de Nemours & Co.                                107,300         5,263,065
- --------------------------------------------------------------------------------------
Eastman Chemical Co.                                         14,500           837,085
- --------------------------------------------------------------------------------------
Engelhard Corp.                                              13,400           410,978
- --------------------------------------------------------------------------------------
FMC Corp. 1                                                   7,300           352,590
- --------------------------------------------------------------------------------------
Georgia Gulf Corp.                                           17,600           876,480
- --------------------------------------------------------------------------------------
Lyondell Chemical Co.                                        30,300           876,276
- --------------------------------------------------------------------------------------
Monsanto Co.                                                 77,500         4,305,125
- --------------------------------------------------------------------------------------
OM Group, Inc. 1                                             12,700           411,734
- --------------------------------------------------------------------------------------
PPG Industries, Inc.                                         12,000           817,920
- --------------------------------------------------------------------------------------
Praxair, Inc.                                                 9,100           401,765
- --------------------------------------------------------------------------------------
Rohm & Haas Co.                                              18,300           809,409
- --------------------------------------------------------------------------------------
Scotts Co. (The), Cl. A 1                                     3,800           279,376
- --------------------------------------------------------------------------------------
W.R. Grace & Co. 1                                           25,000           340,250
                                                                      ----------------
                                                                           18,082,207

- --------------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.1%
Eagle Materials, Inc., Cl. B                                  7,543           635,875
- --------------------------------------------------------------------------------------
Florida Rock Industries, Inc.                                 1,900           113,107
- --------------------------------------------------------------------------------------
Texas Industries, Inc.                                        3,400           212,092
- --------------------------------------------------------------------------------------
Vulcan Materials Co.                                          8,000           436,880
                                                                      ----------------
                                                                            1,397,954

- --------------------------------------------------------------------------------------
CONTAINERS & PACKAGING--0.1%
Ball Corp.                                                    3,800           167,124
- --------------------------------------------------------------------------------------
Bemis Co., Inc.                                               2,300            66,907


                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

CONTAINERS & PACKAGING Continued
Crown Holdings, Inc. 1                                       25,100   $       344,874
- --------------------------------------------------------------------------------------
Owens-Illinois, Inc. 1                                       37,000           838,050
- --------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.                                14,300           267,124
                                                                      ----------------
                                                                            1,684,079

- --------------------------------------------------------------------------------------
METALS & MINING--0.8%
AK Steel Holding Corp. 1                                     31,300           452,911
- --------------------------------------------------------------------------------------
Alcoa, Inc.                                                 140,800         4,423,936
- --------------------------------------------------------------------------------------
Carpenter Technology Corp.                                    3,900           227,994
- --------------------------------------------------------------------------------------
Cleveland-Cliffs, Inc.                                        5,500           571,230
- --------------------------------------------------------------------------------------
Inco Ltd. 1                                                   5,600           205,968
- --------------------------------------------------------------------------------------
Massey Energy Co.                                            24,800           866,760
- --------------------------------------------------------------------------------------
Nucor Corp.                                                  17,600           921,184
- --------------------------------------------------------------------------------------
Phelps Dodge Corp.                                           26,400         2,611,488
- --------------------------------------------------------------------------------------
Schnitzer Steel Industries, Inc.                              4,700           159,471
- --------------------------------------------------------------------------------------
Southern Peru Copper Corp.                                    5,800           273,818
- --------------------------------------------------------------------------------------
Steel Dynamics, Inc.                                          6,600           250,008
- --------------------------------------------------------------------------------------
United States Steel Corp.                                    33,000         1,691,250
- --------------------------------------------------------------------------------------
Worthington Industries, Inc.                                 14,800           289,784
                                                                      ----------------
                                                                           12,945,802

- --------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.5%
Georgia-Pacific Corp.                                        76,600         2,870,968
- --------------------------------------------------------------------------------------
International Paper Co.                                      13,900           583,800
- --------------------------------------------------------------------------------------
Louisiana-Pacific Corp.                                      52,500         1,403,850
- --------------------------------------------------------------------------------------
MeadWestvaco Corp.                                           53,100         1,799,559
- --------------------------------------------------------------------------------------
Neenah Paper, Inc. 1                                          2,036            66,374
- --------------------------------------------------------------------------------------
Potlatch Corp.                                               10,500           531,090
- --------------------------------------------------------------------------------------
Weyerhaeuser Co.                                              1,400            94,108
                                                                      ----------------
                                                                            7,349,749

- --------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--3.8%
- --------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--3.4%
Alltel Corp.                                                 20,100        1,181,076
- -------------------------------------------------------------------------------------
BellSouth Corp.                                             326,400        9,070,656
- -------------------------------------------------------------------------------------
CenturyTel, Inc.                                             31,000        1,099,570
- -------------------------------------------------------------------------------------
Citizens Communications Co.                                 115,400        1,591,366
- -------------------------------------------------------------------------------------
Qwest Communications
International, Inc. 1                                        25,200          111,888
- -------------------------------------------------------------------------------------
SBC Communications, Inc.                                    775,500       19,984,635
- -------------------------------------------------------------------------------------
Sprint Corp.                                                 44,700        1,110,795
- -------------------------------------------------------------------------------------
Verizon Communications, Inc.                                500,456       20,273,473
                                                                      ---------------
                                                                          54,423,459

- -------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.4%
Alamosa Holdings, Inc. 1                                     23,700          295,539
- -------------------------------------------------------------------------------------
AT&T Corp.                                                   46,400          884,384



                                                                                VALUE
                                                             SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------------

WIRELESS TELECOMMUNICATION SERVICES Continued
Nextel Communications, Inc., Cl. A 1                        185,700   $     5,571,000
- --------------------------------------------------------------------------------------
Telephone & Data Systems, Inc.                                3,500           269,325
                                                                      ----------------
                                                                            7,020,248

- --------------------------------------------------------------------------------------
UTILITIES--0.4%
- --------------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.4%
American Electric Power Co., Inc.                            59,300         2,036,362
- --------------------------------------------------------------------------------------
Calpine Corp. 1                                              69,033           271,990
- --------------------------------------------------------------------------------------
CMS Energy Corp. 1                                           29,900           312,455
- --------------------------------------------------------------------------------------
Constellation Energy Group, Inc.                                200             8,742
- --------------------------------------------------------------------------------------
Edison International, Inc.                                   27,000           864,810
- --------------------------------------------------------------------------------------
Exelon Corp.                                                 18,448           813,003
- --------------------------------------------------------------------------------------
FPL Group, Inc.                                              10,500           784,875
- --------------------------------------------------------------------------------------
PG&E Corp. 1                                                 23,500           782,080
- --------------------------------------------------------------------------------------
Progress Energy, Inc. 1,2                                    32,000             4,320
- --------------------------------------------------------------------------------------
Wisconsin Energy Corp.                                        3,800           128,098
                                                                      ----------------
                                                                            6,006,735

- --------------------------------------------------------------------------------------
GAS UTILITIES--0.0%
ONEOK, Inc.                                                   6,500           184,728
                                                                      ----------------
Total Common Stocks
(Cost $1,371,019,607)                                                   1,592,279,234

- --------------------------------------------------------------------------------------
PREFERRED STOCKS--0.0%
- --------------------------------------------------------------------------------------
Wachovia Corp., Dividend
Equalization Preferred Shares 1,2
(Cost $0)                                                     6,000                 6


                                                              UNITS
- --------------------------------------------------------------------------------------

RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- --------------------------------------------------------------------------------------
Dime Bancorp, Inc. Wts.,
Exp. 1/2/10 1                                                31,900             6,061
- --------------------------------------------------------------------------------------
Lucent Technologies, Inc. Wts.,
Exp. 12/10/07 1                                               4,837             7,642
                                                                      ----------------
Total Rights, Warrants and
Certificates (Cost $0)                                                         13,703


                                                          PRINCIPAL
                                                             AMOUNT
- --------------------------------------------------------------------------------------

JOINT REPURCHASE AGREEMENTS--1.1%
- --------------------------------------------------------------------------------------
Undivided interest of 1.24% in joint
repurchase agreement (Principal Amount/
Value $1,443,703,000, with a maturity value
of $1,443,962,867) with UBS Warburg LLC,
2.16%, dated 12/31/04, to be repurchased
at $17,894,220 on 1/3/05, collateralized
by Federal National Mortgage Assn.,
5%--6%, 4/1/34--10/1/34, with
a value of $1,474,609,071
(Cost $17,891,000)                                     $ 17,891,000        17,891,000


                                                          PRINCIPAL             VALUE
                                                             AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------------

JOINT REPURCHASE AGREEMENTS Continued
- --------------------------------------------------------------------------------------
Total Investments, at Value
(excluding Investments Purchased
with Cash Collateral from Securities
Loaned) (Cost $1,388,910,607)                                         $ 1,610,183,943

- --------------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED--5.2%
- --------------------------------------------------------------------------------------
ASSET-BACKED FLOATING SECURITY--0.1%
Money Market Trust, Series A-2,
2.478% Nts., 1/18/05 3                                    1,000,000         1,000,000
- --------------------------------------------------------------------------------------
FUNDING AGREEMENT/GIC--0.1%
Allstate Life Insurance Co.,
2.47%, 1/3/05 3                                           1,000,000         1,000,000
- --------------------------------------------------------------------------------------
MASTER FLOATING NOTES--0.2%
Bear Stearns, 2.493%, 1/3/05 3                            3,500,000         3,500,000
- --------------------------------------------------------------------------------------
REPURCHASE AGREEMENT--4.7%
Undivided interest of 2.75% in joint repurchase
agreement (Principal Amount/Value $2,800,000,000,
with a maturity value of $2,800,550,669) with Nomura
Securities, 2.36%, dated 12/31/04, to be repurchased
at $76,906,710 on 1/3/05, collateralized by U.S.
Government Mortgage Agencies, 2.58%-7.50%,
1/15/08-10/15/44, with a value
of $2,908,566,289 3                                      76,891,588        76,891,588
- --------------------------------------------------------------------------------------
YANKEE FLOATING CERTIFICATE OF DEPOSIT--0.1%
Natexis Banque, NY, 2.193%
Deposit Nts., 1/3/05 3                                    1,999,200         1,999,200
                                                                      ----------------
Total Investments Purchased with
Cash Collateral from Securities Loaned
(Cost $84,390,788)                                                         84,390,788

- --------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $1,473,301,395)                                         105.1%    1,694,574,731
- --------------------------------------------------------------------------------------
LIABILITIES IN EXCESS
OF OTHER ASSETS                                                (5.1)      (82,781,880)
                                                       -------------------------------
NET ASSETS                                                    100.0%  $ 1,611,792,851
                                                       ===============================


FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. Illiquid security. The aggregate value of illiquid securities as of December
31, 2004 was $4,326, which represents less than 0.05% of the Fund's net assets.
See Note 6 of Notes to Financial Statements.

3. The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 7 of Notes to Financial
Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------------

Investments, at value (including securities loaned of $82,656,230)
(cost $1,473,301,395)--see accompanying statement of investments                  $ 1,694,574,731
- --------------------------------------------------------------------------------------------------
Cash                                                                                      277,531
- --------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold                                                                       20,004,857
Interest and dividends                                                                  2,057,773
Shares of beneficial interest sold                                                      1,273,039
Other                                                                                      14,112
                                                                                  ----------------
Total assets                                                                        1,718,202,043

- --------------------------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------------------------
Return of collateral for securities loaned                                             84,390,788
- --------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased                                                                  20,683,436
Shares of beneficial interest redeemed                                                    985,903
Distribution and service plan fees                                                        236,965
Shareholder communications                                                                 45,245
Trustees' compensation                                                                     21,290
Transfer and shareholder servicing agent fees                                               1,748
Other                                                                                      43,817
                                                                                  ----------------
Total liabilities                                                                     106,409,192

- --------------------------------------------------------------------------------------------------
NET ASSETS                                                                        $ 1,611,792,851
                                                                                  ================

- --------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                        $        77,460
- --------------------------------------------------------------------------------------------------
Additional paid-in capital                                                          1,596,214,582
- --------------------------------------------------------------------------------------------------
Accumulated net investment income                                                      20,719,203
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions       (226,491,822)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and
liabilities denominated in foreign currencies                                         221,273,428
                                                                                  ----------------
NET ASSETS                                                                        $ 1,611,792,851
                                                                                  ================

- --------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- --------------------------------------------------------------------------------------------------
Non-Service Shares:
Net asset value, redemption price per share and offering price per share (based
on net assets of $1,238,947,749 and 59,452,782 shares of beneficial interest
outstanding)                                                                      $         20.84
- --------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share (based
on net assets of $372,845,102 and 18,007,790 shares of beneficial interest
outstanding)                                                                      $         20.70


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.




STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------

Dividends (net of foreign withholding taxes of $14,482)                   $  30,469,815
- ----------------------------------------------------------------------------------------
Interest                                                                        345,218
- ----------------------------------------------------------------------------------------
Portfolio lending fees                                                          146,383
                                                                          --------------
Total investment income                                                      30,961,416

- ----------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------
Management fees                                                               9,708,725
- ----------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares                              655,239
- ----------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares                                                               10,185
Service shares                                                                   10,053
- ----------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares                                                               61,504
Service shares                                                                   13,518
- ----------------------------------------------------------------------------------------
Trustees' compensation                                                           29,093
- ----------------------------------------------------------------------------------------
Custodian fees and expenses                                                      25,878
- ----------------------------------------------------------------------------------------
Other                                                                            96,421
                                                                          --------------
Total expenses                                                               10,610,616
Less reduction to custodian expenses                                             (6,829)
                                                                          --------------
Net expenses                                                                 10,603,787

- ----------------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                        20,357,629

- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ----------------------------------------------------------------------------------------
Net realized gain on:
Investments                                                                 110,334,595
Foreign currency transactions                                                   448,102
Net increase from payment by affiliate                                          416,623
                                                                          --------------
Net realized gain                                                           111,199,320
- -----------------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments                                                                   4,876,244
Translation of assets and liabilities denominated in foreign currencies        (258,242)
                                                                          --------------
Net change in unrealized appreciation                                         4,618,002

- ----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                      $ 136,174,951
                                                                          ==============


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                                2004              2003
- --------------------------------------------------------------------------------------------------------------

OPERATIONS
- --------------------------------------------------------------------------------------------------------------
Net investment income                                                       $    20,357,629   $    11,837,805
- --------------------------------------------------------------------------------------------------------------
Net realized gain (loss)                                                        111,199,320       (28,749,982)
- --------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)                              4,618,002       288,279,862
                                                                            ----------------------------------
Net increase in net assets resulting from operations                            136,174,951       271,367,685

- --------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares                                                              (10,373,133)       (9,176,729)
Service shares                                                                   (1,403,577)         (594,874)

- --------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Non-Service shares                                                              (73,484,963)       88,259,594
Service shares                                                                  179,202,879        89,152,120

- --------------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------------
Total increase                                                                  230,116,157       439,007,796
- --------------------------------------------------------------------------------------------------------------
Beginning of period                                                           1,381,676,694       942,668,898
                                                                            ----------------------------------
End of period (including accumulated net investment income of $20,719,203
and $11,726,476, respectively)                                              $ 1,611,792,851   $ 1,381,676,694
                                                                            ==================================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.




FINIANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,              2004             2003          2002            2001            2000
- ------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period              $     19.20     $      15.32     $   18.99     $     21.26     $     24.63
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                     .27 1            .18           .16             .13             .10
Net realized and unrealized gain (loss)                  1.53             3.86         (3.70)          (2.29)          (2.14)
                                                  ----------------------------------------------------------------------------
Total from investment operations                         1.80             4.04         (3.54)          (2.16)          (2.04)
- ------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                     (.16)            (.16)         (.13)           (.11)           (.09)
Distributions from net realized gain                       --               --            --              --           (1.24)
                                                  ----------------------------------------------------------------------------
Total dividends and/or distributions to
shareholders                                             (.16)            (.16)         (.13)           (.11)          (1.33)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                    $     20.84     $      19.20     $   15.32     $     18.99     $     21.26
                                                  ============================================================================

- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                       9.46%           26.72%       (18.80)%        (10.16)%         (8.78)%
- ------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)          $ 1,238,948     $  1,214,960     $ 890,740     $ 1,074,945     $ 1,009,823
- ------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                 $ 1,216,081     $  1,003,396     $ 999,275     $ 1,028,913     $   809,662
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                    1.39%            1.10%         0.94%           0.73%           0.69%
Total expenses                                           0.67% 4          0.70% 4       0.69% 4         0.73% 4         0.73%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                    82%             85%            98%             69%            63%


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.




FINIANCIAL HIGHLIGHTS  continued
- --------------------------------------------------------------------------------

SERVICE SHARES  YEAR ENDED DECEMBER 31,                2004          2003         2002         2001         2001 1
- ------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period              $   19.10     $   15.26     $  18.95     $  21.24     $  24.04
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                   .25 2         .14          .13          .14          .02
Net realized and unrealized gain (loss)                1.49          3.85        (3.70)       (2.32)       (2.82)
                                                  ----------------------------------------------------------------
Total investment operations                            1.74          3.99        (3.57)       (2.18)       (2.80)
- ------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                   (.14)         (.15)        (.12)        (.11)          --
Distributions from net realized gain                     --            --           --           --           --
                                                  ----------------------------------------------------------------
Total dividends and/or distributions to
shareholders                                           (.14)         (.15)        (.12)        (.11)          --
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                    $   20.70     $   19.10     $  15.26     $  18.95     $  21.24
                                                  ================================================================

- ------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                     9.15%        26.44%      (18.99)%     (10.27)%     (11.61)%
- ------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)          $ 372,845     $ 166,717     $ 51,929     $ 21,545     $  1,698
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                 $ 262,660     $  98,210     $ 34,604     $ 10,306     $    543
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                  1.30%         0.83%        0.87%        0.66%        0.50%
Total expenses                                         0.92% 5       0.96% 5      0.84% 5      0.88% 5      0.88%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                  82%           85%          98%          69%          63%


1. For the period from July 13, 2000 (inception of offering) to December 31,
2000.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Main Street Fund/VA (the Fund), is a separate series of Oppenheimer
Variable Account Funds (the Trust), an open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund's
objective is to seek high total return (which includes growth in the value of
its shares as well as current income) from equity and debt securities. The
Trust's investment advisor is OppenheimerFunds, Inc. (the Manager).

      The Fund offers two classes of shares. Both classes are sold at their
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products. The class of shares designated as Service shares is subject to a
distribution and service plan. Both classes of shares have identical rights and
voting privileges with respect to the Fund in general and exclusive voting
rights on matters that affect that class alone. Earnings, net assets and net
asset value per share may differ due to each class having its own expenses, such
as transfer and shareholder servicing agent fees and shareholder communications,
directly attributable to that class.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

      Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

      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.





NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.

- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                               NET UNREALIZED
                                                                 APPRECIATION
                                                             BASED ON COST OF
                                                               SECURITIES AND
   UNDISTRIBUTED    UNDISTRIBUTED            ACCUMULATED    OTHER INVESTMENTS
   NET INVESTMENT       LONG-TERM                   LOSS   FOR FEDERAL INCOME
   INCOME                    GAIN   CARRYFORWARD 1,2,3,4         TAX PURPOSES
   --------------------------------------------------------------------------
   $ 20,674,279              $ --          $ 210,806,406        $ 205,708,485

1. As of December 31, 2004, the Fund had $208,785,635 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of December 31, 2004,
details of the capital loss carryforwards were as follows:

              EXPIRING
              ------------------------
              2009       $  55,468,376
              2010         126,747,906
              2011          26,569,353
                         -------------
              Total      $ 208,785,635
                         =============

2. As of December 31, 2004, the Fund had $2,020,771 of post-October losses
available to offset future realized capital gains, if any. Such losses, if
unutilized, will expire in 2013.

3. During the fiscal year ended December 31, 2004, the Fund utilized
$114,232,007 of capital loss carryforward to offset capital gains realized in
that fiscal year.

4. During the fiscal year ended December 31, 2003, the Fund did not utilize any
capital loss carryforward.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

    INCREASE TO          INCREASE TO
    ACCUMULATED      ACCUMULATED NET
    NET INVESTMENT     REALIZED LOSS
    INCOME            ON INVESTMENTS
    --------------------------------
    $ 411,808              $ 411,808


                      24 | OPPENHEIMER MAIN STREET FUND/VA


The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:

                                      YEAR ENDED          YEAR ENDED
                               DECEMBER 31, 2004   DECEMBER 31, 2003
    ----------------------------------------------------------------
    Distributions paid from:
    Ordinary income                 $ 11,776,710         $ 9,771,603

The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

         Federal tax cost of securities   $ 1,488,866,338
                                          ================

         Gross unrealized appreciation    $   229,577,710
         Gross unrealized depreciation        (23,869,225)
                                          ----------------
         Net unrealized appreciation      $   205,708,485
                                          ================

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.

- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST

The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:

                                             YEAR ENDED DECEMBER 31, 2004   YEAR ENDED DECEMBER 31, 2003
                                                   SHARES          AMOUNT         SHARES          AMOUNT
- --------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                                           11,955,294   $ 233,322,256     19,380,163   $ 327,567,787
Dividends and/or distributions reinvested         536,356      10,373,133        639,048       9,176,729
Redeemed                                      (16,312,427)   (317,180,352)   (14,871,791)   (248,484,922)
                                             ------------------------------------------------------------
Net increase (decrease)                        (3,820,777)  $ (73,484,963)     5,147,420   $  88,259,594
                                             ============================================================

- ---------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold                                           10,163,617   $ 196,313,963      5,793,833   $  97,063,016
Dividends and/or distributions reinvested          72,875       1,403,577         41,628         594,874
Redeemed                                         (955,303)    (18,514,661)      (511,472)     (8,505,770)
                                             ------------------------------------------------------------
Net increase                                    9,281,189   $ 179,202,879      5,323,989   $  89,152,120
                                             ============================================================


- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended December 31, 2004, were
$1,305,020,608 and $1,185,897,130, respectively.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million and 0.60% of average annual net assets over $800 million.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$20,156 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 per class for class level assets of $10
million or more. Each class is subject to the minimum fee in the event that the
per account fee does not equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FOR SERVICE SHARES. The Fund has adopted a
Distribution and Service Plan for Service shares to pay OppenheimerFunds
Distributor, Inc. (the Distributor), for distribution related services and
personal service and account maintenance for the Fund's Service shares. Under
the Plan, payments are made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Service shares of the Fund. The Distributor
currently uses all of those fees to compensate sponsor(s) of the insurance
product that offers Fund shares, for providing personal service and maintenance
of accounts of their variable contract owners that hold Service shares. The
impact of the service plan is to increase operating expenses of the Service
shares, which results in lower performance compared to the Fund's shares that
are not subject to a service fee. Fees incurred by the Fund under the Plan are
detailed in the Statement of Operations.





- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. Following a review of its use of brokerage
commissions for sales that is permitted under its investment advisory agreement,
the Fund's Manager terminated that practice in July 2003. Subsequently, the
Manager paid the Fund $416,623, an amount equivalent to certain of such
commissions incurred in prior years.

      OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees for all classes to 0.35% of average annual net assets per class. This
undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.

      The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.

      The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.

      As of December 31, 2004, the Fund had no outstanding foreign currency
contracts.

- --------------------------------------------------------------------------------
6. ILLIQUID SECURITIES

As of December 31, 2004, investments in securities included issues that are
illiquid. 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 will not invest more than 15% of its net assets (determined at the time of
purchase and reviewed periodically) in illiquid securities.

- --------------------------------------------------------------------------------
7. SECURITIES LENDING

The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund also continues to receive
interest or dividends paid on the securities loaned. As of December 31, 2004,
the Fund had on loan securities valued at $82,656,230. Cash of $84,390,788 was
received as collateral for the loans, all of which was invested in approved
instruments.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
8. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.

EX-99 5 sai3497.htm SAI - PART 3 OF 4 sai part 3 of 4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER MAIN STREET SMALL CAP
FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Main Street Small Cap Fund/VA, a series of Oppenheimer Variable
Account Funds, including the statement of investments, as of December 31, 2004,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Main Street Small Cap Fund/VA as of December 31, 2004, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
the periods presented, in conformity with accounting principles generally
accepted in the United States of America.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005


STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

COMMON STOCKS--98.5%
- ---------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--16.4%
- ---------------------------------------------------------------------------------
AUTO COMPONENTS--1.0%
Aftermarket Technology Corp. 1                             2,400   $      38,640
- ---------------------------------------------------------------------------------
ArvinMeritor, Inc.                                        10,700         239,359
- ---------------------------------------------------------------------------------
Autoliv, Inc.                                              4,200         202,860
- ---------------------------------------------------------------------------------
Collins & Aikman Corp. 1                                   7,600          33,136
- ---------------------------------------------------------------------------------
Cooper Tire & Rubber Co.                                   5,200         112,060
- ---------------------------------------------------------------------------------
Dana Corp.                                                 5,100          88,383
- ---------------------------------------------------------------------------------
Drew Industries, Inc. 1                                    2,700          97,659
- ---------------------------------------------------------------------------------
Dura Automotive Systems, Inc. 1                              500           5,415
- ---------------------------------------------------------------------------------
Goodyear Tire & Rubber Co. 1                              21,400         313,724
- ---------------------------------------------------------------------------------
Keystone Automotive Industries, Inc. 1                     1,100          25,575
- ---------------------------------------------------------------------------------
Midas, Inc. 1                                             11,900         238,000
- ---------------------------------------------------------------------------------
Modine Manufacturing Co.                                     200           6,754
- ---------------------------------------------------------------------------------
Shiloh Industries, Inc. 1                                  2,900          40,600
- ---------------------------------------------------------------------------------
Spartan Motors, Inc.                                       2,700          32,211
- ---------------------------------------------------------------------------------
Standard Motor Products, Inc.                              5,600          88,480
- ---------------------------------------------------------------------------------
Stoneridge, Inc. 1                                         1,900          28,747
- ---------------------------------------------------------------------------------
Tenneco Automotive, Inc. 1                                16,100         277,564
- ---------------------------------------------------------------------------------
Visteon Corp.                                             26,500         258,905
                                                                   --------------
                                                                       2,128,072

- ---------------------------------------------------------------------------------
AUTOMOBILES--0.3%
Monaco Coach Corp.                                         7,200         148,104
- ---------------------------------------------------------------------------------
Thor Industries, Inc.                                      2,600          96,330
- ---------------------------------------------------------------------------------
Winnebago Industries, Inc.                                 8,100         316,386
                                                                   --------------
                                                                         560,820

- ---------------------------------------------------------------------------------
DISTRIBUTORS--0.4%
Andersons, Inc. (The)                                        500          12,750
- ---------------------------------------------------------------------------------
BlueLinx Holdings, Inc. 1                                 14,000         202,580
- ---------------------------------------------------------------------------------
Handleman Co.                                             12,000         257,760
- ---------------------------------------------------------------------------------
WESCO International, Inc. 1                                9,200         272,688
                                                                   --------------
                                                                         745,778

- ---------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--3.0%
AFC Enterprises, Inc. 1                                      600          14,226
- ---------------------------------------------------------------------------------
Ambassadors Group, Inc.                                    4,100         146,001
- ---------------------------------------------------------------------------------
Ameristar Casinos, Inc.                                    6,300         271,593
- ---------------------------------------------------------------------------------
Applebee's International, Inc.                             1,450          38,353
- ---------------------------------------------------------------------------------
Argosy Gaming Co. 1                                        4,700         219,490
- ---------------------------------------------------------------------------------
Aztar Corp. 1                                              4,400         153,648
- ---------------------------------------------------------------------------------
Bally Total Fitness Holding Corp. 1                        2,800          11,872
- ---------------------------------------------------------------------------------
BJ's Restaurants, Inc. 1                                   2,200          30,800
- ---------------------------------------------------------------------------------
Bluegreen Corp. 1                                         13,900         275,637
- ---------------------------------------------------------------------------------
Caesars Entertainment, Inc. 1                              5,200         104,728
- ---------------------------------------------------------------------------------
California Pizza Kitchen, Inc. 1                           9,100         209,300


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

HOTELS, RESTAURANTS & LEISURE Continued
CBRL Group, Inc.                                           3,900   $     163,215
- ---------------------------------------------------------------------------------
CEC Entertainment, Inc. 1                                 13,950         557,582
- ---------------------------------------------------------------------------------
Checkers Drive-In Restaurants, Inc. 1                      2,200          29,480
- ---------------------------------------------------------------------------------
Choice Hotels International, Inc.                          3,200         185,600
- ---------------------------------------------------------------------------------
Ctrip.com International Ltd., ADR 1                        2,800         128,856
- ---------------------------------------------------------------------------------
Dave & Buster's, Inc. 1                                   10,900         220,180
- ---------------------------------------------------------------------------------
Domino's Pizza, Inc.                                       5,300          94,340
- ---------------------------------------------------------------------------------
Dover Downs Gaming & Entertainment, Inc.                   3,500          45,850
- ---------------------------------------------------------------------------------
Frisch's Restaurants, Inc.                                   100           2,383
- ---------------------------------------------------------------------------------
Gaylord Entertainment Co., Cl. A 1                         6,100         253,333
- ---------------------------------------------------------------------------------
Great Wolf Resorts, Inc. 1                                10,100         225,634
- ---------------------------------------------------------------------------------
Isle of Capri Casinos, Inc. 1                             14,400         369,360
- ---------------------------------------------------------------------------------
Jack in the Box, Inc. 1                                   13,800         508,806
- ---------------------------------------------------------------------------------
La Quinta Corp. 1                                         38,000         345,420
- ---------------------------------------------------------------------------------
Landry's Restaurants, Inc.                                 2,100          61,026
- ---------------------------------------------------------------------------------
Lone Star Steakhouse & Saloon, Inc.                        2,400          67,200
- ---------------------------------------------------------------------------------
Monarch Casino & Resort, Inc. 1                            3,400         137,870
- ---------------------------------------------------------------------------------
Navigant International, Inc. 1                             4,900          59,633
- ---------------------------------------------------------------------------------
O'Charley's, Inc. 1                                          800          15,640
- ---------------------------------------------------------------------------------
Outback Steakhouse, Inc.                                     800          36,624
- ---------------------------------------------------------------------------------
P.F. Chang's China Bistro, Inc. 1                          2,500         140,875
- ---------------------------------------------------------------------------------
Papa John's International, Inc. 1                          4,600         158,424
- ---------------------------------------------------------------------------------
Pinnacle Entertainment, Inc. 1                             6,500         128,570
- ---------------------------------------------------------------------------------
Rare Hospitality International, Inc. 1                     2,450          78,057
- ---------------------------------------------------------------------------------
Red Robin Gourmet Burgers, Inc. 1                            800          42,776
- ---------------------------------------------------------------------------------
Ryan's Restaurant Group, Inc. 1                            3,200          49,344
- ---------------------------------------------------------------------------------
Scientific Games Corp., Cl. A 1                            2,000          47,680
- ---------------------------------------------------------------------------------
Six Flags, Inc. 1                                         40,600         218,022
- ---------------------------------------------------------------------------------
Sonic Corp. 1                                              7,050         215,025
- ---------------------------------------------------------------------------------
Speedway Motorsports, Inc.                                 1,200          47,016
- ---------------------------------------------------------------------------------
Steak n Shake Co. (The) 1                                  5,500         110,440
- ---------------------------------------------------------------------------------
The9 Ltd., ADR 1                                           4,100          96,842
- ---------------------------------------------------------------------------------
Vail Resorts, Inc. 1                                       3,900          87,438
                                                                   --------------
                                                                       6,404,189

- ---------------------------------------------------------------------------------
HOUSEHOLD DURABLES--2.2%
American Greetings Corp., Cl. A                           19,600         496,860
- ---------------------------------------------------------------------------------
Avatar Holdings, Inc. 1                                      300          14,430
- ---------------------------------------------------------------------------------
Bassett Furniture Industries, Inc.                           900          17,663
- ---------------------------------------------------------------------------------
Beazer Homes USA, Inc.                                     1,600         233,936
- ---------------------------------------------------------------------------------
Black & Decker Corp.                                       2,300         203,159
- ---------------------------------------------------------------------------------
Blount International, Inc. 1                              11,700         203,814
- ---------------------------------------------------------------------------------
Brookfield Homes Corp.                                     1,700          57,630
- ---------------------------------------------------------------------------------
Champion Enterprises, Inc. 1                               3,100          36,642
- ---------------------------------------------------------------------------------
Chromcraft Revington, Inc. 1                                 600           7,380






STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

HOUSEHOLD DURABLES Continued
Comstock Homebuilding Cos., Inc., Cl. A 1                  6,000   $     130,620
- ---------------------------------------------------------------------------------
CSS Industries, Inc.                                       4,100         130,216
- ---------------------------------------------------------------------------------
Enesco Group, Inc. 1                                         200           1,616
- ---------------------------------------------------------------------------------
Ethan Allen Interiors, Inc.                                6,700         268,134
- ---------------------------------------------------------------------------------
Furniture Brands International, Inc.                      15,600         390,780
- ---------------------------------------------------------------------------------
Interface, Inc., Cl. A 1                                   3,000          29,910
- ---------------------------------------------------------------------------------
KB Home                                                      600          62,640
- ---------------------------------------------------------------------------------
Kimball International, Inc., Cl. B                         3,700          54,797
- ---------------------------------------------------------------------------------
La-Z-Boy, Inc.                                             3,500          53,795
- ---------------------------------------------------------------------------------
Leggett & Platt, Inc.                                      3,100          88,133
- ---------------------------------------------------------------------------------
Levitt Corp., Cl. A                                        1,800          55,026
- ---------------------------------------------------------------------------------
M.D.C. Holdings, Inc.                                        580          50,135
- ---------------------------------------------------------------------------------
Maytag Corp.                                               2,400          50,640
- ---------------------------------------------------------------------------------
Meritage Homes Corp. 1                                     3,500         394,450
- ---------------------------------------------------------------------------------
Mestek, Inc. 1                                               700          12,670
- ---------------------------------------------------------------------------------
Movado Group, Inc.                                           600          11,190
- ---------------------------------------------------------------------------------
National Presto Industries, Inc.                             300          13,650
- ---------------------------------------------------------------------------------
Ryland Group, Inc. (The)                                   3,100         178,374
- ---------------------------------------------------------------------------------
Snap-On, Inc.                                              4,400         151,184
- ---------------------------------------------------------------------------------
Standard Pacific Corp.                                     1,800         115,452
- ---------------------------------------------------------------------------------
Stanley Furniture Co., Inc.                                3,600         161,820
- ---------------------------------------------------------------------------------
Stanley Works (The)                                        3,700         181,263
- ---------------------------------------------------------------------------------
Technical Olympic USA, Inc.                                6,600         167,508
- ---------------------------------------------------------------------------------
Tupperware Corp.                                          12,300         254,856
- ---------------------------------------------------------------------------------
Universal Electronics, Inc. 1                              5,000          88,000
- ---------------------------------------------------------------------------------
Whirlpool Corp.                                            1,400          96,894
- ---------------------------------------------------------------------------------
Yankee Candle, Inc. (The) 1                                6,100         202,398
                                                                   --------------
                                                                       4,667,665

- ---------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--0.3%
1-800-FLOWERS.com, Inc. 1                                  2,500          21,025
- ---------------------------------------------------------------------------------
Audible, Inc. 1                                            5,600         145,880
- ---------------------------------------------------------------------------------
GSI Commerce, Inc. 1                                       3,100          55,118
- ---------------------------------------------------------------------------------
Insight Enterprises, Inc. 1                               13,100         268,812
- ---------------------------------------------------------------------------------
J. Jill Group, Inc. 1                                      4,000          59,560
- ---------------------------------------------------------------------------------
Provide Commerce, Inc. 1                                   1,800          66,870
- ---------------------------------------------------------------------------------
ValueVision Media, Inc., Cl. A 1                           8,300         115,453
                                                                   --------------
                                                                         732,718

- ---------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--1.1%
Action Performance Cos., Inc.                             10,300         113,197
- ---------------------------------------------------------------------------------
Arctic Cat, Inc.                                           2,600          68,952
- ---------------------------------------------------------------------------------
Callaway Golf Co.                                          8,400         113,400
- ---------------------------------------------------------------------------------
Hasbro, Inc.                                               6,300         122,094
- ---------------------------------------------------------------------------------
JAKKS Pacific, Inc. 1                                      5,500         121,605
- ---------------------------------------------------------------------------------
Marine Products Corp.                                      1,000          26,110


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

LEISURE EQUIPMENT & PRODUCTS Continued
MarineMax, Inc. 1                                          1,800   $      53,568
- ---------------------------------------------------------------------------------
Marvel Enterprises, Inc. 1                                16,400         335,872
- ---------------------------------------------------------------------------------
Nautilus Group, Inc. (The)                                22,100         534,157
- ---------------------------------------------------------------------------------
Oakley, Inc.                                                 500           6,375
- ---------------------------------------------------------------------------------
Polaris Industries, Inc.                                   1,900         129,238
- ---------------------------------------------------------------------------------
RC2 Corp. 1                                                7,700         251,020
- ---------------------------------------------------------------------------------
SCP Pool Corp.                                            11,012         351,283
- ---------------------------------------------------------------------------------
Steinway Musical Instruments, Inc. 1                       4,600         133,124
                                                                   --------------
                                                                       2,359,995

- ---------------------------------------------------------------------------------
MEDIA--1.5%
4Kids Entertainment, Inc. 1                                5,900         124,018
- ---------------------------------------------------------------------------------
Advo, Inc.                                                 1,850          65,953
- ---------------------------------------------------------------------------------
Beasley Broadcast Group, Inc., Cl. A 1                       100           1,753
- ---------------------------------------------------------------------------------
Carmike Cinemas, Inc.                                        800          29,200
- ---------------------------------------------------------------------------------
Catalina Marketing Corp.                                  14,000         414,820
- ---------------------------------------------------------------------------------
Charter Communications, Inc., Cl. A 1                     47,800         107,072
- ---------------------------------------------------------------------------------
Entravision Communications Corp. 1                         5,400          45,090
- ---------------------------------------------------------------------------------
Gemstar-TV Guide International, Inc. 1                    10,600          62,752
- ---------------------------------------------------------------------------------
Getty Images, Inc. 1                                       1,900         130,815
- ---------------------------------------------------------------------------------
Gray Television, Inc.                                      2,100          32,550
- ---------------------------------------------------------------------------------
Harte-Hanks, Inc.                                          1,100          28,578
- ---------------------------------------------------------------------------------
Hearst-Argyle Television, Inc.                             1,400          36,932
- ---------------------------------------------------------------------------------
Hollinger International, Inc.                              1,600          25,088
- ---------------------------------------------------------------------------------
Insight Communications Co., Inc. 1                         4,700          43,569
- ---------------------------------------------------------------------------------
Lakes Gaming, Inc. 1                                       3,100          50,499
- ---------------------------------------------------------------------------------
Lin TV Corp. 1                                             3,200          61,120
- ---------------------------------------------------------------------------------
Martha Stewart Living Omnimedia,
Inc., Cl. A 1                                              7,300         211,846
- ---------------------------------------------------------------------------------
Media General, Inc., Cl. A                                   400          25,924
- ---------------------------------------------------------------------------------
Mediacom Communications Corp. 1                           28,500         178,125
- ---------------------------------------------------------------------------------
Meredith Corp.                                             1,800          97,560
- ---------------------------------------------------------------------------------
New Frontier Media, Inc. 1                                   700           5,543
- ---------------------------------------------------------------------------------
Playboy Enterprises, Inc., Cl. B 1                         2,500          30,725
- ---------------------------------------------------------------------------------
PRIMEDIA, Inc. 1                                           4,100          15,580
- ---------------------------------------------------------------------------------
ProQuest Co. 1                                               800          23,760
- ---------------------------------------------------------------------------------
Pulitzer, Inc.                                               100           6,485
- ---------------------------------------------------------------------------------
R.H. Donnelley Corp. 1                                     3,700         218,485
- ---------------------------------------------------------------------------------
Radio One, Inc., Cl. D 1                                   3,600          58,032
- ---------------------------------------------------------------------------------
Readers Digest Assn., Inc. (The), Cl. A, Non-Vtg          14,500         201,695
- ---------------------------------------------------------------------------------
Salem Communications Corp., Cl. A 1                        7,500         187,125
- ---------------------------------------------------------------------------------
Thomas Nelson, Inc.                                        5,200         117,520
- ---------------------------------------------------------------------------------
TiVo, Inc. 1                                              12,200          71,614
- ---------------------------------------------------------------------------------
Westwood One, Inc. 1                                       3,900         105,027
- ---------------------------------------------------------------------------------
Wiley (John) & Sons, Inc., Cl. A                           2,400          83,616






                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

MEDIA Continued
World Wrestling Federation Entertainment, Inc.            12,600   $     152,838
- ---------------------------------------------------------------------------------
WPT Enterprises, Inc. 1                                    1,500          25,500
                                                                   --------------
                                                                       3,076,809

- ---------------------------------------------------------------------------------
MULTILINE RETAIL--0.5%
Big Lots, Inc. 1                                           4,200          50,946
- ---------------------------------------------------------------------------------
Dillard's, Inc., Cl. A                                     9,700         260,639
- ---------------------------------------------------------------------------------
Shopko Stores, Inc. 1                                     11,700         218,556
- ---------------------------------------------------------------------------------
Stage Stores, Inc. 1                                       6,500         269,880
- ---------------------------------------------------------------------------------
Stein Mart, Inc. 1                                        20,900         356,554
                                                                   --------------
                                                                       1,156,575

- ---------------------------------------------------------------------------------
SPECIALTY RETAIL--5.0%
A.C. Moore Arts & Crafts, Inc. 1                           1,100          31,691
- ---------------------------------------------------------------------------------
Aaron Rents, Inc.                                          8,400         210,000
- ---------------------------------------------------------------------------------
Abercrombie & Fitch Co., Cl. A                             4,500         211,275
- ---------------------------------------------------------------------------------
Aeropostale, Inc. 1                                       12,550         369,347
- ---------------------------------------------------------------------------------
American Eagle Outfitters, Inc.                            3,900         183,690
- ---------------------------------------------------------------------------------
AnnTaylor Stores Corp. 1                                   2,950          63,514
- ---------------------------------------------------------------------------------
AutoNation, Inc. 1                                         2,300          44,183
- ---------------------------------------------------------------------------------
Barnes & Noble, Inc. 1                                     8,800         283,976
- ---------------------------------------------------------------------------------
bebe stores, inc                                           4,575         123,434
- ---------------------------------------------------------------------------------
Big 5 Sporting Goods Corp.                                 8,100         236,034
- ---------------------------------------------------------------------------------
Blair Corp.                                                3,000         106,980
- ---------------------------------------------------------------------------------
Borders Group, Inc.                                       12,500         317,500
- ---------------------------------------------------------------------------------
Brookstone, Inc. 1                                         7,675         150,046
- ---------------------------------------------------------------------------------
Buckle, Inc. (The)                                         2,600          76,700
- ---------------------------------------------------------------------------------
Build-A-Bear-Workshop, Inc. 1                              2,700          94,905
- ---------------------------------------------------------------------------------
Building Materials Holding Corp.                           8,200         313,978
- ---------------------------------------------------------------------------------
Burlington Coat Factory Warehouse Corp.                    5,500         124,850
- ---------------------------------------------------------------------------------
Casual Male Retail Group, Inc. 1                           3,400          18,530
- ---------------------------------------------------------------------------------
Cato Corp., Cl. A                                          8,700         250,734
- ---------------------------------------------------------------------------------
Charlotte Russe Holding, Inc. 1                            6,700          67,670
- ---------------------------------------------------------------------------------
Charming Shoppes, Inc. 1                                  55,900         523,783
- ---------------------------------------------------------------------------------
Children's Place Retail Stores, Inc. 1                     7,000         259,210
- ---------------------------------------------------------------------------------
Christopher & Banks Corp.                                  3,500          64,575
- ---------------------------------------------------------------------------------
Circuit City Stores, Inc./
Circuit City Group                                        12,300         192,372
- ---------------------------------------------------------------------------------
Claire's Stores, Inc.                                     11,800         250,750
- ---------------------------------------------------------------------------------
CSK Auto Corp. 1                                           6,000         100,440
- ---------------------------------------------------------------------------------
Deb Shops, Inc.                                              200           5,008
- ---------------------------------------------------------------------------------
Dress Barn, Inc. (The) 1                                  12,200         214,720
- ---------------------------------------------------------------------------------
Electronics Boutique Holdings Corp. 1                      9,300         399,342
- ---------------------------------------------------------------------------------
Finish Line, Inc. (The), Cl. A                            13,600         248,880
- ---------------------------------------------------------------------------------
Finlay Enterprises, Inc. 1                                 1,300          25,727


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

SPECIALTY RETAIL Continued
GameStop Corp. 1                                          15,100   $     337,636
- ---------------------------------------------------------------------------------
GameStop Corp., Cl. B 1                                      467          10,465
- ---------------------------------------------------------------------------------
Genesco, Inc. 1                                            3,000          93,420
- ---------------------------------------------------------------------------------
Goody's Family Clothing, Inc.                             12,300         112,422
- ---------------------------------------------------------------------------------
Guess?, Inc. 1                                            18,000         225,900
- ---------------------------------------------------------------------------------
Haverty Furniture Cos., Inc.                               4,900          90,650
- ---------------------------------------------------------------------------------
Hibbett Sporting Goods, Inc. 1                             9,225         245,477
- ---------------------------------------------------------------------------------
Hollywood Entertainment Corp. 1                            3,800          49,742
- ---------------------------------------------------------------------------------
Hot Topic, Inc. 1                                          2,100          36,099
- ---------------------------------------------------------------------------------
Jo-Ann Stores, Inc. 1                                      1,900          52,326
- ---------------------------------------------------------------------------------
Jos. A. Banks Clothiers, Inc. 1                            1,625          45,988
- ---------------------------------------------------------------------------------
Men's Wearhouse, Inc. (The) 1                              9,800         313,208
- ---------------------------------------------------------------------------------
Michaels Stores, Inc.                                      6,700         200,799
- ---------------------------------------------------------------------------------
Movie Gallery, Inc.                                        6,500         123,955
- ---------------------------------------------------------------------------------
NetFlix.com, Inc. 1                                          600           7,398
- ---------------------------------------------------------------------------------
Office Depot, Inc. 1                                      12,300         213,528
- ---------------------------------------------------------------------------------
Pacific Sunwear of California, Inc. 1                     17,875         397,898
- ---------------------------------------------------------------------------------
Pantry, Inc. (The) 1                                       4,900         147,441
- ---------------------------------------------------------------------------------
Party City Corp. 1                                           600           7,758
- ---------------------------------------------------------------------------------
Payless ShoeSource, Inc. 1                                15,700         193,110
- ---------------------------------------------------------------------------------
Petco Animal Supplies, Inc. 1                              2,700         106,596
- ---------------------------------------------------------------------------------
PETsMART, Inc.                                             2,400          85,272
- ---------------------------------------------------------------------------------
Pier 1 Imports, Inc.                                       4,800          94,560
- ---------------------------------------------------------------------------------
Regis Corp.                                                2,700         124,605
- ---------------------------------------------------------------------------------
Rent-A-Center, Inc. 1                                      2,400          63,600
- ---------------------------------------------------------------------------------
Rent-Way, Inc. 1                                           1,200           9,612
- ---------------------------------------------------------------------------------
Restoration Hardware, Inc. 1                              17,000          97,580
- ---------------------------------------------------------------------------------
Sonic Automotive, Inc.                                     2,000          49,600
- ---------------------------------------------------------------------------------
Steiner Leisure Ltd. 1                                     2,800          83,664
- ---------------------------------------------------------------------------------
Syms Corp. 1                                                 600           7,290
- ---------------------------------------------------------------------------------
Talbots, Inc. (The)                                        4,200         114,366
- ---------------------------------------------------------------------------------
Too, Inc. 1                                               10,000         244,600
- ---------------------------------------------------------------------------------
Toys R Us, Inc. 1                                          9,600         196,512
- ---------------------------------------------------------------------------------
Trans World Entertainment Corp. 1                         14,200         177,074
- ---------------------------------------------------------------------------------
Tuesday Morning Corp. 1                                    1,700          52,071
- ---------------------------------------------------------------------------------
Tweeter Home Entertainment Group, Inc. 1                   3,100          21,235
- ---------------------------------------------------------------------------------
United Auto Group, Inc.                                    4,100         121,319
- ---------------------------------------------------------------------------------
Zale Corp. 1                                              19,100         570,517
                                                                   --------------
                                                                      10,689,137

- ---------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--1.1%
Brown Shoe Co., Inc.                                         200           5,966
- ---------------------------------------------------------------------------------
Cherokee, Inc.                                               900          31,752
- ---------------------------------------------------------------------------------
Deckers Outdoor Corp. 1                                    2,800         131,572
- ---------------------------------------------------------------------------------
Hartmarx Corp. 1                                          15,000         116,550






STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

TEXTILES, APPAREL & LUXURY GOODS Continued
Jones Apparel Group, Inc.                                  3,700   $     135,309
- ---------------------------------------------------------------------------------
K-Swiss, Inc., Cl. A                                      10,700         311,584
- ---------------------------------------------------------------------------------
Kellwood Co.                                               5,900         203,550
- ---------------------------------------------------------------------------------
Kenneth Cole Productions, Inc., Cl. A                      1,000          30,860
- ---------------------------------------------------------------------------------
Phillips/Van Heusen Corp.                                  5,100         137,700
- ---------------------------------------------------------------------------------
Russell Corp.                                              1,900          37,012
- ---------------------------------------------------------------------------------
Skechers U.S.A., Inc., Cl. A 1                            13,900         180,144
- ---------------------------------------------------------------------------------
Timberland Co., Cl. A 1                                    4,400         275,748
- ---------------------------------------------------------------------------------
Tommy Hilfiger Corp. 1                                     7,500          84,600
- ---------------------------------------------------------------------------------
Warnaco Group, Inc. (The) 1                                3,900          84,240
- ---------------------------------------------------------------------------------
Wolverine World Wide, Inc.                                16,700         524,714
                                                                   --------------
                                                                       2,291,301

- ---------------------------------------------------------------------------------
CONSUMER STAPLES--3.5%
- ---------------------------------------------------------------------------------
BEVERAGES--0.2%
Adolph Coors Co., Cl. B                                      100           7,567
- ---------------------------------------------------------------------------------
Boston Beer Co., Inc., Cl. A 1                             5,200         110,604
- ---------------------------------------------------------------------------------
Hansen Natural Corp. 1                                     3,700         134,717
- ---------------------------------------------------------------------------------
National Beverage Corp.                                    1,400          11,648
- ---------------------------------------------------------------------------------
PepsiAmericas, Inc.                                        5,800         123,192
                                                                   --------------
                                                                         387,728

- ---------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.1%
7-Eleven, Inc. 1                                          12,900         308,955
- ---------------------------------------------------------------------------------
Arden Group, Inc., Cl. A                                     800          80,380
- ---------------------------------------------------------------------------------
BJ's Wholesale Club, Inc. 1                               11,300         329,169
- ---------------------------------------------------------------------------------
Casey's General Stores, Inc.                               3,500          63,525
- ---------------------------------------------------------------------------------
Great Atlantic & Pacific Tea Co., Inc. (The) 1             6,200          63,550
- ---------------------------------------------------------------------------------
Ingles Markets, Inc., Cl. A                                  700           8,673
- ---------------------------------------------------------------------------------
Longs Drug Stores, Inc.                                   11,600         319,812
- ---------------------------------------------------------------------------------
Nash Finch Co.                                             7,500         283,200
- ---------------------------------------------------------------------------------
Rite Aid Corp. 1                                          43,400         158,844
- ---------------------------------------------------------------------------------
Ruddick Corp.                                             12,700         275,463
- ---------------------------------------------------------------------------------
Smart & Final, Inc. 1                                      3,900          56,121
- ---------------------------------------------------------------------------------
SUPERVALU, Inc.                                            4,800         165,696
- ---------------------------------------------------------------------------------
Weis Markets, Inc.                                         2,900         111,853
- ---------------------------------------------------------------------------------
Winn-Dixie Stores, Inc.                                   37,700         171,535
                                                                   --------------
                                                                       2,396,776

- ---------------------------------------------------------------------------------
FOOD PRODUCTS--1.1%
Alico, Inc. 1                                                100           5,852
- ---------------------------------------------------------------------------------
Cal-Maine Foods, Inc.                                     13,000         157,170
- ---------------------------------------------------------------------------------
Chiquita Brands International, Inc. 1                      7,300         161,038
- ---------------------------------------------------------------------------------
Corn Products International, Inc.                          9,500         508,820
- ---------------------------------------------------------------------------------
Darling International, Inc. 1                             38,200         166,552
- ---------------------------------------------------------------------------------
Del Monte Foods Co. 1                                      7,100          78,242


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

FOOD PRODUCTS Continued
Farmer Brothers Co.                                          100   $       2,424
- ---------------------------------------------------------------------------------
Flowers Foods, Inc.                                        8,000         252,640
- ---------------------------------------------------------------------------------
J&J Snack Foods Corp. 1                                    2,100         102,963
- ---------------------------------------------------------------------------------
Lancaster Colony Corp.                                     4,000         171,480
- ---------------------------------------------------------------------------------
Lance, Inc.                                                8,600         163,658
- ---------------------------------------------------------------------------------
M&F Worldwide Corp. 1                                      2,300          31,326
- ---------------------------------------------------------------------------------
Omega Protein Corp. 1                                      4,800          41,280
- ---------------------------------------------------------------------------------
Pilgrim's Pride Corp., Cl. B                               4,900         150,332
- ---------------------------------------------------------------------------------
Sanderson Farms, Inc.                                      6,350         274,828
- ---------------------------------------------------------------------------------
Smithfield Foods, Inc. 1                                   1,300          38,467
                                                                   --------------
                                                                       2,307,072

- ---------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.6%
Chattem, Inc. 1                                            4,900         162,190
- ---------------------------------------------------------------------------------
Energizer Holdings, Inc. 1                                 3,500         173,915
- ---------------------------------------------------------------------------------
Nu Skin Asia Pacific, Inc., Cl. A                         16,400         416,232
- ---------------------------------------------------------------------------------
Rayovac Corp. 1                                           15,500         473,680
                                                                   --------------
                                                                       1,226,017

- ---------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.4%
Del Laboratories, Inc. 1                                   2,538          88,196
- ---------------------------------------------------------------------------------
Elizabeth Arden, Inc. 1                                    9,800         232,652
- ---------------------------------------------------------------------------------
Inter Parfums, Inc.                                        1,200          19,080
- ---------------------------------------------------------------------------------
Mannatech, Inc.                                           15,200         289,408
- ---------------------------------------------------------------------------------
Nature's Sunshine Products, Inc.                           7,900         160,844
- ---------------------------------------------------------------------------------
NBTY, Inc. 1                                               6,500         156,065
                                                                   --------------
                                                                         946,245

- ---------------------------------------------------------------------------------
TOBACCO--0.1%
Star Scientific, Inc. 1                                   20,100         102,209
- ---------------------------------------------------------------------------------
Vector Group Ltd.                                          2,200          36,586
                                                                   --------------
                                                                         138,795

- ---------------------------------------------------------------------------------
ENERGY--7.2%
- ---------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--2.1%
Atwood Oceanics, Inc. 1                                    5,700         296,970
- ---------------------------------------------------------------------------------
Cal Dive International, Inc. 1                            14,700         599,025
- ---------------------------------------------------------------------------------
Carbo Ceramics, Inc.                                       2,300         158,700
- ---------------------------------------------------------------------------------
CHC Helicopter Corp., Cl. A                                  700          29,819
- ---------------------------------------------------------------------------------
Diamond Offshore Drilling, Inc.                            6,500         260,325
- ---------------------------------------------------------------------------------
Dril-Quip, Inc. 1                                            800          19,408
- ---------------------------------------------------------------------------------
Ensign Resource Service Group, Inc.                       14,000         293,169
- ---------------------------------------------------------------------------------
Grant Prideco, Inc. 1                                     10,900         218,545
- ---------------------------------------------------------------------------------
Gulf Island Fabrication, Inc.                              5,800         126,614
- ---------------------------------------------------------------------------------
Hydril Co. 1                                               4,100         186,591
- ---------------------------------------------------------------------------------
Key Energy Services, Inc. 1                                4,700          55,460
- ---------------------------------------------------------------------------------
Lone Star Technologies, Inc. 1                             6,300         210,798



                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

ENERGY EQUIPMENT & SERVICES Continued
Maverick Tube Corp. 1                                      9,300   $     281,790
- ---------------------------------------------------------------------------------
NS Group, Inc. 1                                          11,100         308,580
- ---------------------------------------------------------------------------------
Oceaneering International, Inc. 1                          1,500          55,980
- ---------------------------------------------------------------------------------
Offshore Logistics, Inc. 1                                 3,700         120,139
- ---------------------------------------------------------------------------------
Oil States International, Inc. 1                          14,200         273,918
- ---------------------------------------------------------------------------------
Pioneer Drilling Co. 1                                     5,800          58,522
- ---------------------------------------------------------------------------------
Precision Drilling Corp. 1                                 1,500          94,546
- ---------------------------------------------------------------------------------
Pride International, Inc. 1                                5,100         104,754
- ---------------------------------------------------------------------------------
RPC, Inc.                                                  2,800          70,336
- ---------------------------------------------------------------------------------
Superior Energy Services, Inc. 1                             100           1,541
- ---------------------------------------------------------------------------------
Technicoil Corp. 1                                         7,100          15,505
- ---------------------------------------------------------------------------------
Tetra Technologies, Inc. 1                                 1,000          28,300
- ---------------------------------------------------------------------------------
Todco, Cl. A 1                                             2,500          46,050
- ---------------------------------------------------------------------------------
Total Energy Services Ltd. 1                              16,300          92,917
- ---------------------------------------------------------------------------------
Trican Well Service Ltd. 1                                 4,100         227,559
- ---------------------------------------------------------------------------------
Universal Compression Holdings, Inc. 1                     7,100         247,861
- ---------------------------------------------------------------------------------
Veritas DGC, Inc. 1                                        3,300          73,953
                                                                   --------------
                                                                       4,557,675

- ---------------------------------------------------------------------------------
OIL & GAS--5.1%
Ashland, Inc.                                              1,900         110,922
- ---------------------------------------------------------------------------------
Atlas Energy Ltd. 1                                       37,300         105,847
- ---------------------------------------------------------------------------------
ATP Oil & Gas Corp. 1                                      1,200          22,296
- ---------------------------------------------------------------------------------
Berry Petroleum Co., Cl. A                                 3,200         152,640
- ---------------------------------------------------------------------------------
Bill Barrett Corp. 1                                       7,000         223,930
- ---------------------------------------------------------------------------------
Blizzard Energy, Inc. 1                                   86,400         187,489
- ---------------------------------------------------------------------------------
Cabot Oil & Gas Corp., Cl. A                               5,800         256,650
- ---------------------------------------------------------------------------------
Callon Petroleum Co. 1                                     8,200         118,572
- ---------------------------------------------------------------------------------
Canadian Superior Energy, Inc. 1                          21,700          34,593
- ---------------------------------------------------------------------------------
Cimarex Energy Co. 1                                      14,290         541,591
- ---------------------------------------------------------------------------------
Clear Energy, Inc. 1                                       9,133          41,162
- ---------------------------------------------------------------------------------
Comstock Resources, Inc. 1                                 8,600         189,630
- ---------------------------------------------------------------------------------
Crew Energy, Inc. 1                                        5,666          39,487
- ---------------------------------------------------------------------------------
Cyries Energy, Inc. 1                                      1,940          12,613
- ---------------------------------------------------------------------------------
Daylight Energy Trust 1                                   32,900         263,606
- ---------------------------------------------------------------------------------
Denbury Resources, Inc. 1                                 11,500         315,675
- ---------------------------------------------------------------------------------
Duvernay Oil Corp. 1                                       4,500          73,163
- ---------------------------------------------------------------------------------
Edge Petroleum Corp. 1                                     1,100          16,038
- ---------------------------------------------------------------------------------
Encore Acquisition Co. 1                                   1,200          41,892
- ---------------------------------------------------------------------------------
Energy Partners Ltd. 1                                    19,000         385,130
- ---------------------------------------------------------------------------------
Esprit Energy Trust, Cl. A                                   950           9,753
- ---------------------------------------------------------------------------------
Fairborne Energy Ltd. 1,2                                  5,500          55,314
- ---------------------------------------------------------------------------------
Find Energy Ltd. 1                                         7,400          25,261
- ---------------------------------------------------------------------------------
Find Energy Ltd. 1                                        28,100          95,922
- ---------------------------------------------------------------------------------
Forest Oil Corp. 1                                         5,900         187,148
- ---------------------------------------------------------------------------------
Frontier Oil Corp.                                        16,700         445,222


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

OIL & GAS Continued
General Maritime Corp. 1                                   3,300   $     131,835
- ---------------------------------------------------------------------------------
Giant Industries, Inc. 1                                   3,200          84,832
- ---------------------------------------------------------------------------------
Harvest Natural Resources, Inc. 1                         14,600         252,142
- ---------------------------------------------------------------------------------
Holly Corp.                                                3,900         108,693
- ---------------------------------------------------------------------------------
Houston Exploration Co. 1                                  4,000         225,240
- ---------------------------------------------------------------------------------
KCS Energy, Inc. 1                                         9,000         133,020
- ---------------------------------------------------------------------------------
Ketch Resources Ltd. 1                                     4,900          69,115
- ---------------------------------------------------------------------------------
Lightning Energy Ltd. 1                                    1,100           3,975
- ---------------------------------------------------------------------------------
Lightning Energy Ltd. 1,3                                 14,400          49,293
- ---------------------------------------------------------------------------------
Magnum Hunter Resources, Inc. 1                           33,500         432,150
- ---------------------------------------------------------------------------------
Maritrans, Inc.                                            3,400          61,778
- ---------------------------------------------------------------------------------
Meridian Resource Corp. (The) 1                           13,200          79,860
- ---------------------------------------------------------------------------------
Midnight Oil Exploration Ltd. 1                           16,450          46,680
- ---------------------------------------------------------------------------------
Mission Resources Corp. 1                                  6,400          37,376
- ---------------------------------------------------------------------------------
Noble Energy, Inc.                                         1,700         104,822
- ---------------------------------------------------------------------------------
OMI Corp.                                                  8,600         144,910
- ---------------------------------------------------------------------------------
OPTI Canada, Inc. 1                                        3,500          56,758
- ---------------------------------------------------------------------------------
Overseas Shipholding Group, Inc.                           1,200          66,240
- ---------------------------------------------------------------------------------
Paramount Resources Ltd. 1                                18,800         422,084
- ---------------------------------------------------------------------------------
Patina Oil & Gas Corp.                                     4,700         176,250
- ---------------------------------------------------------------------------------
Penn Virginia Corp.                                        6,400         259,648
- ---------------------------------------------------------------------------------
Petroleum Development Corp. 1                              6,300         242,991
- ---------------------------------------------------------------------------------
Plains Exploration & Production Co. 1                     10,942         284,492
- ---------------------------------------------------------------------------------
ProEx Energy Ltd. 1                                        1,940          13,763
- ---------------------------------------------------------------------------------
ProspEx Resources Ltd. 1                                   2,120           5,839
- ---------------------------------------------------------------------------------
ProspEx Resources Ltd. 1,3                                 3,800           9,605
- ---------------------------------------------------------------------------------
Range Resources Corp.                                      6,200         126,852
- ---------------------------------------------------------------------------------
Real Resources, Inc. 1                                    11,900         117,595
- ---------------------------------------------------------------------------------
Remington Oil & Gas Corp. 1                                9,300         253,425
- ---------------------------------------------------------------------------------
Resource America, Inc., Cl. A                              2,900          94,250
- ---------------------------------------------------------------------------------
Southwestern Energy Co. 1                                  1,100          55,759
- ---------------------------------------------------------------------------------
St. Mary Land & Exploration Co.                            6,600         275,484
- ---------------------------------------------------------------------------------
StarPoint Energy Ltd. 1                                   49,800         220,290
- ---------------------------------------------------------------------------------
Stelmar Shipping Ltd.                                      3,600         171,756
- ---------------------------------------------------------------------------------
Stone Energy Corp. 1                                       1,100          49,599
- ---------------------------------------------------------------------------------
Sunoco, Inc.                                               2,800         228,788
- ---------------------------------------------------------------------------------
Swift Energy Co. 1                                         7,900         228,626
- ---------------------------------------------------------------------------------
Tesoro Corp. 1                                            12,700         404,622
- ---------------------------------------------------------------------------------
Thunder Energy, Inc. 1                                    18,666         116,843
- ---------------------------------------------------------------------------------
TKE Energy Trust 1                                        14,000         111,706
- ---------------------------------------------------------------------------------
Tusk Energy Corp. 1                                       20,700          50,966
- ---------------------------------------------------------------------------------
Tusk Energy Corp. 1,3                                     21,300          49,671
- ---------------------------------------------------------------------------------
VAALCO Energy, Inc. 1                                      5,000          19,400
- ---------------------------------------------------------------------------------
Vintage Petroleum, Inc.                                   19,000         431,110
- ---------------------------------------------------------------------------------
Whiting Petroleum Corp. 1                                  4,900         148,225






STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

OIL & GAS Continued
World Fuel Services Corp.                                  3,000   $     149,400
                                                                   --------------
                                                                      10,759,304

- ---------------------------------------------------------------------------------
FINANCIALS--12.1%
- ---------------------------------------------------------------------------------
CAPITAL MARKETS--0.3%
Harris & Harris Group, Inc. 1                              3,800          62,244
- ---------------------------------------------------------------------------------
National Financial Partners Corp.                         10,700         415,160
- ---------------------------------------------------------------------------------
SWS Group, Inc.                                            8,900         195,088
                                                                   --------------
                                                                         672,492

- ---------------------------------------------------------------------------------
COMMERCIAL BANKS--4.4%
Alliance Financial Corp.                                     600          18,300
- ---------------------------------------------------------------------------------
AmericanWest Bancorporation                                2,910          58,928
- ---------------------------------------------------------------------------------
Anchor BanCorp Wisconsin, Inc.                             3,900         113,685
- ---------------------------------------------------------------------------------
Arrow Financial Corp.                                         62           1,922
- ---------------------------------------------------------------------------------
Associated Banc-Corp                                       4,113         136,593
- ---------------------------------------------------------------------------------
Astoria Financial Corp.                                    1,700          67,949
- ---------------------------------------------------------------------------------
BancorpSouth, Inc.                                         1,000          24,370
- ---------------------------------------------------------------------------------
Bank of Hawaii Corp.                                       1,900          96,406
- ---------------------------------------------------------------------------------
Bank of the Ozarks, Inc.                                     700          23,821
- ---------------------------------------------------------------------------------
BankAtlantic Bancorp, Inc.                                 5,500         109,450
- ---------------------------------------------------------------------------------
Banner Corp.                                                 800          24,952
- ---------------------------------------------------------------------------------
Berkshire Hills Bancorp, Inc.                              1,700          63,155
- ---------------------------------------------------------------------------------
Camco Financial Corp.                                        500           7,700
- ---------------------------------------------------------------------------------
Camden National Corp.                                        300          11,823
- ---------------------------------------------------------------------------------
Capital City Bank Group, Inc.                                425          17,765
- ---------------------------------------------------------------------------------
Capital Corp. of the West                                    400          18,800
- ---------------------------------------------------------------------------------
Capitol Bancorp Ltd.                                         600          21,132
- ---------------------------------------------------------------------------------
Center Financial Corp.                                     1,700          34,034
- ---------------------------------------------------------------------------------
CFS Bancorp, Inc.                                            200           2,854
- ---------------------------------------------------------------------------------
Chemical Financial Corp.                                   1,705          73,179
- ---------------------------------------------------------------------------------
Citizens First Bancorp, Inc.                               2,900          70,122
- ---------------------------------------------------------------------------------
City Holding Co.                                           7,400         268,176
- ---------------------------------------------------------------------------------
Colonial BancGroup, Inc. (The)                             8,400         178,332
- ---------------------------------------------------------------------------------
Columbia Banking System, Inc.                              5,590         139,694
- ---------------------------------------------------------------------------------
Commercial Federal Corp.                                   1,700          50,507
- ---------------------------------------------------------------------------------
Community Bancorp, Inc. 1                                    600          18,360
- ---------------------------------------------------------------------------------
Community Bank System, Inc.                               12,300         347,475
- ---------------------------------------------------------------------------------
Community Trust Bancorp, Inc.                                715          23,137
- ---------------------------------------------------------------------------------
Corus Bankshares, Inc.                                       900          43,209
- ---------------------------------------------------------------------------------
CVB Financial Corp.                                          510          13,546
- ---------------------------------------------------------------------------------
Dime Community Bancshares, Inc.                            3,612          64,691
- ---------------------------------------------------------------------------------
Downey Financial Corp.                                     2,300         131,100
- ---------------------------------------------------------------------------------
East West Bancorp, Inc.                                    2,200          92,312
- ---------------------------------------------------------------------------------
Fidelity Bankshares, Inc.                                  3,316         141,792
- ---------------------------------------------------------------------------------
First BanCorp                                                750          47,633


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

COMMERCIAL BANKS Continued
First Citizens BancShares, Inc., Cl. A                       800   $     118,600
- ---------------------------------------------------------------------------------
First Commonwealth Financial Corp.                        12,600         193,914
- ---------------------------------------------------------------------------------
First Defiance Financial Corp.                             1,200          34,164
- ---------------------------------------------------------------------------------
First Financial Corp.                                        600          21,018
- ---------------------------------------------------------------------------------
First Financial Holdings, Inc.                             3,100         101,494
- ---------------------------------------------------------------------------------
First Merchants Corp.                                        615          17,405
- ---------------------------------------------------------------------------------
First Midwest Bancorp, Inc.                                  900          32,661
- ---------------------------------------------------------------------------------
First National Bankshares of Florida, Inc.                 1,957          46,772
- ---------------------------------------------------------------------------------
First Place Financial Corp.                                5,400         120,906
- ---------------------------------------------------------------------------------
First Republic Bank                                        4,100         217,300
- ---------------------------------------------------------------------------------
FirstFed Financial Corp. 1                                 2,400         124,488
- ---------------------------------------------------------------------------------
Flagstar Bancorp, Inc.                                     3,100          70,060
- ---------------------------------------------------------------------------------
Flushing Financial Corp.                                   1,775          35,607
- ---------------------------------------------------------------------------------
Foothill Independent Bancorp                                 118           2,771
- ---------------------------------------------------------------------------------
Frontier Financial Corp.                                     200           7,722
- ---------------------------------------------------------------------------------
GB&T Bancshares, Inc.                                      1,800          43,416
- ---------------------------------------------------------------------------------
Glacier Bancorp, Inc.                                      3,375         114,885
- ---------------------------------------------------------------------------------
Greater Bay Bancorp                                        9,300         259,284
- ---------------------------------------------------------------------------------
Hancock Holding Co.                                          700          23,422
- ---------------------------------------------------------------------------------
Harbor Florida Bancshares, Inc.                            3,900         134,979
- ---------------------------------------------------------------------------------
Hibernia Corp., Cl. A                                      5,400         159,354
- ---------------------------------------------------------------------------------
Home Federal Bancorp                                       1,000          25,219
- ---------------------------------------------------------------------------------
Horizon Financial Corp.                                      200           4,116
- ---------------------------------------------------------------------------------
Hudson River Bancorp, Inc.                                 2,400          47,496
- ---------------------------------------------------------------------------------
Hudson United Bancorp                                      1,300          51,194
- ---------------------------------------------------------------------------------
Independence Community Bank Corp.                          1,600          68,128
- ---------------------------------------------------------------------------------
Independent Bank Corp., Michigan                           4,443         132,535
- ---------------------------------------------------------------------------------
Indymac Mortgage Holdings, Inc.                            4,100         141,245
- ---------------------------------------------------------------------------------
ITLA Capital Corp. 1                                         400          23,516
- ---------------------------------------------------------------------------------
Macatawa Bank Corp.                                          455          14,692
- ---------------------------------------------------------------------------------
MainSource Financial Group, Inc.                             383           9,146
- ---------------------------------------------------------------------------------
NASB Financial, Inc.                                       1,100          43,956
- ---------------------------------------------------------------------------------
National Bankshares, Inc.                                    600          32,112
- ---------------------------------------------------------------------------------
NBT Bancorp, Inc.                                          2,500          64,300
- ---------------------------------------------------------------------------------
Net.B@nk, Inc.                                             9,100          94,731
- ---------------------------------------------------------------------------------
Oak Hill Financial, Inc.                                     500          19,395
- ---------------------------------------------------------------------------------
Old Second Bancorp, Inc.                                     316          10,074
- ---------------------------------------------------------------------------------
Oriental Financial Group, Inc.                             2,090          59,168
- ---------------------------------------------------------------------------------
Pacific Capital Bancorp                                   18,910         642,751
- ---------------------------------------------------------------------------------
Parkvale Financial Corp.                                     400          11,516
- ---------------------------------------------------------------------------------
PennRock Financial Services Corp.                          1,220          47,470
- ---------------------------------------------------------------------------------
PFF Bancorp, Inc.                                          5,940         275,200
- ---------------------------------------------------------------------------------
Provident Bankshares Corp.                                 3,251         118,239
- ---------------------------------------------------------------------------------
Provident Financial Holdings, Inc.                           800          23,080
- ---------------------------------------------------------------------------------
R&G Financial Corp., Cl. B                                11,800         458,784






                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

COMMERCIAL BANKS Continued
Republic Bancorp, Inc.                                    10,557   $     161,311
- ---------------------------------------------------------------------------------
Republic Bancorp, Inc., Cl. A                              3,560          91,492
- ---------------------------------------------------------------------------------
S&T Bancorp, Inc.                                            500          18,845
- ---------------------------------------------------------------------------------
Santander BanCorp                                            620          18,699
- ---------------------------------------------------------------------------------
Seacoast Banking Corp. of Florida                          3,630          80,768
- ---------------------------------------------------------------------------------
Silicon Valley Bancshares 1                                9,500         425,790
- ---------------------------------------------------------------------------------
Sky Financial Group, Inc.                                    600          17,202
- ---------------------------------------------------------------------------------
Sound Federal Bancorp, Inc.                                  300           4,875
- ---------------------------------------------------------------------------------
Southside Bancshares, Inc.                                   315           7,198
- ---------------------------------------------------------------------------------
Southwest Bancorp, Inc.                                    3,400          83,232
- ---------------------------------------------------------------------------------
State Bancorp, Inc.                                        1,162          31,955
- ---------------------------------------------------------------------------------
State Financial Services Corp.                             6,400         192,640
- ---------------------------------------------------------------------------------
Sterling Bancorp                                           4,360         123,170
- ---------------------------------------------------------------------------------
Sterling Financial Corp. (Western US)                     11,717         460,009
- ---------------------------------------------------------------------------------
Sun Bancorp, Inc.                                          1,196          29,876
- ---------------------------------------------------------------------------------
TCF Financial Corp.                                        1,600          51,424
- ---------------------------------------------------------------------------------
Texas Capital Bancshares, Inc. 1                             800          17,296
- ---------------------------------------------------------------------------------
TierOne Corp.                                              3,800          94,430
- ---------------------------------------------------------------------------------
Union Bankshares Corp.                                       900          34,587
- ---------------------------------------------------------------------------------
United Bankshares, Inc.                                    1,800          68,670
- ---------------------------------------------------------------------------------
United Community Financial Corp.                           1,300          14,560
- ---------------------------------------------------------------------------------
Univest Corp. of Pennsylvania                                300          13,806
- ---------------------------------------------------------------------------------
Vineyard National Bancorp Co.                                500          16,430
- ---------------------------------------------------------------------------------
Waypoint Financial Corp.                                   2,210          62,654
- ---------------------------------------------------------------------------------
Webster Financial Corp.                                    2,334         118,194
- ---------------------------------------------------------------------------------
WesBanco, Inc.                                             1,300          41,561
- ---------------------------------------------------------------------------------
WSFS Financial Corp.                                       4,200         253,344
                                                                   --------------
                                                                       9,389,207

- ---------------------------------------------------------------------------------
CONSUMER FINANCE--0.3%
Advance America Cash Advance Centers, Inc. 1               8,700         199,230
- ---------------------------------------------------------------------------------
ASTA Funding, Inc.                                         5,400         144,936
- ---------------------------------------------------------------------------------
MoneyGram International, Inc.                             12,700         268,478
                                                                   --------------
                                                                         612,644

- ---------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--1.4%
Ace Cash Express, Inc. 1                                     600          17,796
- ---------------------------------------------------------------------------------
Advanta Corp., Cl. B                                       3,700          89,799
- ---------------------------------------------------------------------------------
Affiliated Managers Group, Inc. 1                          8,500         575,790
- ---------------------------------------------------------------------------------
American Capital Strategies Ltd.                           2,700          90,045
- ---------------------------------------------------------------------------------
AmeriCredit Corp. 1                                        1,900          46,455
- ---------------------------------------------------------------------------------
Archipelago Holdings, Inc. 1                               1,400          29,372
- ---------------------------------------------------------------------------------
Cash America International, Inc.                           5,700         169,461
- ---------------------------------------------------------------------------------
CompuCredit Corp. 1                                       10,600         289,804
- ---------------------------------------------------------------------------------
E*TRADE Financial Corp. 1                                 14,100         210,795
- ---------------------------------------------------------------------------------
First Albany Cos., Inc.                                    1,300          12,610


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

DIVERSIFIED FINANCIAL SERVICES Continued
First Cash Financial Services, Inc. 1                      4,000   $     106,840
- ---------------------------------------------------------------------------------
Gabelli Asset Management, Inc.                             4,500         218,340
- ---------------------------------------------------------------------------------
Investment Technology Group, Inc. 1                        4,400          88,000
- ---------------------------------------------------------------------------------
Knight Trading Group, Inc. 1                               1,400          15,330
- ---------------------------------------------------------------------------------
MarketAxess Holdings, Inc. 1                               1,200          20,412
- ---------------------------------------------------------------------------------
Medallion Financial Corp.                                  1,700          16,490
- ---------------------------------------------------------------------------------
Metris Cos., Inc. 1                                       11,400         145,350
- ---------------------------------------------------------------------------------
Piper Jaffray Cos., Inc.                                   3,600         172,620
- ---------------------------------------------------------------------------------
Providian Financial Corp. 1                                6,800         111,996
- ---------------------------------------------------------------------------------
Raymond James Financial, Inc.                              2,400          74,352
- ---------------------------------------------------------------------------------
Sanders Morris Harris Group, Inc.                          4,100          73,021
- ---------------------------------------------------------------------------------
SEI Investments Co.                                        3,600         150,948
- ---------------------------------------------------------------------------------
United PanAm Financial Corp. 1                               700          13,342
- ---------------------------------------------------------------------------------
WFS Financial, Inc.                                        3,300         167,574
- ---------------------------------------------------------------------------------
World Acceptance Corp. 1                                   3,400          93,534
                                                                   --------------
                                                                       3,000,076

- ---------------------------------------------------------------------------------
INSURANCE--3.6%
Affirmative Insurance Holdings, Inc.                       6,800         114,512
- ---------------------------------------------------------------------------------
Alfa Corp.                                                 4,400          66,814
- ---------------------------------------------------------------------------------
Allmerica Financial Corp. 1                                6,000         196,980
- ---------------------------------------------------------------------------------
American Financial Group, Inc.                             5,700         178,467
- ---------------------------------------------------------------------------------
American Physicians Capital, Inc. 1                        1,800          64,836
- ---------------------------------------------------------------------------------
AmerUs Group Co.                                          10,900         493,770
- ---------------------------------------------------------------------------------
Arch Capital Group Ltd. 1                                  2,900         112,230
- ---------------------------------------------------------------------------------
Argonaut Group, Inc. 1                                       900          19,017
- ---------------------------------------------------------------------------------
Aspen Insurance Holdings Ltd.                              2,600          63,752
- ---------------------------------------------------------------------------------
Baldwin & Lyons, Inc., Cl. B, Non-Vtg                        600          16,074
- ---------------------------------------------------------------------------------
Commerce Group, Inc. (The)                                 4,000         244,160
- ---------------------------------------------------------------------------------
Danielson Holding Corp. 1                                  6,000          50,700
- ---------------------------------------------------------------------------------
Delphi Financial Group, Inc., Cl. A                        7,900         364,585
- ---------------------------------------------------------------------------------
Direct General Corp.                                       2,200          70,620
- ---------------------------------------------------------------------------------
Donegal Group, Inc., Cl. A                                 3,900          89,427
- ---------------------------------------------------------------------------------
EMC Insurance Group, Inc.                                    300           6,492
- ---------------------------------------------------------------------------------
Fidelity National Financial, Inc.                             79           3,608
- ---------------------------------------------------------------------------------
First American Corp. (The)                                 3,800         133,532
- ---------------------------------------------------------------------------------
FPIC Insurance Group, Inc. 1                               5,000         176,900
- ---------------------------------------------------------------------------------
Great American Financial Resources, Inc.                   1,300          22,581
- ---------------------------------------------------------------------------------
HCC Insurance Holdings, Inc.                               2,100          69,552
- ---------------------------------------------------------------------------------
Horace Mann Educators Corp.                               11,200         213,696
- ---------------------------------------------------------------------------------
Independence Holding Co.                                     540           9,963
- ---------------------------------------------------------------------------------
Infinity Property & Casualty Corp.                         5,800         204,160
- ---------------------------------------------------------------------------------
IPC Holdings Ltd.                                          2,300         100,073
- ---------------------------------------------------------------------------------
LandAmerica Financial Group, Inc.                          8,500         458,405
- ---------------------------------------------------------------------------------
Markel Corp. 1                                               100          36,400






STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

INSURANCE Continued
Meadowbrook Insurance Group, Inc. 1                        3,400   $      16,966
- ---------------------------------------------------------------------------------
Mercury General Corp.                                      1,300          77,896
- ---------------------------------------------------------------------------------
National Western Life Insurance Co., Cl. A 1                 400          66,644
- ---------------------------------------------------------------------------------
Odyssey Re Holdings Corp.                                  9,400         236,974
- ---------------------------------------------------------------------------------
Ohio Casualty Corp. 1                                     18,100         420,101
- ---------------------------------------------------------------------------------
Old Republic International Corp.                           5,700         144,210
- ---------------------------------------------------------------------------------
Penn-America Group, Inc.                                   2,200          33,220
- ---------------------------------------------------------------------------------
Philadelphia Consolidated Holding Co. 1                    4,000         264,560
- ---------------------------------------------------------------------------------
Phoenix Cos., Inc. (The)                                   5,300          66,250
- ---------------------------------------------------------------------------------
PMA Capital Corp., Cl. A 1                                 4,500          46,575
- ---------------------------------------------------------------------------------
ProCentury Corp.                                          11,600         143,840
- ---------------------------------------------------------------------------------
Protective Life Corp.                                      2,800         119,532
- ---------------------------------------------------------------------------------
Pxre Group Ltd.                                            1,200          30,252
- ---------------------------------------------------------------------------------
Reinsurance Group of America, Inc.                         1,500          72,675
- ---------------------------------------------------------------------------------
RLI Corp.                                                  2,200          91,454
- ---------------------------------------------------------------------------------
Safety Insurance Group, Inc.                               1,800          56,070
- ---------------------------------------------------------------------------------
Selective Insurance Group, Inc.                            8,000         353,920
- ---------------------------------------------------------------------------------
StanCorp Financial Group, Inc.                             4,600         379,500
- ---------------------------------------------------------------------------------
State Auto Financial Corp.                                 7,700         199,045
- ---------------------------------------------------------------------------------
Stewart Information Services Corp.                         3,500         145,775
- ---------------------------------------------------------------------------------
Triad Guaranty, Inc. 1                                       500          30,240
- ---------------------------------------------------------------------------------
UICI                                                       3,500         118,650
- ---------------------------------------------------------------------------------
United Fire & Casualty Co.                                 4,000         134,840
- ---------------------------------------------------------------------------------
Unitrin, Inc.                                                400          18,180
- ---------------------------------------------------------------------------------
Universal American Financial Corp. 1                      29,200         451,724
- ---------------------------------------------------------------------------------
UnumProvident Corp.                                        6,200         111,228
- ---------------------------------------------------------------------------------
Vesta Insurance Group, Inc.                               13,100          48,208
- ---------------------------------------------------------------------------------
Zenith National Insurance Corp.                            4,300         214,312
                                                                   --------------
                                                                       7,674,147

- ---------------------------------------------------------------------------------
REAL ESTATE--1.6%
Acadia Realty Trust                                        1,100          17,930
- ---------------------------------------------------------------------------------
Agree Realty Corp.                                         4,600         145,774
- ---------------------------------------------------------------------------------
Alexandria Real Estate Equities, Inc.                        500          37,210
- ---------------------------------------------------------------------------------
Arden Realty, Inc.                                         1,500          56,580
- ---------------------------------------------------------------------------------
Associated Estates Realty Corp.                            1,100          11,242
- ---------------------------------------------------------------------------------
Brandywine Realty Trust                                    2,300          67,597
- ---------------------------------------------------------------------------------
Camden Property Trust                                      1,700          86,700
- ---------------------------------------------------------------------------------
Capital Automotive REIT                                    1,500          53,288
- ---------------------------------------------------------------------------------
Capstead Mortgage Corp.                                    1,100          11,594
- ---------------------------------------------------------------------------------
CarrAmerica Realty Corp.                                   1,100          36,300
- ---------------------------------------------------------------------------------
CB Richard Ellis Group, Inc., Cl. A 1                      3,000         100,650
- ---------------------------------------------------------------------------------
CBL & Associates Properties, Inc.                            800          61,080
- ---------------------------------------------------------------------------------
Colonial Properties Trust                                    800          31,416


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

REAL ESTATE Continued
Consolidated-Tomoka Land Co.                                 500   $      21,500
- ---------------------------------------------------------------------------------
Cornerstone Realty Income Trust, Inc.                        600           5,988
- ---------------------------------------------------------------------------------
Corporate Office Properties Trust                          1,100          32,285
- ---------------------------------------------------------------------------------
Correctional Properties Trust                              1,700          49,096
- ---------------------------------------------------------------------------------
CRT Properties, Inc.                                       1,500          35,790
- ---------------------------------------------------------------------------------
Equity Inns, Inc.                                          9,200         108,008
- ---------------------------------------------------------------------------------
First Industrial Realty Trust, Inc.                        1,900          77,387
- ---------------------------------------------------------------------------------
Friedman, Billings, Ramsey Group, Inc., Cl. A              5,300         102,767
- ---------------------------------------------------------------------------------
Glenborough Realty Trust, Inc.                               800          17,024
- ---------------------------------------------------------------------------------
Health Care REIT, Inc.                                     3,000         114,450
- ---------------------------------------------------------------------------------
Healthcare Realty Trust, Inc.                              1,500          61,050
- ---------------------------------------------------------------------------------
Heritage Property Investment Trust                           500          16,045
- ---------------------------------------------------------------------------------
Highwoods Properties, Inc.                                 2,300          63,710
- ---------------------------------------------------------------------------------
Impac Mortgage Holdings, Inc.                              1,500          34,005
- ---------------------------------------------------------------------------------
Jones Lang LaSalle, Inc. 1                                 7,000         261,870
- ---------------------------------------------------------------------------------
Kilroy Realty Corp.                                        1,300          55,575
- ---------------------------------------------------------------------------------
Lexington Corporate Properties Trust                       2,700          60,966
- ---------------------------------------------------------------------------------
LTC Properties, Inc.                                       1,000          19,910
- ---------------------------------------------------------------------------------
Mack-Cali Realty Corp.                                     1,500          69,045
- ---------------------------------------------------------------------------------
Maguire Properties, Inc.                                   1,400          38,444
- ---------------------------------------------------------------------------------
Mid-America Apartment Communities, Inc.                    1,500          61,830
- ---------------------------------------------------------------------------------
Mills Corp.                                                1,900         121,144
- ---------------------------------------------------------------------------------
Nationwide Health Properties, Inc.                         3,800          90,250
- ---------------------------------------------------------------------------------
Novastar Financial, Inc.                                   1,500          74,250
- ---------------------------------------------------------------------------------
Omega Healthcare Investors, Inc.                           1,100          12,980
- ---------------------------------------------------------------------------------
Pan Pacific Retail Properties, Inc.                        1,300          81,510
- ---------------------------------------------------------------------------------
Pennsylvania Real Estate Investment Trust                  1,900          81,320
- ---------------------------------------------------------------------------------
Prentiss Properties Trust                                    600          22,920
- ---------------------------------------------------------------------------------
PS Business Parks, Inc.                                      500          22,550
- ---------------------------------------------------------------------------------
Ramco-Gershenson Properties Trust                          2,100          67,725
- ---------------------------------------------------------------------------------
Redwood Trust, Inc.                                          800          49,672
- ---------------------------------------------------------------------------------
Regency Centers Corp.                                        800          44,320
- ---------------------------------------------------------------------------------
Senior Housing Properties Trust                            3,200          60,608
- ---------------------------------------------------------------------------------
Simon Property Group, Inc.                                   158          10,218
- ---------------------------------------------------------------------------------
SL Green Realty Corp.                                      1,100          66,605
- ---------------------------------------------------------------------------------
Spirit Finance Corp. 1                                    12,400         156,860
- ---------------------------------------------------------------------------------
Stratus Properties, Inc. 1                                 1,500          23,625
- ---------------------------------------------------------------------------------
Tanger Factory Outlet Centers, Inc.                        4,800         127,008
- ---------------------------------------------------------------------------------
Town & Country Trust                                         900          24,867
- ---------------------------------------------------------------------------------
Trammell Crow Co. 1                                        3,300          59,763
- ---------------------------------------------------------------------------------
Trizec Properties, Inc.                                    2,300          43,516
- ---------------------------------------------------------------------------------
United Capital Corp. 1                                       400           9,060
- ---------------------------------------------------------------------------------
United Dominion Realty Trust, Inc.                         1,100          27,280






                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

REAL ESTATE Continued
Ventas, Inc.                                               1,900   $      52,079
                                                                   --------------
                                                                       3,354,236

- ---------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.5%
Accredited Home Lenders Holding Co. 1                      4,000         198,720
- ---------------------------------------------------------------------------------
Bank Mutual Corp.                                          8,636         105,100
- ---------------------------------------------------------------------------------
CharterMac                                                 1,800          43,992
- ---------------------------------------------------------------------------------
Clifton Savings Bancorp, Inc.                              2,200          26,730
- ---------------------------------------------------------------------------------
Commercial Capital Bancorp, Inc.                           4,400         101,992
- ---------------------------------------------------------------------------------
Fremont General Corp.                                      8,900         224,102
- ---------------------------------------------------------------------------------
KBNT Bancorp, Inc.                                         1,400          23,660
- ---------------------------------------------------------------------------------
NewAlliance Bancshares, Inc.                               5,900          90,270
- ---------------------------------------------------------------------------------
Radian Group, Inc.                                         3,900         207,636
                                                                   --------------
                                                                       1,022,202

- ---------------------------------------------------------------------------------
HEALTH CARE--11.2%
- ---------------------------------------------------------------------------------
BIOTECHNOLOGY--1.6%
Abgenix, Inc. 1                                           12,800         132,352
- ---------------------------------------------------------------------------------
Affymetrix, Inc. 1                                         3,000         109,650
- ---------------------------------------------------------------------------------
Alexion Pharmaceuticals, Inc. 1                              800          20,160
- ---------------------------------------------------------------------------------
Aphton Corp. 1                                             1,600           4,976
- ---------------------------------------------------------------------------------
Applera Corp./Applied Biosystems Group                     9,300         194,463
- ---------------------------------------------------------------------------------
Array BioPharma, Inc. 1                                   20,400         194,208
- ---------------------------------------------------------------------------------
Bioenvision, Inc. 1                                        9,500          85,120
- ---------------------------------------------------------------------------------
Bone Care International, Inc. 1                            7,700         214,445
- ---------------------------------------------------------------------------------
Caliper Life Sciences, Inc. 1                              2,900          21,837
- ---------------------------------------------------------------------------------
Celgene Corp. 1                                            4,100         108,773
- ---------------------------------------------------------------------------------
Charles River Laboratories International, Inc. 1           1,144          52,635
- ---------------------------------------------------------------------------------
Corgentech, Inc. 1                                         1,700          14,076
- ---------------------------------------------------------------------------------
deCODE genetics, Inc. 1                                    2,800          21,868
- ---------------------------------------------------------------------------------
Durect Corp. 1                                             4,100          13,448
- ---------------------------------------------------------------------------------
Dusa Pharmaceuticals, Inc. 1                                 900          12,870
- ---------------------------------------------------------------------------------
Enzo Biochem, Inc.                                         3,000          58,410
- ---------------------------------------------------------------------------------
Gen-Probe, Inc. 1                                          2,600         117,546
- ---------------------------------------------------------------------------------
ID Biomedical Corp. 1                                      6,100          90,829
- ---------------------------------------------------------------------------------
ImmunoGen, Inc. 1                                          2,800          24,752
- ---------------------------------------------------------------------------------
Incyte Corp. 1                                             4,900          48,951
- ---------------------------------------------------------------------------------
Medarex, Inc. 1                                           10,100         108,878
- ---------------------------------------------------------------------------------
Medicines Co. (The) 1                                      7,600         218,880
- ---------------------------------------------------------------------------------
Millennium Pharmaceuticals, Inc. 1                         4,700          56,964
- ---------------------------------------------------------------------------------
Myriad Genetics, Inc. 1                                    6,500         146,315
- ---------------------------------------------------------------------------------
NeoPharm, Inc. 1                                           1,500          18,765
- ---------------------------------------------------------------------------------
Northfield Laboratories, Inc. 1                            3,400          76,670
- ---------------------------------------------------------------------------------
Onyx Pharmaceuticals, Inc. 1                               4,500         145,755
- ---------------------------------------------------------------------------------
Orchid Biosciences, Inc. 1                                 3,600          41,400


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

BIOTECHNOLOGY Continued
OSI Pharmaceuticals, Inc. 1                                3,200   $     239,520
- ---------------------------------------------------------------------------------
Regeneron Pharmaceuticals, Inc. 1                          5,800          53,418
- ---------------------------------------------------------------------------------
Savient Pharmaceuticals, Inc. 1                            2,700           7,317
- ---------------------------------------------------------------------------------
Techne Corp. 1                                             1,500          58,350
- ---------------------------------------------------------------------------------
Telik, Inc. 1                                              2,500          47,850
- ---------------------------------------------------------------------------------
Third Wave Technologies, Inc. 1                           18,700         160,820
- ---------------------------------------------------------------------------------
Trimeris, Inc. 1                                           4,600          65,182
- ---------------------------------------------------------------------------------
United Therapeutics Corp. 1                                5,400         243,810
- ---------------------------------------------------------------------------------
Vertex Pharmaceuticals, Inc. 1                            14,500         153,265
                                                                   --------------
                                                                       3,384,528

- ---------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--4.0%
ABIOMED, Inc. 1                                            2,400          37,056
- ---------------------------------------------------------------------------------
Adeza Biomedical Corp. 1                                   2,400          42,120
- ---------------------------------------------------------------------------------
Align Technology, Inc. 1                                  10,700         115,025
- ---------------------------------------------------------------------------------
American Medical Systems Holdings, Inc. 1                  7,500         313,575
- ---------------------------------------------------------------------------------
Anika Therapeutics, Inc. 1                                 5,300          48,495
- ---------------------------------------------------------------------------------
Arrow International, Inc.                                  9,000         278,910
- ---------------------------------------------------------------------------------
ArthroCare Corp. 1                                         5,200         166,712
- ---------------------------------------------------------------------------------
Aspect Medical Systems, Inc. 1                             7,000         171,220
- ---------------------------------------------------------------------------------
Bausch & Lomb, Inc.                                        1,000          64,460
- ---------------------------------------------------------------------------------
Bioveris Corp. 1                                             400           2,924
- ---------------------------------------------------------------------------------
CNS, Inc.                                                  2,900          36,395
- ---------------------------------------------------------------------------------
Conceptus, Inc. 1                                          1,500          12,173
- ---------------------------------------------------------------------------------
ConMed Corp. 1                                             7,100         201,782
- ---------------------------------------------------------------------------------
Conor Medsystems, Inc. 1                                   4,800          66,480
- ---------------------------------------------------------------------------------
Cytyc Corp. 1                                              1,400          38,598
- ---------------------------------------------------------------------------------
Dade Behring Holdings, Inc. 1                              4,700         263,200
- ---------------------------------------------------------------------------------
Datascope Corp.                                              300          11,907
- ---------------------------------------------------------------------------------
Diagnostic Products Corp.                                    200          11,010
- ---------------------------------------------------------------------------------
DJ Orthopedics, Inc. 1                                       900          19,278
- ---------------------------------------------------------------------------------
Endologix, Inc. 1                                          2,400          16,392
- ---------------------------------------------------------------------------------
EPIX Pharmaceuticals, Inc. 1                              10,200         182,682
- ---------------------------------------------------------------------------------
Exactech, Inc. 1                                           1,300          23,777
- ---------------------------------------------------------------------------------
Foxhollow Technologies, Inc. 1                               700          17,213
- ---------------------------------------------------------------------------------
Haemonetics Corp. 1                                        9,000         325,890
- ---------------------------------------------------------------------------------
HealthTronics, Inc. 1                                      3,600          38,268
- ---------------------------------------------------------------------------------
Hologic, Inc. 1                                            8,900         244,483
- ---------------------------------------------------------------------------------
Hospira, Inc. 1                                            8,800         294,800
- ---------------------------------------------------------------------------------
Idexx Laboratories, Inc. 1                                 1,200          65,508
- ---------------------------------------------------------------------------------
Immucor, Inc. 1                                            3,075          72,293
- ---------------------------------------------------------------------------------
Inamed Corp. 1                                             2,450         154,963
- ---------------------------------------------------------------------------------
Kensey Nash Corp. 1                                        7,100         245,163
- ---------------------------------------------------------------------------------
Kyphon, Inc. 1                                             5,400         139,104
- ---------------------------------------------------------------------------------
Lifeline Systems, Inc. 1                                   2,500          64,400






STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

HEALTH CARE EQUIPMENT & SUPPLIES Continued
Matthews International Corp., Cl. A                        8,600   $     316,480
- ---------------------------------------------------------------------------------
Medical Action Industries, Inc. 1                          2,100          41,370
- ---------------------------------------------------------------------------------
Meridian Bioscience, Inc.                                  5,600          97,384
- ---------------------------------------------------------------------------------
Millipore Corp. 1                                            300          14,943
- ---------------------------------------------------------------------------------
Mine Safety Applicances Co.                                4,200         212,940
- ---------------------------------------------------------------------------------
Molecular Devices Corp. 1                                  7,300         146,730
- ---------------------------------------------------------------------------------
Occulogix, Inc. 1                                            800           8,224
- ---------------------------------------------------------------------------------
Ocular Sciences, Inc. 1                                    8,000         392,080
- ---------------------------------------------------------------------------------
OrthoLogic Corp. 1                                         7,000          43,750
- ---------------------------------------------------------------------------------
Palomar Medical Technologies, Inc. 1                       6,700         174,669
- ---------------------------------------------------------------------------------
PerkinElmer, Inc.                                          9,300         209,157
- ---------------------------------------------------------------------------------
PolyMedica Corp.                                           8,600         320,694
- ---------------------------------------------------------------------------------
Possis Medical, Inc. 1                                     6,600          88,968
- ---------------------------------------------------------------------------------
Respironics, Inc. 1                                        1,600          86,976
- ---------------------------------------------------------------------------------
SonoSite, Inc. 1                                           3,900         132,405
- ---------------------------------------------------------------------------------
SurModics, Inc. 1                                          4,900         159,299
- ---------------------------------------------------------------------------------
Sybron Dental Specialties, Inc. 1                         11,300         399,794
- ---------------------------------------------------------------------------------
Symmetry Medical, Inc. 1                                   4,000          84,200
- ---------------------------------------------------------------------------------
Thermo Electron Corp. 1                                    6,700         202,273
- ---------------------------------------------------------------------------------
TriPath Imaging, Inc. 1                                    2,800          25,116
- ---------------------------------------------------------------------------------
Urologix, Inc. 1                                           3,500          22,645
- ---------------------------------------------------------------------------------
Varian Medical Systems, Inc. 1                             1,700          73,508
- ---------------------------------------------------------------------------------
Varian, Inc. 1                                             3,700         151,737
- ---------------------------------------------------------------------------------
Ventana Medical Systems, Inc. 1                            6,100         390,339
- ---------------------------------------------------------------------------------
Viasys Healthcare, Inc. 1                                  2,400          45,600
- ---------------------------------------------------------------------------------
VISX, Inc. 1                                              18,900         488,943
- ---------------------------------------------------------------------------------
West Pharmaceutical Services, Inc.                         4,000         100,120
- ---------------------------------------------------------------------------------
Wright Medical Group, Inc. 1                               6,200         176,700
- ---------------------------------------------------------------------------------
Young Innovations, Inc.                                      550          18,552
                                                                   --------------
                                                                       8,411,852

- ---------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--4.5%
Alderwoods Group, Inc. 1                                   2,800          31,864
- ---------------------------------------------------------------------------------
Allscripts Healthcare Solutions, Inc. 1                   15,400         164,318
- ---------------------------------------------------------------------------------
Amedisys, Inc. 1                                           6,500         210,535
- ---------------------------------------------------------------------------------
America Service Group, Inc. 1                              3,350          89,680
- ---------------------------------------------------------------------------------
American Healthways, Inc. 1                                  800          26,432
- ---------------------------------------------------------------------------------
AMERIGROUP Corp. 1                                         1,100          83,226
- ---------------------------------------------------------------------------------
AMN Healthcare Services, Inc. 1                              800          12,728
- ---------------------------------------------------------------------------------
AmSurg Corp. 1                                             1,600          47,264
- ---------------------------------------------------------------------------------
Andrx Corp. 1                                              2,700          58,941
- ---------------------------------------------------------------------------------
Beverly Enterprises, Inc. 1                               18,700         171,105
- ---------------------------------------------------------------------------------
Bio-Reference Laboratories, Inc. 1                         4,900          85,260
- ---------------------------------------------------------------------------------
Cantel Medical Corp. 1                                       700          26,194
- ---------------------------------------------------------------------------------
Centene Corp. 1                                              600          17,010
- ---------------------------------------------------------------------------------
Cerner Corp. 1                                             3,900         207,363


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

HEALTH CARE PROVIDERS & SERVICES Continued
Computer Programs & Systems, Inc.                            400   $       9,260
- ---------------------------------------------------------------------------------
CorVel Corp. 1                                             2,100          56,238
- ---------------------------------------------------------------------------------
Covance, Inc. 1                                            7,300         282,875
- ---------------------------------------------------------------------------------
Coventry Health Care, Inc. 1                               2,800         148,624
- ---------------------------------------------------------------------------------
Cross Country Healthcare, Inc. 1                          10,700         193,456
- ---------------------------------------------------------------------------------
DaVita, Inc. 1                                             2,800         110,684
- ---------------------------------------------------------------------------------
Dendrite International, Inc. 1                             4,800          93,120
- ---------------------------------------------------------------------------------
Eclipsys Corp. 1                                          10,800         220,644
- ---------------------------------------------------------------------------------
Express Scripts, Inc. 1                                      300          22,932
- ---------------------------------------------------------------------------------
Genesis HealthCare Corp. 1                                 9,900         346,797
- ---------------------------------------------------------------------------------
Gentiva Health Services, Inc. 1                           12,900         215,688
- ---------------------------------------------------------------------------------
HealthExtras, Inc. 1                                      12,300         200,490
- ---------------------------------------------------------------------------------
Humana, Inc. 1                                             5,400         160,326
- ---------------------------------------------------------------------------------
IDX Systems Corp. 1                                        4,800         165,408
- ---------------------------------------------------------------------------------
Kindred Healthcare, Inc. 1                                 5,100         152,745
- ---------------------------------------------------------------------------------
LCA-Vision, Inc.                                          12,100         283,019
- ---------------------------------------------------------------------------------
LifePoint Hospitals, Inc. 1                                1,600          55,712
- ---------------------------------------------------------------------------------
Magellan Health Services, Inc. 1                           5,600         191,296
- ---------------------------------------------------------------------------------
Matria Healthcare, Inc. 1                                  4,800         187,536
- ---------------------------------------------------------------------------------
MedCath Corp. 1                                            2,800          68,992
- ---------------------------------------------------------------------------------
Merge Technologies, Inc. 1                                 3,600          80,100
- ---------------------------------------------------------------------------------
National HealthCare Corp.                                  1,200          42,360
- ---------------------------------------------------------------------------------
National Medical Health Card Systems, Inc. 1               2,500          57,753
- ---------------------------------------------------------------------------------
Omnicell, Inc. 1                                           1,200          13,200
- ---------------------------------------------------------------------------------
Option Care, Inc.                                         14,200         244,098
- ---------------------------------------------------------------------------------
Owens & Minor, Inc.                                       16,900         476,073
- ---------------------------------------------------------------------------------
PacifiCare Health Systems, Inc. 1                          3,700         209,124
- ---------------------------------------------------------------------------------
Parexel International Corp. 1                              9,200         186,760
- ---------------------------------------------------------------------------------
PDI, Inc. 1                                                7,400         164,872
- ---------------------------------------------------------------------------------
Pediatrix Medical Group, Inc. 1                            4,600         294,630
- ---------------------------------------------------------------------------------
Per-Se Technologies, Inc. 1                                4,000          63,320
- ---------------------------------------------------------------------------------
Pharmaceutical Product Development, Inc. 1                 1,900          78,451
- ---------------------------------------------------------------------------------
PRA International 1                                        2,600          64,428
- ---------------------------------------------------------------------------------
Province Healthcare Co. 1                                  8,800         196,680
- ---------------------------------------------------------------------------------
PSS World Medical, Inc. 1                                  8,600         107,629
- ---------------------------------------------------------------------------------
Psychiatric Solutions, Inc. 1                              2,600          95,056
- ---------------------------------------------------------------------------------
RehabCare Group, Inc. 1                                    7,700         215,523
- ---------------------------------------------------------------------------------
Res-Care, Inc. 1                                           7,500         114,150
- ---------------------------------------------------------------------------------
Select Medical Corp.                                      14,500         255,200
- ---------------------------------------------------------------------------------
Service Corp. International 1                             29,500         219,775
- ---------------------------------------------------------------------------------
SFBC International, Inc. 1                                   900          35,550
- ---------------------------------------------------------------------------------
Sierra Health Services, Inc. 1                             9,400         518,034
- ---------------------------------------------------------------------------------
Stewart Enterprises, Inc. 1                               50,100         350,199
- ---------------------------------------------------------------------------------
Sunrise Senior Living, Inc. 1                              7,300         338,428





                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

HEALTH CARE PROVIDERS & SERVICES Continued
United Surgical Partners International, Inc. 1             5,600   $     233,520
- ---------------------------------------------------------------------------------
VCA Antech, Inc. 1                                        16,700         327,320
- ---------------------------------------------------------------------------------
Ventiv Health, Inc. 1                                      6,700         136,144
- ---------------------------------------------------------------------------------
VistaCare, Inc., Cl. A 1                                   1,600          26,608
- ---------------------------------------------------------------------------------
WellChoice, Inc. 1                                         2,000         106,800
                                                                   --------------
                                                                       9,649,547

- ---------------------------------------------------------------------------------
PHARMACEUTICALS--1.1%
Able Laboratories, Inc. 1                                  5,800         131,950
- ---------------------------------------------------------------------------------
Alpharma, Inc., Cl. A                                      6,200         105,090
- ---------------------------------------------------------------------------------
AtheroGenics, Inc. 1                                       7,700         181,412
- ---------------------------------------------------------------------------------
Barr Pharmaceuticals, Inc. 1                               2,500         113,850
- ---------------------------------------------------------------------------------
Caraco Pharmaceutical Laboratories Ltd. 1                  3,700          35,335
- ---------------------------------------------------------------------------------
Connetics Corp. 1                                          3,000          72,870
- ---------------------------------------------------------------------------------
DOV Pharmaceutical, Inc. 1                                 8,000         144,400
- ---------------------------------------------------------------------------------
Encysive Pharmaceuticals, Inc. 1                           1,900          18,867
- ---------------------------------------------------------------------------------
Endo Pharmaceuticals Holdings, Inc. 1                      3,700          77,774
- ---------------------------------------------------------------------------------
First Horizon Pharmaceutical Corp. 1                      21,100         482,979
- ---------------------------------------------------------------------------------
Indevus Pharmaceuticals, Inc. 1                            5,900          35,164
- ---------------------------------------------------------------------------------
InKine Pharmaceutical Co., Inc. 1                          1,100           5,973
- ---------------------------------------------------------------------------------
Inspire Pharmaceuticals, Inc. 1                            4,100          68,757
- ---------------------------------------------------------------------------------
Nabi Biopharmaceuticals, Inc. 1                           15,500         227,075
- ---------------------------------------------------------------------------------
Noven Pharmaceuticals, Inc. 1                              1,200          20,472
- ---------------------------------------------------------------------------------
Par Pharmaceutical Cos., Inc. 1                            1,200          49,656
- ---------------------------------------------------------------------------------
Perrigo Co.                                               14,100         243,507
- ---------------------------------------------------------------------------------
Rigel Pharmaceuticals, Inc. 1                              4,500         109,890
- ---------------------------------------------------------------------------------
Salix Pharmaceuticals Ltd. 1                               8,200         144,238
- ---------------------------------------------------------------------------------
Seattle Genetics, Inc. 1                                   4,400          28,732
                                                                   --------------
                                                                       2,297,991

- ---------------------------------------------------------------------------------
INDUSTRIALS--17.4%
- ---------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.1%
AAR Corp. 1                                                1,200          16,344
- ---------------------------------------------------------------------------------
Applied Signal Technology, Inc.                            8,100         285,525
- ---------------------------------------------------------------------------------
Astronics Corp., Cl. B 1                                     650           3,088
- ---------------------------------------------------------------------------------
Aviall, Inc. 1                                             9,900         227,403
- ---------------------------------------------------------------------------------
BE Aerospace, Inc. 1                                      11,000         128,040
- ---------------------------------------------------------------------------------
EDO Corp.                                                  7,400         234,950
- ---------------------------------------------------------------------------------
Engineered Support Systems, Inc.                             550          32,571
- ---------------------------------------------------------------------------------
ESCO Technologies, Inc. 1                                  2,300         176,295
- ---------------------------------------------------------------------------------
Goodrich Corp.                                             2,100          68,544
- ---------------------------------------------------------------------------------
HEICO Corp., Cl. A                                            30             519
- ---------------------------------------------------------------------------------
Herley Industries, Inc. 1                                    600          12,204
- ---------------------------------------------------------------------------------
Innovative Solutions & Support, Inc. 1                     8,400         280,224
- ---------------------------------------------------------------------------------
Moog, Inc., Cl. A 1                                        2,500         113,375


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

AEROSPACE & DEFENSE Continued
Orbital Sciences Corp. 1                                  30,400   $     359,632
- ---------------------------------------------------------------------------------
SI International, Inc. 1                                   5,000         153,800
- ---------------------------------------------------------------------------------
Teledyne Technologies, Inc. 1                              1,700          50,031
- ---------------------------------------------------------------------------------
United Defense Industries, Inc. 1                          3,400         160,650
                                                                   --------------
                                                                       2,303,195

- ---------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--0.7%
ABX Air, Inc. 1                                           27,800         247,142
- ---------------------------------------------------------------------------------
Dynamex, Inc. 1                                            5,200          96,356
- ---------------------------------------------------------------------------------
EGL, Inc. 1                                               12,800         382,592
- ---------------------------------------------------------------------------------
Forward Air Corp. 1                                       11,000         491,700
- ---------------------------------------------------------------------------------
Hub Group, Inc., Cl. A 1                                   4,000         208,880
- ---------------------------------------------------------------------------------
Park-Ohio Holdings Corp. 1                                   800          20,720
                                                                   --------------
                                                                       1,447,390

- ---------------------------------------------------------------------------------
AIRLINES--1.1%
Alaska Air Group, Inc. 1                                   9,700         324,853
- ---------------------------------------------------------------------------------
America West Holdings Corp., Cl. B 1                      23,400         153,972
- ---------------------------------------------------------------------------------
AMR Corp. 1                                               27,600         302,220
- ---------------------------------------------------------------------------------
Continental Airlines, Inc., Cl. B 1                       31,900         431,926
- ---------------------------------------------------------------------------------
Delta Air Lines, Inc. 1                                   28,500         213,180
- ---------------------------------------------------------------------------------
ExpressJet Holdings, Inc. 1                               21,700         279,496
- ---------------------------------------------------------------------------------
FLYi, Inc. 1                                              11,300          20,001
- ---------------------------------------------------------------------------------
Frontier Airlines, Inc. 1                                 13,700         156,317
- ---------------------------------------------------------------------------------
Hawaiian Holdings, Inc. 1                                  7,900          53,957
- ---------------------------------------------------------------------------------
Mesa Air Group, Inc. 1                                    12,800         101,632
- ---------------------------------------------------------------------------------
Northwest Airlines Corp., Cl. A 1                         16,000         174,880
- ---------------------------------------------------------------------------------
Pinnacle Airlines Corp. 1                                  3,900          54,366
- ---------------------------------------------------------------------------------
Republic Airways Holdings, Inc. 1                          1,500          19,905
- ---------------------------------------------------------------------------------
SkyWest, Inc.                                              6,500         130,390
                                                                   --------------
                                                                       2,417,095

- ---------------------------------------------------------------------------------
BUILDING PRODUCTS--0.9%
American Woodmark Corp.                                    1,100          48,048
- ---------------------------------------------------------------------------------
Apogee Enterprises, Inc.                                  11,500         154,215
- ---------------------------------------------------------------------------------
Beacon Roofing Supply, Inc. 1                              3,800          75,468
- ---------------------------------------------------------------------------------
Crane Co.                                                  5,800         167,272
- ---------------------------------------------------------------------------------
Jacuzzi Brands, Inc. 1                                     6,800          59,160
- ---------------------------------------------------------------------------------
Lennox International, Inc.                                 6,000         122,100
- ---------------------------------------------------------------------------------
NCI Building Systems, Inc. 1                               7,700         288,750
- ---------------------------------------------------------------------------------
Simpson Manufacturing Co., Inc.                            8,300         289,670
- ---------------------------------------------------------------------------------
Trex Co., Inc. 1                                           3,100         162,564
- ---------------------------------------------------------------------------------
Universal Forest Products, Inc.                            7,600         329,840
- ---------------------------------------------------------------------------------
USG Corp. 1                                                4,800         193,296
- ---------------------------------------------------------------------------------
Watsco, Inc.                                               3,300         116,226
                                                                   --------------
                                                                       2,006,609






STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

COMMERCIAL SERVICES & SUPPLIES--5.0%
ABM Industries, Inc.                                      12,700   $     250,444
- ---------------------------------------------------------------------------------
Adesa, Inc.                                                8,200         174,004
- ---------------------------------------------------------------------------------
Administaff, Inc. 1                                       16,900         213,109
- ---------------------------------------------------------------------------------
Angelica Corp.                                             1,800          48,690
- ---------------------------------------------------------------------------------
Banta Corp.                                                6,100         273,036
- ---------------------------------------------------------------------------------
Brady Corp., Cl. A                                         3,800         237,766
- ---------------------------------------------------------------------------------
Bright Horizons Family Solutions, Inc. 1                   4,500         291,420
- ---------------------------------------------------------------------------------
Brink's Co. (The)                                          9,500         375,440
- ---------------------------------------------------------------------------------
Central Parking Corp.                                      1,900          28,785
- ---------------------------------------------------------------------------------
Century Business Services, Inc. 1                          1,800           7,848
- ---------------------------------------------------------------------------------
Clean Harbors, Inc. 1                                      1,000          15,080
- ---------------------------------------------------------------------------------
Coinstar, Inc. 1                                           2,600          69,758
- ---------------------------------------------------------------------------------
CompX International, Inc.                                    500           8,265
- ---------------------------------------------------------------------------------
Consolidated Graphics, Inc. 1                              7,800         358,020
- ---------------------------------------------------------------------------------
Copart, Inc. 1                                             8,900         234,248
- ---------------------------------------------------------------------------------
Corporate Executive Board Co.                              1,300          87,022
- ---------------------------------------------------------------------------------
CoStar Group, Inc. 1                                       1,900          87,742
- ---------------------------------------------------------------------------------
CPI Corp.                                                  1,000          13,590
- ---------------------------------------------------------------------------------
DiamondCluster International, Inc. 1                      12,700         181,991
- ---------------------------------------------------------------------------------
Dun & Bradstreet Corp. 1                                   3,500         208,775
- ---------------------------------------------------------------------------------
Duratek, Inc. 1                                            5,000         124,550
- ---------------------------------------------------------------------------------
Electro Rent Corp.                                         1,000          14,230
- ---------------------------------------------------------------------------------
Ennis, Inc.                                                6,300         121,275
- ---------------------------------------------------------------------------------
Equifax, Inc.                                              4,500         126,450
- ---------------------------------------------------------------------------------
Exponent, Inc. 1                                           5,100         140,199
- ---------------------------------------------------------------------------------
G&K Services, Inc., Cl. A                                  5,200         225,784
- ---------------------------------------------------------------------------------
General Binding Corp. 1                                    1,500          19,710
- ---------------------------------------------------------------------------------
Geo Group, Inc. (The) 1                                    3,300          87,714
- ---------------------------------------------------------------------------------
Gevity HR, Inc.                                            5,200         106,912
- ---------------------------------------------------------------------------------
Harland (John H.) Co.                                      6,500         234,650
- ---------------------------------------------------------------------------------
Healthcare Services Group, Inc.                            8,850         184,434
- ---------------------------------------------------------------------------------
Heidrick & Struggles International, Inc. 1                14,100         483,207
- ---------------------------------------------------------------------------------
HNI Corp.                                                  3,800         163,590
- ---------------------------------------------------------------------------------
Hudson Highland Group, Inc. 1                              7,700         221,760
- ---------------------------------------------------------------------------------
Ikon Office Solutions, Inc.                               17,100         197,676
- ---------------------------------------------------------------------------------
Imagistics International, Inc. 1                           4,200         141,372
- ---------------------------------------------------------------------------------
Interpool, Inc.                                            1,400          33,600
- ---------------------------------------------------------------------------------
Intersections, Inc. 1                                      1,400          24,150
- ---------------------------------------------------------------------------------
ITT Educational Services, Inc. 1                           2,200         104,610
- ---------------------------------------------------------------------------------
Jackson Hewitt Tax Service, Inc.                           4,400         111,100
- ---------------------------------------------------------------------------------
Kelly Services, Inc., Cl. A                                  900          27,162
- ---------------------------------------------------------------------------------
Kforce, Inc. 1                                             4,500          49,950
- ---------------------------------------------------------------------------------
Knoll, Inc. 1                                             19,900         348,250
- ---------------------------------------------------------------------------------
Korn-Ferry International 1                                18,900         392,175
- ---------------------------------------------------------------------------------
Labor Ready, Inc. 1                                       26,500         448,380


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

COMMERCIAL SERVICES & SUPPLIES Continued
Laureate Education, Inc. 1                                   300   $      13,227
- ---------------------------------------------------------------------------------
McGrath RentCorp                                           1,800          78,498
- ---------------------------------------------------------------------------------
Miller (Herman), Inc.                                      2,000          55,260
- ---------------------------------------------------------------------------------
Mobile Mini, Inc. 1                                          600          19,824
- ---------------------------------------------------------------------------------
NCO Group, Inc. 1                                            700          18,095
- ---------------------------------------------------------------------------------
Portfolio Recovery Associates, Inc. 1                      8,000         329,760
- ---------------------------------------------------------------------------------
Pre-Paid Legal Services, Inc. 1                            1,000          37,550
- ---------------------------------------------------------------------------------
PRG-Schultz International, Inc. 1                          3,800          19,114
- ---------------------------------------------------------------------------------
Resources Connection, Inc. 1                               2,400         130,344
- ---------------------------------------------------------------------------------
Robert Half International, Inc.                            3,900         114,777
- ---------------------------------------------------------------------------------
Rollins, Inc.                                              7,200         189,504
- ---------------------------------------------------------------------------------
Rush Enterprises, Inc., Cl. A 1                            3,600          58,428
- ---------------------------------------------------------------------------------
Schawk, Inc.                                               1,100          19,998
- ---------------------------------------------------------------------------------
School Specialty, Inc. 1                                   4,000         154,240
- ---------------------------------------------------------------------------------
SITEL Corp. 1                                             12,400          30,504
- ---------------------------------------------------------------------------------
Sotheby's Holdings, Inc., Cl. A 1                         15,200         276,032
- ---------------------------------------------------------------------------------
Spherion Corp. 1                                          11,700          98,280
- ---------------------------------------------------------------------------------
Standard Register Co. (The)                                1,200          16,944
- ---------------------------------------------------------------------------------
Steelcase, Inc., Cl. A                                     9,300         128,712
- ---------------------------------------------------------------------------------
TeleTech Holdings, Inc. 1                                 17,400         168,606
- ---------------------------------------------------------------------------------
United Stationers, Inc. 1                                  7,500         346,500
- ---------------------------------------------------------------------------------
Universal Technical Institute, Inc. 1                      1,900          72,428
- ---------------------------------------------------------------------------------
Viad Corp.                                                 6,300         179,487
- ---------------------------------------------------------------------------------
Volt Information Sciences, Inc. 1                          2,200          64,658
- ---------------------------------------------------------------------------------
Waste Connections, Inc. 1                                  7,700         263,725
- ---------------------------------------------------------------------------------
Waste Industries USA, Inc.                                   100           1,240
- ---------------------------------------------------------------------------------
Watson Wyatt & Co. Holdings                                8,500         229,075
- ---------------------------------------------------------------------------------
West Corp. 1                                               3,400         112,574
                                                                   --------------
                                                                      10,525,307

- ---------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.5%
Comfort Systems USA, Inc. 1                               12,800          98,304
- ---------------------------------------------------------------------------------
Dycom Industries, Inc. 1                                   4,700         143,444
- ---------------------------------------------------------------------------------
EMCOR Group, Inc. 1                                        1,100          49,698
- ---------------------------------------------------------------------------------
Granite Construction, Inc.                                 5,700         151,620
- ---------------------------------------------------------------------------------
Insituform Technologies, Inc., Cl. A 1                    11,800         267,506
- ---------------------------------------------------------------------------------
Integrated Electrical Services, Inc. 1                     5,900          28,556
- ---------------------------------------------------------------------------------
MasTec, Inc. 1                                             2,500          25,275
- ---------------------------------------------------------------------------------
McDermott International, Inc. 1                            4,500          82,620
- ---------------------------------------------------------------------------------
Perini Corp. 1                                             4,600          76,774
- ---------------------------------------------------------------------------------
Shaw Group, Inc. (The) 1                                   7,000         124,950
- ---------------------------------------------------------------------------------
URS Corp. 1                                                3,200         102,720
                                                                   --------------
                                                                       1,151,467





                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

ELECTRICAL EQUIPMENT--1.2%
Active Power, Inc. 1                                       3,400   $      15,640
- ---------------------------------------------------------------------------------
Acuity Brands, Inc.                                        7,200         228,960
- ---------------------------------------------------------------------------------
American Power Conversion Corp.                            7,400         158,360
- ---------------------------------------------------------------------------------
AMETEK, Inc.                                                 600          21,402
- ---------------------------------------------------------------------------------
AMX Corp. 1                                                5,300          87,291
- ---------------------------------------------------------------------------------
Baldor Electric Co.                                        7,300         200,969
- ---------------------------------------------------------------------------------
Energy Conversion Devices, Inc. 1                         10,500         202,860
- ---------------------------------------------------------------------------------
Evergreen Solar, Inc. 1                                    5,600          24,472
- ---------------------------------------------------------------------------------
Franklin Electric Co., Inc.                                1,200          50,712
- ---------------------------------------------------------------------------------
Genlyte Group, Inc. (The) 1                                6,300         539,784
- ---------------------------------------------------------------------------------
Hubbell, Inc., Cl. B                                       3,500         183,050
- ---------------------------------------------------------------------------------
II-VI, Inc. 1                                              5,700         242,193
- ---------------------------------------------------------------------------------
LSI Industries, Inc.                                         500           5,725
- ---------------------------------------------------------------------------------
Plug Power, Inc. 1                                         2,500          15,275
- ---------------------------------------------------------------------------------
Preformed Line Products Co.                                  500          14,490
- ---------------------------------------------------------------------------------
Tecumseh Products Co., Cl. A                                 300          14,340
- ---------------------------------------------------------------------------------
Thomas & Betts Corp. 1                                     9,700         298,275
- ---------------------------------------------------------------------------------
Vicor Corp.                                                4,500          58,995
- ---------------------------------------------------------------------------------
Woodward Governor Co.                                      1,800         128,898
                                                                   --------------
                                                                       2,491,691

- ---------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.3%
Alleghany Corp.                                              500         142,625
- ---------------------------------------------------------------------------------
Carlisle Cos., Inc.                                        1,100          71,412
- ---------------------------------------------------------------------------------
Raven Industries, Inc.                                     5,900         125,729
- ---------------------------------------------------------------------------------
Standex International Corp.                                  100           2,849
- ---------------------------------------------------------------------------------
United Industrial Corp.                                    9,600         371,904
                                                                   --------------
                                                                         714,519

- ---------------------------------------------------------------------------------
MACHINERY--3.9%
A.S.V., Inc. 1                                             3,500         167,650
- ---------------------------------------------------------------------------------
Actuant Corp., Cl. A 1                                     1,100          57,365
- ---------------------------------------------------------------------------------
Alamo Group, Inc.                                            700          19,012
- ---------------------------------------------------------------------------------
Albany International Corp., Cl. A                          4,500         158,220
- ---------------------------------------------------------------------------------
Ampco-Pittsburgh Corp.                                     1,100          16,060
- ---------------------------------------------------------------------------------
Astec Industries, Inc. 1                                   6,900         118,749
- ---------------------------------------------------------------------------------
Bucyrus International, Inc., Cl. A                         5,900         239,776
- ---------------------------------------------------------------------------------
Cascade Corp.                                              4,100         163,795
- ---------------------------------------------------------------------------------
Clarcor, Inc.                                              2,900         158,833
- ---------------------------------------------------------------------------------
Cummins, Inc.                                              2,300         192,717
- ---------------------------------------------------------------------------------
EnPro Industries, Inc. 1                                   4,300         127,151
- ---------------------------------------------------------------------------------
Federal Signal Corp.                                       6,600         116,556
- ---------------------------------------------------------------------------------
Flanders Corp. 1                                           5,600          53,760
- ---------------------------------------------------------------------------------
Flowserve Corp. 1                                          6,900         190,026
- ---------------------------------------------------------------------------------
Gardner Denver, Inc. 1                                     2,300          83,467
- ---------------------------------------------------------------------------------
Graco, Inc.                                                2,550          95,243


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

MACHINERY Continued
Greenbrier Cos., Inc.                                      5,200   $     176,020
- ---------------------------------------------------------------------------------
Harsco Corp.                                               3,000         167,220
- ---------------------------------------------------------------------------------
Hexcel Corp. 1                                            25,300         366,850
- ---------------------------------------------------------------------------------
Idex Corp.                                                 1,600          64,800
- ---------------------------------------------------------------------------------
JLG Industries, Inc.                                      10,500         206,115
- ---------------------------------------------------------------------------------
Joy Global, Inc.                                           4,782         207,682
- ---------------------------------------------------------------------------------
Kadant, Inc. 1                                             3,100          63,550
- ---------------------------------------------------------------------------------
Kennametal, Inc.                                           8,000         398,160
- ---------------------------------------------------------------------------------
Lincoln Electric Holdings, Inc.                           13,400         462,836
- ---------------------------------------------------------------------------------
Manitowoc Co., Inc. (The)                                  6,500         244,725
- ---------------------------------------------------------------------------------
Middleby Corp. (The)                                       2,500         126,800
- ---------------------------------------------------------------------------------
Mueller Industries, Inc.                                  12,900         415,380
- ---------------------------------------------------------------------------------
NACCO Industries, Inc., Cl. A                              2,200         231,880
- ---------------------------------------------------------------------------------
Navistar International Corp. 1                             4,300         189,114
- ---------------------------------------------------------------------------------
Nordson Corp.                                              8,200         328,574
- ---------------------------------------------------------------------------------
Oshkosh Truck Corp.                                        1,900         129,922
- ---------------------------------------------------------------------------------
Pall Corp.                                                 4,100         118,695
- ---------------------------------------------------------------------------------
Penn Engineering & Manufacturing Corp.                     2,500          45,250
- ---------------------------------------------------------------------------------
Reliance Steel & Aluminum Co.                              9,600         374,016
- ---------------------------------------------------------------------------------
Robbins & Myers, Inc.                                      1,600          38,128
- ---------------------------------------------------------------------------------
SPX Corp.                                                  4,500         180,270
- ---------------------------------------------------------------------------------
Stewart & Stevenson Services, Inc.                         3,700          74,851
- ---------------------------------------------------------------------------------
Terex Corp. 1                                              5,700         271,605
- ---------------------------------------------------------------------------------
Thomas Industries, Inc.                                    1,500          59,880
- ---------------------------------------------------------------------------------
Timken Co.                                                 5,500         143,110
- ---------------------------------------------------------------------------------
Titan International, Inc.                                  5,100          77,010
- ---------------------------------------------------------------------------------
Toro Co. (The)                                             7,800         634,530
- ---------------------------------------------------------------------------------
Wabash National Corp. 1                                    8,700         234,291
- ---------------------------------------------------------------------------------
Wabtec Corp.                                               8,400         179,088
                                                                   --------------
                                                                       8,168,732

- ---------------------------------------------------------------------------------
MARINE--0.2%
Alexander & Baldwin, Inc.                                  4,300         182,406
- ---------------------------------------------------------------------------------
Kirby Corp. 1                                              3,900         173,082
                                                                   --------------
                                                                         355,488

- ---------------------------------------------------------------------------------
ROAD & RAIL--1.9%
Amerco, Inc. 1                                               300          13,794
- ---------------------------------------------------------------------------------
Arkansas Best Corp.                                       11,500         516,235
- ---------------------------------------------------------------------------------
CNF Transportation, Inc.                                   6,300         315,630
- ---------------------------------------------------------------------------------
Florida East Coast Industries, Inc., Cl. A                 2,500         112,750
- ---------------------------------------------------------------------------------
Genesee & Wyoming, Inc., Cl. A 1                          11,450         322,089
- ---------------------------------------------------------------------------------
Heartland Express, Inc.                                   13,700         307,839
- ---------------------------------------------------------------------------------
Hunt (J.B.) Transport Services, Inc.                       3,200         143,520
- ---------------------------------------------------------------------------------
Kansas City Southern 1                                     4,900          86,877
- ---------------------------------------------------------------------------------
Knight Transportation, Inc.                                2,600          64,480






STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

ROAD & RAIL Continued
Laidlaw International, Inc. 1                             14,800   $     316,720
- ---------------------------------------------------------------------------------
Landstar System, Inc. 1                                      900          66,276
- ---------------------------------------------------------------------------------
Marten Transport Ltd. 1                                    1,550          35,232
- ---------------------------------------------------------------------------------
Mullen Transportation, Inc.                                1,300          54,088
- ---------------------------------------------------------------------------------
Old Dominion Freight Line, Inc. 1                            850          29,580
- ---------------------------------------------------------------------------------
Overnite Corp.                                             2,200          81,928
- ---------------------------------------------------------------------------------
Pacer International, Inc. 1                                7,600         161,576
- ---------------------------------------------------------------------------------
RailAmerica, Inc. 1                                        1,300          16,965
- ---------------------------------------------------------------------------------
SCS Transportation, Inc. 1                                 7,600         177,612
- ---------------------------------------------------------------------------------
Swift Transportation Co., Inc. 1                          23,200         498,336
- ---------------------------------------------------------------------------------
U.S. Xpress Enterprises, Inc., Cl. A 1                     8,100         237,330
- ---------------------------------------------------------------------------------
USF Corp.                                                  5,000         189,750
- ---------------------------------------------------------------------------------
Werner Enterprises, Inc.                                  14,800         335,072
                                                                   --------------
                                                                       4,083,679

- ---------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--0.5%
Aceto Corp.                                                3,400          64,736
- ---------------------------------------------------------------------------------
Applied Industrial Technologies, Inc.                     13,250         363,050
- ---------------------------------------------------------------------------------
Hughes Supply, Inc.                                        4,800         155,280
- ---------------------------------------------------------------------------------
Lawson Products, Inc.                                        500          25,215
- ---------------------------------------------------------------------------------
MSC Industrial Direct Co., Inc., Cl. A                     2,900         104,342
- ---------------------------------------------------------------------------------
UAP Holding Corp. 1                                       15,500         267,685
- ---------------------------------------------------------------------------------
W.W. Grainger, Inc.                                        2,300         153,226
                                                                   --------------
                                                                       1,133,534

- ---------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE--0.1%
Macquarie Infrastructure Co. Trust 1                       7,000         205,450
- ---------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--21.1%
- ---------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--2.9%
3Com Corp. 1                                              14,900          62,133
- ---------------------------------------------------------------------------------
ADTRAN, Inc.                                               7,100         135,894
- ---------------------------------------------------------------------------------
Airspan Networks, Inc. 1                                   5,000          27,150
- ---------------------------------------------------------------------------------
Anaren Microwave, Inc. 1                                   6,700          86,832
- ---------------------------------------------------------------------------------
Aspect Communications Corp. 1                             15,400         171,556
- ---------------------------------------------------------------------------------
Audiovox Corp., Cl. A 1                                    3,900          61,542
- ---------------------------------------------------------------------------------
Bel Fuse, Inc.                                               200           6,758
- ---------------------------------------------------------------------------------
Black Box Corp.                                            7,100         340,942
- ---------------------------------------------------------------------------------
Brocade Communications Systems, Inc. 1                    52,700         402,628
- ---------------------------------------------------------------------------------
Brooktrout, Inc. 1                                         3,000          36,030
- ---------------------------------------------------------------------------------
C-COR.net Corp. 1                                          5,200          48,360
- ---------------------------------------------------------------------------------
Carrier Access Corp. 1                                     2,000          21,360
- ---------------------------------------------------------------------------------
Ciena Corp. 1                                             58,600         195,724
- ---------------------------------------------------------------------------------
CommScope, Inc. 1                                          7,400         139,860
- ---------------------------------------------------------------------------------
Comtech Telecommunications Corp. 1                         2,300          86,503
- ---------------------------------------------------------------------------------
Comverse Technology, Inc. 1                               10,700         261,615
- ---------------------------------------------------------------------------------
Digi International, Inc. 1                                17,100         293,949


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

COMMUNICATIONS EQUIPMENT Continued
Ditech Communications Corp. 1                             18,000   $     269,100
- ---------------------------------------------------------------------------------
Eagle Broadband, Inc. 1                                   33,600          22,176
- ---------------------------------------------------------------------------------
Extreme Networks, Inc. 1                                  26,000         170,300
- ---------------------------------------------------------------------------------
F5 Networks, Inc. 1                                        3,000         146,160
- ---------------------------------------------------------------------------------
Finisar Corp. 1                                           46,400         105,792
- ---------------------------------------------------------------------------------
Foundry Networks, Inc. 1                                   3,000          39,480
- ---------------------------------------------------------------------------------
Harmonic, Inc. 1                                          15,600         130,104
- ---------------------------------------------------------------------------------
Harris Corp.                                               2,400         148,296
- ---------------------------------------------------------------------------------
Inter-Tel, Inc.                                            3,900         106,782
- ---------------------------------------------------------------------------------
InterDigital Communications Corp. 1                          800          17,680
- ---------------------------------------------------------------------------------
McDATA Corp., Cl. A 1                                     10,700          63,772
- ---------------------------------------------------------------------------------
Mobility Electronics, Inc. 1                               9,800          84,084
- ---------------------------------------------------------------------------------
MRV Communications, Inc. 1                                13,100          48,077
- ---------------------------------------------------------------------------------
Netgear, Inc. 1                                           11,700         212,823
- ---------------------------------------------------------------------------------
NMS Communications Corp. 1                                26,100         164,691
- ---------------------------------------------------------------------------------
Optical Communication Products, Inc. 1                       400           1,000
- ---------------------------------------------------------------------------------
Packeteer, Inc. 1                                         13,200         190,740
- ---------------------------------------------------------------------------------
Paradyne Networks, Inc. 1                                 21,100          75,749
- ---------------------------------------------------------------------------------
Performance Technologies, Inc. 1                          10,300          95,790
- ---------------------------------------------------------------------------------
Plantronics, Inc.                                          1,200          49,764
- ---------------------------------------------------------------------------------
Polycom, Inc. 1                                           10,400         242,528
- ---------------------------------------------------------------------------------
Powerwave Technologies, Inc. 1                            18,400         156,032
- ---------------------------------------------------------------------------------
QLogic Corp. 1                                             1,700          62,441
- ---------------------------------------------------------------------------------
REMEC, Inc. 1                                              9,400          67,774
- ---------------------------------------------------------------------------------
Scientific-Atlanta, Inc.                                   2,900          95,729
- ---------------------------------------------------------------------------------
SeaChange International, Inc. 1                           13,500         235,440
- ---------------------------------------------------------------------------------
Sonus Networks, Inc. 1                                    27,100         155,283
- ---------------------------------------------------------------------------------
SpectraLink Corp.                                          5,600          79,408
- ---------------------------------------------------------------------------------
Superior Essex, Inc. 1                                     2,200          41,349
- ---------------------------------------------------------------------------------
Sycamore Networks, Inc. 1                                 37,700         153,062
- ---------------------------------------------------------------------------------
Symmetricom, Inc. 1                                       31,100         301,981
- ---------------------------------------------------------------------------------
Tellabs, Inc. 1                                           14,400         123,696
- ---------------------------------------------------------------------------------
ViaSat, Inc. 1                                               500          12,135
                                                                   --------------
                                                                       6,248,054

- ---------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--1.3%
ActivCard Corp. 1                                          3,000          26,700
- ---------------------------------------------------------------------------------
Advanced Digital Information Corp. 1                       4,200          42,084
- ---------------------------------------------------------------------------------
Avid Technology, Inc. 1                                    2,400         148,200
- ---------------------------------------------------------------------------------
Electronics for Imaging, Inc. 1                           11,800         205,438
- ---------------------------------------------------------------------------------
Hutchinson Technology, Inc. 1                              4,900         169,393
- ---------------------------------------------------------------------------------
InFocus Corp. 1                                           17,800         163,048
- ---------------------------------------------------------------------------------
Maxtor Corp. 1                                            33,700         178,610
- ---------------------------------------------------------------------------------
NCR Corp. 1                                                3,200         221,536
- ---------------------------------------------------------------------------------
Novatel Wireless, Inc. 1                                   8,500         164,730
- ---------------------------------------------------------------------------------
Overland Storage, Inc. 1                                   1,600          26,704






                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

COMPUTERS & PERIPHERALS Continued
PalmOne, Inc. 1                                            2,600   $      82,030
- ---------------------------------------------------------------------------------
Pinnacle Systems, Inc. 1                                  23,100         140,910
- ---------------------------------------------------------------------------------
Presstek, Inc. 1                                           6,600          63,888
- ---------------------------------------------------------------------------------
Quantum Corp. 1                                           20,000          52,400
- ---------------------------------------------------------------------------------
Rimage Corp. 1                                               500           8,030
- ---------------------------------------------------------------------------------
SBS Technologies, Inc. 1                                   7,000          97,720
- ---------------------------------------------------------------------------------
Silicon Graphics, Inc. 1                                  87,100         150,683
- ---------------------------------------------------------------------------------
SimpleTech, Inc. 1                                        10,500          48,300
- ---------------------------------------------------------------------------------
Storage Technology Corp. 1                                 6,700         211,787
- ---------------------------------------------------------------------------------
Stratasys, Inc. 1                                          3,400         114,104
- ---------------------------------------------------------------------------------
Synaptics, Inc. 1                                          3,900         119,262
- ---------------------------------------------------------------------------------
Western Digital Corp. 1                                   17,100         185,364
- ---------------------------------------------------------------------------------
Xybernaut Corp. 1                                         21,200          26,076
                                                                   --------------
                                                                       2,646,997

- ---------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--3.5%
Agilysys, Inc.                                            18,300         313,662
- ---------------------------------------------------------------------------------
Amphenol Corp., Cl. A 1                                    4,800         176,352
- ---------------------------------------------------------------------------------
Anixter International, Inc.                                6,800         244,732
- ---------------------------------------------------------------------------------
AVX Corp.                                                 13,100         165,060
- ---------------------------------------------------------------------------------
BEI Technologies, Inc.                                     8,000         247,040
- ---------------------------------------------------------------------------------
Belden CDT, Inc.                                           8,900         206,480
- ---------------------------------------------------------------------------------
Brightpoint, Inc. 1                                       15,200         297,008
- ---------------------------------------------------------------------------------
Cogent, Inc. 1                                               600          19,800
- ---------------------------------------------------------------------------------
Cognex Corp.                                              10,700         298,530
- ---------------------------------------------------------------------------------
Coherent, Inc. 1                                           4,800         146,112
- ---------------------------------------------------------------------------------
CTS Corp.                                                  1,400          18,606
- ---------------------------------------------------------------------------------
CyberOptics Corp. 1                                        1,600          23,792
- ---------------------------------------------------------------------------------
Daktronics, Inc. 1                                         2,300          57,247
- ---------------------------------------------------------------------------------
Dionex Corp. 1                                             5,800         328,686
- ---------------------------------------------------------------------------------
Electro Scientific Industries, Inc. 1                     11,700         231,192
- ---------------------------------------------------------------------------------
Excel Technology, Inc. 1                                   1,300          33,800
- ---------------------------------------------------------------------------------
GTSI Corp. 1                                                 400           4,204
- ---------------------------------------------------------------------------------
Hypercom Corp. 1                                          18,400         108,928
- ---------------------------------------------------------------------------------
Identix, Inc. 1                                           30,000         221,400
- ---------------------------------------------------------------------------------
Ingram Micro, Inc., Cl. A 1                                6,500         135,200
- ---------------------------------------------------------------------------------
Jabil Circuit, Inc. 1                                      4,800         122,784
- ---------------------------------------------------------------------------------
Keithley Instruments, Inc.                                 7,400         145,780
- ---------------------------------------------------------------------------------
Kemet Corp. 1                                             16,500         147,675
- ---------------------------------------------------------------------------------
Landauer, Inc.                                               200           9,140
- ---------------------------------------------------------------------------------
LeCroy Corp. 1                                             1,500          35,010
- ---------------------------------------------------------------------------------
Littlefuse, Inc. 1                                         6,800         232,288
- ---------------------------------------------------------------------------------
LoJack Corp. 1                                             5,500          66,715
- ---------------------------------------------------------------------------------
Maxwell Technologies, Inc. 1                               1,500          15,210
- ---------------------------------------------------------------------------------
Measurement Specialties, Inc. 1                            4,300         109,478
- ---------------------------------------------------------------------------------
Mettler-Toledo International, Inc. 1                       2,900         148,799


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

ELECTRONIC EQUIPMENT & INSTRUMENTS Continued
MTS Systems Corp.                                          6,300   $     213,003
- ---------------------------------------------------------------------------------
Park Electrochemical Corp.                                 4,700         101,896
- ---------------------------------------------------------------------------------
Paxar Corp. 1                                             21,600         478,872
- ---------------------------------------------------------------------------------
PC Connection, Inc. 1                                      5,700          54,264
- ---------------------------------------------------------------------------------
Photon Dynamics, Inc. 1                                    5,800         140,824
- ---------------------------------------------------------------------------------
Planar Systems, Inc. 1                                     9,000         101,070
- ---------------------------------------------------------------------------------
Rofin-Sinar Technologies, Inc. 1                           1,800          76,410
- ---------------------------------------------------------------------------------
Sanmina-SCI Corp. 1                                       15,900         134,673
- ---------------------------------------------------------------------------------
ScanSource, Inc. 1                                         3,200         198,912
- ---------------------------------------------------------------------------------
Solectron Corp. 1                                          1,800           9,594
- ---------------------------------------------------------------------------------
SpatiaLight, Inc. 1                                        6,800          60,860
- ---------------------------------------------------------------------------------
Symbol Technologies, Inc.                                  2,900          50,170
- ---------------------------------------------------------------------------------
Taser International, Inc. 1                                9,000         284,310
- ---------------------------------------------------------------------------------
Tech Data Corp. 1                                          7,800         354,120
- ---------------------------------------------------------------------------------
Tektronix, Inc.                                              200           6,042
- ---------------------------------------------------------------------------------
Trimble Navigation Ltd. 1                                  8,450         279,188
- ---------------------------------------------------------------------------------
TTM Technologies, Inc. 1                                   8,100          95,580
- ---------------------------------------------------------------------------------
UNOVA, Inc. 1                                              6,900         174,501
- ---------------------------------------------------------------------------------
Veeco Instruments, Inc. 1                                  3,200          67,424
- ---------------------------------------------------------------------------------
Viisage Technology, Inc. 1                                21,900         197,319
- ---------------------------------------------------------------------------------
Zygo Corp. 1                                               4,200          49,518
                                                                   --------------
                                                                       7,439,260

- ---------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--2.3%
Akamai Technologies, Inc. 1                                5,700          74,271
- ---------------------------------------------------------------------------------
Aladdin Knowledge Systems Ltd. 1                           1,500          37,125
- ---------------------------------------------------------------------------------
AsiaInfo Holdings, Inc. 1                                 13,600          81,056
- ---------------------------------------------------------------------------------
Chordiant Software, Inc. 1                                19,700          44,916
- ---------------------------------------------------------------------------------
CMGI, Inc. 1                                              61,300         156,315
- ---------------------------------------------------------------------------------
Corillian Corp. 1                                         24,500         120,540
- ---------------------------------------------------------------------------------
Covansys Corp. 1                                           6,300          96,390
- ---------------------------------------------------------------------------------
CyberSource Corp. 1                                       17,000         121,550
- ---------------------------------------------------------------------------------
Digital River, Inc. 1                                      2,500         104,025
- ---------------------------------------------------------------------------------
DoubleClick, Inc. 1                                       31,800         247,404
- ---------------------------------------------------------------------------------
EarthLink, Inc. 1                                         49,900         574,848
- ---------------------------------------------------------------------------------
Embarcadero Technologies, Inc. 1                           5,800          54,578
- ---------------------------------------------------------------------------------
HouseValues, Inc. 1                                        1,900          28,538
- ---------------------------------------------------------------------------------
InfoSpace, Inc. 1                                          6,100         290,055
- ---------------------------------------------------------------------------------
Internet Capital Group, Inc. 1                             7,600          68,400
- ---------------------------------------------------------------------------------
Internet Security Systems, Inc. 1                         11,400         265,050
- ---------------------------------------------------------------------------------
Interwoven, Inc. 1                                        15,400         167,552
- ---------------------------------------------------------------------------------
Ivillage, Inc. 1                                          23,200         143,376
- ---------------------------------------------------------------------------------
Keynote Systems, Inc. 1                                    3,000          41,760
- ---------------------------------------------------------------------------------
Lionbridge Technologies, Inc. 1                            1,600          10,752
- ---------------------------------------------------------------------------------
LookSmart Ltd. 1                                          28,400          62,196
- ---------------------------------------------------------------------------------
MarketWatch, Inc. 1                                          700          12,600






STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

INTERNET SOFTWARE & SERVICES Continued
MatrixOne, Inc. 1                                         11,500   $      75,325
- ---------------------------------------------------------------------------------
MicroStrategy, Inc., Cl. A 1                               1,400          84,350
- ---------------------------------------------------------------------------------
NetRatings, Inc. 1                                         3,000          57,510
- ---------------------------------------------------------------------------------
OpenTV Corp. 1                                             9,600          36,864
- ---------------------------------------------------------------------------------
PEC Solutions, Inc. 1                                      2,000          28,340
- ---------------------------------------------------------------------------------
Retek, Inc. 1                                             18,800         115,620
- ---------------------------------------------------------------------------------
S1 Corp. 1                                                23,800         215,628
- ---------------------------------------------------------------------------------
Selectica, Inc. 1                                          3,400          12,172
- ---------------------------------------------------------------------------------
SonicWALL, Inc. 1                                         35,100         221,832
- ---------------------------------------------------------------------------------
SupportSoft, Inc. 1                                        8,900          59,274
- ---------------------------------------------------------------------------------
United Online, Inc. 1                                     31,300         360,889
- ---------------------------------------------------------------------------------
ValueClick, Inc. 1                                        21,900         291,927
- ---------------------------------------------------------------------------------
VeriSign, Inc. 1                                           3,700         124,024
- ---------------------------------------------------------------------------------
WebEx Communications, Inc. 1                                 500          11,890
- ---------------------------------------------------------------------------------
webMethods, Inc. 1                                         4,100          29,561
- ---------------------------------------------------------------------------------
Websense, Inc. 1                                           5,600         284,032
                                                                   --------------
                                                                       4,812,535

- ---------------------------------------------------------------------------------
IT SERVICES--1.8%
Acxiom Corp.                                              17,200         452,360
- ---------------------------------------------------------------------------------
Alliance Data Systems Corp. 1                              1,800          85,464
- ---------------------------------------------------------------------------------
American Software, Inc.                                    3,100          18,693
- ---------------------------------------------------------------------------------
Answerthink, Inc. 1                                       10,800          50,328
- ---------------------------------------------------------------------------------
Anteon International Corp. 1                               1,600          66,976
- ---------------------------------------------------------------------------------
Aquantive, Inc. 1                                          4,300          38,442
- ---------------------------------------------------------------------------------
BISYS Group, Inc. (The) 1                                 12,100         199,045
- ---------------------------------------------------------------------------------
CheckFree Corp. 1                                          6,700         255,136
- ---------------------------------------------------------------------------------
Convergys Corp. 1                                          8,800         131,912
- ---------------------------------------------------------------------------------
CSG Systems International, Inc. 1                         14,000         261,800
- ---------------------------------------------------------------------------------
eFunds Corp. 1                                            15,100         362,551
- ---------------------------------------------------------------------------------
Euronet Worldwide, Inc. 1                                  4,100         106,682
- ---------------------------------------------------------------------------------
Information Resources, Inc. 1                              3,500           3,535
- ---------------------------------------------------------------------------------
infoUSA, Inc. 1                                           18,500         207,015
- ---------------------------------------------------------------------------------
Integral Systems, Inc.                                       100           1,945
- ---------------------------------------------------------------------------------
iPayment Holdings, Inc. 1                                  2,500         123,800
- ---------------------------------------------------------------------------------
Keane, Inc. 1                                              1,600          23,520
- ---------------------------------------------------------------------------------
Lawson Software, Inc. 1                                   24,500         168,315
- ---------------------------------------------------------------------------------
Manhattan Associates, Inc. 1                                 200           4,776
- ---------------------------------------------------------------------------------
ManTech International Corp. 1                              2,400          56,976
- ---------------------------------------------------------------------------------
MPS Group, Inc. 1                                         14,500         177,770
- ---------------------------------------------------------------------------------
NetScout Systems, Inc. 1                                     200           1,396
- ---------------------------------------------------------------------------------
Pegasus Solutions, Inc. 1                                  3,000          37,800
- ---------------------------------------------------------------------------------
Perot Systems Corp., Cl. A 1                               3,100          49,693
- ---------------------------------------------------------------------------------
RightNow Technologies, Inc. 1                              4,700          75,905
- ---------------------------------------------------------------------------------
Sabre Holdings Corp.                                       6,400         141,824
- ---------------------------------------------------------------------------------
Sapient Corp. 1                                           39,400         311,654


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

IT SERVICES Continued
SRA International, Inc., Cl. A 1                           1,800   $     115,560
- ---------------------------------------------------------------------------------
SS&C Technologies, Inc.                                    8,300         171,395
- ---------------------------------------------------------------------------------
Startek, Inc.                                              4,400         125,180
- ---------------------------------------------------------------------------------
TNS, Inc. 1                                                  900          19,665
                                                                   --------------
                                                                       3,847,113

- ---------------------------------------------------------------------------------
OFFICE ELECTRONICS--0.0%
TransAct Technologies, Inc. 1                              3,750          80,100
- ---------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--4.7%
Actel Corp. 1                                              9,700         170,138
- ---------------------------------------------------------------------------------
ADE Corp. 1                                                4,500          84,240
- ---------------------------------------------------------------------------------
Advanced Energy Industries, Inc. 1                        13,800         125,994
- ---------------------------------------------------------------------------------
Agere Systems, Inc., Cl. A 1                              88,900         121,793
- ---------------------------------------------------------------------------------
Applied Micro Circuits Corp. 1                            74,700         314,487
- ---------------------------------------------------------------------------------
Atheros Communications, Inc. 1                             4,800          49,200
- ---------------------------------------------------------------------------------
Atmel Corp. 1                                            113,400         444,528
- ---------------------------------------------------------------------------------
ATMI, Inc. 1                                              11,900         268,107
- ---------------------------------------------------------------------------------
Axcelis Technologies, Inc. 1                              30,500         247,965
- ---------------------------------------------------------------------------------
Cabot Microelectronics Corp. 1                             6,800         272,340
- ---------------------------------------------------------------------------------
Cascade Microtech, Inc. 1                                  5,000          67,100
- ---------------------------------------------------------------------------------
Cirrus Logic, Inc. 1                                      31,100         171,361
- ---------------------------------------------------------------------------------
Cohu, Inc.                                                 5,300          98,368
- ---------------------------------------------------------------------------------
Cree, Inc. 1                                              10,000         400,800
- ---------------------------------------------------------------------------------
Cymer, Inc. 1                                              3,700         109,298
- ---------------------------------------------------------------------------------
Cypress Semiconductor Corp. 1                              6,900          80,937
- ---------------------------------------------------------------------------------
Diodes, Inc. 1                                             8,150         184,435
- ---------------------------------------------------------------------------------
DSP Group, Inc. 1                                         10,900         243,397
- ---------------------------------------------------------------------------------
Entegris, Inc. 1                                           8,100          80,595
- ---------------------------------------------------------------------------------
Exar Corp. 1                                               5,000          70,950
- ---------------------------------------------------------------------------------
Fairchild Semiconductor International, Inc., Cl. A 1      10,800         175,608
- ---------------------------------------------------------------------------------
FormFactor, Inc. 1                                         5,300         143,842
- ---------------------------------------------------------------------------------
Genesis Microchip, Inc. 1                                  1,300          21,086
- ---------------------------------------------------------------------------------
Helix Technology Corp.                                    11,100         193,029
- ---------------------------------------------------------------------------------
Integrated Circuit Systems, Inc. 1                         7,300         152,716
- ---------------------------------------------------------------------------------
Integrated Device Technology, Inc. 1                      24,100         278,596
- ---------------------------------------------------------------------------------
International Rectifier Corp. 1                              800          35,656
- ---------------------------------------------------------------------------------
Intersil Corp., Cl. A                                     17,400         291,276
- ---------------------------------------------------------------------------------
Kopin Corp. 1                                             10,600          41,022
- ---------------------------------------------------------------------------------
Kulicke & Soffa Industries, Inc. 1                        10,900          93,958
- ---------------------------------------------------------------------------------
Lam Research Corp. 1                                       5,100         147,441
- ---------------------------------------------------------------------------------
Lattice Semiconductor Corp. 1                             29,100         165,870
- ---------------------------------------------------------------------------------
LSI Logic Corp. 1                                         39,000         213,720
- ---------------------------------------------------------------------------------
MEMC Electronic Materials, Inc. 1                         11,600         153,700
- ---------------------------------------------------------------------------------
Micrel, Inc. 1                                            40,400         445,208
- ---------------------------------------------------------------------------------
Microsemi Corp. 1                                         26,500         460,040






                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Continued
Microtune, Inc. 1                                         24,900   $     152,139
- ---------------------------------------------------------------------------------
Mindspeed Technologies, Inc. 1                             7,900          21,962
- ---------------------------------------------------------------------------------
MIPS Technologies, Inc., Cl. A 1                          12,000         118,200
- ---------------------------------------------------------------------------------
Monolithic System Technology, Inc. 1                       1,000           6,230
- ---------------------------------------------------------------------------------
Mykrolis Corp. 1                                          16,400         232,388
- ---------------------------------------------------------------------------------
Nanometrics, Inc. 1                                        3,800          61,252
- ---------------------------------------------------------------------------------
OmniVision Technologies, Inc. 1                            2,500          45,875
- ---------------------------------------------------------------------------------
PDF Solutions, Inc. 1                                      3,200          51,552
- ---------------------------------------------------------------------------------
Photronics, Inc. 1                                        13,600         224,400
- ---------------------------------------------------------------------------------
Pixelworks, Inc. 1                                         6,800          77,112
- ---------------------------------------------------------------------------------
PLX Technology, Inc. 1                                     4,700          48,880
- ---------------------------------------------------------------------------------
PMC-Sierra, Inc. 1                                        12,900         145,125
- ---------------------------------------------------------------------------------
Rambus, Inc. 1                                             7,200         165,600
- ---------------------------------------------------------------------------------
RF Micro Devices, Inc. 1                                   5,800          39,672
- ---------------------------------------------------------------------------------
Rudolph Technologies, Inc. 1                               7,200         123,624
- ---------------------------------------------------------------------------------
Semtech Corp. 1                                            4,200          91,854
- ---------------------------------------------------------------------------------
Sigmatel, Inc. 1                                           4,900         174,097
- ---------------------------------------------------------------------------------
Silicon Image, Inc. 1                                     21,000         345,660
- ---------------------------------------------------------------------------------
Silicon Storage Technology, Inc. 1                        39,700         236,215
- ---------------------------------------------------------------------------------
Siliconix, Inc. 1                                            200           7,298
- ---------------------------------------------------------------------------------
Skyworks Solutions, Inc. 1                                13,300         125,419
- ---------------------------------------------------------------------------------
Standard Microsystems Corp. 1                              3,400          60,622
- ---------------------------------------------------------------------------------
Supertex, Inc. 1                                             300           6,510
- ---------------------------------------------------------------------------------
Teradyne, Inc. 1                                           5,900         100,713
- ---------------------------------------------------------------------------------
Tessera Technologies, Inc. 1                               4,800         178,608
- ---------------------------------------------------------------------------------
Trident Microsystems, Inc. 1                               5,500          91,960
- ---------------------------------------------------------------------------------
Ultra Clean Holdings, Inc. 1                               2,900          17,574
- ---------------------------------------------------------------------------------
Ultratech, Inc. 1                                          6,700         126,295
- ---------------------------------------------------------------------------------
Varian Semiconductor Equipment Associates, Inc. 1          2,100          77,385
- ---------------------------------------------------------------------------------
Virage Logic Corp. 1                                       6,200         115,134
                                                                   --------------
                                                                       9,888,156

- ---------------------------------------------------------------------------------
SOFTWARE--4.6%
Activision, Inc. 1                                        10,150         204,827
- ---------------------------------------------------------------------------------
Actuate Corp. 1                                            5,600          14,280
- ---------------------------------------------------------------------------------
Advent Software, Inc. 1                                    3,900          79,872
- ---------------------------------------------------------------------------------
Agile Software Corp. 1                                     4,300          35,131
- ---------------------------------------------------------------------------------
Amdocs Ltd. 1                                              2,300          60,375
- ---------------------------------------------------------------------------------
Ansoft Corp. 1                                             4,000          80,800
- ---------------------------------------------------------------------------------
Ansys, Inc. 1                                             15,600         500,136
- ---------------------------------------------------------------------------------
Ascential Software Corp. 1                                 6,300         102,753
- ---------------------------------------------------------------------------------
Aspen Technology, Inc. 1                                   5,700          35,397
- ---------------------------------------------------------------------------------
Autodesk, Inc.                                             2,600          98,670
- ---------------------------------------------------------------------------------
BEA Systems, Inc. 1                                       14,000         124,040
- ---------------------------------------------------------------------------------
Blackbaud, Inc. 1                                            600           8,784


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

SOFTWARE Continued
BMC Software, Inc. 1                                      10,500   $     195,300
- ---------------------------------------------------------------------------------
Borland Software Corp. 1                                  22,100         258,128
- ---------------------------------------------------------------------------------
Cadence Design Systems, Inc. 1                             2,000          27,620
- ---------------------------------------------------------------------------------
Catapult Communications Corp. 1                            6,300         152,208
- ---------------------------------------------------------------------------------
CCC Information Services Group, Inc. 1                       400           8,884
- ---------------------------------------------------------------------------------
Cognos, Inc. 1                                             2,700         118,962
- ---------------------------------------------------------------------------------
Compuware Corp. 1                                         21,100         136,517
- ---------------------------------------------------------------------------------
Concur Technologies, Inc. 1                                  600           5,346
- ---------------------------------------------------------------------------------
E.piphany, Inc. 1                                          8,500          41,055
- ---------------------------------------------------------------------------------
Entrust Technologies, Inc. 1                              21,400          81,106
- ---------------------------------------------------------------------------------
ePlus, inc. 1                                              1,700          20,077
- ---------------------------------------------------------------------------------
FactSet Research Systems, Inc.                             4,900         286,356
- ---------------------------------------------------------------------------------
Fair Isaac Corp.                                           4,500         165,060
- ---------------------------------------------------------------------------------
FileNet Corp. 1                                            6,500         167,440
- ---------------------------------------------------------------------------------
Hyperion Solutions Corp. 1                                 2,300         107,226
- ---------------------------------------------------------------------------------
Informatica Corp. 1                                       17,600         142,912
- ---------------------------------------------------------------------------------
InterVoice-Brite, Inc. 1                                  12,400         165,540
- ---------------------------------------------------------------------------------
JDA Software Group, Inc. 1                                 1,400          19,068
- ---------------------------------------------------------------------------------
Kronos, Inc. 1                                             6,150         314,450
- ---------------------------------------------------------------------------------
Macromedia, Inc. 1                                         5,100         158,712
- ---------------------------------------------------------------------------------
Macrovision Corp. 1                                        8,700         223,764
- ---------------------------------------------------------------------------------
Manugistics Group, Inc. 1                                 15,100          43,337
- ---------------------------------------------------------------------------------
McAfee, Inc. 1                                             7,900         228,547
- ---------------------------------------------------------------------------------
Micromuse, Inc. 1                                         16,500          91,575
- ---------------------------------------------------------------------------------
MICROS Systems, Inc. 1                                     1,500         117,090
- ---------------------------------------------------------------------------------
Midway Games, Inc. 1                                       6,400          67,200
- ---------------------------------------------------------------------------------
Mobius Management Systems, Inc. 1                          4,000          29,016
- ---------------------------------------------------------------------------------
MRO Software, Inc. 1                                       5,600          72,912
- ---------------------------------------------------------------------------------
MSC.Software Corp. 1                                         600           6,282
- ---------------------------------------------------------------------------------
NetIQ Corp. 1                                             11,400         139,194
- ---------------------------------------------------------------------------------
Open Solutions, Inc. 1                                       600          15,576
- ---------------------------------------------------------------------------------
OPNET Technologies, Inc. 1                                 1,500          12,630
- ---------------------------------------------------------------------------------
PalmSource, Inc. 1                                         4,500          57,330
- ---------------------------------------------------------------------------------
Parametric Technology Corp. 1                             93,700         551,893
- ---------------------------------------------------------------------------------
Pervasive Software, Inc. 1                                   200             970
- ---------------------------------------------------------------------------------
Progress Software Corp. 1                                  1,600          37,360
- ---------------------------------------------------------------------------------
Quality Systems, Inc. 1                                    3,000         179,400
- ---------------------------------------------------------------------------------
Quest Software, Inc. 1                                     2,200          35,090
- ---------------------------------------------------------------------------------
RSA Security, Inc. 1                                      17,900         359,074
- ---------------------------------------------------------------------------------
Siebel Systems, Inc. 1                                     7,400          77,700
- ---------------------------------------------------------------------------------
SoftBrands, Inc. 1                                         1,900           4,180
- ---------------------------------------------------------------------------------
Sonic Solutions, Inc. 1                                    6,200         139,128
- ---------------------------------------------------------------------------------
Sybase, Inc. 1                                            27,800         554,610
- ---------------------------------------------------------------------------------
Synopsys, Inc. 1                                           7,700         151,074
- ---------------------------------------------------------------------------------
Synplicity, Inc. 1                                         1,100           6,512






STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

SOFTWARE Continued
Take-Two Interactive Software, Inc. 1                     10,500   $     365,295
- ---------------------------------------------------------------------------------
THQ, Inc. 1                                               16,400         376,216
- ---------------------------------------------------------------------------------
TIBCO Software, Inc. 1                                    43,500         580,290
- ---------------------------------------------------------------------------------
Transaction Systems Architects, Inc., Cl. A 1              5,600         111,160
- ---------------------------------------------------------------------------------
Ulticom, Inc. 1                                           11,100         177,933
- ---------------------------------------------------------------------------------
Verint Systems, Inc. 1                                     2,700          98,091
- ---------------------------------------------------------------------------------
Verity, Inc. 1                                            10,900         143,008
- ---------------------------------------------------------------------------------
Wind River Systems, Inc. 1                                35,700         483,735
- ---------------------------------------------------------------------------------
Witness Systems, Inc. 1                                   15,300         267,138
                                                                   --------------
                                                                       9,721,342

- ---------------------------------------------------------------------------------
MATERIALS--7.0%
- ---------------------------------------------------------------------------------
CHEMICALS--2.4%
Agrium, Inc.                                               6,500         109,525
- ---------------------------------------------------------------------------------
Albemarle Corp.                                            3,400         131,614
- ---------------------------------------------------------------------------------
American Vanguard Corp.                                      800          29,424
- ---------------------------------------------------------------------------------
Arch Chemicals, Inc.                                       7,000         201,460
- ---------------------------------------------------------------------------------
Cabot Corp.                                               10,700         413,876
- ---------------------------------------------------------------------------------
Cambrex Corp.                                              2,500          67,750
- ---------------------------------------------------------------------------------
Compass Minerals International, Inc.                      12,100         293,183
- ---------------------------------------------------------------------------------
Crompton Corp.                                            17,100         201,780
- ---------------------------------------------------------------------------------
Cytec Industries, Inc.                                     2,500         128,550
- ---------------------------------------------------------------------------------
Eastman Chemical Co.                                       2,800         161,644
- ---------------------------------------------------------------------------------
Engelhard Corp.                                            2,300          70,541
- ---------------------------------------------------------------------------------
FMC Corp. 1                                               11,100         536,130
- ---------------------------------------------------------------------------------
Fuller (H.B.) Co.                                          3,000          85,530
- ---------------------------------------------------------------------------------
Georgia Gulf Corp.                                         9,400         468,120
- ---------------------------------------------------------------------------------
Great Lakes Chemical Corp.                                 8,700         247,863
- ---------------------------------------------------------------------------------
Hercules, Inc. 1                                           1,500          22,275
- ---------------------------------------------------------------------------------
MacDermid, Inc.                                           11,000         397,100
- ---------------------------------------------------------------------------------
Material Sciences Corp. 1                                    400           7,196
- ---------------------------------------------------------------------------------
Minerals Technologies, Inc.                                1,500         100,050
- ---------------------------------------------------------------------------------
Mosaic Co. (The) 1                                         4,900          79,968
- ---------------------------------------------------------------------------------
OM Group, Inc. 1                                           6,300         204,246
- ---------------------------------------------------------------------------------
Omnova Solutions, Inc. 1                                   3,300          18,546
- ---------------------------------------------------------------------------------
PolyOne Corp. 1                                           13,900         125,934
- ---------------------------------------------------------------------------------
Schulman (A.), Inc.                                        4,200          89,922
- ---------------------------------------------------------------------------------
Scotts Co. (The), Cl. A 1                                  2,800         205,856
- ---------------------------------------------------------------------------------
Stepan Co.                                                 1,400          34,104
- ---------------------------------------------------------------------------------
Terra Industries, Inc. 1                                  36,100         320,568
- ---------------------------------------------------------------------------------
Valspar Corp. (The)                                          600          30,006
- ---------------------------------------------------------------------------------
W.R. Grace & Co. 1                                        15,200         206,872
- ---------------------------------------------------------------------------------
Westlake Chemical Corp.                                    5,100         170,340
                                                                   --------------
                                                                       5,159,973


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

CONSTRUCTION MATERIALS--0.6%
AMCOL International Corp.                                  4,900   $      98,441
- ---------------------------------------------------------------------------------
Eagle Materials, Inc.                                      5,600         483,560
- ---------------------------------------------------------------------------------
Eagle Materials, Inc., Cl. B                                 100           8,430
- ---------------------------------------------------------------------------------
Florida Rock Industries, Inc.                              1,400          83,342
- ---------------------------------------------------------------------------------
Martin Marietta Materials, Inc.                            4,700         252,202
- ---------------------------------------------------------------------------------
Texas Industries, Inc.                                     3,100         193,378
- ---------------------------------------------------------------------------------
Vulcan Materials Co.                                       2,400         131,064
                                                                   --------------
                                                                       1,250,417

- ---------------------------------------------------------------------------------
CONTAINERS & PACKAGING--1.3%
AptarGroup, Inc.                                           3,500         184,730
- ---------------------------------------------------------------------------------
Ball Corp.                                                 1,800          79,164
- ---------------------------------------------------------------------------------
Bemis Co., Inc.                                              900          26,181
- ---------------------------------------------------------------------------------
Caraustar Industries, Inc. 1                               4,600          77,372
- ---------------------------------------------------------------------------------
Crown Holdings, Inc. 1                                    31,900         438,306
- ---------------------------------------------------------------------------------
Graphic Packaging Corp. 1                                  8,900          64,080
- ---------------------------------------------------------------------------------
Greif, Inc., Cl. A                                         8,000         448,000
- ---------------------------------------------------------------------------------
Longview Fibre Co.                                         6,700         121,538
- ---------------------------------------------------------------------------------
Owens-Illinois, Inc. 1                                    15,700         355,605
- ---------------------------------------------------------------------------------
Packaging Corp. of America                                 1,600          37,680
- ---------------------------------------------------------------------------------
Packaging Dynamics Corp.                                     760          10,944
- ---------------------------------------------------------------------------------
Pactiv Corp. 1                                             2,000          50,580
- ---------------------------------------------------------------------------------
Rock-Tenn Co., Cl. A                                       5,700          86,412
- ---------------------------------------------------------------------------------
Silgan Holdings, Inc.                                      9,700         591,312
- ---------------------------------------------------------------------------------
Smurfit-Stone Container Corp.                              4,200          78,456
                                                                   --------------
                                                                       2,650,360

- ---------------------------------------------------------------------------------
METALS & MINING--1.9%
AK Steel Holding Corp. 1                                  40,900         591,823
- ---------------------------------------------------------------------------------
Aleris International, Inc. 1                               3,300          55,836
- ---------------------------------------------------------------------------------
Amerigo Resources Ltd. 1                                  16,000          25,773
- ---------------------------------------------------------------------------------
Brush Engineered Materials, Inc. 1                         5,300          98,050
- ---------------------------------------------------------------------------------
Carpenter Technology Corp.                                 5,800         339,068
- ---------------------------------------------------------------------------------
Castle (A.M.) & Co. 1                                      3,800          45,372
- ---------------------------------------------------------------------------------
Cleveland-Cliffs, Inc.                                     2,200         228,492
- ---------------------------------------------------------------------------------
Commercial Metals Co.                                      3,400         171,904
- ---------------------------------------------------------------------------------
Dynatec Corp. 1                                           73,900          67,846
- ---------------------------------------------------------------------------------
FNX Mining Co., Inc. 1                                    17,200          74,361
- ---------------------------------------------------------------------------------
Foundation Coal Holdings, Inc. 1                           3,500          80,710
- ---------------------------------------------------------------------------------
Goldcorp, Inc.                                             1,500          22,610
- ---------------------------------------------------------------------------------
Inmet Mining Corp. 1                                       8,800         158,204
- ---------------------------------------------------------------------------------
Massey Energy Co.                                          3,200         111,840
- ---------------------------------------------------------------------------------
Meridian Gold, Inc. 1                                        900          17,081
- ---------------------------------------------------------------------------------
Metal Management, Inc.                                     8,500         228,395
- ---------------------------------------------------------------------------------
Olympic Steel, Inc. 1                                      8,700         230,637
- ---------------------------------------------------------------------------------
Oregon Steel Mills, Inc. 1                                 8,500         172,465






                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

METALS & MINING Continued
Quanex Corp.                                                 500   $      34,285
- ---------------------------------------------------------------------------------
Roanoke Electric Steel Corp.                                 500          10,336
- ---------------------------------------------------------------------------------
RTI International Metals, Inc. 1                           2,900          59,566
- ---------------------------------------------------------------------------------
Ryerson Tull, Inc.                                        11,700         184,275
- ---------------------------------------------------------------------------------
Southern Peru Copper Corp.                                 3,400         160,514
- ---------------------------------------------------------------------------------
Steel Dynamics, Inc.                                       2,400          90,912
- ---------------------------------------------------------------------------------
Steel Technologies, Inc.                                   3,900         107,289
- ---------------------------------------------------------------------------------
Stillwater Mining Co. 1                                    9,400         105,844
- ---------------------------------------------------------------------------------
Titanium Metals Corp. 1                                    2,800          67,592
- ---------------------------------------------------------------------------------
United States Steel Corp.                                  2,800         143,500
- ---------------------------------------------------------------------------------
Wheaton River Minerals Ltd. 1                             16,100          52,406
- ---------------------------------------------------------------------------------
Wheeling-Pittsburg Corp. 1                                 2,300          88,642
- ---------------------------------------------------------------------------------
Worthington Industries, Inc.                              11,800         231,044
                                                                   --------------
                                                                       4,056,672

- ---------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.8%
Bowater, Inc.                                              2,500         109,925
- ---------------------------------------------------------------------------------
Buckeye Technologies, Inc. 1                               5,300          68,953
- ---------------------------------------------------------------------------------
Deltic Timber Corp.                                          400          16,980
- ---------------------------------------------------------------------------------
Glatfelter                                                11,800         180,304
- ---------------------------------------------------------------------------------
Louisiana-Pacific Corp.                                    9,000         240,660
- ---------------------------------------------------------------------------------
Neenah Paper, Inc. 1                                       5,900         192,340
- ---------------------------------------------------------------------------------
Pope & Talbot, Inc.                                       12,300         210,453
- ---------------------------------------------------------------------------------
Potlatch Corp.                                            10,300         520,974
- ---------------------------------------------------------------------------------
Wausau-Mosinee Paper Corp.                                 8,500         151,810
                                                                   --------------
                                                                       1,692,399

- ---------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--1.0%
- ---------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.3%
Alaska Communications Systems Group, Inc. 1                5,000          43,150
- ---------------------------------------------------------------------------------
Arbinet Holdings, Inc. 1                                   3,600          89,460
- ---------------------------------------------------------------------------------
CenturyTel, Inc.                                           4,800         170,256
- ---------------------------------------------------------------------------------
Commonwealth Telephone Enterprises, Inc. 1                   100           4,966
- ---------------------------------------------------------------------------------
Crown Castle International Corp. 1                         3,200          53,248
- ---------------------------------------------------------------------------------
CT Communications, Inc.                                    3,400          41,820
- ---------------------------------------------------------------------------------
D&E Communications, Inc.                                     300           3,615
- ---------------------------------------------------------------------------------
Iowa Telecommunications Services, Inc. 1                   6,700         144,519
- ---------------------------------------------------------------------------------
North Pittsburgh Systems, Inc.                             5,200         128,596
- ---------------------------------------------------------------------------------
Shenandoah Telecommunications Co.                            600          17,970
- ---------------------------------------------------------------------------------
Time Warner Telecom, Inc., Cl. A 1                         1,500           6,540
                                                                   --------------
                                                                         704,140


                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

WIRELESS TELECOMMUNICATION SERVICES--0.7%
@Road, Inc. 1                                              9,000   $      62,190
- ---------------------------------------------------------------------------------
AirGate PCS, Inc. 1                                        1,400          49,840
- ---------------------------------------------------------------------------------
Alamosa Holdings, Inc. 1                                  15,600         194,532
- ---------------------------------------------------------------------------------
Boston Communications Group, Inc. 1                        1,800          16,632
- ---------------------------------------------------------------------------------
InPhonic, Inc. 1                                           3,000          82,440
- ---------------------------------------------------------------------------------
Nextel Partners, Inc., Cl. A 1                             6,400         125,056
- ---------------------------------------------------------------------------------
Price Communications Corp.                                 3,000          55,770
- ---------------------------------------------------------------------------------
SBA Communications Corp. 1                                15,600         144,768
- ---------------------------------------------------------------------------------
Telephone & Data Systems, Inc.                             1,400         107,730
- ---------------------------------------------------------------------------------
UbiquiTel, Inc. 1                                         52,100         370,952
- ---------------------------------------------------------------------------------
United States Cellular Corp. 1                             2,000          89,520
- ---------------------------------------------------------------------------------
USA Mobility, Inc. 1                                       5,400         190,674
                                                                   --------------
                                                                       1,490,104

- ---------------------------------------------------------------------------------
UTILITIES--1.6%
- ---------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.2%
ALLETE, Inc.                                               5,100         187,425
- ---------------------------------------------------------------------------------
Aquila, Inc. 1                                            38,200         140,958
- ---------------------------------------------------------------------------------
Calpine Corp. 1                                           27,900         109,926
- ---------------------------------------------------------------------------------
Canadian Hydro Developers, Inc. 1                         14,000          39,611
- ---------------------------------------------------------------------------------
CH Energy Group, Inc.                                      6,600         317,130
- ---------------------------------------------------------------------------------
CMS Energy Corp. 1                                        42,200         440,990
- ---------------------------------------------------------------------------------
Duquesne Light Holdings, Inc.                                100           1,885
- ---------------------------------------------------------------------------------
El Paso Electric Co. 1                                     5,100          96,594
- ---------------------------------------------------------------------------------
Green Mountain Power Corp.                                 1,000          28,830
- ---------------------------------------------------------------------------------
IDACORP, Inc.                                             13,100         400,467
- ---------------------------------------------------------------------------------
Northeast Utilities Co.                                    4,800          90,480
- ---------------------------------------------------------------------------------
NRG Energy, Inc. 1                                         1,300          46,865
- ---------------------------------------------------------------------------------
Ormat Technologies, Inc. 1                                17,400         283,272
- ---------------------------------------------------------------------------------
PNM Resources, Inc.                                       10,100         255,429
- ---------------------------------------------------------------------------------
Reliant Energy, Inc. 1                                     2,700          36,855
                                                                   --------------
                                                                       2,476,717

- ---------------------------------------------------------------------------------
GAS UTILITIES--0.3%
Atmos Energy Corp.                                         7,400         202,390
- ---------------------------------------------------------------------------------
Chesapeake Utilities Corp.                                 1,300          34,710
- ---------------------------------------------------------------------------------
Energen Corp.                                              2,200         129,690
- ---------------------------------------------------------------------------------
Laclede Group, Inc. (The)                                    600          18,690
- ---------------------------------------------------------------------------------
New Jersey Resources Corp.                                 1,000          43,340
- ---------------------------------------------------------------------------------
Nicor, Inc.                                                1,500          55,410
- ---------------------------------------------------------------------------------
ONEOK, Inc.                                                1,800          51,156
- ---------------------------------------------------------------------------------
Southwest Gas Corp.                                        2,300          58,420
- ---------------------------------------------------------------------------------
WGL Holdings, Inc.                                           200           6,168
                                                                   --------------
                                                                         599,974






STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                          SHARES      SEE NOTE 1
- ---------------------------------------------------------------------------------

MULTI-UTILITIES & UNREGULATED POWER--0. 1%
Dynegy, Inc. 1                                             8,500   $      39,270
- ---------------------------------------------------------------------------------
Energy East Corp.                                          1,200          32,000
- ---------------------------------------------------------------------------------
Sierra Pacific Resources 1                                15,100         158,550
                                                                   --------------
                                                                         229,820
                                                                   --------------
Total Common Stocks (Cost $173,806,959)                              208,999,882

- ---------------------------------------------------------------------------------
PREFERRED STOCKS--0.0%
- ---------------------------------------------------------------------------------
Simon Property Group Inc., 6% Cv., Non-Vtg
(Cost $3,212)                                                 60           3,553


                                                       PRINCIPAL
                                                          AMOUNT
- ---------------------------------------------------------------------------------

NON-CONVERTIBLE CORPORATE BONDS AND NOTES--0.0%
- ---------------------------------------------------------------------------------
Mueller Industries, Inc., 6% Sub. Nts.,
11/1/14 (Cost $51,000)                              $     51,000          50,235

- ---------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--2.7%
- ---------------------------------------------------------------------------------
Undivided interest of 0.39% in joint repurchase
agreement (Principal Amount/Value
$1,443,703,000, with a maturity value of
$1,443,962,867) with UBS Warburg LLC,
2.16%, dated 12/31/04, to be repurchased
at $5,672,021 on 1/3/05, collateralized by
Federal National Mortgage Assn., 5%--6%,
4/1/34--10/1/34, with a value of
$1,474,609,071 (Cost $5,671,000)                       5,671,000       5,671,000
- ---------------------------------------------------------------------------------
Total Investments, at Value (excluding
Investments Purchased with Cash Collateral
from Securities Loaned) (Cost $179,532,171)                          214,724,670

- ---------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM
SECURITIES LOANED--20.3%
- ---------------------------------------------------------------------------------
ASSET-BACKED FLOATING NOTES--0.7%
Whitehawk CDO Funding Corp., 2.56%, 3/15/05 4          1,500,000       1,500,000
- ---------------------------------------------------------------------------------
MASTER FLOATING NOTES--0.8%
Bear Stearns, 2.493%, 1/3/05 4                           250,000         250,000
- ---------------------------------------------------------------------------------
Merrill Lynch Mortgage Capital, 2.413%, 1/3/05 4       1,500,000       1,500,000
                                                                   --------------
                                                                       1,750,000


                                                       PRINCIPAL           VALUE
                                                          AMOUNT      SEE NOTE 1
- ---------------------------------------------------------------------------------

MEDIUM-TERM FLOATING NOTES--0.3%
Sigma Finance, Inc., 2.502% Medium
Term Nts., 1/25/054                                 $    654,709   $     654,709
- ---------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--18.5%
Undivided interest of 1.40% in joint
repurchase agreement (Principal Amount/Value
$2,800,000,000, with a maturity value of
$2,800,550,669) with Nomura Securities,
2.36%, dated 12/31/04, to be repurchased at
$39,316,193 on 1/3/05, collateralized by U.S.
Government Mortgage Agencies, 2.58%-7.50%,
1/15/08-10/15/44, with a value of
$2,908,566,289 4                                      39,308,462      39,308,462
                                                                   --------------

Total Investments Purchased with Cash Collateral
from Securities Loaned (Cost $43,213,171)                             43,213,171

- ---------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $222,745,342)                                        121.5%  $ 257,937,841
- ---------------------------------------------------------------------------------
LIABILITIES IN EXCESS
OF OTHER ASSETS                                            (21.5)    (45,690,682)
                                                   ------------------------------
NET ASSETS                                                 100.0%  $ 212,247,159
                                                   ==============================


FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

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 $55,314 or 0.03% of the Fund's net assets
as of December 31, 2004.

3. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of December 31, 2004 was $108,569, which represents
0.05% of the Fund's net assets, all of which is considered restricted. See Note
6 of Notes to Financial Statements.

4. The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 7 of Notes to Financial
Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
Investments, at value (including securities loaned of $42,237,021) (cost $222,745,342)
- --see accompanying statement of investments                                                                     $ 257,937,841
- ------------------------------------------------------------------------------------------------------------------------------
Cash                                                                                                                  541,763
- ------------------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold                                                                                                    4,003,790
Shares of beneficial interest sold                                                                                    378,981
Interest and dividends                                                                                                100,357
Other                                                                                                                   3,053
                                                                                                                --------------
Total assets                                                                                                      262,965,785

- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned                                                                         43,213,171
- ------------------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased                                                                                               6,775,389
Shares of beneficial interest redeemed                                                                                579,239
Distribution and service plan fees                                                                                     95,006
Shareholder communications                                                                                             18,272
Trustees' compensation                                                                                                  4,860
Transfer and shareholder servicing agent fees                                                                           1,723
Other                                                                                                                  30,966
                                                                                                                --------------
Total liabilities                                                                                                  50,718,626

- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS                                                                                                      $ 212,247,159
                                                                                                                ==============

- ------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                                                      $      13,275
- ------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                                                        171,354,624
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated net investment loss                                                                                       (52,556)
- ------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions                                      5,739,256
- ------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign
currencies                                                                                                         35,192,560
                                                                                                                --------------
NET ASSETS                                                                                                      $ 212,247,159
                                                                                                                ==============

- ------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ------------------------------------------------------------------------------------------------------------------------------
Non-Service Shares:
Net asset value, redemption price per share and offering price per share (based on net assets of $38,635,539
and 2,406,937 shares of beneficial interest outstanding)                                                        $       16.05
- ------------------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share (based on net assets of $173,611,620
and 10,868,312 shares of beneficial interest outstanding)                                                       $       15.97


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS





STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $2,509)                    $   1,144,958
- ----------------------------------------------------------------------------------------
Portfolio lending fees                                                          100,675
- ----------------------------------------------------------------------------------------
Interest                                                                         64,642
                                                                          --------------
Total investment income                                                       1,310,275

- ----------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------
Management fees                                                               1,070,988
- ----------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares                              279,935
- ----------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares                                                               10,029
Service shares                                                                   10,136
- ----------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares                                                                4,565
Service shares                                                                   19,063
- ----------------------------------------------------------------------------------------
Trustees' compensation                                                            7,102
- ----------------------------------------------------------------------------------------
Custodian fees and expenses                                                       2,542
- ----------------------------------------------------------------------------------------
Other                                                                            41,355
                                                                          --------------
Total expenses                                                                1,445,715
Less reduction to custodian expenses                                               (805)
                                                                          --------------
Net expenses                                                                  1,444,910

- ----------------------------------------------------------------------------------------
NET INVESTMENT LOSS                                                            (134,635)

- ----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
- ----------------------------------------------------------------------------------------
Net realized gain on:
Investments                                                                   9,552,785
Foreign currency transactions                                                    26,819
                                                                          --------------
Net realized gain                                                             9,579,604
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments                                                                  19,928,773
Translation of assets and liabilities denominated in foreign currencies         175,318
                                                                          --------------
Net change in unrealized appreciation                                        20,104,091

- ----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                      $  29,549,060
                                                                          ==============


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                                               2004            2003
- ------------------------------------------------------------------------------------------------------------------------------

OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss                                                                              $    (134,635)  $   (168,501)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain                                                                                    9,579,604      2,703,929
- ------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation                                                               20,104,091     15,038,979
                                                                                                 -----------------------------
Net increase in net assets resulting from operations                                                29,549,060     17,574,407

- ------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Non-Service shares                                                                                   5,097,638        536,751
Service shares                                                                                      87,389,394     46,411,899

- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
Total increase                                                                                     122,036,092     64,523,057
- ------------------------------------------------------------------------------------------------------------------------------
Beginning of period                                                                                 90,211,067     25,688,010
                                                                                                 -----------------------------
End of period (including accumulated net investment loss of $52,556 and $32,616, respectively)   $ 212,247,159   $ 90,211,067
                                                                                                 =============================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,           2004       2003       2002       2001       2000
- ----------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                $  13.44   $   9.31   $  11.05   $  11.09   $  14.07
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)                             .01 1     (.03)      (.01)        -- 2     (.03)
Net realized and unrealized gain (loss)                 2.60       4.16      (1.73)      (.04)     (2.35)
                                                    ------------------------------------------------------
Total from investment operations                        2.61       4.13      (1.74)      (.04)     (2.38)
- ----------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain                      --         --         --         --       (.60)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period                      $  16.05   $  13.44   $   9.31   $  11.05   $  11.09
                                                    ======================================================

- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                     19.42%     44.36%    (15.75)%    (0.36)%   (18.34)%
- ----------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)            $ 38,636   $ 27,551   $ 19,577   $ 18,514   $ 14,599
- ----------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                   $ 30,871   $ 20,271   $ 20,505   $ 15,307   $ 12,576
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income (loss)                            0.06%     (0.30)%    (0.09)%    (0.01)%    (0.29)%
Total expenses                                          0.83%      1.01%      1.00%      1.05%      1.37%
Expenses after payments and waivers and reduction
to custodian expenses                                    N/A 5      N/A 5      N/A 5      N/A 5     1.35%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                  147%       130%       121%       213%       162%


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Less than $0.005 per share.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





SERVICE SHARES  YEAR ENDED DECEMBER 31,                                        2004         2003         2002     2001 1
- --------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                                      $   13.40     $   9.29     $  11.05    $ 10.61
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)                                                   (.02) 2      (.02)        (.01)        -- 3
Net realized and unrealized gain (loss)                                        2.59         4.13        (1.75)       .44
                                                                          ------------------------------------------------
Total from investment operations                                               2.57         4.11        (1.76)       .44
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain                                             --           --           --         --
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                            $   15.97     $  13.40     $   9.29    $ 11.05
                                                                          ================================================

- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 4                                            19.18%       44.24%      (15.93)%     4.15%
- --------------------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)                                  $ 173,612     $ 62,660     $  6,111    $   108
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                                         $ 112,279     $ 25,018     $  2,228    $    26
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 5
Net investment loss                                                           (0.14)%      (0.43)%      (0.26)%    (0.34)%
Total expenses                                                                 1.06%        1.23%        1.21%      1.19%
Expenses after payments and waivers and reduction to custodian expenses         N/A 6        N/A 6       1.19%       N/A 6
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                                         147%         130%         121%       213%


1. For the period from July 16, 2001 (inception of offering) to December 31,
2001.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Less than $0.005 per share.

4. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

5. Annualized for periods of less than one full year.

6. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Main Street Small Cap Fund/VA (the Fund) is a separate series of
Oppenheimer Variable Account Funds (the Trust), an open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek capital appreciation. The
Trust's investment advisor is OppenheimerFunds, Inc. (the Manager).

      The Fund offers two classes of shares. Both classes are sold at their
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products. The class of shares designated as Service shares is subject to a
distribution and service plan. Both classes of shares have identical rights and
voting privileges with respect to the Fund in general and exclusive voting
rights on matters that affect that class alone. Earnings, net assets and net
asset value per share may differ due to each class having its own expenses, such
as transfer and shareholder servicing agent fees and shareholder communications,
directly attributable to that class.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

      Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

      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.





- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.

- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                               NET UNREALIZED
                                                                 APPRECIATION
                                                             BASED ON COST OF
                                                               SECURITIES AND
   UNDISTRIBUTED    UNDISTRIBUTED    ACCUMULATED            OTHER INVESTMENTS
   NET INVESTMENT       LONG-TERM           LOSS           FOR FEDERAL INCOME
   INCOME                    GAIN   CARRYFORWARD 1,2,3,4         TAX PURPOSES
   --------------------------------------------------------------------------
   $ --               $ 5,832,268       $ 15,991                 $ 35,066,036

1. The Fund had $1,241 of post-October foreign currency losses which were
deferred.

2. The Fund had $14,750 of post-October passive foreign investment company
losses which were deferred.

3. During the fiscal year ended December 31, 2004, the Fund utilized $3,233,886
of capital loss carryforward to offset capital gains realized in that fiscal
year.

4. During the fiscal year ended December 31, 2003, the Fund utilized $2,435,654
of capital loss carryforward to offset capital gains realized in that fiscal
year.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

                              REDUCTION TO      REDUCTION TO
                               ACCUMULATED   ACCUMULATED NET
          INCREASE TO       NET INVESTMENT     REALIZED GAIN
          PAID-IN CAPITAL             LOSS    ON INVESTMENTS 5
          ----------------------------------------------------
          $ 491,766              $ 114,695         $ 606,461

5. $599,308, all of which was long-term capital gain, was distributed in
connection with Fund share redemptions.

No distributions were paid during the years ended December 31, 2004 and December
31, 2003.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES Continued

The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

              Federal tax cost of securities   $ 222,871,866
                                               ==============

              Gross unrealized appreciation    $  36,927,077
              Gross unrealized depreciation       (1,861,041)
                                               --------------
              Net unrealized appreciation      $  35,066,036
                                               ==============

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.

- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity
with U.S. 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 $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:

                           YEAR ENDED AUGUST 31, 2004    YEAR ENDED AUGUST 31, 2003
                               SHARES          AMOUNT        SHARES          AMOUNT
- --------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                          989,664   $  13,869,116       826,676   $   9,370,135
Redeemed                     (632,898)     (8,771,478)     (879,995)     (8,833,384)
                          ---------------------------------------------------------
Net increase (decrease)       356,766   $   5,097,638       (53,319)  $     536,751
                          =========================================================

- -----------------------------------------------------------------------------------
SERVICE SHARES
Sold                        7,817,367   $ 110,026,860     4,910,616   $  56,495,920
Redeemed                   (1,624,349)    (22,637,466)     (892,849)    (10,084,021)
                          ---------------------------------------------------------
Net increase                6,193,018   $  87,389,394     4,017,767   $  46,411,899
                          =========================================================


- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended December 31, 2004, were
$297,239,226 and $206,565,862, respectively.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million and 0.60% of average annual net assets over $800 million.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$20,106 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 per class for class level assets of $10
million or more. Each class is subject to the minimum fee in the event that the
per account fee does not equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FOR SERVICE SHARES. The Fund has adopted a
Distribution and Service Plan for Service shares to pay OppenheimerFunds
Distributor, Inc. (the Distributor), for distribution related services and
personal service and account maintenance for the Fund's Service shares. Under
the Plan, payments are made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Service shares of the Fund. The Distributor
currently uses all of those fees to compensate sponsor(s) of the insurance
product that offers Fund shares, for providing personal service and maintenance
of accounts of their variable contract owners that hold Service shares. The
impact of the service plan is to increase operating expenses of the Service
shares, which results in lower performance compared to the Fund's shares that
are not subject to a service fee. Fees incurred by the Fund under the Plan are
detailed in the Statement of Operations.

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. OFS has voluntarily agreed to limit transfer
and shareholder servicing agent fees for all classes to 0.35% of average annual
net assets per class. This undertaking may be amended or withdrawn at any time.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.

      The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.

      The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.

      As of December 31, 2004, the Fund had no outstanding foreign currency
contracts.

- --------------------------------------------------------------------------------
6. ILLIQUID OR RESTRICTED SECURITIES

As of December 31, 2004, investments in securities included issues that are
illiquid or restricted. Restricted securities are purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund will not invest more than 15% of
its net assets (determined at the time of purchase and reviewed periodically) in
illiquid or restricted securities. Certain restricted securities, eligible for
resale to qualified institutional investors, are not subject to that limitation.
Information concerning restricted securities is as follows:

                                                                         UNREALIZED
                         ACQUISITION                VALUATION AS OF    APPRECIATION
SECURITY                       DATES       COST   DECEMBER 31, 2004   (DEPRECIATION)
- ------------------------------------------------------------------------------------

Lightning Energy Ltd.        11/8/04   $ 53,664            $ 49,293        $ (4,371)
ProspEx Resources Ltd.      11/17/04      9,233               9,605             372
Tusk Energy Corp.           11/15/04     38,148              49,671          11,523


- --------------------------------------------------------------------------------
7. SECURITIES LENDING

The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund also continues to receive
interest or dividends paid on the securities loaned. As of December 31, 2004,
the Fund had on loan securities valued at $42,237,021. Cash of $43,213,171 was
received as collateral for the loans, all of which was invested in approved
instruments.





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER MONEY FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Money Fund/VA, a series of Oppenheimer Variable Account Funds,
including the statement of investments, as of December 31, 2004, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Money Fund/VA as of December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005

STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------


                                                     PRINCIPAL           VALUE
                                                        AMOUNT      SEE NOTE 1
- -------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--13.7%
- -------------------------------------------------------------------------------
DOMESTIC CERTIFICATES OF DEPOSIT--2.0%
Citibank NA, 2.31%, 2/23/05                        $ 2,000,000   $   2,000,000
- -------------------------------------------------------------------------------
Washington Mutual Bank FA,
2.29%, 2/11/05                                       2,000,000       2,000,000
                                                                 --------------
                                                                     4,000,000

- -------------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT--11.7%
Bank of Montreal Chicago, 2.28%,
1/13/05                                              2,000,000       2,000,000
- -------------------------------------------------------------------------------
BNP Paribas, New York, 2.33%,
6/22/05 1                                            5,000,000       4,998,933
- -------------------------------------------------------------------------------
Fortis Bank SA/NV, New York,
2.10%, 1/5/05                                        2,500,000       2,500,000
- -------------------------------------------------------------------------------
Nordea Bank Finland plc, New York
Branch, 2.34%, 6/29/05 1                             3,000,000       2,999,482
- -------------------------------------------------------------------------------
Societe Generale, New York, 2.33%,
6/14/05 1                                            5,000,000       4,999,321
- -------------------------------------------------------------------------------
Svenska Handelsbanken NY, 2.47%,
3/24/05                                              3,500,000       3,500,000
- -------------------------------------------------------------------------------
Toronto Dominion Bank, New York,
2.34%, 2/10/05                                       2,000,000       2,000,000
                                                                 --------------
Total Certificates of Deposit (Cost $26,997,736)                    26,997,736

- -------------------------------------------------------------------------------
DIRECT BANK OBLIGATIONS--8.6%
- -------------------------------------------------------------------------------
AB SPINTAB, 2.39%, 2/23/05                           3,000,000       2,989,466
- -------------------------------------------------------------------------------
Barclays US Funding Corp.,
2.18%, 1/12/05                                       2,500,000       2,498,335
- -------------------------------------------------------------------------------
Calyon North America, Inc.,
2.25%, 1/4/05                                        2,000,000       1,999,625
- -------------------------------------------------------------------------------
DnB NOR Bank ASA, 2.27%, 2/1/05                      1,200,000       1,197,654
- -------------------------------------------------------------------------------
Governor & Co. of the Bank of
Ireland, 2.08%, 3/29/05 2                            2,000,000       1,989,947
- -------------------------------------------------------------------------------
HBOS Treasury Services, 2.33%,
2/28/05                                              1,250,000       1,245,308
- -------------------------------------------------------------------------------
Skandinaviska Enskilda Banken AB,
2.45%, 3/23/05 2                                     2,000,000       1,988,975
- -------------------------------------------------------------------------------
Standard Federal Bank, 2.17%, 1/7/05                 1,000,000       1,000,000
- -------------------------------------------------------------------------------
Swedbank AB, 2.31%, 2/9/05                           2,000,000       1,994,995
                                                                 --------------
Total Direct Bank Obligations
(Cost $16,904,305)                                                  16,904,305

- -------------------------------------------------------------------------------
LETTERS OF CREDIT--2.6%
- -------------------------------------------------------------------------------
Chase Manhattan Bank, guaranteeing
commercial paper of NATC
California LLC, 2.03%, 1/19/05
(Cost $4,994,925)                                    5,000,000       4,994,925

                                                     PRINCIPAL           VALUE
                                                        AMOUNT      SEE NOTE 1
- -------------------------------------------------------------------------------
SHORT-TERM NOTES--71.5%
- -------------------------------------------------------------------------------
ASSET-BACKED--25.0%
Cable Beach LP, 2.03%, 1/6/05 2                    $ 3,000,000   $   2,999,154
- -------------------------------------------------------------------------------
Chesham Finance LLC, 2.38%, 2/28/05 2                1,000,000         996,166
- -------------------------------------------------------------------------------
Crown Point Capital Co.:
1.85%, 1/21/05 2                                     4,100,000       4,095,786
2.11%, 3/21/05 2                                     2,325,000       2,314,235
- -------------------------------------------------------------------------------
Eiffel Funding LLC, 2.36%, 2/10/05 2                 2,040,000       2,034,651
- -------------------------------------------------------------------------------
FCAR Owner Trust I, 2.20%, 1/7/05                    1,000,000         999,633
- -------------------------------------------------------------------------------
Gotham Funding Corp., 2.31%,
1/10/05 2                                            1,500,000       1,499,134
- -------------------------------------------------------------------------------
GOVCO, Inc., 2.05%, 1/18/05 2                        4,000,000       3,996,128
- -------------------------------------------------------------------------------
Grampian Funding LLC, 2.32%,
2/1/05 2                                             1,300,000       1,297,403
- -------------------------------------------------------------------------------
Legacy Capital LLC, 2.02%, 3/4/05 2                  2,500,000       2,491,260
- -------------------------------------------------------------------------------
Lexington Parker Capital Co. LLC:
2.03%, 1/10/05 2                                     2,000,000       1,998,995
2.15%, 4/5/05 2                                      3,000,000       2,983,158
- -------------------------------------------------------------------------------
Neptune Funding Corp., 2.53%,
3/7/05 2                                             3,500,000       3,487,108
- -------------------------------------------------------------------------------
New Center Asset Trust, 2.21%,
1/14/05                                              2,500,000       2,498,005
- -------------------------------------------------------------------------------
Perry Global Funding LLC,
Series A, 2.06%, 1/24/05 2                           5,266,000       5,259,069
- -------------------------------------------------------------------------------
Regency Markets No. 1 LLC, 2.37%,
1/7/05 2                                             2,000,000       1,999,230
- -------------------------------------------------------------------------------
Sheffield Receivables Corp., 2.17%,
1/3/05 2                                             1,100,000       1,099,867
- -------------------------------------------------------------------------------
Thornburg Mortgage Capital
Resources, 2.11%, 1/31/05 2                          5,000,000       4,992,166
- -------------------------------------------------------------------------------
Victory Receivables Corp., 2.22%,
1/14/05 2                                            1,000,000         999,198
- -------------------------------------------------------------------------------
Windmill Funding Corp., 2.25%,
1/19/05 2                                            1,000,000         998,875
                                                                 --------------
                                                                    49,039,221

- -------------------------------------------------------------------------------
AUTOMOBILES--3.3%
Ande Chevrolet Olds, Inc.,
2.57%, 1/1/05 1                                      2,000,000       2,000,000
- -------------------------------------------------------------------------------
BMW US Capital LLC:
2.20%, 1/3/05 2                                      2,500,000       2,499,694
2.30%, 1/14/05 2                                     2,000,000       1,998,339
                                                                 --------------
                                                                     6,498,033

- -------------------------------------------------------------------------------
CAPITAL MARKETS--13.3%
Banc of America Securities LLC,
2.32%, 1/3/05 1                                      5,000,000       5,000,000
- -------------------------------------------------------------------------------
Bear Stearns Cos., Inc., 2.01%, 1/13/05              3,220,000       3,217,843
- -------------------------------------------------------------------------------
First Clearing LLC, 2.41%, 6/6/05 1                  8,000,000       8,000,000
- -------------------------------------------------------------------------------
Lehman Brothers, Inc., 2.38%,
12/15/05 1                                           5,000,000       5,000,000



                          6 | OPPENHEIMER MONEY FUND/VA


                                                     PRINCIPAL           VALUE
                                                        AMOUNT      SEE NOTE 1
- -------------------------------------------------------------------------------
CAPITAL MARKETS--13.3%
Morgan Stanley, 2.34%, 1/21/05                     $ 5,000,000   $   4,993,500
                                                                 --------------
                                                                    26,211,343

- -------------------------------------------------------------------------------
COMMERCIAL BANKS--0.8%
Bank of America Corp., 2.19%,
1/13/05                                              1,500,000       1,498,905
- -------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--5.8%
General Electric Capital Corp.,
2.32%, 2/25/05                                       3,000,000       2,989,367
- -------------------------------------------------------------------------------
General Electric Capital Services,
2.46%, 3/21/05                                       3,500,000       3,481,106
- -------------------------------------------------------------------------------
Household Finance Corp., 2%,
1/13/05                                              5,000,000       4,996,667
                                                                 --------------
                                                                    11,467,140

- -------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--1.2%
Alta Mira LLC, Series 2004, 2.57%,
1/3/05 1                                             2,250,000       2,250,000
- -------------------------------------------------------------------------------
INSURANCE--7.9%
Jackson National Life Global Funding,
Series 2004-6, 2.40%, 1/17/05 1,3                    2,500,000       2,500,000
- -------------------------------------------------------------------------------
Metropolitan Life Global Funding I,
Series 2003-5, 2.44%, 1/17/05 1,4                    4,000,000       4,000,000
- -------------------------------------------------------------------------------
Security Life of Denver Insurance
Co., 2.54%, 1/24/05 1,4                              5,000,000       5,000,000
- -------------------------------------------------------------------------------
United of Omaha Life Insurance
Co., 2.38%, 11/17/05 1,4                             4,000,000       4,000,000
                                                                 --------------
                                                                    15,500,000

- -------------------------------------------------------------------------------
LEASING & FACTORING--2.0%
American Honda Finance Corp.,
2.79%, 3/11/05 1,3                                   1,000,000       1,000,523
- -------------------------------------------------------------------------------
Toyota Motor Credit Corp.,
2.17%, 1/12/05                                       3,000,000       2,998,011
                                                                 --------------
                                                                     3,998,534

- -------------------------------------------------------------------------------
OIL & GAS--1.0%
Koch Industries LLC, 2.29%, 1/11/05 2                2,000,000       1,998,728
- -------------------------------------------------------------------------------
SPECIAL PURPOSE FINANCIAL--11.2%
Cooperative Assn. of Tractor
Dealers, Inc., Series A:
2.35%, 1/4/05                                        2,571,000       2,570,497
2.36%, 2/18/05                                       1,300,000       1,295,909
- -------------------------------------------------------------------------------
Cooperative Assn. of Tractor
Dealers, Inc., Series B:
2.36%, 2/15/05                                       1,000,000         997,050
2.40%, 1/5/05                                        2,500,000       2,499,333
2.48%, 3/15/05                                       1,500,000       1,492,457
- -------------------------------------------------------------------------------
K2 (USA) LLC:
2.12%, 1/25/05 2                                     1,250,000       1,248,233
2.38%, 6/30/05 1,3                                   3,000,000       2,999,699
- -------------------------------------------------------------------------------
LINKS Finance LLC, 2.35%, 12/15/05 1,3               3,000,000       2,999,142

                                                     PRINCIPAL           VALUE
                                                        AMOUNT      SEE NOTE 1
- -------------------------------------------------------------------------------
SPECIAL PURPOSE FINANCIAL Continued
Parkland (USA) LLC, 2.38%, 1/14/05 1,3             $ 2,000,000   $   1,999,993
- -------------------------------------------------------------------------------
RACERS Trust, Series 2004-6-MM,
2.41%, 1/24/05 1,3                                   1,000,000       1,000,000
- -------------------------------------------------------------------------------
Sigma Finance, Inc., 2.35%, 12/15/05 1,3             2,900,000       2,899,200
                                                                 --------------
                                                                    22,001,513
                                                                 --------------
Total Short-Term Notes
(Cost $140,463,417)                                                140,463,417

- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES--3.3%
- -------------------------------------------------------------------------------
Federal Home Loan Bank,
1.50%, 3/1/05                                        2,000,000       2,000,000
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.:
1.375%, 2/18/05                                      2,000,000       2,000,000
1.60%, 5/13/05                                       2,500,000       2,500,000
                                                                 --------------
Total U.S. Government Agencies
(Cost $6,500,000)                                                    6,500,000

- -------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $195,860,383)                                       99.7%    195,860,383
- -------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES                            0.3         642,440
                                                   ----------------------------
NET ASSETS                                               100.0%  $ 196,502,823
                                                   ============================


FOOTNOTES TO STATEMENT OF INVESTMENTS

SHORT-TERM  NOTES,  DIRECT BANK OBLIGATIONS AND LETTERS OF CREDIT ARE GENERALLY
TRADED ON A  DISCOUNT  BASIS; THE INTEREST RATE SHOWN IS THE  DISCOUNT RATE
RECEIVED BY THE FUND AT THE TIME OF PURCHASE. OTHER SECURITIES NORMALLY BEAR
INTEREST AT THE RATES SHOWN.

1. Represents the current interest rate for a variable or increasing rate
security.

2. Security  issued in an exempt transaction without registration under the
Securities Act of 1933. Such securities amount to $57,265,499,  or 29.14% of the
Fund's net assets, and have been determined to be liquid pursuant to guidelines
adopted by the Board of Trustees.

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 $15,398,557 or 7.84% of the Fund's net
assets as of December 31, 2004.

4. Illiquid security. The aggregate value of illiquid securities as of December
31, 2004 was $13,000,000, which represents 6.62% of the Fund's net assets. See
Note 4 of Notes to Financial Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------
Investments, at value (cost $195,860,383)--see accompanying statement of investments   $ 195,860,383
- -----------------------------------------------------------------------------------------------------
Cash                                                                                         151,267
- -----------------------------------------------------------------------------------------------------
Receivables and other assets:
Shares of beneficial interest sold                                                           674,010
Interest                                                                                     140,157
Other                                                                                          3,085
                                                                                       --------------
Total assets                                                                             196,828,902

- -----------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed                                                       176,208
Dividends                                                                                    112,938
Shareholder communications                                                                    17,299
Trustees' compensation                                                                         4,432
Transfer and shareholder servicing agent fees                                                    844
Other                                                                                         14,358
                                                                                       --------------
Total liabilities                                                                            326,079

- -----------------------------------------------------------------------------------------------------
NET ASSETS                                                                             $ 196,502,823
                                                                                       ==============

- -----------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -----------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                             $     196,475
- -----------------------------------------------------------------------------------------------------
Additional paid-in capital                                                               196,306,550
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments                                                    (202)
                                                                                       --------------
NET ASSETS--applicable to 196,475,255 shares of beneficial interest outstanding        $ 196,502,823
                                                                                       ==============

- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, REDEMPTION PRICE PER SHARE AND OFFERING PRICE PER SHARE               $        1.00


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

- -------------------------------------------------------------------
INVESTMENT INCOME
- -------------------------------------------------------------------
Interest                                               $ 3,151,606

- -------------------------------------------------------------------
EXPENSES
- -------------------------------------------------------------------
Management fees                                            982,603
- -------------------------------------------------------------------
Shareholder communications                                  19,605
- -------------------------------------------------------------------
Transfer and shareholder servicing agent fees               10,029
- -------------------------------------------------------------------
Trustees' compensation                                       5,499
- -------------------------------------------------------------------
Custodian fees and expenses                                  3,733
- -------------------------------------------------------------------
Other                                                       20,310
                                                       ------------
Total expenses                                           1,041,779
Less reduction to custodian expenses                        (1,310)
                                                       ------------
Net expenses                                             1,040,469

- -------------------------------------------------------------------
NET INVESTMENT INCOME                                    2,111,137

- -------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS                               481

- -------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS   $ 2,111,618
                                                       ============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                               2004             2003
- ------------------------------------------------------------------------------------------------------------

OPERATIONS
- ------------------------------------------------------------------------------------------------------------
Net investment income                                                        $   2,111,137    $   2,534,902
- ------------------------------------------------------------------------------------------------------------
Net realized gain (loss)                                                               481             (683)
                                                                             -------------------------------
Net increase in net assets resulting from operations                             2,111,618        2,534,219

- ------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------
Dividends from net investment income                                            (2,111,137)      (2,534,902)

- ------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from beneficial interest transactions     (41,110,557)    (142,355,858)
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Total decrease                                                                 (41,110,076)    (142,356,541)
- ------------------------------------------------------------------------------------------------------------
Beginning of period                                                            237,612,899      379,969,440
                                                                             -------------------------------
End of period                                                                $ 196,502,823    $ 237,612,899
                                                                             ===============================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------


YEAR ENDED DECEMBER 31,                                     2004          2003          2002          2001          2000
- ---------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                   $    1.00     $    1.00     $    1.00     $    1.00     $    1.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations--net
investment income and net realized gain                      .01 1         .01           .01           .04           .06
- ---------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                        (.01)         (.01)         (.01)         (.04)         (.06)
Dividends from net realized gain                              --            --            -- 2          --            --
                                                       --------------------------------------------------------------------
Total dividends and/or distributions to shareholders        (.01)         (.01)         (.01)         (.04)         (.06)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                         $    1.00     $    1.00     $    1.00     $    1.00     $    1.00
                                                       ====================================================================

- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3                                              0.98%         0.79%         1.47%         3.85%         6.26%
- ---------------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)               $ 196,503     $ 237,613     $ 379,969     $ 370,229     $ 215,771
- ---------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                      $ 218,243     $ 316,096     $ 386,457     $ 288,106     $ 204,586
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                       0.97%         0.80%         1.46%         3.59%         5.98%
Total expenses                                              0.48% 5       0.47% 5       0.47% 5       0.52% 5       0.51% 5


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Less than $0.005 per share.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Money Fund/VA (the Fund) is a separate series of Oppenheimer
Variable Account Funds (the Trust), an open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund's
investment objective is to seek maximum current income from investments in
"money market" securities consistent with low capital risk and the maintenance
of liquidity. The Trust's investment advisor is OppenheimerFunds, Inc. (the
Manager).

      Shares of the Fund are only sold to separate investment accounts of
participating insurance companies as an underlying investment for variable life
insurance policies, variable annuity contracts or other investment products.

     The following is a summary of significant  accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. Portfolio securities are valued on the basis of amortized
cost, which approximates market value.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years for
federal income tax purposes.

        UNDISTRIBUTED NET     UNDISTRIBUTED       ACCUMULATED CAPITAL
        INVESTMENT INCOME   LONG-TERM GAINS   LOSS CARRYFORWARD 1,2,3
        -------------------------------------------------------------
        $ 163,152                      $ --                     $ 202

1. As of December 31, 2004, the Fund had $202 of net capital loss carryforward
available to offset future realized capital gains, if any, and thereby reduce
future taxable gain distributions. As of December 31, 2004, details of the
capital loss carryforward were as follows:

               EXPIRING
               ----------------------
               2011             $ 202

2. During the fiscal year December 31, 2004, the Fund utilized $481 of capital
loss carryforward to offset capital gains realized in that fiscal year.

3. During the fiscal year December 31, 2003, the Fund did not utilize any
capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:

                                        YEAR ENDED          YEAR ENDED
                                 DECEMBER 31, 2004   DECEMBER 31, 2003
      ----------------------------------------------------------------
      Distributions paid from:
      Ordinary income                  $ 2,111,137         $ 2,534,902

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income distributions, if any, are declared
daily and paid monthly. Capital gain distributions, if any, are declared and
paid annually but may be paid at other times to maintain the net asset value per
share at $1.00.





- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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 $0.001 par value shares of
beneficial interest. Transactions in shares of beneficial interest were as
follows:

                                             YEAR ENDED DECEMBER 31, 2004    YEAR ENDED DECEMBER 31, 2003
                                                  SHARES           AMOUNT         SHARES           AMOUNT
- ----------------------------------------------------------------------------------------------------------

Sold                                         135,559,970   $  135,559,970    339,107,835   $  339,107,835
Dividends and/or distributions reinvested      2,042,069        2,042,069      2,603,068        2,603,068
Redeemed                                    (178,712,596)    (178,712,596)  (484,066,761)    (484,066,761)
                                            --------------------------------------------------------------
Net decrease                                 (41,110,557)  $  (41,110,557)  (142,355,858)  $ (142,355,858)
                                            ==============================================================

- --------------------------------------------------------------------------------
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.45% of the first $500 million of average annual net assets,
0.425% of the next $500 million, 0.40% of the next $500 million and 0.375% of
average annual net assets in excess of $1.5 billion.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$10,018 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 for assets of $10 million or more. The Fund
is subject to the minimum fee in the event that the per account fee does not
equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. OFS has voluntarily agreed to limit transfer
and shareholder servicing agent fees to 0.35% of average annual net assets of
the Fund. This undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
4. ILLIQUID SECURITIES

As of December 31, 2004,  investments  in  securities  included  issues that are
illiquid.  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 will not invest more than 10% of its net assets  (determined at the time of
purchase and reviewed periodically) in illiquid securities.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
5. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.



- --------------------------------------------------------------------------------
8. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER STRATEGIC BOND FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Strategic Bond Fund/VA, a series of Oppenheimer Variable Account
Funds, including the statement of investments, as of December 31, 2004, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Strategic Bond Fund/VA as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005

STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--2.4%
- --------------------------------------------------------------------------------
Arbor I Ltd., Catastrophe
Linked Nts.,
Series 2004-4, 16.49%, 3/15/06 1                 $     250,000   $       253,774
- --------------------------------------------------------------------------------
Bank One Auto Securitization
Trust, Automobile Receivable
Certificates,
Series 2003-1, Cl. A2,
1.29%, 8/21/06                                         212,619           212,242
- --------------------------------------------------------------------------------
BMW Vehicle Owner Trust,
Automobile Loan Certificates,
Series 2004-A, Cl. A2,
1.88%, 10/25/06                                        716,519           714,221
- --------------------------------------------------------------------------------
Capital Auto Receivables Asset
Trust, Automobile Mtg.-Backed
Nts., Series 2004-2, Cl. A3, 3.58%,
1/15/09                                                740,000           739,075
- --------------------------------------------------------------------------------
Centex Home Equity Co. LLC,
Home Equity Loan Asset-Backed
Certificates:
Series 2003-C, Cl. AF1,
2.14%, 7/25/18                                          71,469            71,389
Series 2004-A, Cl. AF1,
2.03%, 6/25/19                                         136,318           135,794
Series 2004-D, Cl. AF1,
2.98%, 4/25/20 2                                       338,237           337,140
- --------------------------------------------------------------------------------
Chase Funding Mortgage Loan
Asset-Backed Certificates,
Home Equity Mtg. Obligations:
Series 2002-4, Cl. 1A3,
3.44%, 4/25/23                                         109,997           110,004
Series 2003-1, Cl. 1A3,
3.14%, 7/25/23                                         302,706           302,548
Series 2003-4, Cl. 1A1,
2.538%, 9/25/17 1                                       53,909            53,938
Series 2003-4, Cl. 1A2,
2.138%, 7/25/18                                        280,000           279,060
Series 2004-1, Cl. 2A1,
2.528%, 9/25/21 1                                      486,551           486,864
- --------------------------------------------------------------------------------
Chase Manhattan Auto Owner
Trust, Automobile Loan
Pass-Through Certificates:
Series 2002-A, Cl. A4,
4.24%, 9/15/08                                         152,203           153,155
Series 2003-B, Cl. A2,
1.28%, 3/15/06                                          58,362            58,330
- --------------------------------------------------------------------------------
CIT Equipment Collateral,
Equipment Receivable-Backed
Nts., Series 2004-DFS, Cl. A2,
2.66%, 11/20/06 2                                      550,000           547,659
- --------------------------------------------------------------------------------
CIT Group Home Equity Loan
Trust, Home Equity Loan
Asset-Backed Certificates,
Series 2003-1, Cl. A2, 2.35%,
4/20/27                                                292,505           291,952


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Citibank Credit Card Issuance
Trust, Credit Card Receivable Nts.,
Series 2002-A3, Cl. A3,
4.40%, 5/15/07                                   $     530,000   $       533,661
- --------------------------------------------------------------------------------
CitiFinancial Mortgage Securities,
Inc., Home Equity Collateralized
Mtg. Obligations:
Series 2003-2, Cl. AF1,
2.518%, 5/25/33 1                                       32,335            32,356
Series 2003-3, Cl. AF1,
2.538%, 8/25/33 1                                      144,250           144,346
- --------------------------------------------------------------------------------
Consumer Credit Reference Index
Securities Program, Credit Card
Asset-Backed Certificates,
Series 2002-B, Cl. FX,
10.421%, 3/22/07 2                                     500,000           514,941
- --------------------------------------------------------------------------------
DaimlerChrysler Auto Trust,
Automobile Loan
Pass-Through Certificates:
Series 2003-A, Cl. A2, 1.52%, 12/8/05                  177,134           177,116
Series 2003-B, Cl. A2, 1.61%, 7/10/06                  561,254           560,311
Series 2004-B, Cl. A2, 2.48%, 2/8/07 2                 600,000           598,561
Series 2004-C, Cl. A2, 2.62%, 6/8/07                 1,040,000         1,036,808
- --------------------------------------------------------------------------------
Embarcadero Aircraft
Securitization Trust, Airplane
Receivable Nts., Series 2000-A,
Cl. B, 0.678%, 8/15/25 2,3,4                         1,820,063               569
- --------------------------------------------------------------------------------
Ford Credit Auto Owner Trust,
Automobile Loan Pass-Through
Certificates, Series 2004-A,
Cl. A2, 2.13%, 10/15/06                              1,120,000         1,115,639
- --------------------------------------------------------------------------------
Harley-Davidson Motorcycle
Trust, Motorcycle Receivable Nts.,
Series 2003-3, Cl. A1, 1.50%, 1/15/08                  389,176           387,801
- --------------------------------------------------------------------------------
Honda Auto Receivables
Owner Trust, Automobile
Receivable Obligations:
Series 2003-3, Cl. A2, 1.52%, 4/21/06                  419,992           419,289
Series 2003-4, Cl. A2, 1.58%, 7/17/06                  524,914           523,743
- --------------------------------------------------------------------------------
Household Automotive Trust,
Automobile Loan Certificates,
Series 2003-2, Cl. A2,
1.56%, 12/18/06                                        192,376           191,996
- --------------------------------------------------------------------------------
M&I Auto Loan Trust,
Automobile Loan Certificates:
Series 2002-1, Cl. A3,
2.49%, 10/22/07                                        229,259           229,227
Series 2003-1, Cl. A2, 1.60%, 7/20/06                  371,164           370,628
- --------------------------------------------------------------------------------
National City Auto Receivables
Trust, Automobile Receivable
Obligations, Series 2004-A, Cl. A2,
1.50%, 2/15/07                                         431,428           429,910





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
NC Finance Trust, Collateralized
Mtg. Obligations, Series 1999-I,
Cl. ECFD, 8.75%, 1/25/29 2                       $      66,744   $        17,812
- --------------------------------------------------------------------------------
Nissan Auto Lease Trust,
Automobile Lease Obligations:
Series 2003-A, Cl. A2,
1.69%, 12/15/05                                         35,559            35,559
Series 2004-A, Cl. A2,
2.55%, 1/15/07                                         480,000           479,674
- --------------------------------------------------------------------------------
Nissan Auto Receivables Owner
Trust, Automobile Receivable Nts.:
Series 2002-A, Cl. A4,
4.28%, 10/16/06                                        120,752           121,361
Series 2003-B, Cl. A3,
1.51%, 8/15/07                                         125,776           124,783
Series 2004-A, Cl. A2,
1.40%, 7/17/06                                         499,348           497,341
- --------------------------------------------------------------------------------
Option One Mortgage Loan
Trust, Home Equity Mtg.
Obligations, Series 2004-3, Cl. A2,
2.568%, 11/25/34 1,2                                   326,595           326,805
- --------------------------------------------------------------------------------
Popular ABS Mortgage
Pass-Through Trust, Home Equity
Pass-Through Certificates,
Series 2004-5, Cl. A F2,
3.735%, 11/10/34 2                                     200,000           199,334
- --------------------------------------------------------------------------------
Sequoia Capital Ltd.,
Catastrophe Nts.,
Series 2004-2, 7.24%, 3/15/05 1                        250,000           249,931
- --------------------------------------------------------------------------------
Toyota Auto Receivables Owner
Trust, Automobile
Mtg.-Backed Obligations:
Series 2002-B, Cl. A3,
3.76%, 6/15/06                                          38,998            39,054
Series 2003-B, Cl. A2,
1.43%, 2/15/06                                         162,898           162,799
- --------------------------------------------------------------------------------
USAA Auto Owner Trust,
Automobile Loan Asset-Backed Nts.:
Series 2002-1, Cl. A3,
2.41%, 10/16/06                                        102,245           102,242
Series 2004-1, Cl. A2,
1.43%, 9/15/06                                       1,196,193         1,192,385
Series 2004-2, Cl. A2,
2.41%, 2/15/07                                         610,000           608,073
Series 2004-3, Cl. A2,
2.79%, 6/15/07                                         490,000           489,033
- --------------------------------------------------------------------------------
Volkswagen Auto Lease Trust,
Automobile Lease Asset-Backed
Securities, Series 2004-A, Cl. A2,
2.47%, 1/22/07                                         640,000           637,075


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced
Trust, Automobile Loan
Receivable Certificates:
Series 2003-1, Cl. A2,
1.11%, 12/20/05                                  $      73,599   $        73,574
Series 2003-2, Cl. A2,
1.55%, 6/20/06                                         283,939           283,387
- --------------------------------------------------------------------------------
Wachovia Auto Owner Trust,
Automobile Receivable Nts.,
Series 2004-B, Cl. A2,
2.40%, 5/21/07                                         460,000           458,107
- --------------------------------------------------------------------------------
Wells Fargo Home Equity Trust,
Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B,
2.94%, 9/25/18                                         946,271           941,898
- --------------------------------------------------------------------------------
Whole Auto Loan Trust,
Automobile Loan Receivable
Certificates:
Series 2003-1, Cl. A2A,
1.40%, 4/15/06                                         383,197           382,479
Series 2003-1, Cl. A3B,
1.99%, 5/15/07                                         220,000           218,151
Series 2004-1, Cl. A2A,
2.59%, 5/15/07                                         620,000           617,718
                                                                 ---------------
Total Asset-Backed Securities
(Cost $22,179,442)                                                    20,272,622

- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--12.7%
- --------------------------------------------------------------------------------
Asset Securitization Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1997-D4, Cl. B1,
7.525%, 4/14/29                                        375,000           433,282
- --------------------------------------------------------------------------------
Banc of America Commercial
Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates,
Series 2004-6, Cl. A3,
4.512%, 12/10/42                                       560,000           560,000
- --------------------------------------------------------------------------------
Bank of America Mortgage
Securities, Inc., Collateralized
Mtg. Obligations Pass-Through
Certificates:
Series 2004-2, Cl. 2A1,
6.50%, 7/20/32                                         982,015         1,003,277
Series 2004-8, Cl. 5A1,
6.50%, 5/25/32                                         785,464           816,147
Series 2004-E, Cl. 2A9,
3.712%, 6/25/34                                        497,824           498,138
Series 2004-G, Cl. 2A1,
2.469%, 8/25/34                                        368,414           367,688
- --------------------------------------------------------------------------------
CIT Equipment Collateral,
Equipment Receivable-
Backed Nts.,
Series 2003-EF1, Cl. A2,
1.49%, 12/20/05                                         38,995            39,003





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Countrywide Alternative Loan Trust,
Collateralized Mtg. Obligations,
Series 2004-J9, Cl. 1A1,
2.598%, 10/25/34 1                               $     765,604   $       766,485
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
5%, 1/1/35 5                                         9,609,000         9,542,938
5.50%, 1/1/35 5                                      3,040,000         3,088,452
6%, 9/1/24                                           3,647,046         3,792,091
7%, 3/1/31-11/1/34                                   4,646,138         4,926,953
11%, 11/1/14                                            63,381            69,407
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Collateralized Mtg. Obligations,
Pass-Through Participation
Certificates, Series 151, Cl. F,
9%, 5/15/21                                            108,068           108,128
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Gtd. Real Estate Mtg.
Investment Conduit Multiclass
Pass-Through Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23                     145,350           146,508
Series 2055, Cl. ZM, 6.50%, 5/15/28                    366,469           381,155
Series 2080, Cl. Z, 6.50%, 8/15/28                     227,788           234,885
Series 2387, Cl. PD, 6%, 4/15/30                       491,475           509,443
Series 2466, Cl. PD, 6.50%, 4/15/30                    139,825           140,498
Series 2498, Cl. PC, 5.50%, 10/15/14                    60,326            60,843
Series 2500, Cl. FD, 2.903%, 3/15/32 1                 138,846           139,391
Series 2526, Cl. FE, 2.803%, 6/15/29 1                 170,408           171,021
Series 2551, Cl. FD, 2.803%, 1/15/33 1                 136,801           137,739
Series 2551, Cl. TA, 4.50%, 2/15/18                     59,590            59,552
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 177, Cl. B, (1.91)%, 7/1/26 6                   430,500            79,803
Series 192, Cl. IO, 3.27%, 2/1/28 6                    112,605            20,926
Series 200, Cl. IO, 2.89%, 1/1/29 6                    137,998            26,456
Series 205, Cl. IO, (0.22)%, 9/1/29 6                  648,115           121,500
Series 208, Cl. IO, (29.18)%, 6/1/30 6                 741,029           136,045
Series 2074, Cl. S, 11.86%, 7/17/28 6                  144,882            18,659
Series 2079, Cl. S, 10.47%, 7/17/28 6                  225,939            29,433
Series 2526, Cl. SE, 17.17%, 6/15/29 6                 318,589            25,898
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 1/1/20 5                                      3,175,000         3,165,078
5%, 1/1/20-1/1/35 5                                  5,784,000         5,802,086
5.50%, 3/1/33-1/1/34                                 5,067,193         5,150,261
5.50%, 1/1/35 5                                     15,257,000        15,490,615
6%, 9/1/24                                           1,095,238         1,139,933
6%, 1/1/35 5                                         5,145,000         5,320,249
6.50%, 5/1/29-10/1/30                                  349,551           367,350
6.50%, 1/1/35 5                                      5,741,000         6,020,874
7%, 12/1/23-8/1/34                                  11,386,535        12,074,521
7%, 8/1/28-1/1/35 5                                  4,961,590         5,258,944
7.50%, 8/1/25-2/1/27                                   303,017           325,469
8.50%, 7/1/32                                           30,386            33,011


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates:
Trust 1998-63, Cl. PG, 6%, 3/25/27               $     134,095   $       134,735
Trust 2001-50, Cl. NE, 6%, 8/25/30                     263,368           267,008
Trust 2001-70, Cl. LR, 6%, 9/25/30                     257,913           262,970
Trust 2001-72, Cl. NH, 6%, 4/25/30                     206,421           211,102
Trust 2001-74, Cl. PD, 6%, 5/25/30                      87,676            88,865
Trust 2002-50, Cl. PD, 6%, 9/25/27                     143,345           143,441
Trust 2002-77, Cl. WF,
2.81%, 12/18/32 1                                      219,585           220,883
Trust 2002-94, Cl. MA,
4.50%, 8/25/09                                         389,325           390,178
Trust 2003-81, Cl. PA, 5%, 2/25/12                     110,657           111,064
Trust 2004-101, Cl. BG, 5%, 1/25/20                    630,000           635,513
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates,
Interest-Only Stripped
Mtg.-Backed Security:
Trust 319, Cl. 2, (3.08)% 2/1/32 6                     280,066            53,832
Trust 2002-28, Cl. SA,
12.58%, 4/25/32 6                                      171,247            17,021
Trust 2002-38, Cl. SO,
19.60%, 4/25/32 6                                      941,721            75,715
Trust 2002-48, Cl. S,
10.91%, 7/25/32 6                                      274,141            28,629
Trust 2002-52, Cl. SL,
11.27%, 9/25/32 6                                      172,075            18,084
Trust 2002-56, Cl. SN,
13.38%, 7/25/32 6                                      376,704            39,455
Trust 2002-77, Cl. IS,
15.90%, 12/18/32 6                                   1,604,414           169,157
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Interest-Only Stripped
Mtg.-Backed Security:
Trust 214, Cl. 2, 1.30%, 3/1/23 6                    1,743,262           332,038
Trust 221, Cl. 2, (1.23)%, 5/1/23 6                    197,058            38,107
Trust 240, Cl. 2, 3.35%, 9/1/23 6                      340,010            64,752
Trust 301, Cl. 2, (3.70)%, 4/1/29 6                    841,291           159,680
Trust 313, Cl. 2, (29.08)%, 7/1/31 6                   930,965           179,140
Trust 321, Cl. 2, (3.53)%, 3/1/32 6                  1,238,418           246,105
Trust 324, Cl. 2, (9.92)%, 6/1/32 6                  2,154,476           438,653
Trust 333, Cl. 2, 2.31%, 3/1/33 6                      817,230           176,743
Trust 2001-63, Cl. SD,
17.40%, 12/18/31 6                                     295,586            31,275
Trust 2001-68, Cl. SC,
13.63%, 11/25/31 6                                     217,386            23,651
Trust 2001-81, Cl. S,
13.68%, 1/25/32 6                                      297,295            36,260
Trust 2002-9, Cl. MS,
10.62%, 3/25/32 6                                      367,130            40,046
Trust 2002-77, Cl. SH,
21.15%, 12/18/32 6                                     371,337            37,605





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
First Chicago/Lennar Trust 1,
Commercial Mtg. Pass-Through
Certificates,
Series 1997-CHL1, Cl. D,
7.863%, 4/29/39 1,2                              $     350,000   $       356,617
- --------------------------------------------------------------------------------
First Union National Bank/
Lehman Brothers/Bank of
America Commercial Mtg. Trust,
Pass-Through Certificates,
Series 1998-C2, Cl. A2,
6.56%, 11/18/35                                        360,000           387,274
- --------------------------------------------------------------------------------
GE Capital Commercial
Mortgage Corp.,
Commercial Mtg. Obligations,
Series 2004-C3, Cl. A2,
4.433%, 7/10/39                                        390,000           395,179
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc.,
Commercial Mtg. Obligations,
Series 2004-C3, Cl. A4,
4.547%, 12/10/41                                       360,000           360,947
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Commercial Mtg.
Pass-Through Certificates,
Series 1997-C1, Cl. A3,
6.869%, 7/15/29                                        294,379           311,620
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Mtg. Pass-Through
Certificates, Series 1998-C1, Cl. F,
7.089%, 5/15/30 1                                    1,800,000         1,883,750
- --------------------------------------------------------------------------------
Government National
Mortgage Assn.:
4.625%, 11/20/25 1                                      18,008            18,430
7%, 3/15/28-7/15/28                                  1,148,877         1,223,374
7.50%, 2/15/27                                         158,177           170,305
8%, 11/15/25-5/15/26                                   148,485           161,741
- --------------------------------------------------------------------------------
Government National
Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security:
Series 1998-6, Cl. SA,
8.73%, 3/16/28 6                                       275,939            33,487
Series 1998-19, Cl. SB,
10.70%, 7/16/28 6                                      461,648            60,289
Series 2001-21, Cl. SB,
14.94%, 1/16/27 6                                    2,222,960           212,607
- --------------------------------------------------------------------------------
GS Mortgage Securities Corp. II,
Commercial Mtg. Pass-Through
Certificates:
Series 2004-C1, Cl. A1,
3.659%, 10/10/28                                       407,183           402,757
Series 2004-GG2, Cl. A3,
4.602%, 8/10/38                                        250,000           255,071


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
GSR Mortgage Loan Trust,
Collateralized Mtg. Obligations,
Series 04-12, Cl. 3A1,
4.593%, 12/25/34 1,2                             $   1,176,093   $     1,177,713
- --------------------------------------------------------------------------------
Mastr Alternative Loan Trust,
Pass-Through Collateralized Mtg.
Obligations, Series 2004-6, Cl. 10A1,
6%, 7/25/34                                          1,125,260         1,161,934
- --------------------------------------------------------------------------------
Mastr Seasoned Securities Trust,
Collateralized Mtg. Obligations,
Series 2004-2, Cl. PT65,
6.50%, 12/1/34 5                                     1,625,000         1,673,496
- --------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors,
Inc., Mtg. Pass-Through Certificates,
Series 1995-C2, Cl. D,
7.545%, 6/15/21 1                                      165,632           169,720
- --------------------------------------------------------------------------------
Morgan Stanley Capital I Trust,
Commercial Mtg. Pass-Through
Certificates:
Series 1996-C1, Cl. F,
7.472%, 2/15/28 1,7                                    162,744           150,727
Series 1997-XL1, Cl. G,
7.695%, 10/3/30                                        390,000           258,472
- --------------------------------------------------------------------------------
Nomura Asset Securities Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl. A1B,
6.59%, 3/15/30                                         420,000           454,560
- --------------------------------------------------------------------------------
Prudential Mortgage Capital Co.
II LLC, Commercial Mtg.
Pass-Through Certificates,
Series PRU-HTG 2000-C1, Cl. A2,
7.306%, 10/6/15                                        556,000           640,926
- --------------------------------------------------------------------------------
Salomon Brothers Mortgage
Securities VII, Inc., Commercial
Mtg. Pass-Through Certificates:
Series 1996-B, Cl. 1,
4.357%, 4/25/26 1,2                                      5,768             5,325
Series 1996-C1, Cl. F,
8.384%, 1/20/28 1,2                                  1,000,000           823,125
- --------------------------------------------------------------------------------
Washington Mutual Mortgage
Securities Corp., Collateralized
Mtg. Pass-Through Certificates,
Series 2003-AR12, Cl. A2,
2.446%, 2/25/34 1                                        9,652             9,658
- --------------------------------------------------------------------------------
Wells Fargo Mortgage Backed
Securities Trust, Collateralized
Mtg. Obligations:
Series 2004-DD, Cl. 2 A1,
4.548%, 1/25/35                                      1,290,000         1,292,116
Series 2004-N, Cl. A10,
3.803%, 8/25/34 2                                      966,317           969,495
Series 2004-W, Cl. A2,
4.635%, 11/25/34 1                                     575,342           576,930
                                                                 ---------------
Total Mortgage-Backed
Obligations (Cost $109,143,597)                                      108,869,487





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--8.8%
- --------------------------------------------------------------------------------
Federal Home Loan Bank
Unsec. Bonds, 2.75%, 10/15/06                    $   5,135,000   $     5,096,575
- --------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp. Nts.,
3.75%, 7/15/09 [EUR]                                 1,090,000         1,521,140
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
Unsec. Nts., 6.875%, 9/15/10                         4,420,000         5,051,901
- --------------------------------------------------------------------------------
Federal National
Mortgage Assn. Unsec. Nts.:
1.80%, 5/27/05                                       1,390,000         1,386,226
2.50%, 6/15/06                                       1,325,000         1,313,765
3.01%, 6/2/06                                        1,400,000         1,394,277
4.25%, 7/15/07                                       6,465,000         6,604,437
6.625%, 9/15/09                                      8,000,000         8,941,696
7.25%, 1/15/10-5/15/30                               5,765,000         6,733,930
- --------------------------------------------------------------------------------
Resolution Funding Corp. Federal
Book Entry Principal Strips,
5.85%, 1/15/21 8                                     1,220,000           535,562
- --------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
7.125%, 5/1/30                                         330,000           411,820
Series A, 6.79%, 5/23/12                             9,663,000        11,143,024
- --------------------------------------------------------------------------------
U.S. Treasury Bonds:
5.50%, 8/15/28                                       1,034,000         1,119,467
7.25%, 5/15/16                                       1,670,000         2,090,893
8.875%, 8/15/17 9                                    1,630,000         2,310,398
9.25%, 2/15/16                                         208,000           296,977
STRIPS, 4.20%, 2/15/11 8                               900,000           708,919
STRIPS, 4.60%, 2/15/16 8                               491,000           295,829
- --------------------------------------------------------------------------------
U.S. Treasury Nts.:
2.50%, 9/30/06-10/31/06                             14,025,000        13,903,978
2.75%, 8/15/07 10,11                                   525,000           519,401
2.75%, 7/31/06 9                                     3,839,000         3,827,756
                                                                 ---------------
Total U.S. Government
Obligations (Cost $75,011,468)                                        75,207,971

- --------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--29.9%
- --------------------------------------------------------------------------------
ARGENTINA--0.8%
Argentina (Republic of) Bonds:
1.98%, 8/3/12 1                                      6,465,000         5,438,849
2.352%, 5/3/05 1                                        56,000            55,064
Series PRE8, 2%, 1/3/10 2,3,4 [ARP]                  1,980,000           997,161
Series PR12, 2%, 1/3/16 2,3,4 [ARP]                  1,335,300           574,999
- --------------------------------------------------------------------------------
Argentina (Republic of) Disc. Bonds,
3/31/23 2,3,4                                          260,000           146,900
- --------------------------------------------------------------------------------
Buenos Aires (Province of) Bonds,
Bonos de Consolidacion de Deudas,
Series PBA1, 4/1/07 2,3,4 [ARP]                         59,785            24,123
                                                                 ---------------
                                                                       7,237,096
- --------------------------------------------------------------------------------
AUSTRALIA--0.8%
Queensland Treasury Corp.
Unsec. Nts., Series 09G,
6%, 7/14/09 [AUD]                                    8,300,000         6,670,330



                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
AUSTRIA--0.9%
Austria (Republic of) Bonds,
6.25%, 7/15/27 [EUR]                                 3,480,000   $     6,113,012
- --------------------------------------------------------------------------------
Austria (Republic of) Nts.,
Series 98-1, 5%, 1/15/08 [EUR]                       1,095,000         1,586,512
                                                                 ---------------
                                                                       7,699,524

- --------------------------------------------------------------------------------
BELGIUM--1.4%
Belgium (Kingdom of) Bonds:
5%, 9/28/11 [EUR]                                      540,000           806,734
Series 19, 6.50%, 3/31/05 [EUR]                      1,180,000         1,620,114
Series 26, 6.25%, 3/28/07 [EUR]                      2,170,000         3,184,063
Series 28, 5.75%, 3/28/08 [EUR]                        755,000         1,120,134
Series 32, 3.75%, 3/28/09 [EUR]                      2,905,000         4,070,238
Series 35, 5.75%, 9/28/10 [EUR]                      1,050,000         1,616,175
                                                                 ---------------
                                                                      12,417,458

- --------------------------------------------------------------------------------
BRAZIL--2.2%
Brazil (Federal Republic of) Bonds:
8.875%, 10/14/19                                     1,030,000         1,088,195
10.50%, 7/14/14                                        725,000           860,938
Series 15 yr., 3.125%, 4/15/09 1                        13,236            13,170
- --------------------------------------------------------------------------------
Brazil (Federal Republic of) Debt
Capitalization Bonds, Series 20 yr.,
8%, 4/15/14                                          7,252,993         7,429,785
- --------------------------------------------------------------------------------
Brazil (Federal Republic of) Nts.,
12%, 4/15/10                                         4,015,000         4,978,600
- --------------------------------------------------------------------------------
Brazil (Federal Republic of)
Unsec. Unsub. Bonds:
10%, 8/7/11                                            760,000           884,640
11%, 8/17/40                                         1,905,000         2,262,664
Cl. B, 8.875%, 4/15/24                                 958,000           996,320
                                                                 ---------------
                                                                      18,514,312

- --------------------------------------------------------------------------------
BULGARIA--0.2%
Bulgaria (Republic of) Bonds:
8.25%, 1/15/15                                         800,000         1,004,000
8.25%, 1/15/15 7                                       800,000         1,004,000
                                                                 ---------------
                                                                       2,008,000

- --------------------------------------------------------------------------------
COLOMBIA--0.5%
Colombia (Republic of) Nts.,
11.75%, 3/1/10 [COP]                             3,755,000,000         1,640,708
- --------------------------------------------------------------------------------
Colombia (Republic of) Unsec.
Unsub. Bonds, 8.375%, 2/15/27                          615,000           599,625
- --------------------------------------------------------------------------------
Colombia (Republic of) Unsec.
Unsub. Nts., 11.375%, 1/31/08 [EUR]                  1,125,000         1,829,100
                                                                 ---------------
                                                                       4,069,433

- --------------------------------------------------------------------------------
DENMARK--0.3%
Denmark (Kingdom of) Nts.,
4%, 8/15/08 [DKK]                                   12,375,000         2,344,727
- --------------------------------------------------------------------------------
DOMINICAN REPUBLIC--0.1%
Dominican Republic Bonds,
Series REGS, 9.04%, 1/23/13                            720,000           610,200





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ECUADOR--0.2%
Ecuador (Republic of) Unsec.
Bonds, 8%, 8/15/30 1                             $   1,810,000   $     1,570,175
- --------------------------------------------------------------------------------
EL SALVADOR--0.1%
El Salvador (Republic of) Bonds,
7.625%, 9/21/34 7                                      590,000           610,650
- --------------------------------------------------------------------------------
FINLAND--0.0%
Finland (Republic of) Sr. Unsec.
Unsub. Bonds, 2.75%, 7/4/06 [EUR]                      220,000           300,721
- --------------------------------------------------------------------------------
FRANCE--2.2%
France (Government of)
Obligations Assimilables du
Tresor Bonds:
5.50%, 10/25/07 [EUR]                                1,080,000         1,577,061
5.50%, 10/25/10 [EUR]                                6,085,000         9,266,867
5.75%, 10/25/32 [EUR]                                3,300,000         5,555,232
- --------------------------------------------------------------------------------
France (Government of)
Treasury Nts.:
3 yr., 3.50%, 1/12/05 [EUR]                          1,460,000         1,985,308
5 yr., 4.75%, 7/12/07 [EUR]                            120,000           171,593
                                                                 ---------------
                                                                      18,556,061

- --------------------------------------------------------------------------------
GERMANY--2.6%
Germany (Republic of) Bonds:
2%, 6/17/05 [EUR]                                    2,120,000         2,880,169
5.375%, 1/4/10 [EUR]                                 1,285,000         1,928,635
Series 01, 5%, 7/4/11 [EUR]                          3,685,000         5,494,692
Series 140, 4.50%, 8/17/07 [EUR]                     1,395,000         1,983,756
Series 143, 3.50%, 10/10/08 [EUR]                    7,470,000        10,374,944
                                                                 ---------------
                                                                      22,662,196

- --------------------------------------------------------------------------------
GREECE--1.9%
Greece (Republic of) Bonds:
3.50%, 4/18/08 [EUR]                                 1,055,000         1,462,521
4.60%, 5/20/13 [EUR]                                 1,545,000         2,234,250
5.35%, 5/18/11 [EUR]                                 6,735,000        10,152,575
- --------------------------------------------------------------------------------
Greece (Republic of) Sr.
Unsub. Bonds, 4.65%, 4/19/07 [EUR]                   1,610,000         2,285,355
                                                                 ---------------
                                                                      16,134,701

- --------------------------------------------------------------------------------
GUATEMALA--0.0%
Guatemala (Republic of) Nts.:
10.25%, 11/8/11 7                                      250,000           295,938
10.25%, 11/8/11                                         95,000           112,456
                                                                 ---------------
                                                                         408,394

- --------------------------------------------------------------------------------
IRELAND--0.2%
Ireland (Republic of) Treasury Bonds,
3.25%, 4/18/09 [EUR]                                 1,045,000         1,434,620
- --------------------------------------------------------------------------------
ISRAEL--0.1%
United States (Government of) Gtd.
Israel Aid Bonds, 5.50%, 12/4/23                       960,000         1,006,320


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ITALY--1.7%
Italy (Republic of) Treasury Bonds:
Buoni del Tesoro Poliennali,
4%, 3/1/05 [EUR]                                       520,000   $       708,916
Buoni del Tesoro Poliennali,
4.50%, 3/1/07 [EUR]                                  1,150,000         1,626,444
Buoni del Tesoro Poliennali,
5%, 10/15/07 [EUR]                                   5,080,000         7,324,121
Buoni del Tesoro Poliennali,
5%, 2/1/12 [EUR]                                     1,030,000         1,535,690
Buoni del Tesoro Poliennali,
5.25%, 12/15/05 [EUR]                                2,590,000         3,611,989
                                                                 ---------------
                                                                      14,807,160

- --------------------------------------------------------------------------------
IVORY COAST--0.0%
Ivory Coast (Government of)
Past Due Interest Bonds,
3/29/18 2,3,4 [FRF]                                  2,194,500            76,737
- --------------------------------------------------------------------------------
JAPAN--2.0%
Japan (Government of) Bonds,
5 yr., Series 14, 0.40%, 6/20/06 [JPY]           1,719,000,000        16,864,301
- --------------------------------------------------------------------------------
KOREA, REPUBLIC OF SOUTH--0.2%
Korea (Republic of) Nts.:
4.25%, 6/1/13                                          780,000           749,174
8.875%, 4/15/08                                      1,170,000         1,359,615
                                                                 ---------------
                                                                       2,108,789

- --------------------------------------------------------------------------------
MEXICO--0.8%
United Mexican States Bonds:
7.50%, 4/8/33                                          930,000         1,006,725
8.30%, 8/15/31                                         400,000           469,800
Series MI10, 8%, 12/19/13 [MXN]                      9,290,000           745,424
Series M20, 8%, 12/7/23 [MXN]                       23,040,000         1,672,890
- --------------------------------------------------------------------------------
United Mexican States Nts.,
7.50%, 1/14/12                                       1,300,000         1,477,450
- --------------------------------------------------------------------------------
United Mexican States Unsec.
Unsub. Nts.,
Series 6 BR, 6.75%, 6/6/06 [JPY]                   155,000,000         1,649,078
                                                                 ---------------
                                                                       7,021,367

- --------------------------------------------------------------------------------
NEW ZEALAND--0.1%
New Zealand (Government of)
Bonds, 7%, 7/15/09 12 [NZD]                            945,000           708,711
- --------------------------------------------------------------------------------
NIGERIA--0.1%
Central Bank of Nigeria
Gtd. Bonds,
Series WW, 6.25%, 11/15/20                             275,000           258,500
- --------------------------------------------------------------------------------
Nigeria (Federal Republic of)
Promissory Nts.,
Series RC, 5.092%, 1/5/10                              234,574           203,111
                                                                 ---------------
                                                                         461,611





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
PANAMA--0.8%
Panama (Republic of) Bonds:
7.25%, 3/15/15                                   $   3,030,000   $     3,166,350
8.125%, 4/28/34                                        805,000           853,300
9.375%, 1/16/23                                      2,215,000         2,569,400
                                                                 ---------------
                                                                       6,589,050

- --------------------------------------------------------------------------------
PERU--0.3%
Peru (Republic of) Past Due
Interest Bonds,
Series 20 yr., 5%, 3/7/17 1                          1,760,000         1,698,400
- --------------------------------------------------------------------------------
Peru (Republic of) Sr. Nts.,
4.53%, 2/28/16 8                                     1,464,785           884,525
                                                                 ---------------
                                                                       2,582,925

- --------------------------------------------------------------------------------
PHILIPPINES--0.1%
Philippines (Republic of) Bonds,
8.375%, 2/15/11                                        438,000           439,382
- --------------------------------------------------------------------------------
POLAND--1.3%
Poland (Republic of) Bonds:
Series 0K0805, 5.26%, 8/12/05 8 [PLZ]               17,265,000         5,558,069
Series DS0509, 6%, 5/24/09 [PLZ]                    10,840,000         3,604,407
Series DS1013, 5%, 10/24/13 [PLZ]                    4,640,000         1,458,191
Series WS0922, 5.75%, 9/23/22 [PLZ]                  1,000,000           337,184
                                                                 ---------------
                                                                      10,957,851

- --------------------------------------------------------------------------------
PORTUGAL--0.7%
Portugal (Republic of)
Obrig Do Tes Medio Prazo Nts.,
4.875%, 8/17/07 [EUR]                                1,620,000         2,324,085
- --------------------------------------------------------------------------------
Portugal (Republic of)
Obrig Do Tes Medio Prazo
Unsec. Unsub. Nts.,
5.85%, 5/20/10 [EUR]                                 2,450,000         3,771,268
                                                                 ---------------
                                                                       6,095,353

- --------------------------------------------------------------------------------
RUSSIA--1.3%
Aries Vermoegensverwaltungs
GmbH Credit Linked Nts.,
9.60%, 10/25/14                                      1,950,000         2,410,190
- --------------------------------------------------------------------------------
Aries Vermoegensverwaltungs
GmbH Unsub. Nts., Series B,
7.75%, 10/25/09 2 [EUR]                                700,000         1,084,681
- --------------------------------------------------------------------------------
Ministry Finance of Russia Debs.,
Series VI, 3%, 5/14/06 2                             1,980,000         1,947,934
- --------------------------------------------------------------------------------
Russian Federation Unsec.
Unsub. Bonds, 5%, 3/31/30 1,7                        3,065,000         3,172,275
- --------------------------------------------------------------------------------
Russian Federation Unsub. Nts.,
5%, 3/31/30 1                                        2,735,875         2,821,303
                                                                 ---------------
                                                                      11,436,383


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
SOUTH AFRICA--0.4%
South Africa (Republic of) Bonds:
Series R157,
13.50%, 9/15/15 [ZAR]                                7,300,000   $     1,790,648
Series R186,
10.50%, 12/21/26 [ZAR]                               2,960,000           693,472
Series R203,
8.25%, 9/15/17 [ZAR]                                 3,000,000           539,828
Series R204, 8%, 12/21/18 [ZAR]                      3,175,000           560,505
                                                                 ---------------
                                                                       3,584,453

- --------------------------------------------------------------------------------
SPAIN--1.6%
Spain (Kingdom of) Bonds:
Bonos y Obligacion del Estado,
5.35%, 10/31/11 [EUR]                                3,695,000         5,630,267
Bonos y Obligacion del Estado,
5.75%, 7/30/32 [EUR]                                 2,530,000         4,247,319
- --------------------------------------------------------------------------------
Spain (Kingdom of)
Treasury Bills,
2.10%, 2/18/05 8 [EUR]                               2,730,000         3,700,725
                                                                 ---------------
                                                                      13,578,311

- --------------------------------------------------------------------------------
SWEDEN--0.2%
Sweden (Kingdom of) Bonds,
Series 1043, 5%, 1/28/09 [SEK]                      10,760,000         1,733,975
- --------------------------------------------------------------------------------
THE NETHERLANDS--0.7%
Netherlands (Kingdom of the)
Bonds:
5%, 7/15/11 [EUR]                                    1,615,000         2,410,536
5.50%, 1/15/28 [EUR]                                 2,340,000         3,779,878
                                                                 ---------------
                                                                       6,190,414

- --------------------------------------------------------------------------------
TURKEY--0.4%
Turkey (Republic of) Nts.,
7.25%, 3/15/15                                       3,105,000         3,205,913
- --------------------------------------------------------------------------------
UNITED KINGDOM--1.9%
United Kingdom Treasury Nts.,
4%, 3/7/09 [GBP]                                     8,670,000        16,354,251
- --------------------------------------------------------------------------------
VENEZUELA--0.8%
Venezuela (Republic of) Nts.:
3.09%, 4/20/11 1                                       750,000           682,500
8.50%, 10/8/14                                       1,285,000         1,365,698
10.75%, 9/13/13                                      4,280,000         5,120,592
                                                                 ---------------
                                                                       7,168,790
                                                                 ---------------
Total Foreign Government
Obligations (Cost $227,294,778)                                      256,220,645





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
LOAN PARTICIPATIONS--0.6%
- --------------------------------------------------------------------------------
Algeria (Republic of) Loan
Participation Nts., 2.183%, 3/4/10 1,2           $     427,167   $       420,759
- --------------------------------------------------------------------------------
Deutsche Bank AG:
Indonesia (Republic of) Rupiah
Loan Participation Nts.,
2.636%, 1/25/06 1                                    1,490,000         1,470,779
- --------------------------------------------------------------------------------
Indonesia (Republic of)
Rupiah Loan Participation Nts.,
2.636%, 3/21/05 1                                    1,330,000         1,331,530
OAO Gazprom Loan
Participation Nts., 6.50%, 8/4/05 2                  1,520,000         1,552,224
                                                                 ---------------
Total Loan Participations
(Cost $4,679,244)                                                      4,775,292

- --------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--28.0%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--8.0%
- --------------------------------------------------------------------------------
AUTO COMPONENTS--0.6%
ArvinMeritor, Inc., 8.75% Sr.
Unsec. Unsub. Nts., 3/1/12                             700,000           812,000
- --------------------------------------------------------------------------------
Collins & Aikman
Floorcoverings, Inc.,
9.75% Sr. Sub. Nts.,
Series B, 2/15/10                                      200,000           216,000
- --------------------------------------------------------------------------------
Cooper Standard
Automotive Group:
7% Sr. Nts., 12/15/12 7                                 90,000            91,800
8.375% Sr. Sub. Nts., 12/15/14 7                       425,000           426,063
- --------------------------------------------------------------------------------
Dana Corp.,
10.125% Nts., 3/15/10 2                                200,000           226,716
- --------------------------------------------------------------------------------
Dura Operating Corp.:
9% Sr. Sub. Nts., Series B,
5/1/09 [EUR]                                           200,000           258,257
9% Sr. Unsec. Sub. Nts.,
Series D, 5/1/09                                       500,000           497,500
- --------------------------------------------------------------------------------
Eagle-Picher, Inc.,
9.75% Sr. Nts., 9/1/13                                 300,000           301,500
- --------------------------------------------------------------------------------
Goodyear Tire &
Rubber Co. (The),
7.857% Nts., 8/15/11                                   500,000           510,000
- --------------------------------------------------------------------------------
Metaldyne Corp.:
10% Sr. Nts., 11/1/13 7                                200,000           191,000
11% Sr. Sub. Nts., 6/15/12                             300,000           250,500
- --------------------------------------------------------------------------------
Stoneridge, Inc.,
11.50% Sr. Nts., 5/1/12                                500,000           583,750
- --------------------------------------------------------------------------------
Tenneco Automotive, Inc.:
8.625% Sr. Sub. Nts., 11/15/14 7                       500,000           522,500
10.25% Sr. Sec. Nts.,
Series B, 7/15/13                                      150,000           177,750
- --------------------------------------------------------------------------------
United Components, Inc.,
9.375% Sr. Sub. Nts., 6/15/13                          200,000           218,000
                                                                 ---------------
                                                                       5,283,336


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--2.2%
Apcoa, Inc.,
9.25% Sr. Unsec. Sub. Nts., 3/15/08              $     100,000   $        98,500
- --------------------------------------------------------------------------------
Aztar Corp.,
9% Sr. Unsec. Sub. Nts., 8/15/11                       850,000           941,375
- --------------------------------------------------------------------------------
Boyd Gaming Corp.,
8.75% Sr. Sub. Nts., 4/15/12                           300,000           335,250
- --------------------------------------------------------------------------------
Carrols Corp.,
9% Sr. Sub. Nts., 1/15/13 7                            130,000           135,200
- --------------------------------------------------------------------------------
Domino's, Inc.,
8.25% Sr. Unsec. Sub. Nts., 7/1/11                     547,000           600,333
- --------------------------------------------------------------------------------
Gaylord Entertainment Co.,
8% Sr. Nts., 11/15/13                                  300,000           325,500
- --------------------------------------------------------------------------------
Hilton Hotels Corp.,
7.625% Nts., 12/1/12                                   400,000           468,482
- --------------------------------------------------------------------------------
Hollywood Park, Inc.,
9.25% Sr. Unsec. Sub. Nts.,
Series B, 2/15/07                                      325,000           332,313
- --------------------------------------------------------------------------------
Intrawest Corp.,
7.50% Sr. Unsec. Nts., 10/15/13                        625,000           667,969
- --------------------------------------------------------------------------------
Isle of Capri Casinos, Inc.:
7% Sr. Unsec. Sub. Nts., 3/1/14                        400,000           410,000
9% Sr. Sub. Nts., 3/15/12                              500,000           553,750
- --------------------------------------------------------------------------------
John Q. Hammons Hotels, Inc.,
8.875% Sr. Nts., Series B, 5/15/12                     300,000           340,500
- --------------------------------------------------------------------------------
La Quinta Properties, Inc.,
7% Sr. Sec. Nts., 8/15/12                              250,000           265,625
- --------------------------------------------------------------------------------
Mandalay Resort Group,
10.25% Sr. Unsec. Sub. Nts.,
Series B, 8/1/07                                       650,000           737,750
- --------------------------------------------------------------------------------
MGM Mirage, Inc.:
8.375% Sr. Unsec. Sub. Nts., 2/1/11                    600,000           679,500
9.75% Sr. Unsec. Sub. Nts., 6/1/07                     350,000           390,250
- --------------------------------------------------------------------------------
Mohegan Tribal
Gaming Authority:
6.375% Sr. Sub. Nts., 7/15/09                          250,000           258,125
8% Sr. Sub. Nts., 4/1/12                               200,000           218,000
- --------------------------------------------------------------------------------
NCL Corp.,
10.625% Sr. Nts., 7/15/14 7                            300,000           301,500
- --------------------------------------------------------------------------------
Park Place Entertainment Corp.:
7.875% Sr. Sub. Nts., 3/15/10                          200,000           226,250
9.375% Sr. Unsec. Sub. Nts.,
2/15/07                                                800,000           884,000
- --------------------------------------------------------------------------------
Pinnacle Entertainment, Inc.,
8.25% Sr. Unsec. Sub. Nts.,
3/15/12                                                700,000           747,250
- --------------------------------------------------------------------------------
Premier Cruise Ltd.,
11% Sr. Nts., 3/15/08 2,3,4                            250,000                --
- --------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd.,
8.75% Sr. Unsub. Nts., 2/2/11                          300,000           355,875
- --------------------------------------------------------------------------------
Six Flags, Inc.:
8.875% Sr. Unsec. Nts., 2/1/10                       1,234,000         1,255,595
9.625% Sr. Nts., 6/1/14                                 19,000            19,190
9.75% Sr. Nts., 4/15/13                                100,000           102,000





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE Continued
Starwood Hotels &
Resorts Worldwide, Inc.,
7.875% Sr. Nts., 5/1/12                          $     900,000   $     1,032,750
- --------------------------------------------------------------------------------
Station Casinos, Inc.:
6.50% Sr. Unsec. Sub. Nts., 2/1/14                     800,000           826,000
9.875% Sr. Unsec. Sub. Nts., 7/1/10                  1,000,000         1,057,500
- --------------------------------------------------------------------------------
Sun International Hotels Ltd.,
8.875% Sr. Unsec. Sub. Nts.,
8/15/11                                                700,000           768,250
- --------------------------------------------------------------------------------
Universal City Development
Partners Ltd.,
11.75% Sr. Nts., 4/1/10                                500,000           593,125
- --------------------------------------------------------------------------------
Vail Resorts, Inc.,
6.75% Sr. Sub. Nts., 2/15/14                           500,000           511,250
- --------------------------------------------------------------------------------
Venetian Casino Resort LLC/
Las Vegas Sands, Inc.,
11% Sec. Nts., 6/15/10                                 400,000           458,500
- --------------------------------------------------------------------------------
Wynn Las Vegas LLC/
Wynn Las Vegas Capital Corp.,
6.625% Nts., 12/1/14 7                               1,800,000         1,791,000
                                                                 ---------------
                                                                      18,688,457

- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.6%
Beazer Homes USA, Inc.,
8.375% Sr. Nts., 4/15/12                               400,000           442,000
- --------------------------------------------------------------------------------
Blount, Inc.,
8.875% Sr. Sub. Nts., 8/1/12                           350,000           381,500
- --------------------------------------------------------------------------------
D.R. Horton, Inc.:
9.375% Sr. Unsec. Sub. Nts.,
3/15/11                                                400,000           444,000
9.75% Sr. Sub. Nts., 9/15/10                           400,000           486,000
- --------------------------------------------------------------------------------
KB Home:
8.625% Sr. Sub. Nts., 12/15/08                         250,000           283,750
9.50% Sr. Unsec. Sub. Nts., 2/15/11                    400,000           442,000
- --------------------------------------------------------------------------------
Meritage Corp.,
9.75% Sr. Unsec. Nts., 6/1/11                          350,000           388,500
- --------------------------------------------------------------------------------
Sealy Mattress Co.,
8.25% Sr. Sub. Nts., 6/15/14                           450,000           479,250
- --------------------------------------------------------------------------------
Standard Pacific Corp.,
9.25% Sr. Sub. Nts., 4/15/12                           200,000           233,000
- --------------------------------------------------------------------------------
WCI Communities, Inc.,
9.125% Sr. Sub. Nts., 5/1/12                           300,000           334,500
- --------------------------------------------------------------------------------
William Lyon Homes, Inc.,
10.75% Sr. Nts., 4/1/13                                400,000           451,500
- --------------------------------------------------------------------------------
Williams Scotsman, Inc.,
9.875% Sr. Unsec. Nts., 6/1/07                         800,000           804,000
                                                                 ---------------
                                                                       5,170,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA--3.8%
Adelphia Communications Corp.:
7.875% Sr. Unsec. Nts., 5/1/09 3,4               $     350,000   $       327,250
10.25% Sr. Unsec. Nts., 11/1/06 3,4                    400,000           391,000
10.25% Sr. Unsec. Sub. Nts.,
6/15/11 3,4                                            200,000           203,500
10.875% Sr. Unsec. Nts., 10/1/10 3,4                   400,000           398,000
- --------------------------------------------------------------------------------
Allbritton Communications Co.,
7.75% Sr. Unsec. Sub. Nts.,
12/15/12                                               600,000           624,000
- --------------------------------------------------------------------------------
AMC Entertainment, Inc.:
8% Sr. Unsec. Sub. Nts., 3/1/14                        650,000           650,000
9.50% Sr. Unsec. Sub. Nts., 2/1/11                     360,000           373,950
- --------------------------------------------------------------------------------
American Media Operations, Inc.:
8.875% Sr. Unsec. Sub. Nts.,
1/15/11                                                150,000           160,313
10.25% Sr. Unsec. Sub. Nts.,
Series B, 5/1/09                                       400,000           423,500
- --------------------------------------------------------------------------------
Block Communications, Inc.,
9.25% Sr. Sub. Nts., 4/15/09                           400,000           438,000
- --------------------------------------------------------------------------------
Carmike Cinemas, Inc.,
7.50% Sr. Sub. Nts., 2/15/14                           500,000           514,375
- --------------------------------------------------------------------------------
Charter Communications
Holdings LLC/
Charter Communications
Holdings Capital Corp.:
0%/11.75% Sr. Unsec. Sub.
Disc. Nts., 5/15/11 13                                 925,000           684,500
8.375% Sr. Nts., Second Lien,
4/30/14 7                                            3,450,000         3,657,000
- --------------------------------------------------------------------------------
Cinemark USA, Inc.,
9% Sr. Unsec. Sub. Nts., 2/1/13                        300,000           343,875
- --------------------------------------------------------------------------------
Cinemark, Inc., 0%/9.75%
Sr. Unsec. Disc. Nts.,
3/15/14 13                                             500,000           380,000
- --------------------------------------------------------------------------------
Corus Entertainment, Inc.,
8.75% Sr. Sub. Nts., 3/1/12                            300,000           330,750
- --------------------------------------------------------------------------------
CSC Holdings, Inc.,
7.625% Sr. Unsec. Unsub. Nts.,
Series B, 4/1/11                                     1,100,000         1,190,750
- --------------------------------------------------------------------------------
Dex Media East LLC/
Dex Media East Finance Co.,
9.875% Sr. Unsec. Nts., 11/15/09                       200,000           228,750
- --------------------------------------------------------------------------------
Dex Media West LLC,
5.875% Sr. Nts., 11/15/11 7                            900,000           900,000
- --------------------------------------------------------------------------------
Dex Media West LLC/
Dex Media West Finance Co.:
8.50% Sr. Nts., 8/15/10                                300,000           335,250
9.875% Sr. Sub. Nts., 8/15/13                          586,000           678,295
- --------------------------------------------------------------------------------
Dex Media, Inc.,
8% Unsec. Nts., 11/15/13                             1,350,000         1,468,125
- --------------------------------------------------------------------------------
DirecTV Holdings LLC/
DirecTV Financing Co., Inc.,
8.375% Sr. Unsec. Nts., 3/15/13                      1,800,000         2,027,250





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
EchoStar DBS Corp.:
6.625% Sr. Nts., 10/1/14 7                       $     800,000   $       814,000
9.125% Sr. Nts., 1/15/09                             1,075,000         1,187,875
- --------------------------------------------------------------------------------
Emmis Operating Co.,
6.875% Sr. Unsec. Sub. Nts.,
5/15/12                                                600,000           630,750
- --------------------------------------------------------------------------------
Entravision
Communications Corp.,
8.125% Sr. Sub. Nts., 3/15/09                          400,000           429,000
- --------------------------------------------------------------------------------
Granite Broadcasting Corp.,
9.75% Sr. Sec. Nts., 12/1/10                           619,000           594,240
- --------------------------------------------------------------------------------
Insight Midwest LP/
Insight Capital, Inc.,
9.75% Sr. Nts., 10/1/09                                200,000           210,500
- --------------------------------------------------------------------------------
Lin Television Corp.,
6.50% Sr. Sub. Nts., 5/15/13                           400,000           413,500
- --------------------------------------------------------------------------------
LodgeNet Entertainment Corp.,
9.50% Sr. Sub. Debs., 6/15/13                          200,000           222,000
- --------------------------------------------------------------------------------
Mediacom LLC/
Mediacom Capital Corp.,
9.50% Sr. Unsec. Nts., 1/15/13                         769,000           775,729
- --------------------------------------------------------------------------------
MediaNews Group, Inc.,
6.375% Sr. Sub. Nts., 4/1/14                           800,000           796,000
- --------------------------------------------------------------------------------
News America Holdings, Inc.,
8.875% Sr. Debs., 4/26/23                              625,000           814,644
- --------------------------------------------------------------------------------
PanAmSat Corp.,
9% Sr. Nts., 8/15/14 7                               1,000,000         1,121,250
- --------------------------------------------------------------------------------
PRIMEDIA, Inc.:
8% Sr. Nts., 5/15/13                                   900,000           930,375
8.875% Sr. Unsec. Nts., 5/15/11                         19,000            20,188
- --------------------------------------------------------------------------------
R.H. Donnelley Financial Corp. I,
10.875% Sr. Sub. Nts., 12/15/12 7                      400,000           477,000
- --------------------------------------------------------------------------------
Radio One, Inc.,
8.875% Sr. Unsec. Sub. Nts.,
Series B, 7/1/11                                       600,000           656,250
- --------------------------------------------------------------------------------
Rainbow National Services LLC,
8.75% Sr. Nts., 9/1/12 7                               800,000           882,000
- --------------------------------------------------------------------------------
Rogers Cable, Inc.,
6.75% Sr. Sec.
Second Priority Nts., 3/15/15 7                        250,000           256,875
- --------------------------------------------------------------------------------
Shaw Communications, Inc.,
8.54% Debs., 9/30/27 [CAD]                             340,000           283,771
- --------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.:
8% Sr. Unsec. Sub. Nts., 3/15/12                     1,050,000         1,120,875
8.75% Sr. Sub. Nts., 12/15/11                          300,000           328,125
- --------------------------------------------------------------------------------
Spanish Broadcasting System, Inc.,
9.625% Sr. Unsec. Sub. Nts., 11/1/09                   800,000           842,000
- --------------------------------------------------------------------------------
Vertis, Inc., 9.75% Sr.
Sec. Nts., 4/1/09                                      200,000           218,000
- --------------------------------------------------------------------------------
WMG Holdings Corp.:
0%/9.50% Sr. Disc. Nts., 12/15/14 7,13               1,000,000           643,750
6.905% Sr. Nts., 12/15/11 1,7                          400,000           405,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
WRC Media, Inc./
Weekly Reader Corp./
CompassLearning, Inc.,
12.75% Sr. Sub. Nts., 11/15/09                   $     500,000   $       478,125
                                                                 ---------------
                                                                      32,280,255

- --------------------------------------------------------------------------------
MULTILINE RETAIL--0.1%
Saks, Inc.:
8.25% Sr. Unsec. Nts., 11/15/08                        700,000           770,000
9.875% Nts., 10/1/11                                   200,000           238,000
                                                                 ---------------
                                                                       1,008,000

- --------------------------------------------------------------------------------
SPECIALTY RETAIL--0.4%
Asbury Automotive Group, Inc.,
9% Sr. Sub. Nts., 6/15/12                              300,000           316,500
- --------------------------------------------------------------------------------
Atlantic Broadband Finance LLC,
9.375% Sr. Sub. Nts., 1/15/14 7                        250,000           243,125
- --------------------------------------------------------------------------------
AutoNation, Inc.,
9% Sr. Unsec. Nts., 8/1/08                             500,000           573,750
- --------------------------------------------------------------------------------
Boise Cascade LLC/
Boise Cascade Finance Corp.,
7.125% Sr. Sub. Nts., 10/15/14 7                       450,000           478,125
- --------------------------------------------------------------------------------
Eye Care Centers of America, Inc.,
9.125% Sr. Unsec. Sub. Nts., 5/1/08                    400,000           402,000
- --------------------------------------------------------------------------------
Finlay Fine Jewelry Corp.,
8.375% Sr. Unsec. Nts., 6/1/12                         400,000           434,000
- --------------------------------------------------------------------------------
Hollywood Entertainment Corp.,
9.625% Sr. Sub. Nts., 3/15/11                          300,000           319,500
- --------------------------------------------------------------------------------
Petco Animal Supplies, Inc.,
10.75% Sr. Sub. Nts., 11/1/11                          200,000           235,000
- --------------------------------------------------------------------------------
Rent-A-Center, Inc.,
7.50% Sr. Unsec. Sub. Nts.,
Series B, 5/1/10                                       150,000           156,188
                                                                 ---------------
                                                                       3,158,188

- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--0.3%
Invista, Inc., 9.25% Sr. Nts., 5/1/12 7                900,000         1,008,000
- --------------------------------------------------------------------------------
Levi Strauss & Co.:
9.75% Sr. Nts., 1/15/15 7                              500,000           497,500
12.25% Sr. Nts., 12/15/12                              600,000           670,500
- --------------------------------------------------------------------------------
Oxford Industries, Inc.,
8.875% Sr. Nts., 6/1/11                                250,000           269,688
- --------------------------------------------------------------------------------
Russell Corp., 9.25% Sr. Nts.,
5/1/10                                                 200,000           215,500
                                                                 ---------------
                                                                       2,661,188

- --------------------------------------------------------------------------------
CONSUMER STAPLES--1.0%
- --------------------------------------------------------------------------------
BEVERAGES--0.1%
Constellation Brands, Inc.,
8.125% Sr. Sub. Nts., 1/15/12                          300,000           327,375





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.2%
Great Atlantic &
Pacific Tea Co., Inc. (The),
9.125% Sr. Nts., 12/15/11                        $     419,000   $       394,908
- --------------------------------------------------------------------------------
Ingles Markets, Inc.,
8.875% Sr. Unsec. Sub. Nts.,
12/1/11                                                 19,000            20,425
- --------------------------------------------------------------------------------
Jean Coutu Group (PJC), Inc. (The):
7.625% Sr. Nts., 8/1/12 7                              250,000           265,625
8.50% Sr. Sub. Nts., 8/1/14 7                          600,000           618,000
- --------------------------------------------------------------------------------
Real Time Data Co.,
11% Disc. Nts., 5/31/09 2,3,4,14                       142,981                --
- --------------------------------------------------------------------------------
Rite Aid Corp.:
8.125% Sr. Sec. Nts., 5/1/10                           450,000           478,125
9.50% Sr. Sec. Nts., 2/15/11                           200,000           220,500
                                                                 ---------------
                                                                       1,997,583

- --------------------------------------------------------------------------------
FOOD PRODUCTS--0.6%
American Seafoods Group LLC,
10.125% Sr. Sub. Nts., 4/15/10                         200,000           215,000
- --------------------------------------------------------------------------------
Burns Philp Capital Property Ltd.,
9.75% Sr. Unsec. Sub. Nts., 7/15/12                    450,000           497,250
- --------------------------------------------------------------------------------
Chiquita Brands International, Inc.,
7.50% Sr. Nts., 11/1/14 2                              150,000           152,625
- --------------------------------------------------------------------------------
Del Monte Corp.,
8.625% Sr. Sub. Nts., 12/15/12                         400,000           450,000
- --------------------------------------------------------------------------------
Doane Pet Care Co.:
9.75% Sr. Unsec. Sub. Nts., 5/15/07                    400,000           396,000
10.75% Sr. Nts., 3/1/10                                460,000           494,500
- --------------------------------------------------------------------------------
Dole Food Co., Inc.:
8.625% Sr. Nts., 5/1/09                                400,000           437,000
8.875% Sr. Unsec. Nts., 3/15/11                        200,000           218,500
- --------------------------------------------------------------------------------
Hines Nurseries, Inc.,
10.25% Sr. Unsec. Sub. Nts.,
10/1/11                                                200,000           219,500
- --------------------------------------------------------------------------------
Pinnacle Foods Holding Corp.:
8.25% Sr. Sub. Nts., 12/1/13 7                          40,000            38,300
8.25% Sr. Sub. Nts., 12/1/13 7                         400,000           383,000
- --------------------------------------------------------------------------------
Smithfield Foods, Inc.,
7.625% Sr. Unsec. Sub. Nts.,
2/15/08                                                400,000           430,000
- --------------------------------------------------------------------------------
United Biscuits Finance plc,
10.75% Sr. Sub. Nts., 4/15/11 2 [GBP]                  400,000           787,160
                                                                 ---------------
                                                                       4,718,835

- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.1%
Church & Dwight Co., Inc.,
6% Sr. Sub. Nts., 12/15/12 7                           300,000           306,750
- --------------------------------------------------------------------------------
Playtex Products, Inc.:
8% Sr. Sec. Nts., 3/1/11                               500,000           548,750
9.375% Sr. Unsec. Sub. Nts., 6/1/11                    200,000           214,500
                                                                 ---------------
                                                                       1,070,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.0%
Elizabeth Arden, Inc.,
7.75% Sr. Unsec. Sub. Nts., 1/15/14              $     175,000   $       186,375
- --------------------------------------------------------------------------------
ENERGY--3.1%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.3%
Dresser, Inc.,
9.375% Sr. Sub. Nts., 4/15/11                          300,000           330,000
- --------------------------------------------------------------------------------
Hanover Compress Co.,
8.625% Sr. Nts., 12/15/10                              300,000           329,250
- --------------------------------------------------------------------------------
Hanover Equipment Trust 2001A,
8.50% Sr. Sec. Nts., Series A, 9/1/08                  500,000           540,000
- --------------------------------------------------------------------------------
Hornbeck Offshore Services, Inc.,
6.125% Sr. Nts., 12/1/14 7                             350,000           353,500
- --------------------------------------------------------------------------------
Ocean Rig Norway AS,
10.25% Sr. Sec. Nts., 6/1/08                           575,000           595,125
- --------------------------------------------------------------------------------
Petroleum Helicopters, Inc.,
9.375% Sr. Nts., 5/1/09                                200,000           220,000
- --------------------------------------------------------------------------------
Universal Compression, Inc.,
7.25% Sr. Unsec. Sub. Nts., 5/15/10 2                  400,000           429,000
                                                                 ---------------
                                                                       2,796,875

- --------------------------------------------------------------------------------
OIL & GAS--2.8%
Chesapeake Energy Corp.:
6.375% Sr. Nts., 6/15/15 7                             250,000           258,125
6.875% Sr. Unsec. Nts., 1/15/16                        672,000           707,280
- --------------------------------------------------------------------------------
El Paso Corp.,
7.875% Sr. Unsec. Nts., 6/15/12                      1,519,000         1,596,849
- --------------------------------------------------------------------------------
El Paso Energy Corp.,
7.625% Nts., 7/15/11                                   200,000           208,000
- --------------------------------------------------------------------------------
El Paso Production Holding Co.,
7.75% Sr. Unsec. Nts., 6/1/13                        1,200,000         1,263,000
- --------------------------------------------------------------------------------
EXCO Resources, Inc.,
7.25% Sr. Nts., 1/15/11                                400,000           430,000
- --------------------------------------------------------------------------------
Forest Oil Corp.,
7.75% Sr. Nts., 5/1/14                                 300,000           327,750
- --------------------------------------------------------------------------------
Frontier Oil Corp.,
6.625% Sr. Nts., 10/1/11 7                             200,000           205,000
- --------------------------------------------------------------------------------
Gazprom International SA,
7.201% Sr. Unsec. Bonds, 2/1/20                      4,110,000         4,377,376
- --------------------------------------------------------------------------------
MarkWest Energy Partners LP/
MarkWest Energy Finance Corp.,
6.875% Sr. Nts., 11/1/14 7                             150,000           153,000
- --------------------------------------------------------------------------------
Newfield Exploration Co.:
6.625% Sr. Unsec. Sub. Nts., 9/1/14 7                  600,000           637,500
8.375% Sr. Sub. Nts., 8/15/12                          500,000           562,500
- --------------------------------------------------------------------------------
Pemex Project Funding Master Trust:
8.50% Unsub. Nts., 2/15/08                             420,000           474,600
9.125% Unsec. Unsub. Nts.,
10/13/10                                               610,000           732,915
- --------------------------------------------------------------------------------
Plains Exploration & Production Co.,
7.125% Sr. Nts., 6/15/14                               300,000           328,500





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
OIL & GAS Continued
Premcor Refining Group, Inc.:
6.75% Sr. Nts., 5/1/14                           $     350,000   $       373,625
9.50% Sr. Nts., 2/1/13                                 900,000         1,048,500
- --------------------------------------------------------------------------------
Range Resources Corp.,
7.375% Sr. Sub. Nts., 7/15/13                          200,000           215,500
- --------------------------------------------------------------------------------
Southern Natural Gas Co.,
8% Sr. Unsub. Nts., 3/1/32 2                           300,000           328,875
- --------------------------------------------------------------------------------
Stone Energy Corp.,
6.75% Sr. Sub. Nts., 12/15/14 7                        170,000           170,425
- --------------------------------------------------------------------------------
Tengizchevroil LLP, 6.124% Nts.,
11/15/14 7                                           1,520,000         1,531,400
- --------------------------------------------------------------------------------
Tennessee Gas Pipeline Co.,
7.50% Bonds, 4/1/17                                  1,800,000         1,993,500
- --------------------------------------------------------------------------------
Tesoro Petroleum Corp.:
8% Sr. Sec. Nts., 4/15/08                            1,000,000         1,092,500
9.625% Sr. Sub. Nts., 4/1/12                            19,000            21,945
- --------------------------------------------------------------------------------
Whiting Petroleum Corp.,
7.25% Sr. Sub. Nts., 5/1/12                            400,000           420,000
- --------------------------------------------------------------------------------
Williams Cos., Inc. (The):
7.125% Nts., 9/1/11                                    800,000           878,000
7.625% Nts., 7/15/19                                 1,000,000         1,105,000
8.75% Unsec. Nts., 3/15/32                           1,400,000         1,615,250
- --------------------------------------------------------------------------------
XTO Energy, Inc., 7.50% Sr. Nts.,
4/15/12                                                500,000           585,943
                                                                 ---------------
                                                                      23,642,858

- --------------------------------------------------------------------------------
FINANCIALS--1.2%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--0.3%
American Color Graphics, Inc.,
10% Sr. Sec. Nts., 6/15/10                             200,000           169,750
- --------------------------------------------------------------------------------
BCP Caylux Holdings
Luxembourg SCA,
9.625% Sr. Sub. Nts., 6/15/14 7                      1,250,000         1,415,625
- --------------------------------------------------------------------------------
Berry Plastics Corp.,
10.75% Sr. Sub. Nts., 7/15/12                          750,000           862,500
                                                                 ---------------
                                                                       2,447,875

- --------------------------------------------------------------------------------
COMMERCIAL BANKS--0.1%
Bank Plus Corp., 12% Sr. Nts.,
7/18/07                                                  7,000             7,525
- --------------------------------------------------------------------------------
BankUnited Capital Trust,
10.25% Capital Securities,
12/31/26                                               100,000           108,750
- --------------------------------------------------------------------------------
Inter-American
Development Bank,
6.26% Nts., 12/8/09 1 [BRR]                            920,000           347,252
- --------------------------------------------------------------------------------
Ongko International
Finance Co. BV,
10.50% Sec. Nts., 3/29/10 2,3,4                         90,000               563
- --------------------------------------------------------------------------------
Western Financial Bank,
9.625% Unsec. Sub. Debs., 5/15/12                      500,000           572,500
                                                                 ---------------
                                                                       1,036,590


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--0.4%
Affinia Group, Inc.,
9% Sr. Sub. Nts., 11/30/14 7                     $     200,000   $       209,500
- --------------------------------------------------------------------------------
Global Cash Access LLC/
Global Cash Finance Corp.,
8.75% Sr. Sub. Nts., 3/15/12 2                         275,000           297,688
- --------------------------------------------------------------------------------
Helix 04 Ltd.,
7.96% Sec. Nts., 6/30/09 1                           1,000,000         1,003,950
- --------------------------------------------------------------------------------
Pemex Project Funding
Master Trust,
7.375% Unsec. Unsub. Nts.,
12/15/14                                               740,000           824,360
- --------------------------------------------------------------------------------
Redwood Capital V Ltd.,
6.71% Nts., 1/9/07 1,2                                 750,000           750,000
- --------------------------------------------------------------------------------
SBS Agro Finance BV,
10.25% Bonds, 7/21/00 2,3,4                            339,000                --
- --------------------------------------------------------------------------------
Universal City Florida:
7.20% Sr. Nts., 5/1/10 1,2                             130,000           135,850
8.375% Sr. Nts., 5/1/10 2                              130,000           135,525
                                                                 ---------------
                                                                       3,356,873

- --------------------------------------------------------------------------------
INSURANCE--0.0%
Arbor I Ltd., 17.99% Nts., 6/15/06 1,7                 500,000           518,756
- --------------------------------------------------------------------------------
REAL ESTATE--0.4%
American Casino &
Entertainment Properties LLC,
7.85% Sr. Sec. Nts., 2/1/12                            500,000           533,750
- --------------------------------------------------------------------------------
Felcor Lodging LP,
9% Sr. Nts., 6/1/11                                    425,000           483,438
- --------------------------------------------------------------------------------
Foundation RE Ltd.,
6.40% Nts., 11/24/08 1,2                               500,000           501,363
- --------------------------------------------------------------------------------
HMH Properties, Inc.,
7.875% Sr. Nts., Series B, 8/1/08                      202,000           208,565
- --------------------------------------------------------------------------------
Host Marriott LP,
9.50% Sr. Nts., 1/15/07                                400,000           440,000
- --------------------------------------------------------------------------------
MeriStar Hospitality Corp.,
9.125% Sr. Unsec. Nts., 1/15/11                      1,019,000         1,105,615
                                                                 ---------------
                                                                       3,272,731

- --------------------------------------------------------------------------------
HEALTH CARE--1.9%
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.2%
Fisher Scientific International, Inc.,
8.125% Sr. Sub. Nts., 5/1/12                           261,000           291,015
- --------------------------------------------------------------------------------
HMP Equity Holdings Corp.,
16.25% Sr. Disc. Nts., 5/15/08 8                       900,000           599,625
- --------------------------------------------------------------------------------
Inverness Medical
Innovations, Inc.,
8.75% Sr. Sub. Nts., 2/15/12 2                         350,000           367,500





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES Continued
Sybron Dental Specialties, Inc.,
8.125% Sr. Sub. Nts., 6/15/12                    $     300,000   $       328,500
- --------------------------------------------------------------------------------
Universal Hospital Services, Inc.,
10.125% Sr. Unsec. Nts., 11/1/11                       300,000           313,500
                                                                 ---------------
                                                                       1,900,140

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.6%
Alderwoods Group, Inc.,
7.75% Sr. Nts., 9/15/12 7                              450,000           488,250
- --------------------------------------------------------------------------------
AmeriPath, Inc.,
10.50% Sr. Unsec. Sub. Nts., 4/1/13                    300,000           320,250
- --------------------------------------------------------------------------------
Beverly Enterprises, Inc.,
7.875% Sr. Sub. Nts., 6/15/14 2                        300,000           323,250
- --------------------------------------------------------------------------------
Community Health Systems, Inc.,
6.50% Sr. Sub. Nts., 12/15/12 7                        400,000           405,000
- --------------------------------------------------------------------------------
Extendicare Health Services, Inc.:
6.875% Sr. Sub. Nts., 5/1/14                           300,000           307,500
9.50% Sr. Unsec. Sub. Nts., 7/1/10                     300,000           337,500
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust II,
7.875% Nts., 2/1/08                                    900,000           978,750
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust III,
7.375% Nts., 2/1/08 [DEM]                               25,000            19,068
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust IV,
7.875% Trust Preferred Nts.,
6/15/11                                                600,000           672,000
- --------------------------------------------------------------------------------
Genesis HealthCare Corp.,
8% Sr. Sub. Nts., 10/15/13                             200,000           218,000
- --------------------------------------------------------------------------------
HCA, Inc.:
6.30% Sr. Unsec. Nts., 10/1/12                       1,400,000         1,422,044
6.375% Nts., 1/15/15                                 1,350,000         1,357,954
- --------------------------------------------------------------------------------
HealthSouth Corp.:
7.625% Nts., 6/1/12                                  1,000,000         1,010,000
10.75% Sr. Unsec. Sub. Nts.,
10/1/08                                                 19,000            20,140
- --------------------------------------------------------------------------------
Magellan Health Services, Inc.,
9.375% Sr. Unsec. Nts.,
Series A, 11/15/08                                     653,675           714,957
- --------------------------------------------------------------------------------
Medquest, Inc.,
11.875% Sr. Unsec. Sub. Nts.,
Series B, 8/15/12 2                                    600,000           708,000
- --------------------------------------------------------------------------------
NDCHealth Corp.,
10.50% Sr. Unsec. Sub. Nts.,
12/1/12                                                250,000           270,000
- --------------------------------------------------------------------------------
PacifiCare Health Systems, Inc.,
10.75% Sr. Unsec. Unsub. Nts.,
6/1/09                                                 585,000           678,600
- --------------------------------------------------------------------------------
Quintiles Transnational Corp.,
10% Sr. Sub. Nts., 10/1/13 2                           300,000           337,500


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES Continued
Tenet Healthcare Corp.:
6.375% Sr. Nts., 12/1/11                         $     744,000   $       693,780
7.375% Nts., 2/1/13                                     19,000            18,525
9.875% Sr. Nts., 7/1/14 7                              950,000         1,040,250
- --------------------------------------------------------------------------------
Triad Hospitals, Inc.:
7% Sr. Nts., 5/15/12                                   200,000           211,500
7% Sr. Sub. Nts., 11/15/13                             500,000           513,750
- --------------------------------------------------------------------------------
US Oncology, Inc.:
9% Sr. Nts., 8/15/12 7                                 300,000           336,750
10.75% Sr. Sub. Nts., 8/15/14 7                        300,000           348,750
                                                                 ---------------
                                                                      13,752,068

- --------------------------------------------------------------------------------
PHARMACEUTICALS--0.1%
Valeant Pharmaceuticals
International, Inc.,
7% Sr. Nts., 12/15/11                                  350,000           365,750
- --------------------------------------------------------------------------------
INDUSTRIALS--2.6%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.4%
Alliant Techsystems, Inc.,
8.50% Sr. Unsec. Sub. Nts., 5/15/11                    300,000           330,000
- --------------------------------------------------------------------------------
BE Aerospace, Inc.:
8.50% Sr. Unsec. Nts., 10/1/10                         200,000           221,000
8.875% Sr. Unsec. Sub. Nts., 5/1/11                    219,000           229,950
- --------------------------------------------------------------------------------
L-3 Communications Corp.:
5.875% Sr. Sub. Nts., 1/15/15 7                        700,000           701,750
7.625% Sr. Sub. Nts., 6/15/12                          300,000           330,750
- --------------------------------------------------------------------------------
Rexnord Corp.,
10.125% Sr. Unsec. Sub. Nts.,
12/15/12                                               350,000           397,250
- --------------------------------------------------------------------------------
TD Funding Corp.,
8.375% Sr. Sub. Nts., 7/15/11                          400,000           431,000
- --------------------------------------------------------------------------------
TRW Automotive, Inc.:
9.375% Sr. Nts., 2/15/13                               223,000           259,795
11% Sr. Sub. Nts., 2/15/13                             194,000           234,740
- --------------------------------------------------------------------------------
Vought Aircraft Industries, Inc.,
8% Sr. Nts., 7/15/11                                   200,000           195,500
                                                                 ---------------
                                                                       3,331,735

- --------------------------------------------------------------------------------
AIRLINES--0.1%
America West Airlines, Inc.,
10.75% Sr. Nts., 9/1/05                                450,000           451,125
- --------------------------------------------------------------------------------
ATA Holdings Corp.,
13% Sr. Unsec. Nts., 2/1/09 3,4                        735,000           422,625
                                                                 ---------------
                                                                         873,750

- --------------------------------------------------------------------------------
BUILDING PRODUCTS--0.1%
Associated Materials, Inc.,
9.75% Sr. Sub. Nts., 4/15/12                           200,000           224,500
- --------------------------------------------------------------------------------
Goodman Global
Holding Co., Inc.,
7.875% Sr. Sub. Nts., 12/15/12 7                       170,000           169,150





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
BUILDING PRODUCTS Continued
Jacuzzi Brands, Inc.,
9.625% Sr. Sec. Nts., 7/1/10                     $     311,000   $       346,765
- --------------------------------------------------------------------------------
North America Energy
Partners, Inc.,
8.75% Sr. Unsec. Nts., 12/1/11                         150,000           153,750
                                                                 ---------------
                                                                         894,165

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.7%
Allied Waste North America, Inc.:
7.875% Sr. Nts., 4/15/13                               400,000           412,000
8.50% Sr. Sub. Nts., 12/1/08                           900,000           958,500
8.875% Sr. Nts., Series B, 4/1/08                      800,000           860,000
9.25% Sr. Sec. Debs., Series B, 9/1/12                 950,000         1,033,125
- --------------------------------------------------------------------------------
Cenveo Corp.,
7.875% Sr. Sub. Nts., 12/1/13                        1,000,000           935,000
- --------------------------------------------------------------------------------
Corrections Corp. of America:
7.50% Sr. Nts., 5/1/11                                 200,000           214,750
9.875% Sr. Nts., 5/1/09                                300,000           334,500
- --------------------------------------------------------------------------------
Hydrochem Industrial
Services, Inc.,
10.375% Sr. Sub. Nts., 8/1/07 2                        150,000           151,875
- --------------------------------------------------------------------------------
Kindercare Learning
Centers, Inc.,
9.50% Sr. Sub. Nts., 2/15/09                           384,000           387,360
- --------------------------------------------------------------------------------
Mail-Well I Corp.,
9.625% Sr. Nts., 3/15/12 2                             400,000           441,000
- --------------------------------------------------------------------------------
Protection One, Inc./
Protection One Alarm
Monitoring, Inc.,
7.375% Sr. Unsec. Nts., 8/15/05                        400,000           406,000
- --------------------------------------------------------------------------------
Synagro Technologies, Inc.,
9.50% Sr. Sub. Nts., 4/1/09                            200,000           219,000
                                                                 ---------------
                                                                       6,353,110

- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.1%
Integrated Electrical Services, Inc.,
9.375% Sr. Sub. Nts.,
Series C, 2/1/09                                       405,000           382,725
- --------------------------------------------------------------------------------
URS Corp.:
11.50% Sr. Unsec. Nts., 9/15/09                         97,000           112,035
12.25% Sr. Sub. Nts.,
Series B, 5/1/09 2                                      19,000            20,330
                                                                 ---------------
                                                                         515,090

- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.2%
Belden & Blake Corp.,
8.75% Sr. Sec. Nts., 7/15/12 2                         325,000           331,500
- --------------------------------------------------------------------------------
Dayton Superior Corp.,
13% Sr. Unsec. Sub. Nts., 6/15/09                      200,000           209,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT Continued
General Cable Corp.,
9.50% Sr. Nts., 11/15/10                         $     200,000   $       227,000
- --------------------------------------------------------------------------------
Tennessee Gas Pipeline Co.,
7% Sr. Unsec. Debs., 10/15/28                          500,000           503,750
                                                                 ---------------
                                                                       1,271,250

- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.0%
Great Lakes Dredge & Dock Co.,
7.75% Sr. Unsec. Sub. Nts.,
12/15/13                                               120,000           109,800
- --------------------------------------------------------------------------------
MACHINERY--0.5%
AGCO Corp.,
9.50% Sr. Unsec. Nts., 5/1/08                          800,000           856,000
- --------------------------------------------------------------------------------
Douglas Dynamics LLC,
7.75% Sr. Nts., 1/15/12 7                              300,000           305,625
- --------------------------------------------------------------------------------
Dresser-Rand Group, Inc.,
7.375% Sr. Sub. Nts., 11/1/14 7                        100,000           102,500
- --------------------------------------------------------------------------------
Manitowoc Co., Inc. (The),
10.50% Sr. Sub. Nts., 8/1/12                           500,000           577,500
- --------------------------------------------------------------------------------
Milacron Escrow Corp.,
11.50% Sr. Sec. Nts., 5/15/11 2                        600,000           639,000
- --------------------------------------------------------------------------------
Navistar International Corp.,
7.50% Sr. Nts., 6/15/11                                400,000           431,000
- --------------------------------------------------------------------------------
NMHG Holding Co.,
10% Sr. Nts., 5/15/09                                  300,000           333,000
- --------------------------------------------------------------------------------
SPX Corp., 7.50% Sr. Nts., 1/1/13                      600,000           654,000
- --------------------------------------------------------------------------------
Terex Corp., 9.25% Sr. Unsec.
Sub. Nts., 7/15/11                                     400,000           451,000
- --------------------------------------------------------------------------------
Trinity Industries, Inc.,
6.50% Sr. Nts., 3/15/14                                300,000           301,500
                                                                 ---------------
                                                                       4,651,125

- --------------------------------------------------------------------------------
MARINE--0.1%
CP Ships Ltd.,
10.375% Sr. Nts., 7/15/12                              600,000           695,250
- --------------------------------------------------------------------------------
Millenium Seacarriers, Inc.,
12% Sr. Sec. Nts., 7/15/05 2,3,4                       250,000             6,025
- --------------------------------------------------------------------------------
Navigator Gas Transport plc,
10.50% First Priority Ship
Mtg. Nts., 6/30/07 2,3,4                               175,000           132,344
                                                                 ---------------
                                                                         833,619

- --------------------------------------------------------------------------------
ROAD & RAIL--0.2%
Kansas City Southern
Railway Co. (The),
7.50% Sr. Nts., 6/15/09                                400,000           422,000
- --------------------------------------------------------------------------------
Stena AB:
7% Sr. Nts., 12/1/16 7                                 800,000           796,000
7.50% Sr. Unsec. Nts., 11/1/13                         387,000           407,318
9.625% Sr. Nts., 12/1/12                               250,000           283,750
                                                                 ---------------
                                                                       1,909,068





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--0.1%
United Rentals, Inc.,
7% Sr. Sub. Nts., 2/15/14                        $     900,000   $       846,000
- --------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE--0.1%
Horizon Lines LLC, 9% Nts.,
11/1/12 7                                              300,000           324,000
- --------------------------------------------------------------------------------
Worldspan LP/
Worldspan Financial Corp.,
9.625% Sr. Nts., 6/15/11                               400,000           400,000
                                                                 ---------------
                                                                         724,000

- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.9%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.1%
Lucent Technologies, Inc.,
6.45% Unsec. Debs., 3/15/29                            500,000           455,000
- --------------------------------------------------------------------------------
Orion Network Systems, Inc.,
12.50% Sr. Unsub. Disc. Nts.,
1/15/07 2,3,4                                          675,000           354,375
                                                                 ---------------
                                                                         809,375

- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.0%
Seagate Technology
Hdd Holdings,
8% Sr. Nts., 5/15/09                                   200,000           217,000
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.3%
Flextronics International Ltd.,
6.25% Sr. Sub. Nts., 11/15/14 7                      1,100,000         1,094,500
- --------------------------------------------------------------------------------
Ingram Micro, Inc., 9.875% Sr.
Unsec. Sub. Nts., 8/15/08                              700,000           764,750
- --------------------------------------------------------------------------------
LCE Acquisition Corp.,
9% Sr. Sub. Nts., 8/1/14 7                             425,000           462,188
- --------------------------------------------------------------------------------
Sensus Metering System, Inc.,
8.625% Sr. Unsec. Sub. Nts., 12/15/13                  450,000           463,500
                                                                 ---------------
                                                                       2,784,938

- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.0%
Exodus Communications, Inc.,
10.75% Sr. Nts., 12/15/09 2,3,4 [EUR]                  338,620             4,603
- --------------------------------------------------------------------------------
Globix Corp., 11% Sr. Nts., 5/1/08 14                   42,888            39,671
- --------------------------------------------------------------------------------
NorthPoint Communications
Group, Inc.,
12.875% Nts., 2/15/10 2,3,4                            200,173                --
- --------------------------------------------------------------------------------
PSINet, Inc.,
10.50% Sr. Unsec. Nts.,
12/1/06 2,3,4 [EUR]                                    100,000             5,437
                                                                 ---------------
                                                                          49,711


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
IT SERVICES--0.1%
Iron Mountain, Inc.,
7.75% Sr. Sub. Nts., 1/15/15                     $     400,000   $       408,000
- --------------------------------------------------------------------------------
Titan Corp. (The),
8% Sr. Sub. Nts., 5/15/11                              100,000           107,000
                                                                 ---------------
                                                                         515,000

- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--0.4%
AMI Semiconductor, Inc.,
10.75% Sr. Unsec. Sub. Nts., 2/1/13                    389,000           459,020
- --------------------------------------------------------------------------------
Amkor Technology, Inc.:
7.75% Sr. Nts., 5/15/13                                200,000           189,000
9.25% Sr. Unsec. Sub. Nts., 2/15/08                    250,000           256,875
- --------------------------------------------------------------------------------
Freescale Semiconductor, Inc.,
7.125% Sr. Unsec. Nts., 7/15/14                        600,000           654,000
- --------------------------------------------------------------------------------
Huntsman International LLC,
7.375% Sr. Sub. Nts., 1/1/15 7                       1,100,000         1,108,250
- --------------------------------------------------------------------------------
MagnaChip Semiconductor Ltd.,
8% Sr. Sub. Nts., 12/15/14 7                            87,000            91,133
- --------------------------------------------------------------------------------
Micron Technology, Inc.,
6.50% Sub. Nts., 9/30/05                             1,000,000           995,000
                                                                 ---------------
                                                                       3,753,278

- --------------------------------------------------------------------------------
MATERIALS--4.1%
- --------------------------------------------------------------------------------
CHEMICALS--1.3%
Compass Minerals Group, Inc.,
10% Sr. Sub. Nts., 8/15/11                             450,000           508,500
- --------------------------------------------------------------------------------
Crompton Corp.,
9.875% Sr. Nts., 8/1/12 7                              350,000           402,500
- --------------------------------------------------------------------------------
Equistar Chemicals LP/
Equistar Funding Corp.:
8.75% Sr. Unsec. Nts., 2/15/09                         400,000           450,000
10.125% Sr. Unsec. Nts., 9/1/08                         19,000            21,993
10.625% Sr. Unsec. Nts., 5/1/11                        900,000         1,048,500
- --------------------------------------------------------------------------------
Huntsman Co. LLC:
11.625% Sr. Unsec. Nts., 10/15/10                       19,000            22,563
11.75% Sr. Nts., 7/15/12 7                             700,000           831,250
- --------------------------------------------------------------------------------
Huntsman Corp./
ICI Chemical Co. plc:
13.09% Sr. Unsec. Disc. Nts.,
12/31/09 8                                             600,000           339,000
10.125% Sr. Unsec. Sub. Nts.,
7/1/09 [EUR]                                           124,000           177,396
10.125% Sr. Unsec. Sub. Nts.,
7/1/09                                                 853,000           902,048
- --------------------------------------------------------------------------------
Huntsman International LLC,
9.875% Sr. Nts., 3/1/09                                850,000           937,125
- --------------------------------------------------------------------------------
IMC Global, Inc.,
10.875% Sr. Unsec. Nts., 8/1/13 2                       19,000            23,845
- --------------------------------------------------------------------------------
Innophos, Inc.,
8.875% Sr. Sub. Nts., 8/15/14 2                        400,000           434,000





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
CHEMICALS Continued
ISP Holdings, Inc.,
10.625% Sr. Sec. Nts., 12/15/09                  $     200,000   $       222,500
- --------------------------------------------------------------------------------
KI Holdings, Inc., 0%/9.875%
Sr. Disc. Nts., 11/15/14 7,13                          350,000           225,750
- --------------------------------------------------------------------------------
Lyondell Chemical Co.:
9.50% Sec. Nts., 12/15/08                               19,000            20,710
9.625% Sr. Sec. Nts.,
Series A, 5/1/07                                       200,000           221,000
9.875% Sec. Nts., Series B, 5/1/07                     980,000         1,031,450
- --------------------------------------------------------------------------------
Millennium America, Inc.,
9.25% Sr. Unsec. Sub. Nts., 6/15/08                    100,000           114,250
- --------------------------------------------------------------------------------
PCI Chemicals Canada,
10% Sr. Sec. Nts., 12/31/08                            113,061           120,410
- --------------------------------------------------------------------------------
Pioneer Cos., Inc.,
6.05% Sr. Sec. Nts., 12/31/06 1                         35,804            37,773
- --------------------------------------------------------------------------------
PolyOne Corp.:
8.875% Sr. Unsec. Nts., 5/1/12                       1,200,000         1,311,000
10.625% Sr. Unsec. Nts., 5/15/10                        19,000            21,470
- --------------------------------------------------------------------------------
Resolution Performance
Products LLC:
8% Sr. Sec. Nts., 12/15/09                             250,000           270,000
13.50% Sr. Unsec. Sub. Nts., 11/15/10                  100,000           109,250
- --------------------------------------------------------------------------------
Rhodia SA,
10.25% Sr. Unsec. Nts., 6/1/10                         550,000           621,500
- --------------------------------------------------------------------------------
Rockwood Specialties Group, Inc.,
7.50% Sr. Sub. Nts., 11/15/14 7                        200,000           208,500
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc.,
10% Sr. Sec. Nts., 12/19/07 14                         170,473           171,325
- --------------------------------------------------------------------------------
Westlake Chemical Corp.,
8.75% Sr. Nts., 7/15/11                                260,000           295,100
                                                                 ---------------
                                                                      11,100,708

- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.0%
Texas Industries, Inc.,
10.25% Sr. Unsec. Nts., 6/15/11                        400,000           470,000
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING--1.1%
Crown Euro Holdings SA:
9.50% Sr. Sec. Nts., 3/1/11                            500,000           572,500
10.875% Sr. Sec. Nts., 3/1/13                          200,000           237,500
- --------------------------------------------------------------------------------
Graham Packaging Co., Inc.:
8.50% Sr. Nts., 10/15/12 7                             200,000           211,000
9.875% Sub. Nts., 10/15/14 7                           300,000           321,750
- --------------------------------------------------------------------------------
Graphic Packaging
International Corp.:
8.50% Sr. Nts., 8/15/11                                500,000           548,750
9.50% Sr. Sub. Nts., 8/15/13                           350,000           399,875
- --------------------------------------------------------------------------------
Jefferson Smurfit Corp.:
7.50% Sr. Unsec. Unsub. Nts., 6/1/13                   300,000           321,750
8.25% Sr. Unsec. Nts., 10/1/12                         250,000           273,750


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING Continued
MDP Acquisitions plc,
9.625% Sr. Nts., 10/1/12                         $     400,000   $       448,000
- --------------------------------------------------------------------------------
Owens-Brockway
Glass Container, Inc.:
7.75% Sr. Sec. Nts., 5/15/11                           450,000           489,375
8.25% Sr. Unsec. Nts., 5/15/13                         419,000           462,995
8.75% Sr. Sec. Nts., 11/15/12                        1,000,000         1,132,500
8.875% Sr. Sec. Nts., 2/15/09                          200,000           218,250
- --------------------------------------------------------------------------------
Pliant Corp., 0%/11.125%
Sr. Sec. Disc. Nts., 6/15/09 13                        400,000           371,500
- --------------------------------------------------------------------------------
Solo Cup Co.,
8.50% Sr. Sub. Nts., 2/15/14                           500,000           522,500
- --------------------------------------------------------------------------------
Stone Container Corp.:
8.375% Sr. Nts., 7/1/12                                850,000           930,750
9.25% Sr. Unsec. Nts., 2/1/08                          200,000           222,000
9.75% Sr. Unsec. Nts., 2/1/11                          600,000           660,000
- --------------------------------------------------------------------------------
Stone Container Finance Co.
of Canada II,
7.375% Sr. Unsec. Nts., 7/15/14                        300,000           321,000
- --------------------------------------------------------------------------------
TriMas Corp., 9.875% Sr.
Unsec. Sub. Nts., 6/15/12 2                            500,000           532,500
                                                                 ---------------
                                                                       9,198,245

- --------------------------------------------------------------------------------
METALS & MINING--1.1%
AK Steel Corp.:
7.75% Sr. Unsec. Nts., 6/15/12                         219,000           226,665
7.875% Sr. Unsec. Nts., 2/15/09                        500,000           511,875
- --------------------------------------------------------------------------------
Arch Western Finance LLC,
6.75% Sr. Nts., 7/1/13                                 400,000           415,000
- --------------------------------------------------------------------------------
Asia Aluminum Holdings Ltd.,
8% Sr. Sec. Nts., 12/23/11 2                           925,000           938,875
- --------------------------------------------------------------------------------
California Steel Industries, Inc.,
6.125% Sr. Nts., 3/15/14                               400,000           399,000
- --------------------------------------------------------------------------------
Century Aluminum Co.,
7.50% Sr. Nts., 8/15/14 7                              600,000           642,000
- --------------------------------------------------------------------------------
Foundation PA Coal Co.,
7.25% Sr. Nts., 8/1/14 7                               250,000           267,500
- --------------------------------------------------------------------------------
IMCO Recycling, Inc.,
10.375% Sr. Sec. Nts., 10/15/10                        300,000           342,000
- --------------------------------------------------------------------------------
International Steel Group, Inc.,
6.50% Sr. Nts., 4/15/14                                200,000           215,500
- --------------------------------------------------------------------------------
International Utility
Structures, Inc.,
13% Unsec. Sub. Nts., 2/1/08 2,3,4                      71,000                --
- --------------------------------------------------------------------------------
Ispat Inland ULC,
9.75% Sr. Sec. Nts., 4/1/14                            585,000           725,400
- --------------------------------------------------------------------------------
Jorgensen (Earle M.) Co.,
9.75% Sr. Sec. Nts., 6/1/12                            500,000           565,000





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
METALS & MINING Continued
Kaiser Aluminum &
Chemical Corp.,
10.875% Sr. Nts.,
Series B, 10/15/06 3,4                           $     500,000   $       443,750
- --------------------------------------------------------------------------------
Koppers Industry, Inc.,
9.875% Sr. Sec. Nts., 10/15/13                         300,000           343,500
- --------------------------------------------------------------------------------
Massey Energy Co.,
6.625% Sr. Nts., 11/15/10                              200,000           210,000
- --------------------------------------------------------------------------------
Metallurg, Inc.,
11% Sr. Nts., 12/1/07                                  500,000           437,500
- --------------------------------------------------------------------------------
Oregon Steel Mills, Inc.,
10% Sr. Nts., 7/15/09                                  400,000           447,000
- --------------------------------------------------------------------------------
Peabody Energy Corp.,
6.875% Sr. Unsec. Nts.,
Series B, 3/15/13                                      400,000           435,000
- --------------------------------------------------------------------------------
Steel Dynamics, Inc.,
9.50% Sr. Nts., 3/15/09                                200,000           220,000
- --------------------------------------------------------------------------------
UCAR Finance, Inc.,
10.25% Sr. Nts., 2/15/12 2                             300,000           344,250
- --------------------------------------------------------------------------------
United States Steel Corp.:
9.75% Sr. Nts., 5/15/10                                336,000           384,720
10.75% Sr. Nts., 8/1/08                                519,000           613,718
                                                                 ---------------
                                                                       9,128,253

- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.6%
Abitibi-Consolidated, Inc.,
8.55% Nts., 8/1/10                                     200,000           217,750
- --------------------------------------------------------------------------------
Appleton Papers, Inc.,
8.125% Sr. Nts., 6/15/11                               300,000           324,750
- --------------------------------------------------------------------------------
Buckeye Technologies, Inc.,
8.50% Sr. Nts., 10/1/13                                100,000           109,000
- --------------------------------------------------------------------------------
Fort James Corp.,
6.875% Sr. Nts., 9/15/07                               500,000           533,750
- --------------------------------------------------------------------------------
Georgia-Pacific Corp.:
8.125% Sr. Unsec. Nts., 5/15/11                      1,050,000         1,212,750
9.375% Sr. Unsec. Nts., 2/1/13                         800,000           936,000
- --------------------------------------------------------------------------------
Inland Fiber Group LLC,
9.625% Sr. Unsec. Nts., 11/15/07 2,3,4                 300,000           136,500
- --------------------------------------------------------------------------------
Norske Skog Canada Ltd.,
7.375% Sr. Unsec. Nts., 3/1/14                         300,000           314,250
- --------------------------------------------------------------------------------
Riverside Forest Products Ltd.,
7.875% Sr. Unsec. Sub. Nts., 3/1/14                    300,000           331,500
- --------------------------------------------------------------------------------
Tekni-Plex, Inc.:
8.75% Sr. Sec. Nts., 11/15/13 7                        669,000           669,000
12.75% Sr. Unsec. Sub. Nts.,
Series B, 6/15/10                                      200,000           191,000
- --------------------------------------------------------------------------------
Tembec Industries, Inc.,
8.50% Sr. Unsec. Nts., 2/1/11                           19,000            19,190
- --------------------------------------------------------------------------------
Western Forest Products, Inc.,
15% Sec. Nts., 7/28/09 7,14                            187,000           211,778
                                                                 ---------------
                                                                       5,207,218


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--3.2%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.3%
American Tower Corp.:
7.125% Sr. Unsec. Nts., 10/15/12 7               $     250,000   $       256,875
9.375% Sr. Nts., 2/1/09 5                              133,000           141,313
- --------------------------------------------------------------------------------
Citizens Communications Co.,
6.25% Sr. Nts., 1/15/13                                700,000           708,750
- --------------------------------------------------------------------------------
Crown Castle International Corp.,
7.50% Sr. Nts., 12/1/13                                400,000           432,000
- --------------------------------------------------------------------------------
MCI, Inc.:
6.908% Sr. Unsec. Nts., 5/1/07 1                       468,000           480,285
7.688% Sr. Unsec. Nts., 5/1/09 1                     1,150,000         1,193,125
- --------------------------------------------------------------------------------
PSINet, Inc., 11% Sr. Nts., 8/1/09 2,3,4               265,814             3,987
- --------------------------------------------------------------------------------
Qwest Capital Funding, Inc.,
7.90% Unsec. Nts., 8/15/10                             819,000           831,285
- --------------------------------------------------------------------------------
Qwest Communications
International, Inc.,
7.25% Sr. Nts., 2/15/11 7                              300,000           309,000
- --------------------------------------------------------------------------------
Qwest Corp.,
9.125% Nts., 3/15/12 7                                 800,000           928,000
- --------------------------------------------------------------------------------
Qwest Services Corp.:
14% Nts., 12/15/10 1,7                               2,700,000         3,260,250
14.50% Nts., 12/15/14 7                              1,000,000         1,270,000
- --------------------------------------------------------------------------------
Teligent, Inc.,
11.50% Sr. Nts., 12/1/07 2,3,4                         500,000                --
- --------------------------------------------------------------------------------
Telus Corp., 7.50% Nts., 6/1/07                        790,000           858,810
- --------------------------------------------------------------------------------
Time Warner Telecom LLC/
Time Warner Telecom, Inc.,
9.75% Sr. Nts., 7/15/08                                300,000           305,250
- --------------------------------------------------------------------------------
Winstar Communications, Inc.,
12.75% Sr. Nts., 4/15/10 2,3,4                         250,000                --
                                                                 ---------------
                                                                      10,978,930

- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--1.9%
Alamosa Delaware, Inc.:
8.50% Sr. Nts., 1/31/12                                400,000           439,000
11% Sr. Unsec. Nts., 7/31/10                            19,000            22,468
12.50% Sr. Unsec. Nts., 2/1/11                          50,000            56,750
- --------------------------------------------------------------------------------
American Cellular Corp.,
10% Sr. Nts., Series B, 8/1/11                         575,000           495,938
- --------------------------------------------------------------------------------
American Tower Corp.,
7.50% Sr. Nts., 5/1/12                                 400,000           422,000
- --------------------------------------------------------------------------------
American Tower Escrow Corp.,
12.25% Sr. Sub. Disc. Nts., 8/1/08 8                   800,000           602,000
- --------------------------------------------------------------------------------
AT&T Corp.:
9.05% Sr. Unsec. Nts., 11/15/11 1                    1,000,000         1,156,250
9.75% Sr. Nts., 11/15/31 1                             500,000           599,375
- --------------------------------------------------------------------------------
CellNet Data Systems, Inc.,
Sr. Unsec. Disc. Nts., 10/1/07 2,3,4                   400,000                --





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES Continued
Centennial Cellular
Operating Co. LLC/Centennial
Communications Corp.,
10.125% Sr. Nts., 6/15/13                        $   1,050,000   $     1,183,875
- --------------------------------------------------------------------------------
Crown Castle International Corp.,
10.75% Sr. Nts., 8/1/11                              1,000,000         1,090,000
- --------------------------------------------------------------------------------
Dobson Cellular Systems,
8.375% Sec. Nts., 11/1/11 7                            130,000           134,875
- --------------------------------------------------------------------------------
Dobson Communications Corp.:
8.875% Sr. Nts., 10/1/13                               219,000           154,943
10.875% Sr. Unsec. Nts., 7/1/10                        600,000           468,000
- --------------------------------------------------------------------------------
IWO Escrow Co.,
Sr. Sec. Nts., 1/15/12 1,5,7                           110,000           111,375
- --------------------------------------------------------------------------------
Nextel Communications, Inc.,
7.375% Sr. Nts., 8/1/15                              3,080,000         3,403,400
- --------------------------------------------------------------------------------
Nextel Partners, Inc.,
12.50% Sr. Nts., 11/15/09                              342,000           389,025
- --------------------------------------------------------------------------------
Rogers Wireless
Communications, Inc.:
7.50% Sr. Sec. Nts., 3/15/15 7                         450,000           477,000
8% Sr. Sub. Nts., 12/15/12 7                           400,000           425,000
- --------------------------------------------------------------------------------
Rural Cellular Corp.:
8.25% Sr. Sec. Nts., 3/15/12                           275,000           292,188
9.625% Sr. Sub. Nts.,
Series B, 5/15/08                                      500,000           477,500
9.75% Sr. Sub. Nts., 1/15/10                           519,000           472,290
9.875% Sr. Nts., 2/1/10                                300,000           306,750
- --------------------------------------------------------------------------------
SBA Communications Corp.,
8.50% Sr. Nts., 12/1/12 7                              550,000           563,750
- --------------------------------------------------------------------------------
SBA Telecommunications, Inc./
SBA Communications Corp.,
0%/9.75% Sr. Disc. Nts., 12/15/11 13                 1,169,000           990,728
- --------------------------------------------------------------------------------
Triton PCS, Inc.,
8.50% Sr. Unsec. Nts., 6/1/13                          550,000           533,500
- --------------------------------------------------------------------------------
UbiquiTel Operating Co.,
9.875% Sr. Nts., 3/1/11                                600,000           676,500
- --------------------------------------------------------------------------------
US Unwired, Inc.,
10% Sr. Sec. Nts., 6/15/12                             250,000           283,125
- --------------------------------------------------------------------------------
Western Wireless Corp.,
9.25% Sr. Unsec. Nts., 7/15/13                         469,000           512,383
                                                                 ---------------
                                                                      16,739,988

- --------------------------------------------------------------------------------
UTILITIES--2.0%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.3%
AES Corp. (The),
8.75% Sr. Sec. Nts., 5/15/13 7                         700,000           798,875
- --------------------------------------------------------------------------------
Caithness Coso Funding Corp.,
9.05% Sr. Sec. Nts.,
Series B, 12/15/09                                     293,438           324,249
- --------------------------------------------------------------------------------
Calpine Corp.,
7.625% Sr. Nts., 4/15/06                               200,000           197,500


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES Continued
CenterPoint Energy, Inc.,
7.25% Sr. Nts., Series B, 9/1/10                 $     200,000   $       223,330
- --------------------------------------------------------------------------------
CITGO Trustees Cayman Ltd.,
8.50% Nts., 12/21/14 2                                 610,000           611,525
- --------------------------------------------------------------------------------
CMS Energy Corp.:
7.50% Sr. Nts., 1/15/09                                 19,000            20,330
7.75% Sr. Nts., 8/1/10                                 200,000           219,750
8.50% Sr. Nts., 4/15/11                                250,000           285,313
9.875% Sr. Unsec. Nts., 10/15/07                       900,000         1,010,250
- --------------------------------------------------------------------------------
CMS Energy X-TRAS
Pass-Through Trust I,
7% Sr. Unsec. Pass-Through
Certificates, 1/15/05                                  300,000           300,000
- --------------------------------------------------------------------------------
Funding Corp./
Beaver Valley Funding Corp.,
9% Second Lease
Obligation Bonds, 6/1/17                               199,000           235,818
- --------------------------------------------------------------------------------
Midwest Generation LLC,
8.75% Sr. Sec. Nts., 5/1/34                          1,850,000         2,109,000
- --------------------------------------------------------------------------------
Mirant Americas Generation LLC,
7.625% Sr. Unsec. Nts., 5/1/06 3,4                     200,000           216,000
- --------------------------------------------------------------------------------
MSW Energy Holdings II LLC/
MSW Energy Finance Co. II, Inc.,
7.375% Sr. Sec. Nts.,
Series B, 9/1/10                                       350,000           369,250
- --------------------------------------------------------------------------------
MSW Energy Holdings LLC/
MSW Energy Finance Co., Inc.,
8.50% Sr. Sec. Nts., 9/1/10                            200,000           220,000
- --------------------------------------------------------------------------------
NRG Energy, Inc.,
8% Sr. Sec. Nts., 12/15/13 7                         1,100,000         1,204,500
- --------------------------------------------------------------------------------
Reliant Energy, Inc.,
6.75% Sr. Sec. Nts., 12/15/14                          400,000           399,500
- --------------------------------------------------------------------------------
Reliant Resources, Inc.:
9.25% Sr. Sec. Nts., 7/15/10                           669,000           749,280
9.50% Sr. Sec. Nts., 7/15/13                           900,000         1,027,125
- --------------------------------------------------------------------------------
Teco Energy, Inc.,
7.20% Unsec. Unsub. Nts., 5/1/11                       600,000           660,000
- --------------------------------------------------------------------------------
Texas Genco LLC,
6.875% Sr. Nts., 12/15/14 7                            550,000           571,313
                                                                 ---------------
                                                                      11,752,908

- --------------------------------------------------------------------------------
GAS UTILITIES--0.1%
AmeriGas Partners LP/
AmeriGas Eagle Finance Corp.,
8.875% Sr. Unsec. Nts.,
Series B, 5/20/11                                      500,000           547,500
- --------------------------------------------------------------------------------
SEMCO Energy, Inc.,
7.125% Sr. Nts., 5/15/08                               150,000           161,291
                                                                 ---------------
                                                                         708,791





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.6%
AES Red Oak LLC,
8.54% Sr. Sec. Bonds,
Series A, 11/30/19                               $     562,854   $       634,617
- --------------------------------------------------------------------------------
Consumers Energy Co.,
7.375% Nts., 9/15/23                                   250,000           258,610
- --------------------------------------------------------------------------------
Dynegy Holdings, Inc.:
6.875% Sr. Unsec. Unsub. Nts., 4/1/11                  850,000           822,375
8.75% Sr. Nts., 2/15/12                              1,669,000         1,756,623
10.125% Sr. Sec. Nts., 7/15/13 7                       800,000           920,000
- --------------------------------------------------------------------------------
Mirant Mid-Atlantic LLC,
8.625% Sec. Pass-Through
Certificates, Series A, 6/30/12                        429,280           476,770
- --------------------------------------------------------------------------------
NorthWestern Corp.,
5.875% Sr. Sec. Nts., 11/1/14 7                         90,000            92,517
                                                                 ---------------
                                                                       4,961,512
                                                                 ---------------
Total Corporate Bonds and
Notes (Cost $228,184,438)                                            240,328,675

                                                        SHARES
- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.3%
- --------------------------------------------------------------------------------
AmeriKing, Inc.,
13% Cum. Sr. Exchangeable,
Non-Vtg. 2,4,14                                          4,253                --
- --------------------------------------------------------------------------------
Doane Pet Care Co.,
14.25% Jr. Sub. Exchange Debs.,
Non-Vtg. 2,4                                             5,000           261,250
- --------------------------------------------------------------------------------
Dobson Communications Corp.,
6% Cv., Series F (converts into
Dobson Communications Corp.,
Cl. A common stock), Non-Vtg. 7                            550            38,549
- --------------------------------------------------------------------------------
e.spire Communications, Inc.,
12.75% Jr. Redeemable, Non-Vtg. 2,4,14                     216                22
- --------------------------------------------------------------------------------
Eagle-Picher Holdings, Inc.,
11.75% Cum. Exchangeable,
Series B, Non-Vtg. 2,4                                   5,000           436,250
- --------------------------------------------------------------------------------
ICG Holdings, Inc.,
14.25% Exchangeable, Non-Vtg. 2,4,14                       151                --
- --------------------------------------------------------------------------------
Paxson Communications Corp.:
14.25% Cum. Jr. Exchangeable, Non-Vtg. 2,14                 43           317,125
14.25% Cum. Jr. Exchangeable, Non-Vtg. 2,4,14                1             5,790
- --------------------------------------------------------------------------------
Pennsylvania Real Estate
Investment Trust, 11%                                    2,000           121,000
- --------------------------------------------------------------------------------
PTV, Inc., 10% Cum.,
Series A, Non-Vtg                                            7                24
- --------------------------------------------------------------------------------
Rural Cellular Corp.,
11.375% Cum.,
Series B, Non-Vtg. 2,4,14                                  630           489,825


                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
PREFERRED STOCKS Continued
Sovereign Real Estate Investment
Trust, 12% Non-Cum., Series A 2                          4,600   $       698,050
                                                                 ---------------
Total Preferred
Stocks (Cost $2,471,559)                                               2,367,885

- --------------------------------------------------------------------------------
COMMON STOCKS--2.8%
- --------------------------------------------------------------------------------
AboveNet, Inc. 4                                            72             2,304
- --------------------------------------------------------------------------------
ACE Ltd.                                                 4,100           175,275
- --------------------------------------------------------------------------------
Aegis Group plc                                         84,740           175,708
- --------------------------------------------------------------------------------
Aetna, Inc.                                              1,400           174,650
- --------------------------------------------------------------------------------
All Nippon Airways Co. Ltd.                             48,000           167,229
- --------------------------------------------------------------------------------
Allstate Corp.                                           3,300           170,676
- --------------------------------------------------------------------------------
Anadarko Petroleum Corp.                                 2,510           162,673
- --------------------------------------------------------------------------------
Apache Corp.                                             3,300           166,881
- --------------------------------------------------------------------------------
Apple Computer, Inc. 4                                   2,700           173,880
- --------------------------------------------------------------------------------
Arriva plc                                              17,920           185,785
- --------------------------------------------------------------------------------
Ashland, Inc.                                            2,900           169,302
- --------------------------------------------------------------------------------
Autodesk, Inc.                                           5,000           189,750
- --------------------------------------------------------------------------------
BAE Systems plc                                         35,850           158,650
- --------------------------------------------------------------------------------
Bear Stearns Cos., Inc. (The)                            1,600           163,696
- --------------------------------------------------------------------------------
Beverly Hills Bancorp, Inc.                              6,273            63,357
- --------------------------------------------------------------------------------
Black & Decker Corp.                                     2,000           176,660
- --------------------------------------------------------------------------------
Broadwing Corp.                                            688             6,268
- --------------------------------------------------------------------------------
Burlington Resources, Inc.                               3,900           169,650
- --------------------------------------------------------------------------------
Cebridge Connections
Holding LLC 4                                              529                --
- --------------------------------------------------------------------------------
Celesio AG                                               2,194           178,037
- --------------------------------------------------------------------------------
Centex Corp.                                             3,200           190,656
- --------------------------------------------------------------------------------
Charles River Laboratories
International, Inc. 4                                    2,660           122,387
- --------------------------------------------------------------------------------
Chesapeake Energy Corp.                                    416             6,864
- --------------------------------------------------------------------------------
ChevronTexaco Corp.                                      3,200           168,032
- --------------------------------------------------------------------------------
Chubu Electric Power Co., Inc.                           7,300           175,251
- --------------------------------------------------------------------------------
CIGNA Corp.                                              2,200           179,454
- --------------------------------------------------------------------------------
CNP Assurances SA                                        2,480           177,649
- --------------------------------------------------------------------------------
ConocoPhillips                                           1,900           164,977
- --------------------------------------------------------------------------------
Conseco, Inc. 4                                         13,986           279,021
- --------------------------------------------------------------------------------
Continental AG                                           2,750           174,749
- --------------------------------------------------------------------------------
Corus Group plc 4                                      161,310           156,398
- --------------------------------------------------------------------------------
Countrywide Financial Corp.                              4,900           181,349
- --------------------------------------------------------------------------------
Covad Communications
Group, Inc. 4                                           16,528            35,535
- --------------------------------------------------------------------------------
Criimi MAE, Inc. 4                                      71,447         1,150,297
- --------------------------------------------------------------------------------
Crunch Equity Holdings, Cl. A 2,4                          120           156,133
- --------------------------------------------------------------------------------
Cummins, Inc.                                            2,100           175,959





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
- --------------------------------------------------------------------------------
Dainippon Ink & Chemicals, Inc.                         74,000   $       170,430
- --------------------------------------------------------------------------------
Devon Energy Corp.                                       4,200           163,464
- --------------------------------------------------------------------------------
Dillard's, Inc., Cl. A                                   6,400           171,968
- --------------------------------------------------------------------------------
Dobson Communications
Corp., Cl. A 4                                          24,300            41,796
- --------------------------------------------------------------------------------
E.ON AG                                                  1,992           181,898
- --------------------------------------------------------------------------------
Energy Select Sector SPDR Fund                          18,200           658,840
- --------------------------------------------------------------------------------
EOG Resources, Inc.                                      2,300           164,128
- --------------------------------------------------------------------------------
Equinix, Inc. 4                                          1,887            80,650
- --------------------------------------------------------------------------------
Financial Select Sector SPDR Fund                       21,600           659,448
- --------------------------------------------------------------------------------
Freddie Mac                                              2,400           176,880
- --------------------------------------------------------------------------------
Friends Provident plc                                   54,940           162,438
- --------------------------------------------------------------------------------
General Motors Corp.                                     4,400           176,264
- --------------------------------------------------------------------------------
Geotek Communications, Inc.,
Series B, Escrow Shares 2,4,15                             210                --
- --------------------------------------------------------------------------------
Globix Corp. 4                                           6,880            24,768
- --------------------------------------------------------------------------------
Heidelberger Zement AG                                   2,960           179,362
- --------------------------------------------------------------------------------
Hokkaido Electric Power Co.                              8,800           173,046
- --------------------------------------------------------------------------------
Horizon Natural Resources Co. 2,4                        6,667                --
- --------------------------------------------------------------------------------
Humana, Inc. 4                                           6,400           190,016
- --------------------------------------------------------------------------------
ICO Global Communication
Holdings Ltd. 4                                          6,016             3,068
- --------------------------------------------------------------------------------
Imerys SA                                                2,210           185,493
- --------------------------------------------------------------------------------
iPCS, Inc. 4                                             8,548           260,714
- --------------------------------------------------------------------------------
Janus Capital Group, Inc.                               10,100           169,781
- --------------------------------------------------------------------------------
Japan Real Estate
Investment Corp.                                            20           168,635
- --------------------------------------------------------------------------------
Karstadt Quelle AG                                      16,370           169,107
- --------------------------------------------------------------------------------
Kawasaki Kisen Kaisha Ltd.                              25,000           161,344
- --------------------------------------------------------------------------------
KB Home                                                  1,800           187,920
- --------------------------------------------------------------------------------
Klepierre                                                1,960           173,568
- --------------------------------------------------------------------------------
Lafarge SA                                               1,790           172,747
- --------------------------------------------------------------------------------
Leap Wireless International, Inc. 4                      1,714            46,278
- --------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.                           2,000           174,960
- --------------------------------------------------------------------------------
Lincoln National Corp.                                   3,500           163,380
- --------------------------------------------------------------------------------
Lloyds TSB Group plc                                    20,870           189,523
- --------------------------------------------------------------------------------
Loews Corp.                                              2,400           168,720
- --------------------------------------------------------------------------------
Louisiana-Pacific Corp.                                  6,200           165,788
- --------------------------------------------------------------------------------
MAN AG                                                   4,423           169,718
- --------------------------------------------------------------------------------
Marathon Oil Corp.                                       4,500           169,245
- --------------------------------------------------------------------------------
MBIA, Inc.                                               2,700           170,856
- --------------------------------------------------------------------------------
MCI, Inc.                                                1,629            32,841
- --------------------------------------------------------------------------------
Merck KGaA                                               2,902           198,410
- --------------------------------------------------------------------------------
MetLife, Inc.                                            4,200           170,142
- --------------------------------------------------------------------------------
Mitsui O.S.K. Lines Ltd.                                27,000           162,047
- --------------------------------------------------------------------------------
Nippon Building Fund, Inc.                                  19           162,057



                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
- --------------------------------------------------------------------------------
Nippon Yusen Kabushiki Kaisha                           32,000   $       172,382
- --------------------------------------------------------------------------------
Norfolk Southern Corp.                                   4,700           170,093
- --------------------------------------------------------------------------------
Novar plc                                               54,100           195,529
- --------------------------------------------------------------------------------
NSK Ltd.                                                36,000           180,931
- --------------------------------------------------------------------------------
NTL, Inc. 4                                              7,842           572,152
- --------------------------------------------------------------------------------
Nucor Corp.                                              3,200           167,488
- --------------------------------------------------------------------------------
Occidental Petroleum Corp.                               3,000           175,080
- --------------------------------------------------------------------------------
Orbital Sciences Corp. 4                                   745             8,813
- --------------------------------------------------------------------------------
Peninsular & Oriental Steam
Navigation Co.                                          29,210           166,839
- --------------------------------------------------------------------------------
PG&E Corp. 4                                             5,200           173,056
- --------------------------------------------------------------------------------
Phelps Dodge Corp.                                       1,800           178,056
- --------------------------------------------------------------------------------
Pilkington plc                                          82,360           173,935
- --------------------------------------------------------------------------------
Pioneer Cos., Inc. 4                                     7,312           151,724
- --------------------------------------------------------------------------------
Prandium, Inc. 2,4                                      24,165               266
- --------------------------------------------------------------------------------
Premier Holdings Ltd. 2,4                               18,514                --
- --------------------------------------------------------------------------------
Prudential Financial, Inc.                               3,300           181,368
- --------------------------------------------------------------------------------
Pulte Homes, Inc.                                        2,910           185,658
- --------------------------------------------------------------------------------
Rakuten, Inc.                                               20            22,913
- --------------------------------------------------------------------------------
Rakuten, Inc. 4                                            180           161,608
- --------------------------------------------------------------------------------
RMC Group plc                                           10,440           170,172
- --------------------------------------------------------------------------------
Rolls-Royce Group plc                                   33,400           158,388
- --------------------------------------------------------------------------------
RWE AG                                                   3,155           174,110
- --------------------------------------------------------------------------------
Ryder Systems, Inc.                                      3,100           148,087
- --------------------------------------------------------------------------------
SABMiller plc                                           10,200           169,197
- --------------------------------------------------------------------------------
Safeco Corp.                                             3,400           177,616
- --------------------------------------------------------------------------------
Sears Roebuck & Co.                                      3,200           163,296
- --------------------------------------------------------------------------------
Sega Sammy Holdings, Inc. 4                              3,200           175,817
- --------------------------------------------------------------------------------
Sempra Energy                                            4,600           168,728
- --------------------------------------------------------------------------------
Severn Trent plc                                         9,880           183,427
- --------------------------------------------------------------------------------
Showa Shell Sekiyu K.K                                  18,380           167,352
- --------------------------------------------------------------------------------
Societe Generale, Cl. A                                  1,720           174,057
- --------------------------------------------------------------------------------
Star Gas Partners LP                                       187             1,393
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. 2,4                               716            26,671
- --------------------------------------------------------------------------------
Suedzucker AG                                            8,314           173,241
- --------------------------------------------------------------------------------
Suez SA                                                  7,140           190,413
- --------------------------------------------------------------------------------
Sunoco, Inc.                                             2,100           171,591
- --------------------------------------------------------------------------------
Tate & Lyle plc                                         17,860           162,103
- --------------------------------------------------------------------------------
Technip SA                                               1,000           184,858
- --------------------------------------------------------------------------------
Telewest Global, Inc. 4                                 31,828           559,536
- --------------------------------------------------------------------------------
Telus Corp.                                                269             7,774
- --------------------------------------------------------------------------------
Tohoku Electric Power Co.                                9,430           169,330
- --------------------------------------------------------------------------------
TonenGeneral Sekiyu K.K                                 17,870           162,708
- --------------------------------------------------------------------------------
Total SA, B Shares                                         760           166,561
- --------------------------------------------------------------------------------
Toys R Us, Inc. 4                                        8,400           171,948





                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
- --------------------------------------------------------------------------------
Transocean, Inc. 4                                       4,400   $       186,516
- --------------------------------------------------------------------------------
TUI AG                                                   7,536           178,746
- --------------------------------------------------------------------------------
TVMAX Holdings, Inc. 2,4                                 1,000             5,950
- --------------------------------------------------------------------------------
TXU Corp.                                                2,800           180,768
- --------------------------------------------------------------------------------
Unibail                                                  1,180           185,733
- --------------------------------------------------------------------------------
United States Steel Corp.                                3,300           169,125
- --------------------------------------------------------------------------------
United Utilities plc                                    15,620           188,930
- --------------------------------------------------------------------------------
UnitedGlobalCom, Inc., Cl. A 4                          58,063           560,889
- --------------------------------------------------------------------------------
Unocal Corp.                                             3,900           168,636
- --------------------------------------------------------------------------------
Utilities Select Sector SPDR Fund                       24,200           673,970
- --------------------------------------------------------------------------------
Valero Energy Corp.                                      3,900           177,060
- --------------------------------------------------------------------------------
Viatel Holding Ltd. (Bermuda) 2,4                        2,251             2,701
- --------------------------------------------------------------------------------
Vinci                                                    1,360           182,640
- --------------------------------------------------------------------------------
Western Forest Products, Inc. 4                         38,252           212,307
- --------------------------------------------------------------------------------
WRC Media Corp. 2,4                                      1,082                22
- --------------------------------------------------------------------------------
XO Communications, Inc. 4                                1,100             3,344
                                                                 ---------------
Total Common Stocks
(Cost $21,237,672)                                                    23,790,482

                                                         UNITS
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- --------------------------------------------------------------------------------
American Tower Corp. Wts.,
Exp. 8/1/08 4,7                                            800           184,400
- --------------------------------------------------------------------------------
ASAT Finance LLC Wts.,
Exp. 11/1/06 2,4                                           250                 2
- --------------------------------------------------------------------------------
Citigroup, Inc. Litigation Wts.,
Exp. 12/31/50 4                                          2,404             3,414
- --------------------------------------------------------------------------------
COLO.com, Inc. Wts.,
Exp. 3/15/10 2,4                                           400                 4
- --------------------------------------------------------------------------------
Concentric Network Corp. Wts.,
Exp. 12/15/07 2,4                                          100                --
- --------------------------------------------------------------------------------
Covergent Communications,
Inc. Wts., Exp. 4/1/08 2,4                                 400                 4
- --------------------------------------------------------------------------------
HF Holdings, Inc. Wts.,
Exp. 9/27/09 2,4                                           530                 5
- --------------------------------------------------------------------------------
Horizon PCS, Inc. Wts.,
Exp. 10/1/10 2,4                                         1,000                --
- --------------------------------------------------------------------------------
Huntsman Co. LLC Wts.,
Exp. 5/15/11 2,4                                           300           141,150
- --------------------------------------------------------------------------------
ICG Communications, Inc. Wts.,
Exp. 9/15/05 2,4                                           825                 8
- --------------------------------------------------------------------------------
ICO Global Communication
Holdings Ltd. Wts.:
Exp. 5/16/06 2,4                                         1,509                 8
Exp. 5/16/06 2,4                                             2                --
- --------------------------------------------------------------------------------
Imperial Credit Industries,
Inc. Wts., Exp. 1/31/08 2,4                              2,135                --
- --------------------------------------------------------------------------------
Insilco Corp. Wts., Exp. 8/15/07 2,4                       270                --

                                                                           VALUE
                                                         UNITS        SEE NOTE 1
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES Continued
- --------------------------------------------------------------------------------
iPCS, Inc. Wts., Exp. 6/15/10 2,4                          300   $             3
- --------------------------------------------------------------------------------
Leap Wireless International,
Inc. Wts., Exp. 4/15/10 2,4                                275                 3
- --------------------------------------------------------------------------------
Long Distance International,
Inc. Wts., Exp. 4/13/08 2,4                                200                --
- --------------------------------------------------------------------------------
Loral Space &
Communications Ltd. Wts.,
Exp. 1/15/07 2,4                                           150                 2
- --------------------------------------------------------------------------------
Millenium Seacarriers, Inc. Wts.,
Exp. 7/15/05 2,4                                           250                 3
- --------------------------------------------------------------------------------
Ntelos, Inc. Wts., Exp. 8/15/10 2,4                        450                 5
- --------------------------------------------------------------------------------
Pathmark Stores, Inc. Wts.,
Exp. 9/19/10 4                                           5,710             1,142
- --------------------------------------------------------------------------------
PLD Telekom, Inc. Wts.,
Exp. 6/1/06 2,4                                            300                 3
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. Wts.,
Exp. 12/19/08 2,4                                        1,165             5,432
- --------------------------------------------------------------------------------
Venezuela (Republic of) Oil
Linked Payment Obligation Wts.,
Exp. 4/15/20 2,4                                         3,256                --
- --------------------------------------------------------------------------------
Verado Holdings, Inc., Cl. B Wts.,
Exp. 4/15/08 4                                             175               119
- --------------------------------------------------------------------------------
XO Communications, Inc.,
Cl. A Wts., Exp. 1/16/10 4                               2,204             1,488
- --------------------------------------------------------------------------------
XO Communications, Inc.,
Cl. B Wts., Exp. 1/16/10 4                               1,653               793
- --------------------------------------------------------------------------------
XO Communications, Inc.,
Cl. C Wts., Exp. 1/16/10 4                               1,653               645
                                                                 ---------------
Total Rights, Warrants and
Certificates (Cost $80,050)                                              338,633

                                                     PRINCIPAL
                                                        AMOUNT
- --------------------------------------------------------------------------------
STRUCTURED NOTES--10.2%
- --------------------------------------------------------------------------------
Citigroup Global Markets
Holdings, Inc.:
Brazilian Real Unsec. Credit
Linked Nts., 0.93%, 1/14/05                      $   1,982,615         2,319,858
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 3/15/07 [COP]                               3,860,150,000         2,002,175
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 4/27/12 [COP]                               1,800,000,000           939,374
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 4/27/12 [COP]                               1,200,000,000           626,250
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 4/27/12 5 [COP]                             1,034,000,000           536,533
Colombia (Republic of)
Unsec. Credit Linked Nts.,
3.12%, 11/20/09                                      2,920,000         2,959,128





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Citigroup Global Markets
Holdings, Inc.: Continued
Dominican Republic Peso
Unsec. Credit Linked Nts.,
24.05%, 3/21/05 [DOP]                               21,604,000   $       711,287
Dominican Republic Peso
Unsec. Credit Linked Nts.,
24.32%, 3/7/05 [DOP]                                20,810,000           698,398
Peruvian Sol Unsec. Linked Nts.,
1.466%, 1/14/05 [PEN]                                4,200,000         1,356,450
Ukraine Hryvnia Unsec. Credit
Linked Nts., 7.50%, 5/6/05 2 [UAH]                   3,980,000           749,529
- --------------------------------------------------------------------------------
Credit Suisse First Boston
Corp. (Cayman):
Russia (Government of)
Linked Bonds,
Series 24, 15%, 9/2/05 [RUR]                        22,279,000           861,189
Russia (Government of)
Linked Bonds,
Series 26, 15%, 3/11/05 [RUR]                       22,587,000           838,872
- --------------------------------------------------------------------------------
Credit Suisse First Boston
International, OAO Gazprom
Credit Linked Nts.,
8.11%, 1/21/07 [RUR]                                28,065,000         1,058,573
- --------------------------------------------------------------------------------
Credit Suisse First Boston, Inc.:
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
20%, 10/18/07                                          352,000           387,633
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series EM 868, 27.50%, 8/25/05                       2,125,000         1,881,220
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series EM 872, 23.57%, 10/20/05 1                      396,000           425,904
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series EM 880, 20%, 10/18/07                         1,190,000         1,450,705
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series NA S 316, 24.45%, 2/23/06                       607,000           488,435
(USA), U.S. Dollar/South African
Rand Linked Nts.,
Series FBi 43, 1.468%, 5/23/22                         825,000           784,080
- --------------------------------------------------------------------------------
Deutsche Bank AG:
European Investment Bank
Credit Bonds, 5.65%, 1/19/10 5                         705,000           533,897
Indonesia (Republic of) Credit
Linked Nts., 14.25%, 6/22/13                           942,000         1,146,885
Indonesia (Republic of) Credit
Linked Nts., 14.25%, 6/22/13                           938,000         1,142,015
Korea (Republic of) Credit
Bonds, 2.49%, 6/20/09                                3,900,000         3,945,240
Moscow (City of) Linked Nts.,
10%, 5/27/05 [RUR]                                  13,440,000           498,080
Moscow (City of) Linked Nts.,
15%, 9/2/05 [RUR]                                   30,255,000         1,170,046


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Deutsche Bank AG: Continued
Nigeria (Federal Republic of)
Naira Linked Nts.,
13.25%, 3/17/05 [NGN]                               97,403,000   $       710,460
Nigeria (Federal Republic of)
Naira Linked Nts.,
13.75%, 3/3/05 [NGN]                                65,974,000           484,338
Nigeria (Republic of)
Credit Linked Nts.,
13.90%, 2/24/05 [NGN]                              119,040,000           876,149
OAO Gazprom I Credit Nts.,
6.20%, 10/20/07                                        790,000           841,076
OAO Gazprom II Credit Nts.,
5.95%, 4/20/07                                         790,000           831,663
Romania (The State of)
Leu Linked Nts., 11.49%,
12/4/06 [ROL]                                    7,886,400,000           274,045
Russian Federation Linked Nts.,
8.40%, 12/2/09 [RUR]                                19,221,000           698,266
Ukraine (Republic of)
Credit Linked Nts., 6.54%, 8/5/11                    4,070,000         4,389,292
Ukraine (Republic of)
Hryvnia Credit Linked Nts.,
0%, 12/17/05 [UAH]                                   1,469,000           276,274
Ukraine (Republic of)
Hryvnia Credit Linked Nts.,
11.70%, 5/31/06 [UAH]                                1,727,000           325,089
- --------------------------------------------------------------------------------
Dow Jones CDX High Yield
Index Pass-Through Certificates:
Series 3-1, 7.75%, 12/29/09 7,16                    13,200,000        13,587,750
Series 3-3, 8%, 12/29/09 7,16                       12,700,000        13,041,313
- --------------------------------------------------------------------------------
Lehman Brothers International:
Turkey (Republic of) Treasury
Bills Total Return Linked Nts.,
20%, 10/17/07                                        1,260,000         1,512,630
Turkey (Republic of) Treasury
Bills Total Return Linked Nts.,
24.20%, 8/25/05                                      1,165,000         1,003,182
Turkey (Republic of) Treasury
Bills Total Return Linked Nts.,
28.25%, 5/26/05                                      1,261,309         1,277,580
- --------------------------------------------------------------------------------
Lehman Brothers Special
Financing, Inc., High Yield Index
Linked Nts., 1.017%, 1/1/05 16                      10,000,000        10,145,251
- --------------------------------------------------------------------------------
Morgan Stanley Capital
Services, Inc., Venezuela
(Republic of) Credit Bonds,
5%, 9/20/09                                          1,665,000         1,844,587
- --------------------------------------------------------------------------------
Pioneer 2002 Ltd. Sec.
Catastrophe Linked Nts.:
Series 2002-1, Cl. E-A,
6.74%, 6/15/06 1                                       750,000           758,199
Series 2003-II, Cl. A,
8.49%, 6/15/06 1,7                                     500,000           512,183





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Pioneer 2002 Ltd. Sec
Catastrophe Linked Nts.: Continued
Series 2003-II, Cl. B,
7.49%, 6/15/06 1,7                               $     500,000   $      510,214
Series 2003-II, Cl. C,
8.24%, 6/15/06 1,7                                     500,000          508,153
- --------------------------------------------------------------------------------
Swiss Re Capital Markets Corp./
Oak Capital Ltd.
Catastrophe Linked Nts.,
7.24%, 6/15/07 1,2                                     250,000          256,949
- --------------------------------------------------------------------------------
Swiss Re Capital Markets Corp./
Pioneer 2002 Ltd. Sec
Catastrophe Linked Nts.,
Series 2002, Cl. A-A,
8.49%, 6/15/06 1,7                                     250,000          254,995
- --------------------------------------------------------------------------------
UBS AG:
Israel (State of) Shekel
Linked Nts., 7.50%, 4/5/14 [ILS]                     4,792,700        1,195,040
OAO Gazprom III Credit Nts.,
4.71%, 7/5/06                                        1,980,000        2,085,757
                                                                 ---------------
Total Structured Notes
(Cost $82,684,631)                                                   87,712,191

                                DATE    STRIKE       CONTRACTS
- --------------------------------------------------------------------------------
OPTIONS PURCHASED--0.0%
- --------------------------------------------------------------------------------
Brazilian Real Call 4        1/19/05    $ 2.80       1,175,000           10,575
- --------------------------------------------------------------------------------
Turkish Lira Put 4            1/6/05      1.00       1,150,000              575
- --------------------------------------------------------------------------------
U.S. Treasury Bonds,
5.375%, 2/15/31 Call 4       1/18/05   109.285%         35,720          125,598
                                                                 ---------------
Total Options Purchased (Cost $427,865)                                 136,748

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--10.0% 17
- --------------------------------------------------------------------------------
Undivided interest of 5.96% in joint repurchase
agreement (Principal Amount/Value
$1,443,703,000, with a maturity value of
$1,443,962,867) with UBS Warburg LLC, 2.16%,
dated 12/31/04, to be repurchased at
$86,039,484 on 1/3/05, collateralized by
Federal National Mortgage Assn., 5%--6%,
4/1/34--10/1/34, with a value of
$1,474,609,071
(Cost $86,024,000)                                  86,024,000       86,024,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
Total Investments, at Value
(excluding Investments
Purchased with Cash
Collateral from
Securities Loaned)
(Cost $859,418,744)                                              $  906,044,631

- --------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM
SECURITIES LOANED--1.7%
- --------------------------------------------------------------------------------
ASSET-BACKED FLOATING SECURITY--0.1%
Whitehawk CDO Funding
Corp., 2.56%, 3/15/05 18                         $   1,000,000        1,000,000
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--1.5% Undivided interest
of 5.96% in joint repurchase agreement
(Principal Amount/Value $155,205,723, with a
maturity value of $155,232,367) with Credit
Suisse First Boston LLC, 2.06%, dated
12/31/04, to be repurchased at $9,252,431 on
1/3/05, collateralized by AA Corporate
Bonds, 0%-15.73%, 1/1/06-7/16/44,
with a value of $158,312,640 18                      9,250,843        9,250,843
- --------------------------------------------------------------------------------
Undivided interest of 0.39% in joint repurchase
agreement (Principal Amount/Value
$2,800,000,000, with a maturity value of
$2,800,550,669) with Nomura Securities, 2.36%,
dated 12/31/04, to be repurchased at $3,827,941
on 1/3/05, collateralized by U.S. Government
Mortgage Agencies, 2.58%-7.50%,
1/15/08-10/15/44, with a value of
$2,908,566,289 18                                    3,827,188        3,827,188
                                                                 ---------------
                                                                     13,078,031

- --------------------------------------------------------------------------------
YANKEE FLOATING CERTIFICATES OF DEPOSIT--0.1%
Banco Bilbao Vizcaya NY,
2.248% Deposit Nts., 2/10/05 18                        799,967          799,967
                                                                 ---------------
Total Investments Purchased
with Cash Collateral from
Securities Loaned
(Cost $14,877,998)                                                   14,877,998

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $874,296,742)                                      107.4%     920,922,629
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF
OTHER ASSETS                                              (7.4)     (63,302,323)
                                                 -------------------------------
NET ASSETS                                               100.0%  $  857,620,306
                                                 ===============================





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

FOOTNOTES TO STATEMENT OF INVESTMENTS

Principal amount, contracts and exercise price are reported in U.S. Dollars,
except for those denoted in the following currencies:

ARP        Argentine Peso
AUD        Australian Dollar
BRR        Brazilian Real
CAD        Canadian Dollar
COP        Colombian Peso
DEM        German Mark
DKK        Danish Krone
DOP        Dominican Republic Peso
EUR        Euro
FRF        French Franc
GBP        British Pound Sterling
ILS        Israeli Shekel
JPY        Japanese Yen
MXN        Mexican Nuevo Peso
NGN        Nigeria Naira
NZD        New Zealand Dollar
PEN        Peruvian New Sol
PLZ        Polish Zloty
ROL        Romanian Leu
RUR        Russian Ruble
SEK        Swedish Krona
UAH        Ukraine Hryvnia
ZAR        South African Rand

1. Represents the current interest rate for a variable or increasing rate
security.

2. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of December 31, 2004 was $26,847,365, which represents
3.13% of the Fund's net assets, of which $70,658 is considered restricted. See
Note 11 of Notes to Financial Statements.

3. Issue is in default. See Note 1 of Notes to Financial Statements.

4. Non-income producing security.

5. When-issued security or forward commitment to be delivered and settled after
December 31, 2004. See Note 1 of Notes to Financial Statements.

6. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $2,971,051 or 0.35% of the Fund's net assets
as of December 31, 2004.

7. 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 $78,866,795 or 9.20% of the Fund's net
assets as of December 31, 2004.

8. Zero coupon bond reflects effective yield on the date of purchase.

9. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts with an aggregate
market value of $1,957,202. See Note 6 of Notes to Financial Statements.

10. A sufficient amount of securities has been designated to cover outstanding
foreign currency contracts. See Note 5 of Notes to Financial Statements.

11. A sufficient amount of securities has been designated to cover outstanding
written put options, as follows:

                                                   CONTRACTS         EXPIRATION     EXERCISE           PREMIUM          VALUE
                                               SUBJECT TO PUT             DATES        PRICE          RECEIVED     SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------

Brazilian Real (BRR)                                1,175,000           1/19/05        $2.65          $  1,792        $ 8,196
Turkish Lira (TRL)                                  1,150,000            1/6/05         1.00             3,565         11,499
                                                                                                      -----------------------
                                                                                                      $  5,357        $19,695
                                                                                                      =======================


12. A sufficient amount of liquid assets has been designated to cover
outstanding written call options, as follows:

                                                    CONTRACTS        EXPIRATION     EXERCISE           PREMIUM          VALUE
                                              SUBJECT TO CALL              DATE         RATE          RECEIVED     SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------

New Zealand (Government of) Bonds, 7% 7/15/09             945NZD         3/7/05         5.95%NZD      $  2,661        $   444


13. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.

14. Interest or dividend is paid-in-kind.

15. Received as the result of issuer reorganization.

16. Interest rate represents a weighted average rate comprised of the interest
rates of the underlying securities.

17. The Fund may have elements of risk due to concentrated investments. Such
concentrations may subject the Fund to additional risks.

18. The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 12 of Notes to Financial
Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------


- ---------------------------------------------------------------------------------------------------------------------

ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Investments, at value (including cost and market value of $$86,024,000 in repurchase agreements)
(including securities loaned of $44,013,349) (cost $874,296,742)--see accompanying
statement of investments                                                                             $   920,922,629
- ---------------------------------------------------------------------------------------------------------------------
Cash                                                                                                       2,055,902
- ---------------------------------------------------------------------------------------------------------------------
Collateral for securities loaned                                                                          29,980,833
- ---------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency contracts                                                      3,540,592
- ---------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $12,465,550 sold on a when-issued basis or forward commitment)                12,692,922
Interest, dividends and principal paydowns                                                                10,583,665
Shares of beneficial interest sold                                                                         3,295,957
Futures margins                                                                                               33,583
Other                                                                                                          9,827
                                                                                                     ----------------
Total assets                                                                                             983,115,910

- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------
Bank overdraft-foreign currencies (cost $96,882)                                                              96,964
- ---------------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $8,018)--see accompanying statement of investments               20,139
- ---------------------------------------------------------------------------------------------------------------------
Swaptions written, at value (premiums received $94,462)                                                       70,869
- ---------------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned                                                                44,858,831
- ---------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency contracts                                                      3,277,300
- ---------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts                                                                  1,458,503
- ---------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased on a when-issued basis or forward commitment                                        73,731,367
Closed foreign currency contracts                                                                          1,588,757
Shares of beneficial interest redeemed                                                                       147,125
Distribution and service plan fees                                                                           133,244
Shareholder communications                                                                                    34,768
Trustees' compensation                                                                                        14,921
Transfer and shareholder servicing agent fees                                                                  1,705
Other                                                                                                         61,111
                                                                                                     ----------------
Total liabilities                                                                                        125,495,604

- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS                                                                                           $   857,620,306
                                                                                                     ================

- ---------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                                           $       164,032
- ---------------------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                                               797,449,500
- ---------------------------------------------------------------------------------------------------------------------
Accumulated net investment income                                                                         39,051,911
- ---------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions                           (24,499,421)
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies                                                                         45,454,284
                                                                                                     ----------------
NET ASSETS                                                                                           $   857,620,306
                                                                                                     ================

- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ---------------------------------------------------------------------------------------------------------------------
Non-Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $614,915,045 and 118,133,764 shares of beneficial interest outstanding)      $          5.21
- ---------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $242,705,261 and 45,898,401 shares of beneficial interest outstanding)       $          5.29


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------------------------
Interest                                                                                             $    35,831,510
- ---------------------------------------------------------------------------------------------------------------------
Fee income                                                                                                 1,811,978
- ---------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $7,565)                                                       150,977
- ---------------------------------------------------------------------------------------------------------------------
Portfolio lending fees                                                                                        35,374
                                                                                                     ----------------
Total investment income                                                                                   37,829,839

- ---------------------------------------------------------------------------------------------------------------------
EXPENSES
- ---------------------------------------------------------------------------------------------------------------------
Management fees                                                                                            5,203,309
- ---------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares                                                           373,995
- ---------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares                                                                                            10,083
Service shares                                                                                                10,030
- ---------------------------------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares                                                                                            42,334
Service shares                                                                                                 8,511
- ---------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses                                                                                   92,792
- ---------------------------------------------------------------------------------------------------------------------
Trustees' compensation                                                                                        20,732
- ---------------------------------------------------------------------------------------------------------------------
Other                                                                                                         72,134
                                                                                                     ----------------
Total expenses                                                                                             5,833,920
Less reduction to custodian expenses                                                                         (21,553)
                                                                                                     ----------------
Net expenses                                                                                               5,812,367

- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                                                     32,017,472

- ---------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments (including premiums on options exercised)                                                      2,526,920
Closing of futures contracts                                                                                  28,864
Closing and expiration of option contracts written                                                           484,456
Closing and expiration of swaption contracts                                                                (326,048)
Foreign currency transactions                                                                              4,604,115
Swap contracts                                                                                               293,602
                                                                                                     ----------------
Net realized gain                                                                                          7,611,909
- ---------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments                                                                                               16,486,291
Translation of assets and liabilities denominated in foreign currencies                                    9,070,184
Futures contracts                                                                                             67,809
Option contracts                                                                                            (153,144)
Swaption contracts                                                                                            39,135
Swap contracts                                                                                              (502,851)
                                                                                                     ----------------
Net change in unrealized appreciation                                                                     25,007,424

- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                                                 $    64,636,805
                                                                                                     ================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                                   2004               2003
- ------------------------------------------------------------------------------------------------------------------

OPERATIONS
- ------------------------------------------------------------------------------------------------------------------
Net investment income                                                           $   32,017,472    $    28,077,622
- ------------------------------------------------------------------------------------------------------------------
Net realized gain                                                                    7,611,909         13,639,276
- ------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)                                25,007,424         41,999,716
                                                                                ----------------------------------
Net increase in net assets resulting from operations                                64,636,805         83,716,614

- ------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares                                                                 (29,467,620)       (28,473,133)
Service shares                                                                      (5,049,740)          (842,251)

- ------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Non-Service shares                                                                  23,501,705        115,808,103
Service shares                                                                     152,771,336         66,753,974

- ------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Total increase                                                                     206,392,486        236,963,307
- ------------------------------------------------------------------------------------------------------------------
Beginning of period                                                                651,227,820        414,264,513
                                                                                ----------------------------------
End of period (including accumulated net investment income of $39,051,911
and $32,618,798, respectively)                                                  $  857,620,306    $   651,227,820
                                                                                ==================================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,                2004              2003            2002            2001            2000
- -----------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period              $        5.05     $        4.57     $      4.62     $      4.69     $      4.97
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                       .22 1             .22             .29             .41             .41
Net realized and unrealized gain (loss)                     .20               .56             .03            (.19)           (.28)
                                                  ----------------------------------------------------------------------------------
Total from investment operations                            .42               .78             .32             .22             .13
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                       (.26)             (.30)           (.37)           (.29)           (.41)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                    $        5.21     $        5.05     $      4.57     $      4.62     $      4.69
                                                  =================================================================================

- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                         8.67%            18.07%           7.44%           4.85%           2.63%
- -----------------------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)          $     614,915     $     571,445     $   406,126     $   351,686     $   304,562
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                 $     584,878     $     472,213     $   374,519     $   330,711     $   289,923
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                      4.50%             5.61%           6.89%           8.78%           9.23%
Total expenses                                             0.74%             0.75%           0.79%           0.79%           0.79%
Expenses after payments and waivers and
reduction to custodian expenses                             N/A 4             N/A 4          0.78%            N/A 4           N/A 4
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                      88% 5            117%             65%            104%            104%


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$959,649,113 and $973,488,511, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





SERVICE SHARES  YEAR ENDED DECEMBER 31,                   2004           2003          2002        2001 1
- ---------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period              $       5.13     $     4.67     $    4.73     $  4.64
- ---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                      .19 2          .27           .03         .15
Net realized and unrealized gain (loss)                    .22            .49           .28        (.06)
                                                  -------------------------------------------------------
Total from investment operations                           .41            .76           .31         .09
- ---------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                      (.25)          (.30)         (.37)         --
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period                    $       5.29     $     5.13     $    4.67     $  4.73
                                                  =======================================================

- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                        8.43%         17.16%         7.03%       1.94%
- ---------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)          $    242,705     $   79,782     $   8,138     $     4
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                 $    150,040     $   34,744     $   2,307     $     2
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                     3.82%          4.57%         5.40%       8.17%
Total expenses                                            0.99%          1.02%         1.06%       0.92%
Expenses after payments and waivers and
reduction to custodian expenses                            N/A 5          N/A 5        1.03%        N/A 5
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                     88% 6         117%           65%        104%


1. For the period from March 19, 2001 (inception of offering) to December 31,
2001.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$959,649,113 and $973,488,511, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Strategic Bond Fund/VA (the Fund) is a separate series of
Oppenheimer Variable Account Funds (the Trust), an 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 principally derived from interest on debt securities. The Trust's
investment advisor is OppenheimerFunds, Inc. (the Manager).

      The Fund offers two classes of shares. Both classes are sold at their
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products. The class of shares designated as Service shares is subject to a
distribution and service plan. Both classes of shares have identical rights and
voting privileges with respect to the Fund in general and exclusive voting
rights on matters that affect that class alone. Earnings, net assets and net
asset value per share may differ due to each class having its own expenses, such
as transfer and shareholder servicing agent fees and shareholder communications,
directly attributable to that class.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in structured notes whose market values,
interest rates and/or redemption prices are linked to the performance of
underlying foreign currencies, interest rate spreads, stock market indices,
prices of individual securities, commodities or other financial instruments or
the occurrence of other specific events. The structured notes are often
leveraged, increasing the volatility of each note's market value relative to the
change in the underlying linked financial element or event. Fluctuations in
value of these securities are recorded as unrealized gains and losses in the
accompanying financial statements. The Fund records a realized gain or loss when
a structured note is sold or matures. As of December 31, 2004, the market value
of these securities comprised 10.2% of the Fund's net assets and resulted in
unrealized cumulative gains of $5,027,560.

- --------------------------------------------------------------------------------
SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment
for securities that have been purchased by the Fund on a when-issued basis or
forward commitment can take place up to ten days or more after the trade date.
Normally the settlement date occurs within six months after the trade date;
however, the Fund may, from time to time, purchase securities whose settlement
date extends six months or more beyond trade 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
internally designated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a when-issued
basis or forward commitment may increase the volatility of the Fund's net asset
value to the extent the Fund executes such transactions while
remaining substantially fully invested. The Fund may also sell securities that
it purchased on a when-issued basis or forward commitment prior to settlement of
the original purchase. As of December 31, 2004, the Fund had purchased
$73,731,367 of securities on a when-issued basis or forward commitment and sold
$12,465,550 of securities issued on a when-issued basis or forward commitment.

      In connection with its ability to purchase or sell securities on a
when-issued basis, the Fund may enter into forward roll transactions with
respect to mortgage-related securities. Forward roll transactions require the
sale of securities for delivery in the current month, and a simultaneous
agreement with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Fund
records the incremental difference between the forward purchase and sale of each
forward roll as realized gain (loss) on investments or as fee income in the case
of such transactions that have an associated fee in lieu of a difference in the
forward purchase and sale price.

      Risks of entering into forward roll transactions include the potential
inability of the counterparty to meet the terms of the agreement; the potential
of the Fund to receive inferior securities at redelivery as compared to the
securities sold to the counterparty; counterparty credit risk; and the potential
pay down speed variance between the mortgage-related pools.

- --------------------------------------------------------------------------------
SECURITY CREDIT RISK. The Fund invests in high-yield securities, which may be
subject to a greater degree of credit risk, market fluctuations and loss of
income and principal, and may be more sensitive to economic conditions than
lower-yielding, higher-rated fixed-income securities. The Fund may acquire
securities in default, and is not obligated to dispose of securities whose
issuers subsequently default. As of December 31, 2004, securities with an
aggregate market value of $4,866,448, representing 0.57% of the Fund's net
assets, were in default.

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

      Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

      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.

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                                  NET UNREALIZED
                                                                    APPRECIATION
                                                                BASED ON COST OF
                                                                  SECURITIES AND
UNDISTRIBUTED    UNDISTRIBUTED                  ACCUMULATED    OTHER INVESTMENTS
NET INVESTMENT       LONG-TERM                         LOSS   FOR FEDERAL INCOME
INCOME                    GAIN   CARRYFORWARD 1,2,3,4,5,6,7         TAX PURPOSES
- --------------------------------------------------------------------------------
$40,140,664                $--                  $24,032,280          $44,353,647

1. As of December 31, 2004, the Fund had $21,566,899 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of December 31, 2004,
details of the capital loss carryforwards were as follows:

                            EXPIRING
                            -----------------------------
                            2007            $   4,546,599
                            2008                  253,735
                            2009                9,904,928
                            2010                6,861,637
                                            -------------
                            Total           $  21,566,899
                                            =============

2. As of December 31, 2004, the Fund had $478,895 of post-October losses
available to offset future realized capital gains, if any. Such losses, if
unutilized, will expire in 2013.

3. The Fund had $1,979,188 of post-October foreign currency losses which were
deferred.

4. The Fund had $1,918 of post-October passive foreign investment company losses
which were deferred.

5. The Fund had $5,380 of straddle losses which were deferred.

6. During the fiscal year ended December 31, 2004, the Fund utilized $1,200,449
of capital loss carryforward to offset capital gains realized in that fiscal
year.

7. During the fiscal year ended December 31, 2003, the Fund utilized $666,406 of
capital loss carryforward to offset capital gains realized in that fiscal year.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

            INCREASE TO              INCREASE TO ACCUMULATED
            ACCUMULATED NET                NET REALIZED LOSS
            INVESTMENT INCOME                 ON INVESTMENTS
            ------------------------------------------------
            $8,933,001                            $8,933,001

The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:

                                              YEAR ENDED           YEAR ENDED
                                       DECEMBER 31, 2004    DECEMBER 31, 2003
            -----------------------------------------------------------------
            Distributions paid from:
            Ordinary income                  $34,517,360          $29,315,384





The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

            Federal tax cost of securities                  $  875,097,377
            Federal tax cost of other investments              (35,019,525)
                                                            ---------------
            Total federal tax cost                          $  840,077,852
                                                            ===============

            Gross unrealized appreciation                   $   61,496,783
            Gross unrealized depreciation                      (17,143,136)
                                                            ---------------
            Net unrealized appreciation                     $   44,353,647
                                                            ===============

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.



- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST

The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:

                                            YEAR ENDED DECEMBER 31, 2004    YEAR ENDED DECEMBER 31, 2003
                                                 SHARES           AMOUNT         SHARES           AMOUNT
- ---------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                                         24,003,073    $ 119,433,508     46,663,574    $ 222,213,838
Dividends and/or distributions reinvested     6,088,351       29,467,620      6,471,166       28,473,133
Redeemed                                    (25,208,632)    (125,399,423)   (28,764,717)    (134,878,868)
                                            -------------------------------------------------------------
Net increase                                  4,882,792    $  23,501,705     24,370,023    $ 115,808,103
                                            =============================================================

- ---------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold                                         31,450,838    $ 158,302,695     14,341,848    $  69,419,263
Dividends and/or distributions reinvested     1,026,369        5,049,740        187,166          842,251
Redeemed                                     (2,125,979)     (10,581,099)      (725,688)      (3,507,540)
                                            -------------------------------------------------------------
Net increase                                 30,351,228    $ 152,771,336     13,803,326    $  66,753,974
                                            =============================================================


- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than U.S. government obligations and short-term obligations, for the year ended
December 31, 2004, were $461,469,057 and $348,803,252, respectively. There were
purchases of $188,816,133 and sales of $149,557,330 of U.S. government and
government agency obligations for the year ended December 31, 2004. In addition,
there were purchases of $959,649,113 and sales of $973,488,511 of To Be
Announced (TBA) mortgage-related securities for the year ended December 31,
2004.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million, 0.60% on the next $200 million and 0.50% of average annual
net assets over $1 billion.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$20,075 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 per class for class level assets of $10
million or more. Each class is subject to the minimum fee in the event that the
per account fee does not equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FOR SERVICE SHARES. The Fund has adopted a
Distribution and Service Plan for Service shares to pay OppenheimerFunds
Distributor, Inc. (the Distributor), for distribution related services and
personal service and account maintenance for the Fund's Service shares. Under
the Plan, payments are made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Service shares of the Fund. The Distributor
currently uses all of those fees to compensate sponsor(s) of the insurance
product that offers Fund shares, for providing personal service and maintenance
of accounts of their variable contract owners that hold Service shares. The
impact of the service plan is to increase operating expenses of the Service
shares, which results in lower performance compared to the Fund's shares that
are not subject to a service fee. Fees incurred by the Fund under the Plan are
detailed in the Statement of Operations.





- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. OFS has voluntarily agreed to limit transfer
and shareholder servicing agent fees for all classes to 0.35% of average annual
net assets per class. This undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.

      The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.

      The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.

As of December 31, 2004, the Fund had outstanding foreign currency contracts as
follows:

                                                                         CONTRACT
                                                       EXPIRATION          AMOUNT      VALUATION AS OF     UNREALIZED     UNREALIZED
CONTRACT DESCRIPTION                                        DATES          (000S)        DEC. 31, 2004   APPRECIATION   DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
Argentine Peso (ARP)                                       2/2/05           3,375ARP   $     1,135,426   $     34,140   $         --
Australian Dollar (AUD)                                   1/21/05           3,700AUD         2,895,042         98,582             --
Brazilian Real (BRR)                               1/24/05-1/5/10          16,613BRR         6,773,392        692,000             --
British Pound Sterling (GBP)                              1/21/05           1,500GBP         2,875,473             --         15,027
Chilean Peso (CLP)                                        1/21/05         544,448CLP           979,661         39,661             --
Columbian Peso (COP)                               1/7/05-1/24/05       4,071,671COP         1,727,121         27,903             --
Czech Koruna (CZK)                                        4/22/05          31,700CZK         1,419,803        154,814             --
Euro (EUR)                                          3/2/05-4/1/05           9,390EUR        12,773,224        233,897             --
Indian Rupee (INR)                               11/9/05-12/20/05          43,280INR           983,430         23,106             --
Japanese Yen (JPY)                                3/15/05-3/31/05       4,184,500JPY        41,064,379      1,867,755             --
Mexican Nuevo Peso (MXN)                                   1/6/05          10,620MXN           951,676            318             --
New Zealand Dollar (NZD)                                  1/21/05           3,970NZD         2,860,055         49,295             --
Russian Ruble (RUR)                                      10/27/05          28,475RUR         1,012,819         37,314             --
Slovakia Koruna (SKK)                             2/18/05-3/21/05          57,110SKK         2,001,271         93,090             --
South Korean Won (KRW)                                    2/23/05         518,170KRW           499,985         12,983             --
Swedish Krona (SEK)                                       2/16/05          23,690SEK         3,566,562        150,891             --
Turkish Lira (TRL)                                       12/18/07           1,166TRL         1,163,905             --          2,443
                                                                                                         ---------------------------
                                                                                                            3,515,749         17,470
                                                                                                         ---------------------------
CONTRACTS TO SELL
Australian Dollar (AUD)                                    3/2/05           8,730AUD         6,810,313             --         81,851
Brazilian Real (BRR)                                       1/4/05             945BRR           355,262             --          5,355
British Pound Sterling (GBP)                        5/9/05-6/8/05           6,060GBP        11,544,808         24,843        425,528
Canadian Dollar (CAD)                                     2/24/05             330CAD           275,352             --         22,620
Columbian Peso (COP)                                      1/18/05       1,225,560COP           519,901             --          3,876
Euro (EUR)                                        2/18/05-6/08/05          37,815EUR        51,431,155             --      2,324,724
Japanese Yen (JPY)                                 1/20/05-6/8/05         955,800JPY         9,394,115             --        114,371
Norwegian Krone (NOK)                             1/20/05-2/16/05          38,300NOK         6,327,058             --        179,124
Swiss Franc (CHF)                                  1/20/05-4/1/05           7,590CHF         7,012,995             --         60,910
Turkish Lira (TRL)                                        6/21/05   1,760,669,590TRL         1,207,819             --         41,471
                                                                                                         ---------------------------
                                                                                                               24,843      3,259,830
                                                                                                         ---------------------------
Total unrealized appreciation and depreciation                                                           $  3,540,592   $  3,277,300
                                                                                                         ===========================



NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS

A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value of stocks and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.

      The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying securities.

      Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.

      Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported in the Statement of Operations.

      Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.

As of December 31, 2004, the Fund had outstanding futures contracts as follows:

                                                                                       UNREALIZED
                                      EXPIRATION   NUMBER OF     VALUATION AS OF     APPRECIATION
CONTRACT DESCRIPTION                       DATES   CONTRACTS   DECEMBER 31, 2004   (DEPRECIATION)
- --------------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
Japan (Government of) Bonds, 10 yr       3/10/05           1   $       1,350,249   $       (6,325)
NASDAQ 100 Index                         3/17/05          17           2,768,450           42,521
U.S. Long Bonds                          3/21/05         205          23,062,500           19,355
U.S. Treasury Nts., 10 yr                3/21/05         132          14,775,750           62,360
United Kingdom Long Gilt                 3/29/05           3             642,553            4,089
                                                                                   ---------------
                                                                                          122,000
                                                                                   ---------------
CONTRACTS TO SELL
CAC-40 10 Index                          3/18/05          22           1,144,556            2,698
DAX Index                                3/18/05           4             580,671           (1,326)
Euro-Bundesobligation                     3/8/05          13           2,095,514           13,355
FTSE 100 Index                           3/18/05          27           2,486,897          (31,159)
Japan (Government of) Bonds, 10 yr        3/9/05           5             675,222              927
Japan (Government of) Bonds, 10 yr       3/10/05           6           8,101,493            2,928
Nikkei 225 Index                         3/10/05          11           1,232,361          (72,997)
Standard & Poor's 500 Index              3/17/05          36          10,923,300         (157,363)
U.S. Long Bonds                          3/21/05         124          13,950,000          (29,185)
U.S. Treasury Nts., 2 yr                 3/31/05          70          14,671,563            4,242
U.S. Treasury Nts., 5 yr                 3/21/05         106          11,610,313          (63,909)
                                                                                   ---------------
                                                                                         (331,789)
                                                                                   ---------------
                                                                                   $     (209,789)
                                                                                   ===============


- --------------------------------------------------------------------------------
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. Contracts subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.

      The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.

Written option activity for the year ended December 31, 2004 was as follows:

                                                             CALL OPTIONS                    PUT OPTIONS
                                              ---------------------------    ----------------------------
                                                  PRINCIPAL/                     PRINCIPAL/
                                                   NUMBER OF    AMOUNT OF         NUMBER OF    AMOUNT OF
                                                   CONTRACTS     PREMIUMS         CONTRACTS     PREMIUMS
- ---------------------------------------------------------------------------------------------------------

Options outstanding as of December 31, 2003        9,765,000    $ 128,130       744,000,000    $ 138,880
Options written                                2,225,002,170      165,903       722,325,000      105,898
Options closed or expired                     (2,231,511,225)    (253,965)   (1,464,000,000)    (239,421)
Options exercised                                 (3,255,000)     (37,407)               --           --
                                              -----------------------------------------------------------
Options outstanding as of December 31, 2004              945    $   2,661         2,325,000    $   5,357
                                              ===========================================================


- --------------------------------------------------------------------------------
8. CREDIT SWAP CONTRACTS

The Fund may enter into a credit swap transaction to maintain a total return on
a particular investment or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as a notional principal amount. The Fund records an increase or
decrease to unrealized gain (loss), in the amount due to or owed by the Fund at
termination or settlement. Credit swaps are subject to credit risks (if the
counterparty fails to meet its obligations). The Fund pays an annual interest
fee on the notional amount in exchange for the counterparty paying in a
potential credit event.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
8. CREDIT SWAP CONTRACTS Continued

During the year ended December 31, 2004, the Fund entered into transactions to
hedge credit risk. Information regarding the credit swaps is as follows:

                                                                                                         UNREALIZED
                                                     EXPIRATION       NOTIONAL     VALUATION AS OF      APPRECIATION
CONTRACT DESCRIPTION                                      DATES         AMOUNT   DECEMBER 31, 2004    (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
Citigroup Global Markets Ltd.,
Venezuela (Republic of) Credit Nts.                    11/20/09    $ 6,350,000   $        (257,398)   $     (257,398)
Deutsche Bank AG:
Export-Import Bank of Korea Credit Bonds                6/20/09        780,000             (10,452)          (10,452)
Korea Deposit Insurance Corp. Credit Bonds              6/20/09        780,000             (10,374)          (10,374)
Korea Development Bank Credit Bonds                     6/20/09        780,000             (10,140)          (10,140)
Korea Electric Power Corp. Credit Bonds                 6/20/09        780,000             (10,686)          (10,686)
Philippines (Republic of) 10 yr. Credit Bonds           7/25/13        930,000              26,435            26,435
Samsung Electronic Co. Ltd. Credit Bonds                6/20/09        780,000              (9,828)           (9,828)
United Mexican States Credit Bonds                      9/20/13      1,235,000             (80,794)          (80,794)
Venezuela (Republic of) Credit Bonds                   10/20/09      4,715,000            (311,128)         (311,128)
JPMorgan Chase Bank:
Export-Import Bank of Korea Credit Bonds                6/20/09        390,000              (8,522)           (8,522)
Jordan (Kingdom of) Credit Nts.                          6/6/06        250,000                (752)             (752)
Korea Deposit Insurance Corp. Credit Bonds              6/20/09        390,000              (8,374)           (8,374)
Korea Development Bank Credit Bonds                     6/20/09        390,000              (8,358)           (8,358)
Korea Electric Power Co. Credit Bonds                   6/20/09        390,000              (8,942)           (8,942)
Russian Federation Credit Bonds                         10/9/13        730,000             (41,855)          (41,855)
Samsung Electronics Co. Ltd. Credit Bonds               6/20/09        390,000              (8,457)           (8,457)
Lehman Brothers Special Financing, Inc.:
Brazil (Federal Republic of) Credit Bonds               8/20/09      3,000,000            (464,999)         (464,999)
Turkey (Republic of) Credit Bonds                      11/11/09      1,850,000              (7,189)           (7,189)
Morgan Stanley Capital Services, Inc.:
Brazil (Federal Republic of) Credit Bonds               8/20/09      2,440,000            (377,069)         (377,069)
Hungary (Republic of) Credit Bonds                      12/2/13      1,880,000             (41,014)          (41,014)
Panama (Republic of) Credit Bonds                      11/20/14      1,730,000            (106,672)         (106,672)
Philippines (Republic of) Credit Bonds                  6/20/09      1,135,000             (17,102)          (17,102)
Philippines (Republic of) 5 yr. Credit Bonds            9/20/09        950,000              (5,696)           (5,696)
Venezuela (Republic of) Credit Bonds            8/20/06-2/20/14      5,050,000            (437,023)         (437,023)
UBS AG:
Brazil (Federal Republic of)
Credit Bonds                                           10/20/09        900,000             (65,111)          (65,111)
Russian Federation Credit Bonds                 11/2/14-11/5/14      3,825,000            (163,083)         (163,083)
Venezuela (Republic of) Credit Bonds            8/20/06-6/20/14      5,685,000            (798,858)         (798,858)
                                                                                                      ---------------
                                                                                                      $   (3,243,441)
                                                                                                      ===============


- --------------------------------------------------------------------------------
9. INTEREST RATE SWAP CONTRACTS

The Fund may enter into an interest rate swap transaction to maintain a total
return or yield spread on a particular investment, or portion of its portfolio,
or for other non-speculative purposes. Interest rate swaps involve the exchange
of commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The coupon payments are based on an agreed
upon principal amount and a specified index. Because the principal amount is not
exchanged, it represents neither an asset nor a liability to either
counterparty, and is referred to as notional. The Fund records an increase or
decrease to unrealized gain (loss), in the amount due to or owed by the Fund at
termination or settlement.

      Interest rate swaps are subject to credit risk (if the counterparty fails
to meet its obligations) and interest rate risk. The Fund could be obligated to
pay more under its swap agreements than it receives under them, as a result of
interest rate changes.





As of December 31, 2004, the Fund had entered into the following interest rate
swap agreements:

                                             FIXED RATE   FLOATING RATE
                                                PAID BY     RECEIVED BY                                    UNREALIZED
                            NOTIONAL        THE FUND AT     THE FUND AT      FLOATING   TERMINATION      APPRECIATION
SWAP COUNTERPARTY             AMOUNT      DEC. 31, 2004   DEC. 31, 2004    RATE INDEX         DATES    (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------

Deutsche Bank AG          74,350,000INR            4.88%           4.50%          IRS       1/15/09    $       66,467
                                                                          Three-Month
Deutsche Bank AG           3,185,000             3.1025            1.82    LIBOR flat        3/4/08            32,431
Deutsche Bank AG          55,240,000              2.585            1.04   90-day CPTW       8/19/09            (1,061)
                                                                          Three-Month
Deutsche Bank AG          10,000,000            2.27625            5.32     LIBOR BBA       5/12/14           582,127
                                                                            Six-Month
JPMorgan Chase Bank          880,000EUR           3.135            2.081   LIBOR flat       7/14/08           (13,503)
                                                                            Six-Month
JPMorgan Chase Bank      245,400,000HUF            9.13            7.00    LIBOR flat       7/14/08           (74,862)
                                                                               28 Day
JPMorgan Chase Bank       14,620,000MXN            9.10           10.88      MXN TIIE      11/16/14            16,172
                                                                          Three-Month
JPMorgan Chase Bank        6,625,000              3.052            1.86    LIBOR flat       3/10/08           111,767
                                                                          Three-Month
JPMorgan Chase Bank       50,000,000               2.21          4.0725     LIBOR BBA        5/6/09           417,937
                                                                          Three-Month
JPMorgan Chase Bank       35,000,000               1.70           4.985     LIBOR BBA        5/6/14         1,144,347
                                                                          Three-Month
JPMorgan Chase Bank       25,000,000               4.24            1.65         LIBOR       7/23/09          (648,784)
                                                                          Three-Month
JPMorgan Chase Bank        1,820,000               2.13            4.94     LIBOR BBA       4/30/14            55,137
Morgan Stanley Capital                                                    Three-Month
Services, Inc.            13,000,000               3.82            2.26    LIBOR flat      11/10/08           (27,411)
Morgan Stanley Capital                                                    Three-Month
Services, Inc.            22,000,000               2.32            1.71    LIBOR flat      11/10/05           124,174
                                                                                                       ---------------
                                                                                                       $    1,784,938
                                                                                                       ===============


Notional amount is reported in U.S. Dollars, except for those denoted in the
following currencies. Index abbreviations and currencies are as follows:

EUR         Euro
HUF         Hungarian Forint
INR         Indian Rupee
MXN         Mexican Nuevo Peso
BBA         British Bankers Association
CPTW        Bloomberg Taiwan Secondary Commercial Papers
IRS         India Swap Composites
LIBOR       London-Interbank Offered Rate
LIBOR BBA   London-Interbank Offered Rate British Bankers Association
TIIE        Interbank Equilibrium Interest Rate

- --------------------------------------------------------------------------------
10. SWAPTION TRANSACTIONS

The Fund may enter into a swaption transaction, whereby a contract that grants
the holder, in return for payment of the purchase price (the "premium") of the
option, the right, but not the obligation, to enter into an interest rate swap
at a preset rate within a specified period of time, with the writer of the
contract. The writer receives premiums and bears the risk of unfavorable changes
in the preset rate on the underlying interest rate swap. Swaption contracts
written by the Fund do not give rise to counterparty credit risk as they
obligate the Fund, not its counterparty, to perform. Swaptions written are
reported as a liability in the Statement of Assets and Liabilities.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
10. SWAPTION TRANSACTIONS Continued

Written swaption activity for the year ended December 31, 2004 was as follows:

                                                          CALL SWAPTIONS               PUT SWAPTIONS
                                                ------------------------    -------------------------
                                                   NOTIONAL    AMOUNT OF       NOTIONAL    AMOUNT OF
                                                     AMOUNT     PREMIUMS         AMOUNT     PREMIUMS
- -----------------------------------------------------------------------------------------------------

Swaptions outstanding as of December 31, 2003            --    $      --      2,220,000    $  19,758
Swaptions written                                22,660,000      240,122     19,060,000       77,390
Swaptions closed or expired                     (15,990,000)    (174,120)   (10,820,000)     (48,930)
Swaptions exercised                                      --           --     (2,220,000)     (19,758)
                                                -----------------------------------------------------
Swaptions outstanding as of December 31, 2004     6,670,000    $  66,002      8,240,000    $  28,460
                                                =====================================================


As of December 31, 2004, the Fund had entered into the following swaption
contracts:

                               NOTIONAL      EXPIRATION    EXERCISE        PREMIUM         VALUE
SWAPTIONS                        AMOUNT           DATES        RATE       RECEIVED    SEE NOTE 1
- ------------------------------------------------------------------------------------------------

British Pound Sterling Call   6,670,000GBP      3/29/05       4.792%GBP   $ 66,002    $   49,504
Deutsche Bank AG Put          8,240,000AUD       2/3/05       5.685%AUD     28,460        21,365
                                                                          ----------------------
                                                                          $ 94,462    $   70,869
                                                                          ======================


Notional amount and exercise price are denoted in the following currencies:

AUD         Australian Dollar
GBP         British Pound Sterling

- --------------------------------------------------------------------------------
11. ILLIQUID OR RESTRICTED SECURITIES AND CURRENCY

As of December 31, 2004, investments in securities included issues that are
illiquid or restricted. Restricted securities are purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund will not invest more than 15% of
its net assets (determined at the time of purchase and reviewed periodically) in
illiquid or restricted securities. Certain restricted securities, eligible for
resale to qualified institutional investors, are not subject to that limitation.
Information concerning restricted securities and currency is as follows:

                                                            ACQUISITION                  VALUATION AS OF      UNREALIZED
SECURITY                                                          DATES        COST    DECEMBER 31, 2004    DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------------

Geotek Communications, Inc., Series B, Escrow Shares             1/4/01    $    840             $     --        $    840
Prandium, Inc.                                          3/19/99-9/25/02     284,000                  266         283,734

CURRENCY
Argentine Peso                                                  6/25/04      70,732               70,392             340


- --------------------------------------------------------------------------------
12. SECURITIES LENDING

The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund also continues to receive
interest or dividends paid on the securities loaned. As of December 31, 2004,
the Fund had on loan securities valued at $44,013,349. Cash of $44,858,831 was
received as collateral for the loans, of which $14,877,998 was invested in
approved instruments.




- --------------------------------------------------------------------------------
13. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER STRATEGIC BOND FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Strategic Bond Fund/VA, a series of Oppenheimer Variable Account
Funds, including the statement of investments, as of December 31, 2004, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Strategic Bond Fund/VA as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005

STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--2.4%
- --------------------------------------------------------------------------------
Arbor I Ltd., Catastrophe
Linked Nts.,
Series 2004-4, 16.49%, 3/15/06 1                 $     250,000   $       253,774
- --------------------------------------------------------------------------------
Bank One Auto Securitization
Trust, Automobile Receivable
Certificates,
Series 2003-1, Cl. A2,
1.29%, 8/21/06                                         212,619           212,242
- --------------------------------------------------------------------------------
BMW Vehicle Owner Trust,
Automobile Loan Certificates,
Series 2004-A, Cl. A2,
1.88%, 10/25/06                                        716,519           714,221
- --------------------------------------------------------------------------------
Capital Auto Receivables Asset
Trust, Automobile Mtg.-Backed
Nts., Series 2004-2, Cl. A3, 3.58%,
1/15/09                                                740,000           739,075
- --------------------------------------------------------------------------------
Centex Home Equity Co. LLC,
Home Equity Loan Asset-Backed
Certificates:
Series 2003-C, Cl. AF1,
2.14%, 7/25/18                                          71,469            71,389
Series 2004-A, Cl. AF1,
2.03%, 6/25/19                                         136,318           135,794
Series 2004-D, Cl. AF1,
2.98%, 4/25/20 2                                       338,237           337,140
- --------------------------------------------------------------------------------
Chase Funding Mortgage Loan
Asset-Backed Certificates,
Home Equity Mtg. Obligations:
Series 2002-4, Cl. 1A3,
3.44%, 4/25/23                                         109,997           110,004
Series 2003-1, Cl. 1A3,
3.14%, 7/25/23                                         302,706           302,548
Series 2003-4, Cl. 1A1,
2.538%, 9/25/17 1                                       53,909            53,938
Series 2003-4, Cl. 1A2,
2.138%, 7/25/18                                        280,000           279,060
Series 2004-1, Cl. 2A1,
2.528%, 9/25/21 1                                      486,551           486,864
- --------------------------------------------------------------------------------
Chase Manhattan Auto Owner
Trust, Automobile Loan
Pass-Through Certificates:
Series 2002-A, Cl. A4,
4.24%, 9/15/08                                         152,203           153,155
Series 2003-B, Cl. A2,
1.28%, 3/15/06                                          58,362            58,330
- --------------------------------------------------------------------------------
CIT Equipment Collateral,
Equipment Receivable-Backed
Nts., Series 2004-DFS, Cl. A2,
2.66%, 11/20/06 2                                      550,000           547,659
- --------------------------------------------------------------------------------
CIT Group Home Equity Loan
Trust, Home Equity Loan
Asset-Backed Certificates,
Series 2003-1, Cl. A2, 2.35%,
4/20/27                                                292,505           291,952


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Citibank Credit Card Issuance
Trust, Credit Card Receivable Nts.,
Series 2002-A3, Cl. A3,
4.40%, 5/15/07                                   $     530,000   $       533,661
- --------------------------------------------------------------------------------
CitiFinancial Mortgage Securities,
Inc., Home Equity Collateralized
Mtg. Obligations:
Series 2003-2, Cl. AF1,
2.518%, 5/25/33 1                                       32,335            32,356
Series 2003-3, Cl. AF1,
2.538%, 8/25/33 1                                      144,250           144,346
- --------------------------------------------------------------------------------
Consumer Credit Reference Index
Securities Program, Credit Card
Asset-Backed Certificates,
Series 2002-B, Cl. FX,
10.421%, 3/22/07 2                                     500,000           514,941
- --------------------------------------------------------------------------------
DaimlerChrysler Auto Trust,
Automobile Loan
Pass-Through Certificates:
Series 2003-A, Cl. A2, 1.52%, 12/8/05                  177,134           177,116
Series 2003-B, Cl. A2, 1.61%, 7/10/06                  561,254           560,311
Series 2004-B, Cl. A2, 2.48%, 2/8/07 2                 600,000           598,561
Series 2004-C, Cl. A2, 2.62%, 6/8/07                 1,040,000         1,036,808
- --------------------------------------------------------------------------------
Embarcadero Aircraft
Securitization Trust, Airplane
Receivable Nts., Series 2000-A,
Cl. B, 0.678%, 8/15/25 2,3,4                         1,820,063               569
- --------------------------------------------------------------------------------
Ford Credit Auto Owner Trust,
Automobile Loan Pass-Through
Certificates, Series 2004-A,
Cl. A2, 2.13%, 10/15/06                              1,120,000         1,115,639
- --------------------------------------------------------------------------------
Harley-Davidson Motorcycle
Trust, Motorcycle Receivable Nts.,
Series 2003-3, Cl. A1, 1.50%, 1/15/08                  389,176           387,801
- --------------------------------------------------------------------------------
Honda Auto Receivables
Owner Trust, Automobile
Receivable Obligations:
Series 2003-3, Cl. A2, 1.52%, 4/21/06                  419,992           419,289
Series 2003-4, Cl. A2, 1.58%, 7/17/06                  524,914           523,743
- --------------------------------------------------------------------------------
Household Automotive Trust,
Automobile Loan Certificates,
Series 2003-2, Cl. A2,
1.56%, 12/18/06                                        192,376           191,996
- --------------------------------------------------------------------------------
M&I Auto Loan Trust,
Automobile Loan Certificates:
Series 2002-1, Cl. A3,
2.49%, 10/22/07                                        229,259           229,227
Series 2003-1, Cl. A2, 1.60%, 7/20/06                  371,164           370,628
- --------------------------------------------------------------------------------
National City Auto Receivables
Trust, Automobile Receivable
Obligations, Series 2004-A, Cl. A2,
1.50%, 2/15/07                                         431,428           429,910





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
NC Finance Trust, Collateralized
Mtg. Obligations, Series 1999-I,
Cl. ECFD, 8.75%, 1/25/29 2                       $      66,744   $        17,812
- --------------------------------------------------------------------------------
Nissan Auto Lease Trust,
Automobile Lease Obligations:
Series 2003-A, Cl. A2,
1.69%, 12/15/05                                         35,559            35,559
Series 2004-A, Cl. A2,
2.55%, 1/15/07                                         480,000           479,674
- --------------------------------------------------------------------------------
Nissan Auto Receivables Owner
Trust, Automobile Receivable Nts.:
Series 2002-A, Cl. A4,
4.28%, 10/16/06                                        120,752           121,361
Series 2003-B, Cl. A3,
1.51%, 8/15/07                                         125,776           124,783
Series 2004-A, Cl. A2,
1.40%, 7/17/06                                         499,348           497,341
- --------------------------------------------------------------------------------
Option One Mortgage Loan
Trust, Home Equity Mtg.
Obligations, Series 2004-3, Cl. A2,
2.568%, 11/25/34 1,2                                   326,595           326,805
- --------------------------------------------------------------------------------
Popular ABS Mortgage
Pass-Through Trust, Home Equity
Pass-Through Certificates,
Series 2004-5, Cl. A F2,
3.735%, 11/10/34 2                                     200,000           199,334
- --------------------------------------------------------------------------------
Sequoia Capital Ltd.,
Catastrophe Nts.,
Series 2004-2, 7.24%, 3/15/05 1                        250,000           249,931
- --------------------------------------------------------------------------------
Toyota Auto Receivables Owner
Trust, Automobile
Mtg.-Backed Obligations:
Series 2002-B, Cl. A3,
3.76%, 6/15/06                                          38,998            39,054
Series 2003-B, Cl. A2,
1.43%, 2/15/06                                         162,898           162,799
- --------------------------------------------------------------------------------
USAA Auto Owner Trust,
Automobile Loan Asset-Backed Nts.:
Series 2002-1, Cl. A3,
2.41%, 10/16/06                                        102,245           102,242
Series 2004-1, Cl. A2,
1.43%, 9/15/06                                       1,196,193         1,192,385
Series 2004-2, Cl. A2,
2.41%, 2/15/07                                         610,000           608,073
Series 2004-3, Cl. A2,
2.79%, 6/15/07                                         490,000           489,033
- --------------------------------------------------------------------------------
Volkswagen Auto Lease Trust,
Automobile Lease Asset-Backed
Securities, Series 2004-A, Cl. A2,
2.47%, 1/22/07                                         640,000           637,075


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced
Trust, Automobile Loan
Receivable Certificates:
Series 2003-1, Cl. A2,
1.11%, 12/20/05                                  $      73,599   $        73,574
Series 2003-2, Cl. A2,
1.55%, 6/20/06                                         283,939           283,387
- --------------------------------------------------------------------------------
Wachovia Auto Owner Trust,
Automobile Receivable Nts.,
Series 2004-B, Cl. A2,
2.40%, 5/21/07                                         460,000           458,107
- --------------------------------------------------------------------------------
Wells Fargo Home Equity Trust,
Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B,
2.94%, 9/25/18                                         946,271           941,898
- --------------------------------------------------------------------------------
Whole Auto Loan Trust,
Automobile Loan Receivable
Certificates:
Series 2003-1, Cl. A2A,
1.40%, 4/15/06                                         383,197           382,479
Series 2003-1, Cl. A3B,
1.99%, 5/15/07                                         220,000           218,151
Series 2004-1, Cl. A2A,
2.59%, 5/15/07                                         620,000           617,718
                                                                 ---------------
Total Asset-Backed Securities
(Cost $22,179,442)                                                    20,272,622

- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--12.7%
- --------------------------------------------------------------------------------
Asset Securitization Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1997-D4, Cl. B1,
7.525%, 4/14/29                                        375,000           433,282
- --------------------------------------------------------------------------------
Banc of America Commercial
Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates,
Series 2004-6, Cl. A3,
4.512%, 12/10/42                                       560,000           560,000
- --------------------------------------------------------------------------------
Bank of America Mortgage
Securities, Inc., Collateralized
Mtg. Obligations Pass-Through
Certificates:
Series 2004-2, Cl. 2A1,
6.50%, 7/20/32                                         982,015         1,003,277
Series 2004-8, Cl. 5A1,
6.50%, 5/25/32                                         785,464           816,147
Series 2004-E, Cl. 2A9,
3.712%, 6/25/34                                        497,824           498,138
Series 2004-G, Cl. 2A1,
2.469%, 8/25/34                                        368,414           367,688
- --------------------------------------------------------------------------------
CIT Equipment Collateral,
Equipment Receivable-
Backed Nts.,
Series 2003-EF1, Cl. A2,
1.49%, 12/20/05                                         38,995            39,003





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Countrywide Alternative Loan Trust,
Collateralized Mtg. Obligations,
Series 2004-J9, Cl. 1A1,
2.598%, 10/25/34 1                               $     765,604   $       766,485
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
5%, 1/1/35 5                                         9,609,000         9,542,938
5.50%, 1/1/35 5                                      3,040,000         3,088,452
6%, 9/1/24                                           3,647,046         3,792,091
7%, 3/1/31-11/1/34                                   4,646,138         4,926,953
11%, 11/1/14                                            63,381            69,407
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Collateralized Mtg. Obligations,
Pass-Through Participation
Certificates, Series 151, Cl. F,
9%, 5/15/21                                            108,068           108,128
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Gtd. Real Estate Mtg.
Investment Conduit Multiclass
Pass-Through Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23                     145,350           146,508
Series 2055, Cl. ZM, 6.50%, 5/15/28                    366,469           381,155
Series 2080, Cl. Z, 6.50%, 8/15/28                     227,788           234,885
Series 2387, Cl. PD, 6%, 4/15/30                       491,475           509,443
Series 2466, Cl. PD, 6.50%, 4/15/30                    139,825           140,498
Series 2498, Cl. PC, 5.50%, 10/15/14                    60,326            60,843
Series 2500, Cl. FD, 2.903%, 3/15/32 1                 138,846           139,391
Series 2526, Cl. FE, 2.803%, 6/15/29 1                 170,408           171,021
Series 2551, Cl. FD, 2.803%, 1/15/33 1                 136,801           137,739
Series 2551, Cl. TA, 4.50%, 2/15/18                     59,590            59,552
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 177, Cl. B, (1.91)%, 7/1/26 6                   430,500            79,803
Series 192, Cl. IO, 3.27%, 2/1/28 6                    112,605            20,926
Series 200, Cl. IO, 2.89%, 1/1/29 6                    137,998            26,456
Series 205, Cl. IO, (0.22)%, 9/1/29 6                  648,115           121,500
Series 208, Cl. IO, (29.18)%, 6/1/30 6                 741,029           136,045
Series 2074, Cl. S, 11.86%, 7/17/28 6                  144,882            18,659
Series 2079, Cl. S, 10.47%, 7/17/28 6                  225,939            29,433
Series 2526, Cl. SE, 17.17%, 6/15/29 6                 318,589            25,898
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 1/1/20 5                                      3,175,000         3,165,078
5%, 1/1/20-1/1/35 5                                  5,784,000         5,802,086
5.50%, 3/1/33-1/1/34                                 5,067,193         5,150,261
5.50%, 1/1/35 5                                     15,257,000        15,490,615
6%, 9/1/24                                           1,095,238         1,139,933
6%, 1/1/35 5                                         5,145,000         5,320,249
6.50%, 5/1/29-10/1/30                                  349,551           367,350
6.50%, 1/1/35 5                                      5,741,000         6,020,874
7%, 12/1/23-8/1/34                                  11,386,535        12,074,521
7%, 8/1/28-1/1/35 5                                  4,961,590         5,258,944
7.50%, 8/1/25-2/1/27                                   303,017           325,469
8.50%, 7/1/32                                           30,386            33,011


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates:
Trust 1998-63, Cl. PG, 6%, 3/25/27               $     134,095   $       134,735
Trust 2001-50, Cl. NE, 6%, 8/25/30                     263,368           267,008
Trust 2001-70, Cl. LR, 6%, 9/25/30                     257,913           262,970
Trust 2001-72, Cl. NH, 6%, 4/25/30                     206,421           211,102
Trust 2001-74, Cl. PD, 6%, 5/25/30                      87,676            88,865
Trust 2002-50, Cl. PD, 6%, 9/25/27                     143,345           143,441
Trust 2002-77, Cl. WF,
2.81%, 12/18/32 1                                      219,585           220,883
Trust 2002-94, Cl. MA,
4.50%, 8/25/09                                         389,325           390,178
Trust 2003-81, Cl. PA, 5%, 2/25/12                     110,657           111,064
Trust 2004-101, Cl. BG, 5%, 1/25/20                    630,000           635,513
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates,
Interest-Only Stripped
Mtg.-Backed Security:
Trust 319, Cl. 2, (3.08)% 2/1/32 6                     280,066            53,832
Trust 2002-28, Cl. SA,
12.58%, 4/25/32 6                                      171,247            17,021
Trust 2002-38, Cl. SO,
19.60%, 4/25/32 6                                      941,721            75,715
Trust 2002-48, Cl. S,
10.91%, 7/25/32 6                                      274,141            28,629
Trust 2002-52, Cl. SL,
11.27%, 9/25/32 6                                      172,075            18,084
Trust 2002-56, Cl. SN,
13.38%, 7/25/32 6                                      376,704            39,455
Trust 2002-77, Cl. IS,
15.90%, 12/18/32 6                                   1,604,414           169,157
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Interest-Only Stripped
Mtg.-Backed Security:
Trust 214, Cl. 2, 1.30%, 3/1/23 6                    1,743,262           332,038
Trust 221, Cl. 2, (1.23)%, 5/1/23 6                    197,058            38,107
Trust 240, Cl. 2, 3.35%, 9/1/23 6                      340,010            64,752
Trust 301, Cl. 2, (3.70)%, 4/1/29 6                    841,291           159,680
Trust 313, Cl. 2, (29.08)%, 7/1/31 6                   930,965           179,140
Trust 321, Cl. 2, (3.53)%, 3/1/32 6                  1,238,418           246,105
Trust 324, Cl. 2, (9.92)%, 6/1/32 6                  2,154,476           438,653
Trust 333, Cl. 2, 2.31%, 3/1/33 6                      817,230           176,743
Trust 2001-63, Cl. SD,
17.40%, 12/18/31 6                                     295,586            31,275
Trust 2001-68, Cl. SC,
13.63%, 11/25/31 6                                     217,386            23,651
Trust 2001-81, Cl. S,
13.68%, 1/25/32 6                                      297,295            36,260
Trust 2002-9, Cl. MS,
10.62%, 3/25/32 6                                      367,130            40,046
Trust 2002-77, Cl. SH,
21.15%, 12/18/32 6                                     371,337            37,605





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
First Chicago/Lennar Trust 1,
Commercial Mtg. Pass-Through
Certificates,
Series 1997-CHL1, Cl. D,
7.863%, 4/29/39 1,2                              $     350,000   $       356,617
- --------------------------------------------------------------------------------
First Union National Bank/
Lehman Brothers/Bank of
America Commercial Mtg. Trust,
Pass-Through Certificates,
Series 1998-C2, Cl. A2,
6.56%, 11/18/35                                        360,000           387,274
- --------------------------------------------------------------------------------
GE Capital Commercial
Mortgage Corp.,
Commercial Mtg. Obligations,
Series 2004-C3, Cl. A2,
4.433%, 7/10/39                                        390,000           395,179
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc.,
Commercial Mtg. Obligations,
Series 2004-C3, Cl. A4,
4.547%, 12/10/41                                       360,000           360,947
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Commercial Mtg.
Pass-Through Certificates,
Series 1997-C1, Cl. A3,
6.869%, 7/15/29                                        294,379           311,620
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Mtg. Pass-Through
Certificates, Series 1998-C1, Cl. F,
7.089%, 5/15/30 1                                    1,800,000         1,883,750
- --------------------------------------------------------------------------------
Government National
Mortgage Assn.:
4.625%, 11/20/25 1                                      18,008            18,430
7%, 3/15/28-7/15/28                                  1,148,877         1,223,374
7.50%, 2/15/27                                         158,177           170,305
8%, 11/15/25-5/15/26                                   148,485           161,741
- --------------------------------------------------------------------------------
Government National
Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security:
Series 1998-6, Cl. SA,
8.73%, 3/16/28 6                                       275,939            33,487
Series 1998-19, Cl. SB,
10.70%, 7/16/28 6                                      461,648            60,289
Series 2001-21, Cl. SB,
14.94%, 1/16/27 6                                    2,222,960           212,607
- --------------------------------------------------------------------------------
GS Mortgage Securities Corp. II,
Commercial Mtg. Pass-Through
Certificates:
Series 2004-C1, Cl. A1,
3.659%, 10/10/28                                       407,183           402,757
Series 2004-GG2, Cl. A3,
4.602%, 8/10/38                                        250,000           255,071


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
GSR Mortgage Loan Trust,
Collateralized Mtg. Obligations,
Series 04-12, Cl. 3A1,
4.593%, 12/25/34 1,2                             $   1,176,093   $     1,177,713
- --------------------------------------------------------------------------------
Mastr Alternative Loan Trust,
Pass-Through Collateralized Mtg.
Obligations, Series 2004-6, Cl. 10A1,
6%, 7/25/34                                          1,125,260         1,161,934
- --------------------------------------------------------------------------------
Mastr Seasoned Securities Trust,
Collateralized Mtg. Obligations,
Series 2004-2, Cl. PT65,
6.50%, 12/1/34 5                                     1,625,000         1,673,496
- --------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors,
Inc., Mtg. Pass-Through Certificates,
Series 1995-C2, Cl. D,
7.545%, 6/15/21 1                                      165,632           169,720
- --------------------------------------------------------------------------------
Morgan Stanley Capital I Trust,
Commercial Mtg. Pass-Through
Certificates:
Series 1996-C1, Cl. F,
7.472%, 2/15/28 1,7                                    162,744           150,727
Series 1997-XL1, Cl. G,
7.695%, 10/3/30                                        390,000           258,472
- --------------------------------------------------------------------------------
Nomura Asset Securities Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl. A1B,
6.59%, 3/15/30                                         420,000           454,560
- --------------------------------------------------------------------------------
Prudential Mortgage Capital Co.
II LLC, Commercial Mtg.
Pass-Through Certificates,
Series PRU-HTG 2000-C1, Cl. A2,
7.306%, 10/6/15                                        556,000           640,926
- --------------------------------------------------------------------------------
Salomon Brothers Mortgage
Securities VII, Inc., Commercial
Mtg. Pass-Through Certificates:
Series 1996-B, Cl. 1,
4.357%, 4/25/26 1,2                                      5,768             5,325
Series 1996-C1, Cl. F,
8.384%, 1/20/28 1,2                                  1,000,000           823,125
- --------------------------------------------------------------------------------
Washington Mutual Mortgage
Securities Corp., Collateralized
Mtg. Pass-Through Certificates,
Series 2003-AR12, Cl. A2,
2.446%, 2/25/34 1                                        9,652             9,658
- --------------------------------------------------------------------------------
Wells Fargo Mortgage Backed
Securities Trust, Collateralized
Mtg. Obligations:
Series 2004-DD, Cl. 2 A1,
4.548%, 1/25/35                                      1,290,000         1,292,116
Series 2004-N, Cl. A10,
3.803%, 8/25/34 2                                      966,317           969,495
Series 2004-W, Cl. A2,
4.635%, 11/25/34 1                                     575,342           576,930
                                                                 ---------------
Total Mortgage-Backed
Obligations (Cost $109,143,597)                                      108,869,487





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--8.8%
- --------------------------------------------------------------------------------
Federal Home Loan Bank
Unsec. Bonds, 2.75%, 10/15/06                    $   5,135,000   $     5,096,575
- --------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp. Nts.,
3.75%, 7/15/09 [EUR]                                 1,090,000         1,521,140
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
Unsec. Nts., 6.875%, 9/15/10                         4,420,000         5,051,901
- --------------------------------------------------------------------------------
Federal National
Mortgage Assn. Unsec. Nts.:
1.80%, 5/27/05                                       1,390,000         1,386,226
2.50%, 6/15/06                                       1,325,000         1,313,765
3.01%, 6/2/06                                        1,400,000         1,394,277
4.25%, 7/15/07                                       6,465,000         6,604,437
6.625%, 9/15/09                                      8,000,000         8,941,696
7.25%, 1/15/10-5/15/30                               5,765,000         6,733,930
- --------------------------------------------------------------------------------
Resolution Funding Corp. Federal
Book Entry Principal Strips,
5.85%, 1/15/21 8                                     1,220,000           535,562
- --------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
7.125%, 5/1/30                                         330,000           411,820
Series A, 6.79%, 5/23/12                             9,663,000        11,143,024
- --------------------------------------------------------------------------------
U.S. Treasury Bonds:
5.50%, 8/15/28                                       1,034,000         1,119,467
7.25%, 5/15/16                                       1,670,000         2,090,893
8.875%, 8/15/17 9                                    1,630,000         2,310,398
9.25%, 2/15/16                                         208,000           296,977
STRIPS, 4.20%, 2/15/11 8                               900,000           708,919
STRIPS, 4.60%, 2/15/16 8                               491,000           295,829
- --------------------------------------------------------------------------------
U.S. Treasury Nts.:
2.50%, 9/30/06-10/31/06                             14,025,000        13,903,978
2.75%, 8/15/07 10,11                                   525,000           519,401
2.75%, 7/31/06 9                                     3,839,000         3,827,756
                                                                 ---------------
Total U.S. Government
Obligations (Cost $75,011,468)                                        75,207,971

- --------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--29.9%
- --------------------------------------------------------------------------------
ARGENTINA--0.8%
Argentina (Republic of) Bonds:
1.98%, 8/3/12 1                                      6,465,000         5,438,849
2.352%, 5/3/05 1                                        56,000            55,064
Series PRE8, 2%, 1/3/10 2,3,4 [ARP]                  1,980,000           997,161
Series PR12, 2%, 1/3/16 2,3,4 [ARP]                  1,335,300           574,999
- --------------------------------------------------------------------------------
Argentina (Republic of) Disc. Bonds,
3/31/23 2,3,4                                          260,000           146,900
- --------------------------------------------------------------------------------
Buenos Aires (Province of) Bonds,
Bonos de Consolidacion de Deudas,
Series PBA1, 4/1/07 2,3,4 [ARP]                         59,785            24,123
                                                                 ---------------
                                                                       7,237,096
- --------------------------------------------------------------------------------
AUSTRALIA--0.8%
Queensland Treasury Corp.
Unsec. Nts., Series 09G,
6%, 7/14/09 [AUD]                                    8,300,000         6,670,330



                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
AUSTRIA--0.9%
Austria (Republic of) Bonds,
6.25%, 7/15/27 [EUR]                                 3,480,000   $     6,113,012
- --------------------------------------------------------------------------------
Austria (Republic of) Nts.,
Series 98-1, 5%, 1/15/08 [EUR]                       1,095,000         1,586,512
                                                                 ---------------
                                                                       7,699,524

- --------------------------------------------------------------------------------
BELGIUM--1.4%
Belgium (Kingdom of) Bonds:
5%, 9/28/11 [EUR]                                      540,000           806,734
Series 19, 6.50%, 3/31/05 [EUR]                      1,180,000         1,620,114
Series 26, 6.25%, 3/28/07 [EUR]                      2,170,000         3,184,063
Series 28, 5.75%, 3/28/08 [EUR]                        755,000         1,120,134
Series 32, 3.75%, 3/28/09 [EUR]                      2,905,000         4,070,238
Series 35, 5.75%, 9/28/10 [EUR]                      1,050,000         1,616,175
                                                                 ---------------
                                                                      12,417,458

- --------------------------------------------------------------------------------
BRAZIL--2.2%
Brazil (Federal Republic of) Bonds:
8.875%, 10/14/19                                     1,030,000         1,088,195
10.50%, 7/14/14                                        725,000           860,938
Series 15 yr., 3.125%, 4/15/09 1                        13,236            13,170
- --------------------------------------------------------------------------------
Brazil (Federal Republic of) Debt
Capitalization Bonds, Series 20 yr.,
8%, 4/15/14                                          7,252,993         7,429,785
- --------------------------------------------------------------------------------
Brazil (Federal Republic of) Nts.,
12%, 4/15/10                                         4,015,000         4,978,600
- --------------------------------------------------------------------------------
Brazil (Federal Republic of)
Unsec. Unsub. Bonds:
10%, 8/7/11                                            760,000           884,640
11%, 8/17/40                                         1,905,000         2,262,664
Cl. B, 8.875%, 4/15/24                                 958,000           996,320
                                                                 ---------------
                                                                      18,514,312

- --------------------------------------------------------------------------------
BULGARIA--0.2%
Bulgaria (Republic of) Bonds:
8.25%, 1/15/15                                         800,000         1,004,000
8.25%, 1/15/15 7                                       800,000         1,004,000
                                                                 ---------------
                                                                       2,008,000

- --------------------------------------------------------------------------------
COLOMBIA--0.5%
Colombia (Republic of) Nts.,
11.75%, 3/1/10 [COP]                             3,755,000,000         1,640,708
- --------------------------------------------------------------------------------
Colombia (Republic of) Unsec.
Unsub. Bonds, 8.375%, 2/15/27                          615,000           599,625
- --------------------------------------------------------------------------------
Colombia (Republic of) Unsec.
Unsub. Nts., 11.375%, 1/31/08 [EUR]                  1,125,000         1,829,100
                                                                 ---------------
                                                                       4,069,433

- --------------------------------------------------------------------------------
DENMARK--0.3%
Denmark (Kingdom of) Nts.,
4%, 8/15/08 [DKK]                                   12,375,000         2,344,727
- --------------------------------------------------------------------------------
DOMINICAN REPUBLIC--0.1%
Dominican Republic Bonds,
Series REGS, 9.04%, 1/23/13                            720,000           610,200





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ECUADOR--0.2%
Ecuador (Republic of) Unsec.
Bonds, 8%, 8/15/30 1                             $   1,810,000   $     1,570,175
- --------------------------------------------------------------------------------
EL SALVADOR--0.1%
El Salvador (Republic of) Bonds,
7.625%, 9/21/34 7                                      590,000           610,650
- --------------------------------------------------------------------------------
FINLAND--0.0%
Finland (Republic of) Sr. Unsec.
Unsub. Bonds, 2.75%, 7/4/06 [EUR]                      220,000           300,721
- --------------------------------------------------------------------------------
FRANCE--2.2%
France (Government of)
Obligations Assimilables du
Tresor Bonds:
5.50%, 10/25/07 [EUR]                                1,080,000         1,577,061
5.50%, 10/25/10 [EUR]                                6,085,000         9,266,867
5.75%, 10/25/32 [EUR]                                3,300,000         5,555,232
- --------------------------------------------------------------------------------
France (Government of)
Treasury Nts.:
3 yr., 3.50%, 1/12/05 [EUR]                          1,460,000         1,985,308
5 yr., 4.75%, 7/12/07 [EUR]                            120,000           171,593
                                                                 ---------------
                                                                      18,556,061

- --------------------------------------------------------------------------------
GERMANY--2.6%
Germany (Republic of) Bonds:
2%, 6/17/05 [EUR]                                    2,120,000         2,880,169
5.375%, 1/4/10 [EUR]                                 1,285,000         1,928,635
Series 01, 5%, 7/4/11 [EUR]                          3,685,000         5,494,692
Series 140, 4.50%, 8/17/07 [EUR]                     1,395,000         1,983,756
Series 143, 3.50%, 10/10/08 [EUR]                    7,470,000        10,374,944
                                                                 ---------------
                                                                      22,662,196

- --------------------------------------------------------------------------------
GREECE--1.9%
Greece (Republic of) Bonds:
3.50%, 4/18/08 [EUR]                                 1,055,000         1,462,521
4.60%, 5/20/13 [EUR]                                 1,545,000         2,234,250
5.35%, 5/18/11 [EUR]                                 6,735,000        10,152,575
- --------------------------------------------------------------------------------
Greece (Republic of) Sr.
Unsub. Bonds, 4.65%, 4/19/07 [EUR]                   1,610,000         2,285,355
                                                                 ---------------
                                                                      16,134,701

- --------------------------------------------------------------------------------
GUATEMALA--0.0%
Guatemala (Republic of) Nts.:
10.25%, 11/8/11 7                                      250,000           295,938
10.25%, 11/8/11                                         95,000           112,456
                                                                 ---------------
                                                                         408,394

- --------------------------------------------------------------------------------
IRELAND--0.2%
Ireland (Republic of) Treasury Bonds,
3.25%, 4/18/09 [EUR]                                 1,045,000         1,434,620
- --------------------------------------------------------------------------------
ISRAEL--0.1%
United States (Government of) Gtd.
Israel Aid Bonds, 5.50%, 12/4/23                       960,000         1,006,320


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ITALY--1.7%
Italy (Republic of) Treasury Bonds:
Buoni del Tesoro Poliennali,
4%, 3/1/05 [EUR]                                       520,000   $       708,916
Buoni del Tesoro Poliennali,
4.50%, 3/1/07 [EUR]                                  1,150,000         1,626,444
Buoni del Tesoro Poliennali,
5%, 10/15/07 [EUR]                                   5,080,000         7,324,121
Buoni del Tesoro Poliennali,
5%, 2/1/12 [EUR]                                     1,030,000         1,535,690
Buoni del Tesoro Poliennali,
5.25%, 12/15/05 [EUR]                                2,590,000         3,611,989
                                                                 ---------------
                                                                      14,807,160

- --------------------------------------------------------------------------------
IVORY COAST--0.0%
Ivory Coast (Government of)
Past Due Interest Bonds,
3/29/18 2,3,4 [FRF]                                  2,194,500            76,737
- --------------------------------------------------------------------------------
JAPAN--2.0%
Japan (Government of) Bonds,
5 yr., Series 14, 0.40%, 6/20/06 [JPY]           1,719,000,000        16,864,301
- --------------------------------------------------------------------------------
KOREA, REPUBLIC OF SOUTH--0.2%
Korea (Republic of) Nts.:
4.25%, 6/1/13                                          780,000           749,174
8.875%, 4/15/08                                      1,170,000         1,359,615
                                                                 ---------------
                                                                       2,108,789

- --------------------------------------------------------------------------------
MEXICO--0.8%
United Mexican States Bonds:
7.50%, 4/8/33                                          930,000         1,006,725
8.30%, 8/15/31                                         400,000           469,800
Series MI10, 8%, 12/19/13 [MXN]                      9,290,000           745,424
Series M20, 8%, 12/7/23 [MXN]                       23,040,000         1,672,890
- --------------------------------------------------------------------------------
United Mexican States Nts.,
7.50%, 1/14/12                                       1,300,000         1,477,450
- --------------------------------------------------------------------------------
United Mexican States Unsec.
Unsub. Nts.,
Series 6 BR, 6.75%, 6/6/06 [JPY]                   155,000,000         1,649,078
                                                                 ---------------
                                                                       7,021,367

- --------------------------------------------------------------------------------
NEW ZEALAND--0.1%
New Zealand (Government of)
Bonds, 7%, 7/15/09 12 [NZD]                            945,000           708,711
- --------------------------------------------------------------------------------
NIGERIA--0.1%
Central Bank of Nigeria
Gtd. Bonds,
Series WW, 6.25%, 11/15/20                             275,000           258,500
- --------------------------------------------------------------------------------
Nigeria (Federal Republic of)
Promissory Nts.,
Series RC, 5.092%, 1/5/10                              234,574           203,111
                                                                 ---------------
                                                                         461,611





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
PANAMA--0.8%
Panama (Republic of) Bonds:
7.25%, 3/15/15                                   $   3,030,000   $     3,166,350
8.125%, 4/28/34                                        805,000           853,300
9.375%, 1/16/23                                      2,215,000         2,569,400
                                                                 ---------------
                                                                       6,589,050

- --------------------------------------------------------------------------------
PERU--0.3%
Peru (Republic of) Past Due
Interest Bonds,
Series 20 yr., 5%, 3/7/17 1                          1,760,000         1,698,400
- --------------------------------------------------------------------------------
Peru (Republic of) Sr. Nts.,
4.53%, 2/28/16 8                                     1,464,785           884,525
                                                                 ---------------
                                                                       2,582,925

- --------------------------------------------------------------------------------
PHILIPPINES--0.1%
Philippines (Republic of) Bonds,
8.375%, 2/15/11                                        438,000           439,382
- --------------------------------------------------------------------------------
POLAND--1.3%
Poland (Republic of) Bonds:
Series 0K0805, 5.26%, 8/12/05 8 [PLZ]               17,265,000         5,558,069
Series DS0509, 6%, 5/24/09 [PLZ]                    10,840,000         3,604,407
Series DS1013, 5%, 10/24/13 [PLZ]                    4,640,000         1,458,191
Series WS0922, 5.75%, 9/23/22 [PLZ]                  1,000,000           337,184
                                                                 ---------------
                                                                      10,957,851

- --------------------------------------------------------------------------------
PORTUGAL--0.7%
Portugal (Republic of)
Obrig Do Tes Medio Prazo Nts.,
4.875%, 8/17/07 [EUR]                                1,620,000         2,324,085
- --------------------------------------------------------------------------------
Portugal (Republic of)
Obrig Do Tes Medio Prazo
Unsec. Unsub. Nts.,
5.85%, 5/20/10 [EUR]                                 2,450,000         3,771,268
                                                                 ---------------
                                                                       6,095,353

- --------------------------------------------------------------------------------
RUSSIA--1.3%
Aries Vermoegensverwaltungs
GmbH Credit Linked Nts.,
9.60%, 10/25/14                                      1,950,000         2,410,190
- --------------------------------------------------------------------------------
Aries Vermoegensverwaltungs
GmbH Unsub. Nts., Series B,
7.75%, 10/25/09 2 [EUR]                                700,000         1,084,681
- --------------------------------------------------------------------------------
Ministry Finance of Russia Debs.,
Series VI, 3%, 5/14/06 2                             1,980,000         1,947,934
- --------------------------------------------------------------------------------
Russian Federation Unsec.
Unsub. Bonds, 5%, 3/31/30 1,7                        3,065,000         3,172,275
- --------------------------------------------------------------------------------
Russian Federation Unsub. Nts.,
5%, 3/31/30 1                                        2,735,875         2,821,303
                                                                 ---------------
                                                                      11,436,383


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
SOUTH AFRICA--0.4%
South Africa (Republic of) Bonds:
Series R157,
13.50%, 9/15/15 [ZAR]                                7,300,000   $     1,790,648
Series R186,
10.50%, 12/21/26 [ZAR]                               2,960,000           693,472
Series R203,
8.25%, 9/15/17 [ZAR]                                 3,000,000           539,828
Series R204, 8%, 12/21/18 [ZAR]                      3,175,000           560,505
                                                                 ---------------
                                                                       3,584,453

- --------------------------------------------------------------------------------
SPAIN--1.6%
Spain (Kingdom of) Bonds:
Bonos y Obligacion del Estado,
5.35%, 10/31/11 [EUR]                                3,695,000         5,630,267
Bonos y Obligacion del Estado,
5.75%, 7/30/32 [EUR]                                 2,530,000         4,247,319
- --------------------------------------------------------------------------------
Spain (Kingdom of)
Treasury Bills,
2.10%, 2/18/05 8 [EUR]                               2,730,000         3,700,725
                                                                 ---------------
                                                                      13,578,311

- --------------------------------------------------------------------------------
SWEDEN--0.2%
Sweden (Kingdom of) Bonds,
Series 1043, 5%, 1/28/09 [SEK]                      10,760,000         1,733,975
- --------------------------------------------------------------------------------
THE NETHERLANDS--0.7%
Netherlands (Kingdom of the)
Bonds:
5%, 7/15/11 [EUR]                                    1,615,000         2,410,536
5.50%, 1/15/28 [EUR]                                 2,340,000         3,779,878
                                                                 ---------------
                                                                       6,190,414

- --------------------------------------------------------------------------------
TURKEY--0.4%
Turkey (Republic of) Nts.,
7.25%, 3/15/15                                       3,105,000         3,205,913
- --------------------------------------------------------------------------------
UNITED KINGDOM--1.9%
United Kingdom Treasury Nts.,
4%, 3/7/09 [GBP]                                     8,670,000        16,354,251
- --------------------------------------------------------------------------------
VENEZUELA--0.8%
Venezuela (Republic of) Nts.:
3.09%, 4/20/11 1                                       750,000           682,500
8.50%, 10/8/14                                       1,285,000         1,365,698
10.75%, 9/13/13                                      4,280,000         5,120,592
                                                                 ---------------
                                                                       7,168,790
                                                                 ---------------
Total Foreign Government
Obligations (Cost $227,294,778)                                      256,220,645





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
LOAN PARTICIPATIONS--0.6%
- --------------------------------------------------------------------------------
Algeria (Republic of) Loan
Participation Nts., 2.183%, 3/4/10 1,2           $     427,167   $       420,759
- --------------------------------------------------------------------------------
Deutsche Bank AG:
Indonesia (Republic of) Rupiah
Loan Participation Nts.,
2.636%, 1/25/06 1                                    1,490,000         1,470,779
- --------------------------------------------------------------------------------
Indonesia (Republic of)
Rupiah Loan Participation Nts.,
2.636%, 3/21/05 1                                    1,330,000         1,331,530
OAO Gazprom Loan
Participation Nts., 6.50%, 8/4/05 2                  1,520,000         1,552,224
                                                                 ---------------
Total Loan Participations
(Cost $4,679,244)                                                      4,775,292

- --------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--28.0%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--8.0%
- --------------------------------------------------------------------------------
AUTO COMPONENTS--0.6%
ArvinMeritor, Inc., 8.75% Sr.
Unsec. Unsub. Nts., 3/1/12                             700,000           812,000
- --------------------------------------------------------------------------------
Collins & Aikman
Floorcoverings, Inc.,
9.75% Sr. Sub. Nts.,
Series B, 2/15/10                                      200,000           216,000
- --------------------------------------------------------------------------------
Cooper Standard
Automotive Group:
7% Sr. Nts., 12/15/12 7                                 90,000            91,800
8.375% Sr. Sub. Nts., 12/15/14 7                       425,000           426,063
- --------------------------------------------------------------------------------
Dana Corp.,
10.125% Nts., 3/15/10 2                                200,000           226,716
- --------------------------------------------------------------------------------
Dura Operating Corp.:
9% Sr. Sub. Nts., Series B,
5/1/09 [EUR]                                           200,000           258,257
9% Sr. Unsec. Sub. Nts.,
Series D, 5/1/09                                       500,000           497,500
- --------------------------------------------------------------------------------
Eagle-Picher, Inc.,
9.75% Sr. Nts., 9/1/13                                 300,000           301,500
- --------------------------------------------------------------------------------
Goodyear Tire &
Rubber Co. (The),
7.857% Nts., 8/15/11                                   500,000           510,000
- --------------------------------------------------------------------------------
Metaldyne Corp.:
10% Sr. Nts., 11/1/13 7                                200,000           191,000
11% Sr. Sub. Nts., 6/15/12                             300,000           250,500
- --------------------------------------------------------------------------------
Stoneridge, Inc.,
11.50% Sr. Nts., 5/1/12                                500,000           583,750
- --------------------------------------------------------------------------------
Tenneco Automotive, Inc.:
8.625% Sr. Sub. Nts., 11/15/14 7                       500,000           522,500
10.25% Sr. Sec. Nts.,
Series B, 7/15/13                                      150,000           177,750
- --------------------------------------------------------------------------------
United Components, Inc.,
9.375% Sr. Sub. Nts., 6/15/13                          200,000           218,000
                                                                 ---------------
                                                                       5,283,336


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--2.2%
Apcoa, Inc.,
9.25% Sr. Unsec. Sub. Nts., 3/15/08              $     100,000   $        98,500
- --------------------------------------------------------------------------------
Aztar Corp.,
9% Sr. Unsec. Sub. Nts., 8/15/11                       850,000           941,375
- --------------------------------------------------------------------------------
Boyd Gaming Corp.,
8.75% Sr. Sub. Nts., 4/15/12                           300,000           335,250
- --------------------------------------------------------------------------------
Carrols Corp.,
9% Sr. Sub. Nts., 1/15/13 7                            130,000           135,200
- --------------------------------------------------------------------------------
Domino's, Inc.,
8.25% Sr. Unsec. Sub. Nts., 7/1/11                     547,000           600,333
- --------------------------------------------------------------------------------
Gaylord Entertainment Co.,
8% Sr. Nts., 11/15/13                                  300,000           325,500
- --------------------------------------------------------------------------------
Hilton Hotels Corp.,
7.625% Nts., 12/1/12                                   400,000           468,482
- --------------------------------------------------------------------------------
Hollywood Park, Inc.,
9.25% Sr. Unsec. Sub. Nts.,
Series B, 2/15/07                                      325,000           332,313
- --------------------------------------------------------------------------------
Intrawest Corp.,
7.50% Sr. Unsec. Nts., 10/15/13                        625,000           667,969
- --------------------------------------------------------------------------------
Isle of Capri Casinos, Inc.:
7% Sr. Unsec. Sub. Nts., 3/1/14                        400,000           410,000
9% Sr. Sub. Nts., 3/15/12                              500,000           553,750
- --------------------------------------------------------------------------------
John Q. Hammons Hotels, Inc.,
8.875% Sr. Nts., Series B, 5/15/12                     300,000           340,500
- --------------------------------------------------------------------------------
La Quinta Properties, Inc.,
7% Sr. Sec. Nts., 8/15/12                              250,000           265,625
- --------------------------------------------------------------------------------
Mandalay Resort Group,
10.25% Sr. Unsec. Sub. Nts.,
Series B, 8/1/07                                       650,000           737,750
- --------------------------------------------------------------------------------
MGM Mirage, Inc.:
8.375% Sr. Unsec. Sub. Nts., 2/1/11                    600,000           679,500
9.75% Sr. Unsec. Sub. Nts., 6/1/07                     350,000           390,250
- --------------------------------------------------------------------------------
Mohegan Tribal
Gaming Authority:
6.375% Sr. Sub. Nts., 7/15/09                          250,000           258,125
8% Sr. Sub. Nts., 4/1/12                               200,000           218,000
- --------------------------------------------------------------------------------
NCL Corp.,
10.625% Sr. Nts., 7/15/14 7                            300,000           301,500
- --------------------------------------------------------------------------------
Park Place Entertainment Corp.:
7.875% Sr. Sub. Nts., 3/15/10                          200,000           226,250
9.375% Sr. Unsec. Sub. Nts.,
2/15/07                                                800,000           884,000
- --------------------------------------------------------------------------------
Pinnacle Entertainment, Inc.,
8.25% Sr. Unsec. Sub. Nts.,
3/15/12                                                700,000           747,250
- --------------------------------------------------------------------------------
Premier Cruise Ltd.,
11% Sr. Nts., 3/15/08 2,3,4                            250,000                --
- --------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd.,
8.75% Sr. Unsub. Nts., 2/2/11                          300,000           355,875
- --------------------------------------------------------------------------------
Six Flags, Inc.:
8.875% Sr. Unsec. Nts., 2/1/10                       1,234,000         1,255,595
9.625% Sr. Nts., 6/1/14                                 19,000            19,190
9.75% Sr. Nts., 4/15/13                                100,000           102,000





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE Continued
Starwood Hotels &
Resorts Worldwide, Inc.,
7.875% Sr. Nts., 5/1/12                          $     900,000   $     1,032,750
- --------------------------------------------------------------------------------
Station Casinos, Inc.:
6.50% Sr. Unsec. Sub. Nts., 2/1/14                     800,000           826,000
9.875% Sr. Unsec. Sub. Nts., 7/1/10                  1,000,000         1,057,500
- --------------------------------------------------------------------------------
Sun International Hotels Ltd.,
8.875% Sr. Unsec. Sub. Nts.,
8/15/11                                                700,000           768,250
- --------------------------------------------------------------------------------
Universal City Development
Partners Ltd.,
11.75% Sr. Nts., 4/1/10                                500,000           593,125
- --------------------------------------------------------------------------------
Vail Resorts, Inc.,
6.75% Sr. Sub. Nts., 2/15/14                           500,000           511,250
- --------------------------------------------------------------------------------
Venetian Casino Resort LLC/
Las Vegas Sands, Inc.,
11% Sec. Nts., 6/15/10                                 400,000           458,500
- --------------------------------------------------------------------------------
Wynn Las Vegas LLC/
Wynn Las Vegas Capital Corp.,
6.625% Nts., 12/1/14 7                               1,800,000         1,791,000
                                                                 ---------------
                                                                      18,688,457

- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.6%
Beazer Homes USA, Inc.,
8.375% Sr. Nts., 4/15/12                               400,000           442,000
- --------------------------------------------------------------------------------
Blount, Inc.,
8.875% Sr. Sub. Nts., 8/1/12                           350,000           381,500
- --------------------------------------------------------------------------------
D.R. Horton, Inc.:
9.375% Sr. Unsec. Sub. Nts.,
3/15/11                                                400,000           444,000
9.75% Sr. Sub. Nts., 9/15/10                           400,000           486,000
- --------------------------------------------------------------------------------
KB Home:
8.625% Sr. Sub. Nts., 12/15/08                         250,000           283,750
9.50% Sr. Unsec. Sub. Nts., 2/15/11                    400,000           442,000
- --------------------------------------------------------------------------------
Meritage Corp.,
9.75% Sr. Unsec. Nts., 6/1/11                          350,000           388,500
- --------------------------------------------------------------------------------
Sealy Mattress Co.,
8.25% Sr. Sub. Nts., 6/15/14                           450,000           479,250
- --------------------------------------------------------------------------------
Standard Pacific Corp.,
9.25% Sr. Sub. Nts., 4/15/12                           200,000           233,000
- --------------------------------------------------------------------------------
WCI Communities, Inc.,
9.125% Sr. Sub. Nts., 5/1/12                           300,000           334,500
- --------------------------------------------------------------------------------
William Lyon Homes, Inc.,
10.75% Sr. Nts., 4/1/13                                400,000           451,500
- --------------------------------------------------------------------------------
Williams Scotsman, Inc.,
9.875% Sr. Unsec. Nts., 6/1/07                         800,000           804,000
                                                                 ---------------
                                                                       5,170,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA--3.8%
Adelphia Communications Corp.:
7.875% Sr. Unsec. Nts., 5/1/09 3,4               $     350,000   $       327,250
10.25% Sr. Unsec. Nts., 11/1/06 3,4                    400,000           391,000
10.25% Sr. Unsec. Sub. Nts.,
6/15/11 3,4                                            200,000           203,500
10.875% Sr. Unsec. Nts., 10/1/10 3,4                   400,000           398,000
- --------------------------------------------------------------------------------
Allbritton Communications Co.,
7.75% Sr. Unsec. Sub. Nts.,
12/15/12                                               600,000           624,000
- --------------------------------------------------------------------------------
AMC Entertainment, Inc.:
8% Sr. Unsec. Sub. Nts., 3/1/14                        650,000           650,000
9.50% Sr. Unsec. Sub. Nts., 2/1/11                     360,000           373,950
- --------------------------------------------------------------------------------
American Media Operations, Inc.:
8.875% Sr. Unsec. Sub. Nts.,
1/15/11                                                150,000           160,313
10.25% Sr. Unsec. Sub. Nts.,
Series B, 5/1/09                                       400,000           423,500
- --------------------------------------------------------------------------------
Block Communications, Inc.,
9.25% Sr. Sub. Nts., 4/15/09                           400,000           438,000
- --------------------------------------------------------------------------------
Carmike Cinemas, Inc.,
7.50% Sr. Sub. Nts., 2/15/14                           500,000           514,375
- --------------------------------------------------------------------------------
Charter Communications
Holdings LLC/
Charter Communications
Holdings Capital Corp.:
0%/11.75% Sr. Unsec. Sub.
Disc. Nts., 5/15/11 13                                 925,000           684,500
8.375% Sr. Nts., Second Lien,
4/30/14 7                                            3,450,000         3,657,000
- --------------------------------------------------------------------------------
Cinemark USA, Inc.,
9% Sr. Unsec. Sub. Nts., 2/1/13                        300,000           343,875
- --------------------------------------------------------------------------------
Cinemark, Inc., 0%/9.75%
Sr. Unsec. Disc. Nts.,
3/15/14 13                                             500,000           380,000
- --------------------------------------------------------------------------------
Corus Entertainment, Inc.,
8.75% Sr. Sub. Nts., 3/1/12                            300,000           330,750
- --------------------------------------------------------------------------------
CSC Holdings, Inc.,
7.625% Sr. Unsec. Unsub. Nts.,
Series B, 4/1/11                                     1,100,000         1,190,750
- --------------------------------------------------------------------------------
Dex Media East LLC/
Dex Media East Finance Co.,
9.875% Sr. Unsec. Nts., 11/15/09                       200,000           228,750
- --------------------------------------------------------------------------------
Dex Media West LLC,
5.875% Sr. Nts., 11/15/11 7                            900,000           900,000
- --------------------------------------------------------------------------------
Dex Media West LLC/
Dex Media West Finance Co.:
8.50% Sr. Nts., 8/15/10                                300,000           335,250
9.875% Sr. Sub. Nts., 8/15/13                          586,000           678,295
- --------------------------------------------------------------------------------
Dex Media, Inc.,
8% Unsec. Nts., 11/15/13                             1,350,000         1,468,125
- --------------------------------------------------------------------------------
DirecTV Holdings LLC/
DirecTV Financing Co., Inc.,
8.375% Sr. Unsec. Nts., 3/15/13                      1,800,000         2,027,250





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
EchoStar DBS Corp.:
6.625% Sr. Nts., 10/1/14 7                       $     800,000   $       814,000
9.125% Sr. Nts., 1/15/09                             1,075,000         1,187,875
- --------------------------------------------------------------------------------
Emmis Operating Co.,
6.875% Sr. Unsec. Sub. Nts.,
5/15/12                                                600,000           630,750
- --------------------------------------------------------------------------------
Entravision
Communications Corp.,
8.125% Sr. Sub. Nts., 3/15/09                          400,000           429,000
- --------------------------------------------------------------------------------
Granite Broadcasting Corp.,
9.75% Sr. Sec. Nts., 12/1/10                           619,000           594,240
- --------------------------------------------------------------------------------
Insight Midwest LP/
Insight Capital, Inc.,
9.75% Sr. Nts., 10/1/09                                200,000           210,500
- --------------------------------------------------------------------------------
Lin Television Corp.,
6.50% Sr. Sub. Nts., 5/15/13                           400,000           413,500
- --------------------------------------------------------------------------------
LodgeNet Entertainment Corp.,
9.50% Sr. Sub. Debs., 6/15/13                          200,000           222,000
- --------------------------------------------------------------------------------
Mediacom LLC/
Mediacom Capital Corp.,
9.50% Sr. Unsec. Nts., 1/15/13                         769,000           775,729
- --------------------------------------------------------------------------------
MediaNews Group, Inc.,
6.375% Sr. Sub. Nts., 4/1/14                           800,000           796,000
- --------------------------------------------------------------------------------
News America Holdings, Inc.,
8.875% Sr. Debs., 4/26/23                              625,000           814,644
- --------------------------------------------------------------------------------
PanAmSat Corp.,
9% Sr. Nts., 8/15/14 7                               1,000,000         1,121,250
- --------------------------------------------------------------------------------
PRIMEDIA, Inc.:
8% Sr. Nts., 5/15/13                                   900,000           930,375
8.875% Sr. Unsec. Nts., 5/15/11                         19,000            20,188
- --------------------------------------------------------------------------------
R.H. Donnelley Financial Corp. I,
10.875% Sr. Sub. Nts., 12/15/12 7                      400,000           477,000
- --------------------------------------------------------------------------------
Radio One, Inc.,
8.875% Sr. Unsec. Sub. Nts.,
Series B, 7/1/11                                       600,000           656,250
- --------------------------------------------------------------------------------
Rainbow National Services LLC,
8.75% Sr. Nts., 9/1/12 7                               800,000           882,000
- --------------------------------------------------------------------------------
Rogers Cable, Inc.,
6.75% Sr. Sec.
Second Priority Nts., 3/15/15 7                        250,000           256,875
- --------------------------------------------------------------------------------
Shaw Communications, Inc.,
8.54% Debs., 9/30/27 [CAD]                             340,000           283,771
- --------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.:
8% Sr. Unsec. Sub. Nts., 3/15/12                     1,050,000         1,120,875
8.75% Sr. Sub. Nts., 12/15/11                          300,000           328,125
- --------------------------------------------------------------------------------
Spanish Broadcasting System, Inc.,
9.625% Sr. Unsec. Sub. Nts., 11/1/09                   800,000           842,000
- --------------------------------------------------------------------------------
Vertis, Inc., 9.75% Sr.
Sec. Nts., 4/1/09                                      200,000           218,000
- --------------------------------------------------------------------------------
WMG Holdings Corp.:
0%/9.50% Sr. Disc. Nts., 12/15/14 7,13               1,000,000           643,750
6.905% Sr. Nts., 12/15/11 1,7                          400,000           405,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
WRC Media, Inc./
Weekly Reader Corp./
CompassLearning, Inc.,
12.75% Sr. Sub. Nts., 11/15/09                   $     500,000   $       478,125
                                                                 ---------------
                                                                      32,280,255

- --------------------------------------------------------------------------------
MULTILINE RETAIL--0.1%
Saks, Inc.:
8.25% Sr. Unsec. Nts., 11/15/08                        700,000           770,000
9.875% Nts., 10/1/11                                   200,000           238,000
                                                                 ---------------
                                                                       1,008,000

- --------------------------------------------------------------------------------
SPECIALTY RETAIL--0.4%
Asbury Automotive Group, Inc.,
9% Sr. Sub. Nts., 6/15/12                              300,000           316,500
- --------------------------------------------------------------------------------
Atlantic Broadband Finance LLC,
9.375% Sr. Sub. Nts., 1/15/14 7                        250,000           243,125
- --------------------------------------------------------------------------------
AutoNation, Inc.,
9% Sr. Unsec. Nts., 8/1/08                             500,000           573,750
- --------------------------------------------------------------------------------
Boise Cascade LLC/
Boise Cascade Finance Corp.,
7.125% Sr. Sub. Nts., 10/15/14 7                       450,000           478,125
- --------------------------------------------------------------------------------
Eye Care Centers of America, Inc.,
9.125% Sr. Unsec. Sub. Nts., 5/1/08                    400,000           402,000
- --------------------------------------------------------------------------------
Finlay Fine Jewelry Corp.,
8.375% Sr. Unsec. Nts., 6/1/12                         400,000           434,000
- --------------------------------------------------------------------------------
Hollywood Entertainment Corp.,
9.625% Sr. Sub. Nts., 3/15/11                          300,000           319,500
- --------------------------------------------------------------------------------
Petco Animal Supplies, Inc.,
10.75% Sr. Sub. Nts., 11/1/11                          200,000           235,000
- --------------------------------------------------------------------------------
Rent-A-Center, Inc.,
7.50% Sr. Unsec. Sub. Nts.,
Series B, 5/1/10                                       150,000           156,188
                                                                 ---------------
                                                                       3,158,188

- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--0.3%
Invista, Inc., 9.25% Sr. Nts., 5/1/12 7                900,000         1,008,000
- --------------------------------------------------------------------------------
Levi Strauss & Co.:
9.75% Sr. Nts., 1/15/15 7                              500,000           497,500
12.25% Sr. Nts., 12/15/12                              600,000           670,500
- --------------------------------------------------------------------------------
Oxford Industries, Inc.,
8.875% Sr. Nts., 6/1/11                                250,000           269,688
- --------------------------------------------------------------------------------
Russell Corp., 9.25% Sr. Nts.,
5/1/10                                                 200,000           215,500
                                                                 ---------------
                                                                       2,661,188

- --------------------------------------------------------------------------------
CONSUMER STAPLES--1.0%
- --------------------------------------------------------------------------------
BEVERAGES--0.1%
Constellation Brands, Inc.,
8.125% Sr. Sub. Nts., 1/15/12                          300,000           327,375





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.2%
Great Atlantic &
Pacific Tea Co., Inc. (The),
9.125% Sr. Nts., 12/15/11                        $     419,000   $       394,908
- --------------------------------------------------------------------------------
Ingles Markets, Inc.,
8.875% Sr. Unsec. Sub. Nts.,
12/1/11                                                 19,000            20,425
- --------------------------------------------------------------------------------
Jean Coutu Group (PJC), Inc. (The):
7.625% Sr. Nts., 8/1/12 7                              250,000           265,625
8.50% Sr. Sub. Nts., 8/1/14 7                          600,000           618,000
- --------------------------------------------------------------------------------
Real Time Data Co.,
11% Disc. Nts., 5/31/09 2,3,4,14                       142,981                --
- --------------------------------------------------------------------------------
Rite Aid Corp.:
8.125% Sr. Sec. Nts., 5/1/10                           450,000           478,125
9.50% Sr. Sec. Nts., 2/15/11                           200,000           220,500
                                                                 ---------------
                                                                       1,997,583

- --------------------------------------------------------------------------------
FOOD PRODUCTS--0.6%
American Seafoods Group LLC,
10.125% Sr. Sub. Nts., 4/15/10                         200,000           215,000
- --------------------------------------------------------------------------------
Burns Philp Capital Property Ltd.,
9.75% Sr. Unsec. Sub. Nts., 7/15/12                    450,000           497,250
- --------------------------------------------------------------------------------
Chiquita Brands International, Inc.,
7.50% Sr. Nts., 11/1/14 2                              150,000           152,625
- --------------------------------------------------------------------------------
Del Monte Corp.,
8.625% Sr. Sub. Nts., 12/15/12                         400,000           450,000
- --------------------------------------------------------------------------------
Doane Pet Care Co.:
9.75% Sr. Unsec. Sub. Nts., 5/15/07                    400,000           396,000
10.75% Sr. Nts., 3/1/10                                460,000           494,500
- --------------------------------------------------------------------------------
Dole Food Co., Inc.:
8.625% Sr. Nts., 5/1/09                                400,000           437,000
8.875% Sr. Unsec. Nts., 3/15/11                        200,000           218,500
- --------------------------------------------------------------------------------
Hines Nurseries, Inc.,
10.25% Sr. Unsec. Sub. Nts.,
10/1/11                                                200,000           219,500
- --------------------------------------------------------------------------------
Pinnacle Foods Holding Corp.:
8.25% Sr. Sub. Nts., 12/1/13 7                          40,000            38,300
8.25% Sr. Sub. Nts., 12/1/13 7                         400,000           383,000
- --------------------------------------------------------------------------------
Smithfield Foods, Inc.,
7.625% Sr. Unsec. Sub. Nts.,
2/15/08                                                400,000           430,000
- --------------------------------------------------------------------------------
United Biscuits Finance plc,
10.75% Sr. Sub. Nts., 4/15/11 2 [GBP]                  400,000           787,160
                                                                 ---------------
                                                                       4,718,835

- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.1%
Church & Dwight Co., Inc.,
6% Sr. Sub. Nts., 12/15/12 7                           300,000           306,750
- --------------------------------------------------------------------------------
Playtex Products, Inc.:
8% Sr. Sec. Nts., 3/1/11                               500,000           548,750
9.375% Sr. Unsec. Sub. Nts., 6/1/11                    200,000           214,500
                                                                 ---------------
                                                                       1,070,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.0%
Elizabeth Arden, Inc.,
7.75% Sr. Unsec. Sub. Nts., 1/15/14              $     175,000   $       186,375
- --------------------------------------------------------------------------------
ENERGY--3.1%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.3%
Dresser, Inc.,
9.375% Sr. Sub. Nts., 4/15/11                          300,000           330,000
- --------------------------------------------------------------------------------
Hanover Compress Co.,
8.625% Sr. Nts., 12/15/10                              300,000           329,250
- --------------------------------------------------------------------------------
Hanover Equipment Trust 2001A,
8.50% Sr. Sec. Nts., Series A, 9/1/08                  500,000           540,000
- --------------------------------------------------------------------------------
Hornbeck Offshore Services, Inc.,
6.125% Sr. Nts., 12/1/14 7                             350,000           353,500
- --------------------------------------------------------------------------------
Ocean Rig Norway AS,
10.25% Sr. Sec. Nts., 6/1/08                           575,000           595,125
- --------------------------------------------------------------------------------
Petroleum Helicopters, Inc.,
9.375% Sr. Nts., 5/1/09                                200,000           220,000
- --------------------------------------------------------------------------------
Universal Compression, Inc.,
7.25% Sr. Unsec. Sub. Nts., 5/15/10 2                  400,000           429,000
                                                                 ---------------
                                                                       2,796,875

- --------------------------------------------------------------------------------
OIL & GAS--2.8%
Chesapeake Energy Corp.:
6.375% Sr. Nts., 6/15/15 7                             250,000           258,125
6.875% Sr. Unsec. Nts., 1/15/16                        672,000           707,280
- --------------------------------------------------------------------------------
El Paso Corp.,
7.875% Sr. Unsec. Nts., 6/15/12                      1,519,000         1,596,849
- --------------------------------------------------------------------------------
El Paso Energy Corp.,
7.625% Nts., 7/15/11                                   200,000           208,000
- --------------------------------------------------------------------------------
El Paso Production Holding Co.,
7.75% Sr. Unsec. Nts., 6/1/13                        1,200,000         1,263,000
- --------------------------------------------------------------------------------
EXCO Resources, Inc.,
7.25% Sr. Nts., 1/15/11                                400,000           430,000
- --------------------------------------------------------------------------------
Forest Oil Corp.,
7.75% Sr. Nts., 5/1/14                                 300,000           327,750
- --------------------------------------------------------------------------------
Frontier Oil Corp.,
6.625% Sr. Nts., 10/1/11 7                             200,000           205,000
- --------------------------------------------------------------------------------
Gazprom International SA,
7.201% Sr. Unsec. Bonds, 2/1/20                      4,110,000         4,377,376
- --------------------------------------------------------------------------------
MarkWest Energy Partners LP/
MarkWest Energy Finance Corp.,
6.875% Sr. Nts., 11/1/14 7                             150,000           153,000
- --------------------------------------------------------------------------------
Newfield Exploration Co.:
6.625% Sr. Unsec. Sub. Nts., 9/1/14 7                  600,000           637,500
8.375% Sr. Sub. Nts., 8/15/12                          500,000           562,500
- --------------------------------------------------------------------------------
Pemex Project Funding Master Trust:
8.50% Unsub. Nts., 2/15/08                             420,000           474,600
9.125% Unsec. Unsub. Nts.,
10/13/10                                               610,000           732,915
- --------------------------------------------------------------------------------
Plains Exploration & Production Co.,
7.125% Sr. Nts., 6/15/14                               300,000           328,500





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
OIL & GAS Continued
Premcor Refining Group, Inc.:
6.75% Sr. Nts., 5/1/14                           $     350,000   $       373,625
9.50% Sr. Nts., 2/1/13                                 900,000         1,048,500
- --------------------------------------------------------------------------------
Range Resources Corp.,
7.375% Sr. Sub. Nts., 7/15/13                          200,000           215,500
- --------------------------------------------------------------------------------
Southern Natural Gas Co.,
8% Sr. Unsub. Nts., 3/1/32 2                           300,000           328,875
- --------------------------------------------------------------------------------
Stone Energy Corp.,
6.75% Sr. Sub. Nts., 12/15/14 7                        170,000           170,425
- --------------------------------------------------------------------------------
Tengizchevroil LLP, 6.124% Nts.,
11/15/14 7                                           1,520,000         1,531,400
- --------------------------------------------------------------------------------
Tennessee Gas Pipeline Co.,
7.50% Bonds, 4/1/17                                  1,800,000         1,993,500
- --------------------------------------------------------------------------------
Tesoro Petroleum Corp.:
8% Sr. Sec. Nts., 4/15/08                            1,000,000         1,092,500
9.625% Sr. Sub. Nts., 4/1/12                            19,000            21,945
- --------------------------------------------------------------------------------
Whiting Petroleum Corp.,
7.25% Sr. Sub. Nts., 5/1/12                            400,000           420,000
- --------------------------------------------------------------------------------
Williams Cos., Inc. (The):
7.125% Nts., 9/1/11                                    800,000           878,000
7.625% Nts., 7/15/19                                 1,000,000         1,105,000
8.75% Unsec. Nts., 3/15/32                           1,400,000         1,615,250
- --------------------------------------------------------------------------------
XTO Energy, Inc., 7.50% Sr. Nts.,
4/15/12                                                500,000           585,943
                                                                 ---------------
                                                                      23,642,858

- --------------------------------------------------------------------------------
FINANCIALS--1.2%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--0.3%
American Color Graphics, Inc.,
10% Sr. Sec. Nts., 6/15/10                             200,000           169,750
- --------------------------------------------------------------------------------
BCP Caylux Holdings
Luxembourg SCA,
9.625% Sr. Sub. Nts., 6/15/14 7                      1,250,000         1,415,625
- --------------------------------------------------------------------------------
Berry Plastics Corp.,
10.75% Sr. Sub. Nts., 7/15/12                          750,000           862,500
                                                                 ---------------
                                                                       2,447,875

- --------------------------------------------------------------------------------
COMMERCIAL BANKS--0.1%
Bank Plus Corp., 12% Sr. Nts.,
7/18/07                                                  7,000             7,525
- --------------------------------------------------------------------------------
BankUnited Capital Trust,
10.25% Capital Securities,
12/31/26                                               100,000           108,750
- --------------------------------------------------------------------------------
Inter-American
Development Bank,
6.26% Nts., 12/8/09 1 [BRR]                            920,000           347,252
- --------------------------------------------------------------------------------
Ongko International
Finance Co. BV,
10.50% Sec. Nts., 3/29/10 2,3,4                         90,000               563
- --------------------------------------------------------------------------------
Western Financial Bank,
9.625% Unsec. Sub. Debs., 5/15/12                      500,000           572,500
                                                                 ---------------
                                                                       1,036,590


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--0.4%
Affinia Group, Inc.,
9% Sr. Sub. Nts., 11/30/14 7                     $     200,000   $       209,500
- --------------------------------------------------------------------------------
Global Cash Access LLC/
Global Cash Finance Corp.,
8.75% Sr. Sub. Nts., 3/15/12 2                         275,000           297,688
- --------------------------------------------------------------------------------
Helix 04 Ltd.,
7.96% Sec. Nts., 6/30/09 1                           1,000,000         1,003,950
- --------------------------------------------------------------------------------
Pemex Project Funding
Master Trust,
7.375% Unsec. Unsub. Nts.,
12/15/14                                               740,000           824,360
- --------------------------------------------------------------------------------
Redwood Capital V Ltd.,
6.71% Nts., 1/9/07 1,2                                 750,000           750,000
- --------------------------------------------------------------------------------
SBS Agro Finance BV,
10.25% Bonds, 7/21/00 2,3,4                            339,000                --
- --------------------------------------------------------------------------------
Universal City Florida:
7.20% Sr. Nts., 5/1/10 1,2                             130,000           135,850
8.375% Sr. Nts., 5/1/10 2                              130,000           135,525
                                                                 ---------------
                                                                       3,356,873

- --------------------------------------------------------------------------------
INSURANCE--0.0%
Arbor I Ltd., 17.99% Nts., 6/15/06 1,7                 500,000           518,756
- --------------------------------------------------------------------------------
REAL ESTATE--0.4%
American Casino &
Entertainment Properties LLC,
7.85% Sr. Sec. Nts., 2/1/12                            500,000           533,750
- --------------------------------------------------------------------------------
Felcor Lodging LP,
9% Sr. Nts., 6/1/11                                    425,000           483,438
- --------------------------------------------------------------------------------
Foundation RE Ltd.,
6.40% Nts., 11/24/08 1,2                               500,000           501,363
- --------------------------------------------------------------------------------
HMH Properties, Inc.,
7.875% Sr. Nts., Series B, 8/1/08                      202,000           208,565
- --------------------------------------------------------------------------------
Host Marriott LP,
9.50% Sr. Nts., 1/15/07                                400,000           440,000
- --------------------------------------------------------------------------------
MeriStar Hospitality Corp.,
9.125% Sr. Unsec. Nts., 1/15/11                      1,019,000         1,105,615
                                                                 ---------------
                                                                       3,272,731

- --------------------------------------------------------------------------------
HEALTH CARE--1.9%
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.2%
Fisher Scientific International, Inc.,
8.125% Sr. Sub. Nts., 5/1/12                           261,000           291,015
- --------------------------------------------------------------------------------
HMP Equity Holdings Corp.,
16.25% Sr. Disc. Nts., 5/15/08 8                       900,000           599,625
- --------------------------------------------------------------------------------
Inverness Medical
Innovations, Inc.,
8.75% Sr. Sub. Nts., 2/15/12 2                         350,000           367,500





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES Continued
Sybron Dental Specialties, Inc.,
8.125% Sr. Sub. Nts., 6/15/12                    $     300,000   $       328,500
- --------------------------------------------------------------------------------
Universal Hospital Services, Inc.,
10.125% Sr. Unsec. Nts., 11/1/11                       300,000           313,500
                                                                 ---------------
                                                                       1,900,140

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.6%
Alderwoods Group, Inc.,
7.75% Sr. Nts., 9/15/12 7                              450,000           488,250
- --------------------------------------------------------------------------------
AmeriPath, Inc.,
10.50% Sr. Unsec. Sub. Nts., 4/1/13                    300,000           320,250
- --------------------------------------------------------------------------------
Beverly Enterprises, Inc.,
7.875% Sr. Sub. Nts., 6/15/14 2                        300,000           323,250
- --------------------------------------------------------------------------------
Community Health Systems, Inc.,
6.50% Sr. Sub. Nts., 12/15/12 7                        400,000           405,000
- --------------------------------------------------------------------------------
Extendicare Health Services, Inc.:
6.875% Sr. Sub. Nts., 5/1/14                           300,000           307,500
9.50% Sr. Unsec. Sub. Nts., 7/1/10                     300,000           337,500
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust II,
7.875% Nts., 2/1/08                                    900,000           978,750
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust III,
7.375% Nts., 2/1/08 [DEM]                               25,000            19,068
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust IV,
7.875% Trust Preferred Nts.,
6/15/11                                                600,000           672,000
- --------------------------------------------------------------------------------
Genesis HealthCare Corp.,
8% Sr. Sub. Nts., 10/15/13                             200,000           218,000
- --------------------------------------------------------------------------------
HCA, Inc.:
6.30% Sr. Unsec. Nts., 10/1/12                       1,400,000         1,422,044
6.375% Nts., 1/15/15                                 1,350,000         1,357,954
- --------------------------------------------------------------------------------
HealthSouth Corp.:
7.625% Nts., 6/1/12                                  1,000,000         1,010,000
10.75% Sr. Unsec. Sub. Nts.,
10/1/08                                                 19,000            20,140
- --------------------------------------------------------------------------------
Magellan Health Services, Inc.,
9.375% Sr. Unsec. Nts.,
Series A, 11/15/08                                     653,675           714,957
- --------------------------------------------------------------------------------
Medquest, Inc.,
11.875% Sr. Unsec. Sub. Nts.,
Series B, 8/15/12 2                                    600,000           708,000
- --------------------------------------------------------------------------------
NDCHealth Corp.,
10.50% Sr. Unsec. Sub. Nts.,
12/1/12                                                250,000           270,000
- --------------------------------------------------------------------------------
PacifiCare Health Systems, Inc.,
10.75% Sr. Unsec. Unsub. Nts.,
6/1/09                                                 585,000           678,600
- --------------------------------------------------------------------------------
Quintiles Transnational Corp.,
10% Sr. Sub. Nts., 10/1/13 2                           300,000           337,500


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES Continued
Tenet Healthcare Corp.:
6.375% Sr. Nts., 12/1/11                         $     744,000   $       693,780
7.375% Nts., 2/1/13                                     19,000            18,525
9.875% Sr. Nts., 7/1/14 7                              950,000         1,040,250
- --------------------------------------------------------------------------------
Triad Hospitals, Inc.:
7% Sr. Nts., 5/15/12                                   200,000           211,500
7% Sr. Sub. Nts., 11/15/13                             500,000           513,750
- --------------------------------------------------------------------------------
US Oncology, Inc.:
9% Sr. Nts., 8/15/12 7                                 300,000           336,750
10.75% Sr. Sub. Nts., 8/15/14 7                        300,000           348,750
                                                                 ---------------
                                                                      13,752,068

- --------------------------------------------------------------------------------
PHARMACEUTICALS--0.1%
Valeant Pharmaceuticals
International, Inc.,
7% Sr. Nts., 12/15/11                                  350,000           365,750
- --------------------------------------------------------------------------------
INDUSTRIALS--2.6%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.4%
Alliant Techsystems, Inc.,
8.50% Sr. Unsec. Sub. Nts., 5/15/11                    300,000           330,000
- --------------------------------------------------------------------------------
BE Aerospace, Inc.:
8.50% Sr. Unsec. Nts., 10/1/10                         200,000           221,000
8.875% Sr. Unsec. Sub. Nts., 5/1/11                    219,000           229,950
- --------------------------------------------------------------------------------
L-3 Communications Corp.:
5.875% Sr. Sub. Nts., 1/15/15 7                        700,000           701,750
7.625% Sr. Sub. Nts., 6/15/12                          300,000           330,750
- --------------------------------------------------------------------------------
Rexnord Corp.,
10.125% Sr. Unsec. Sub. Nts.,
12/15/12                                               350,000           397,250
- --------------------------------------------------------------------------------
TD Funding Corp.,
8.375% Sr. Sub. Nts., 7/15/11                          400,000           431,000
- --------------------------------------------------------------------------------
TRW Automotive, Inc.:
9.375% Sr. Nts., 2/15/13                               223,000           259,795
11% Sr. Sub. Nts., 2/15/13                             194,000           234,740
- --------------------------------------------------------------------------------
Vought Aircraft Industries, Inc.,
8% Sr. Nts., 7/15/11                                   200,000           195,500
                                                                 ---------------
                                                                       3,331,735

- --------------------------------------------------------------------------------
AIRLINES--0.1%
America West Airlines, Inc.,
10.75% Sr. Nts., 9/1/05                                450,000           451,125
- --------------------------------------------------------------------------------
ATA Holdings Corp.,
13% Sr. Unsec. Nts., 2/1/09 3,4                        735,000           422,625
                                                                 ---------------
                                                                         873,750

- --------------------------------------------------------------------------------
BUILDING PRODUCTS--0.1%
Associated Materials, Inc.,
9.75% Sr. Sub. Nts., 4/15/12                           200,000           224,500
- --------------------------------------------------------------------------------
Goodman Global
Holding Co., Inc.,
7.875% Sr. Sub. Nts., 12/15/12 7                       170,000           169,150





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
BUILDING PRODUCTS Continued
Jacuzzi Brands, Inc.,
9.625% Sr. Sec. Nts., 7/1/10                     $     311,000   $       346,765
- --------------------------------------------------------------------------------
North America Energy
Partners, Inc.,
8.75% Sr. Unsec. Nts., 12/1/11                         150,000           153,750
                                                                 ---------------
                                                                         894,165

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.7%
Allied Waste North America, Inc.:
7.875% Sr. Nts., 4/15/13                               400,000           412,000
8.50% Sr. Sub. Nts., 12/1/08                           900,000           958,500
8.875% Sr. Nts., Series B, 4/1/08                      800,000           860,000
9.25% Sr. Sec. Debs., Series B, 9/1/12                 950,000         1,033,125
- --------------------------------------------------------------------------------
Cenveo Corp.,
7.875% Sr. Sub. Nts., 12/1/13                        1,000,000           935,000
- --------------------------------------------------------------------------------
Corrections Corp. of America:
7.50% Sr. Nts., 5/1/11                                 200,000           214,750
9.875% Sr. Nts., 5/1/09                                300,000           334,500
- --------------------------------------------------------------------------------
Hydrochem Industrial
Services, Inc.,
10.375% Sr. Sub. Nts., 8/1/07 2                        150,000           151,875
- --------------------------------------------------------------------------------
Kindercare Learning
Centers, Inc.,
9.50% Sr. Sub. Nts., 2/15/09                           384,000           387,360
- --------------------------------------------------------------------------------
Mail-Well I Corp.,
9.625% Sr. Nts., 3/15/12 2                             400,000           441,000
- --------------------------------------------------------------------------------
Protection One, Inc./
Protection One Alarm
Monitoring, Inc.,
7.375% Sr. Unsec. Nts., 8/15/05                        400,000           406,000
- --------------------------------------------------------------------------------
Synagro Technologies, Inc.,
9.50% Sr. Sub. Nts., 4/1/09                            200,000           219,000
                                                                 ---------------
                                                                       6,353,110

- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.1%
Integrated Electrical Services, Inc.,
9.375% Sr. Sub. Nts.,
Series C, 2/1/09                                       405,000           382,725
- --------------------------------------------------------------------------------
URS Corp.:
11.50% Sr. Unsec. Nts., 9/15/09                         97,000           112,035
12.25% Sr. Sub. Nts.,
Series B, 5/1/09 2                                      19,000            20,330
                                                                 ---------------
                                                                         515,090

- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.2%
Belden & Blake Corp.,
8.75% Sr. Sec. Nts., 7/15/12 2                         325,000           331,500
- --------------------------------------------------------------------------------
Dayton Superior Corp.,
13% Sr. Unsec. Sub. Nts., 6/15/09                      200,000           209,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT Continued
General Cable Corp.,
9.50% Sr. Nts., 11/15/10                         $     200,000   $       227,000
- --------------------------------------------------------------------------------
Tennessee Gas Pipeline Co.,
7% Sr. Unsec. Debs., 10/15/28                          500,000           503,750
                                                                 ---------------
                                                                       1,271,250

- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.0%
Great Lakes Dredge & Dock Co.,
7.75% Sr. Unsec. Sub. Nts.,
12/15/13                                               120,000           109,800
- --------------------------------------------------------------------------------
MACHINERY--0.5%
AGCO Corp.,
9.50% Sr. Unsec. Nts., 5/1/08                          800,000           856,000
- --------------------------------------------------------------------------------
Douglas Dynamics LLC,
7.75% Sr. Nts., 1/15/12 7                              300,000           305,625
- --------------------------------------------------------------------------------
Dresser-Rand Group, Inc.,
7.375% Sr. Sub. Nts., 11/1/14 7                        100,000           102,500
- --------------------------------------------------------------------------------
Manitowoc Co., Inc. (The),
10.50% Sr. Sub. Nts., 8/1/12                           500,000           577,500
- --------------------------------------------------------------------------------
Milacron Escrow Corp.,
11.50% Sr. Sec. Nts., 5/15/11 2                        600,000           639,000
- --------------------------------------------------------------------------------
Navistar International Corp.,
7.50% Sr. Nts., 6/15/11                                400,000           431,000
- --------------------------------------------------------------------------------
NMHG Holding Co.,
10% Sr. Nts., 5/15/09                                  300,000           333,000
- --------------------------------------------------------------------------------
SPX Corp., 7.50% Sr. Nts., 1/1/13                      600,000           654,000
- --------------------------------------------------------------------------------
Terex Corp., 9.25% Sr. Unsec.
Sub. Nts., 7/15/11                                     400,000           451,000
- --------------------------------------------------------------------------------
Trinity Industries, Inc.,
6.50% Sr. Nts., 3/15/14                                300,000           301,500
                                                                 ---------------
                                                                       4,651,125

- --------------------------------------------------------------------------------
MARINE--0.1%
CP Ships Ltd.,
10.375% Sr. Nts., 7/15/12                              600,000           695,250
- --------------------------------------------------------------------------------
Millenium Seacarriers, Inc.,
12% Sr. Sec. Nts., 7/15/05 2,3,4                       250,000             6,025
- --------------------------------------------------------------------------------
Navigator Gas Transport plc,
10.50% First Priority Ship
Mtg. Nts., 6/30/07 2,3,4                               175,000           132,344
                                                                 ---------------
                                                                         833,619

- --------------------------------------------------------------------------------
ROAD & RAIL--0.2%
Kansas City Southern
Railway Co. (The),
7.50% Sr. Nts., 6/15/09                                400,000           422,000
- --------------------------------------------------------------------------------
Stena AB:
7% Sr. Nts., 12/1/16 7                                 800,000           796,000
7.50% Sr. Unsec. Nts., 11/1/13                         387,000           407,318
9.625% Sr. Nts., 12/1/12                               250,000           283,750
                                                                 ---------------
                                                                       1,909,068





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--0.1%
United Rentals, Inc.,
7% Sr. Sub. Nts., 2/15/14                        $     900,000   $       846,000
- --------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE--0.1%
Horizon Lines LLC, 9% Nts.,
11/1/12 7                                              300,000           324,000
- --------------------------------------------------------------------------------
Worldspan LP/
Worldspan Financial Corp.,
9.625% Sr. Nts., 6/15/11                               400,000           400,000
                                                                 ---------------
                                                                         724,000

- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.9%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.1%
Lucent Technologies, Inc.,
6.45% Unsec. Debs., 3/15/29                            500,000           455,000
- --------------------------------------------------------------------------------
Orion Network Systems, Inc.,
12.50% Sr. Unsub. Disc. Nts.,
1/15/07 2,3,4                                          675,000           354,375
                                                                 ---------------
                                                                         809,375

- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.0%
Seagate Technology
Hdd Holdings,
8% Sr. Nts., 5/15/09                                   200,000           217,000
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.3%
Flextronics International Ltd.,
6.25% Sr. Sub. Nts., 11/15/14 7                      1,100,000         1,094,500
- --------------------------------------------------------------------------------
Ingram Micro, Inc., 9.875% Sr.
Unsec. Sub. Nts., 8/15/08                              700,000           764,750
- --------------------------------------------------------------------------------
LCE Acquisition Corp.,
9% Sr. Sub. Nts., 8/1/14 7                             425,000           462,188
- --------------------------------------------------------------------------------
Sensus Metering System, Inc.,
8.625% Sr. Unsec. Sub. Nts., 12/15/13                  450,000           463,500
                                                                 ---------------
                                                                       2,784,938

- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.0%
Exodus Communications, Inc.,
10.75% Sr. Nts., 12/15/09 2,3,4 [EUR]                  338,620             4,603
- --------------------------------------------------------------------------------
Globix Corp., 11% Sr. Nts., 5/1/08 14                   42,888            39,671
- --------------------------------------------------------------------------------
NorthPoint Communications
Group, Inc.,
12.875% Nts., 2/15/10 2,3,4                            200,173                --
- --------------------------------------------------------------------------------
PSINet, Inc.,
10.50% Sr. Unsec. Nts.,
12/1/06 2,3,4 [EUR]                                    100,000             5,437
                                                                 ---------------
                                                                          49,711


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
IT SERVICES--0.1%
Iron Mountain, Inc.,
7.75% Sr. Sub. Nts., 1/15/15                     $     400,000   $       408,000
- --------------------------------------------------------------------------------
Titan Corp. (The),
8% Sr. Sub. Nts., 5/15/11                              100,000           107,000
                                                                 ---------------
                                                                         515,000

- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--0.4%
AMI Semiconductor, Inc.,
10.75% Sr. Unsec. Sub. Nts., 2/1/13                    389,000           459,020
- --------------------------------------------------------------------------------
Amkor Technology, Inc.:
7.75% Sr. Nts., 5/15/13                                200,000           189,000
9.25% Sr. Unsec. Sub. Nts., 2/15/08                    250,000           256,875
- --------------------------------------------------------------------------------
Freescale Semiconductor, Inc.,
7.125% Sr. Unsec. Nts., 7/15/14                        600,000           654,000
- --------------------------------------------------------------------------------
Huntsman International LLC,
7.375% Sr. Sub. Nts., 1/1/15 7                       1,100,000         1,108,250
- --------------------------------------------------------------------------------
MagnaChip Semiconductor Ltd.,
8% Sr. Sub. Nts., 12/15/14 7                            87,000            91,133
- --------------------------------------------------------------------------------
Micron Technology, Inc.,
6.50% Sub. Nts., 9/30/05                             1,000,000           995,000
                                                                 ---------------
                                                                       3,753,278

- --------------------------------------------------------------------------------
MATERIALS--4.1%
- --------------------------------------------------------------------------------
CHEMICALS--1.3%
Compass Minerals Group, Inc.,
10% Sr. Sub. Nts., 8/15/11                             450,000           508,500
- --------------------------------------------------------------------------------
Crompton Corp.,
9.875% Sr. Nts., 8/1/12 7                              350,000           402,500
- --------------------------------------------------------------------------------
Equistar Chemicals LP/
Equistar Funding Corp.:
8.75% Sr. Unsec. Nts., 2/15/09                         400,000           450,000
10.125% Sr. Unsec. Nts., 9/1/08                         19,000            21,993
10.625% Sr. Unsec. Nts., 5/1/11                        900,000         1,048,500
- --------------------------------------------------------------------------------
Huntsman Co. LLC:
11.625% Sr. Unsec. Nts., 10/15/10                       19,000            22,563
11.75% Sr. Nts., 7/15/12 7                             700,000           831,250
- --------------------------------------------------------------------------------
Huntsman Corp./
ICI Chemical Co. plc:
13.09% Sr. Unsec. Disc. Nts.,
12/31/09 8                                             600,000           339,000
10.125% Sr. Unsec. Sub. Nts.,
7/1/09 [EUR]                                           124,000           177,396
10.125% Sr. Unsec. Sub. Nts.,
7/1/09                                                 853,000           902,048
- --------------------------------------------------------------------------------
Huntsman International LLC,
9.875% Sr. Nts., 3/1/09                                850,000           937,125
- --------------------------------------------------------------------------------
IMC Global, Inc.,
10.875% Sr. Unsec. Nts., 8/1/13 2                       19,000            23,845
- --------------------------------------------------------------------------------
Innophos, Inc.,
8.875% Sr. Sub. Nts., 8/15/14 2                        400,000           434,000





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
CHEMICALS Continued
ISP Holdings, Inc.,
10.625% Sr. Sec. Nts., 12/15/09                  $     200,000   $       222,500
- --------------------------------------------------------------------------------
KI Holdings, Inc., 0%/9.875%
Sr. Disc. Nts., 11/15/14 7,13                          350,000           225,750
- --------------------------------------------------------------------------------
Lyondell Chemical Co.:
9.50% Sec. Nts., 12/15/08                               19,000            20,710
9.625% Sr. Sec. Nts.,
Series A, 5/1/07                                       200,000           221,000
9.875% Sec. Nts., Series B, 5/1/07                     980,000         1,031,450
- --------------------------------------------------------------------------------
Millennium America, Inc.,
9.25% Sr. Unsec. Sub. Nts., 6/15/08                    100,000           114,250
- --------------------------------------------------------------------------------
PCI Chemicals Canada,
10% Sr. Sec. Nts., 12/31/08                            113,061           120,410
- --------------------------------------------------------------------------------
Pioneer Cos., Inc.,
6.05% Sr. Sec. Nts., 12/31/06 1                         35,804            37,773
- --------------------------------------------------------------------------------
PolyOne Corp.:
8.875% Sr. Unsec. Nts., 5/1/12                       1,200,000         1,311,000
10.625% Sr. Unsec. Nts., 5/15/10                        19,000            21,470
- --------------------------------------------------------------------------------
Resolution Performance
Products LLC:
8% Sr. Sec. Nts., 12/15/09                             250,000           270,000
13.50% Sr. Unsec. Sub. Nts., 11/15/10                  100,000           109,250
- --------------------------------------------------------------------------------
Rhodia SA,
10.25% Sr. Unsec. Nts., 6/1/10                         550,000           621,500
- --------------------------------------------------------------------------------
Rockwood Specialties Group, Inc.,
7.50% Sr. Sub. Nts., 11/15/14 7                        200,000           208,500
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc.,
10% Sr. Sec. Nts., 12/19/07 14                         170,473           171,325
- --------------------------------------------------------------------------------
Westlake Chemical Corp.,
8.75% Sr. Nts., 7/15/11                                260,000           295,100
                                                                 ---------------
                                                                      11,100,708

- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.0%
Texas Industries, Inc.,
10.25% Sr. Unsec. Nts., 6/15/11                        400,000           470,000
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING--1.1%
Crown Euro Holdings SA:
9.50% Sr. Sec. Nts., 3/1/11                            500,000           572,500
10.875% Sr. Sec. Nts., 3/1/13                          200,000           237,500
- --------------------------------------------------------------------------------
Graham Packaging Co., Inc.:
8.50% Sr. Nts., 10/15/12 7                             200,000           211,000
9.875% Sub. Nts., 10/15/14 7                           300,000           321,750
- --------------------------------------------------------------------------------
Graphic Packaging
International Corp.:
8.50% Sr. Nts., 8/15/11                                500,000           548,750
9.50% Sr. Sub. Nts., 8/15/13                           350,000           399,875
- --------------------------------------------------------------------------------
Jefferson Smurfit Corp.:
7.50% Sr. Unsec. Unsub. Nts., 6/1/13                   300,000           321,750
8.25% Sr. Unsec. Nts., 10/1/12                         250,000           273,750


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING Continued
MDP Acquisitions plc,
9.625% Sr. Nts., 10/1/12                         $     400,000   $       448,000
- --------------------------------------------------------------------------------
Owens-Brockway
Glass Container, Inc.:
7.75% Sr. Sec. Nts., 5/15/11                           450,000           489,375
8.25% Sr. Unsec. Nts., 5/15/13                         419,000           462,995
8.75% Sr. Sec. Nts., 11/15/12                        1,000,000         1,132,500
8.875% Sr. Sec. Nts., 2/15/09                          200,000           218,250
- --------------------------------------------------------------------------------
Pliant Corp., 0%/11.125%
Sr. Sec. Disc. Nts., 6/15/09 13                        400,000           371,500
- --------------------------------------------------------------------------------
Solo Cup Co.,
8.50% Sr. Sub. Nts., 2/15/14                           500,000           522,500
- --------------------------------------------------------------------------------
Stone Container Corp.:
8.375% Sr. Nts., 7/1/12                                850,000           930,750
9.25% Sr. Unsec. Nts., 2/1/08                          200,000           222,000
9.75% Sr. Unsec. Nts., 2/1/11                          600,000           660,000
- --------------------------------------------------------------------------------
Stone Container Finance Co.
of Canada II,
7.375% Sr. Unsec. Nts., 7/15/14                        300,000           321,000
- --------------------------------------------------------------------------------
TriMas Corp., 9.875% Sr.
Unsec. Sub. Nts., 6/15/12 2                            500,000           532,500
                                                                 ---------------
                                                                       9,198,245

- --------------------------------------------------------------------------------
METALS & MINING--1.1%
AK Steel Corp.:
7.75% Sr. Unsec. Nts., 6/15/12                         219,000           226,665
7.875% Sr. Unsec. Nts., 2/15/09                        500,000           511,875
- --------------------------------------------------------------------------------
Arch Western Finance LLC,
6.75% Sr. Nts., 7/1/13                                 400,000           415,000
- --------------------------------------------------------------------------------
Asia Aluminum Holdings Ltd.,
8% Sr. Sec. Nts., 12/23/11 2                           925,000           938,875
- --------------------------------------------------------------------------------
California Steel Industries, Inc.,
6.125% Sr. Nts., 3/15/14                               400,000           399,000
- --------------------------------------------------------------------------------
Century Aluminum Co.,
7.50% Sr. Nts., 8/15/14 7                              600,000           642,000
- --------------------------------------------------------------------------------
Foundation PA Coal Co.,
7.25% Sr. Nts., 8/1/14 7                               250,000           267,500
- --------------------------------------------------------------------------------
IMCO Recycling, Inc.,
10.375% Sr. Sec. Nts., 10/15/10                        300,000           342,000
- --------------------------------------------------------------------------------
International Steel Group, Inc.,
6.50% Sr. Nts., 4/15/14                                200,000           215,500
- --------------------------------------------------------------------------------
International Utility
Structures, Inc.,
13% Unsec. Sub. Nts., 2/1/08 2,3,4                      71,000                --
- --------------------------------------------------------------------------------
Ispat Inland ULC,
9.75% Sr. Sec. Nts., 4/1/14                            585,000           725,400
- --------------------------------------------------------------------------------
Jorgensen (Earle M.) Co.,
9.75% Sr. Sec. Nts., 6/1/12                            500,000           565,000





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
METALS & MINING Continued
Kaiser Aluminum &
Chemical Corp.,
10.875% Sr. Nts.,
Series B, 10/15/06 3,4                           $     500,000   $       443,750
- --------------------------------------------------------------------------------
Koppers Industry, Inc.,
9.875% Sr. Sec. Nts., 10/15/13                         300,000           343,500
- --------------------------------------------------------------------------------
Massey Energy Co.,
6.625% Sr. Nts., 11/15/10                              200,000           210,000
- --------------------------------------------------------------------------------
Metallurg, Inc.,
11% Sr. Nts., 12/1/07                                  500,000           437,500
- --------------------------------------------------------------------------------
Oregon Steel Mills, Inc.,
10% Sr. Nts., 7/15/09                                  400,000           447,000
- --------------------------------------------------------------------------------
Peabody Energy Corp.,
6.875% Sr. Unsec. Nts.,
Series B, 3/15/13                                      400,000           435,000
- --------------------------------------------------------------------------------
Steel Dynamics, Inc.,
9.50% Sr. Nts., 3/15/09                                200,000           220,000
- --------------------------------------------------------------------------------
UCAR Finance, Inc.,
10.25% Sr. Nts., 2/15/12 2                             300,000           344,250
- --------------------------------------------------------------------------------
United States Steel Corp.:
9.75% Sr. Nts., 5/15/10                                336,000           384,720
10.75% Sr. Nts., 8/1/08                                519,000           613,718
                                                                 ---------------
                                                                       9,128,253

- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.6%
Abitibi-Consolidated, Inc.,
8.55% Nts., 8/1/10                                     200,000           217,750
- --------------------------------------------------------------------------------
Appleton Papers, Inc.,
8.125% Sr. Nts., 6/15/11                               300,000           324,750
- --------------------------------------------------------------------------------
Buckeye Technologies, Inc.,
8.50% Sr. Nts., 10/1/13                                100,000           109,000
- --------------------------------------------------------------------------------
Fort James Corp.,
6.875% Sr. Nts., 9/15/07                               500,000           533,750
- --------------------------------------------------------------------------------
Georgia-Pacific Corp.:
8.125% Sr. Unsec. Nts., 5/15/11                      1,050,000         1,212,750
9.375% Sr. Unsec. Nts., 2/1/13                         800,000           936,000
- --------------------------------------------------------------------------------
Inland Fiber Group LLC,
9.625% Sr. Unsec. Nts., 11/15/07 2,3,4                 300,000           136,500
- --------------------------------------------------------------------------------
Norske Skog Canada Ltd.,
7.375% Sr. Unsec. Nts., 3/1/14                         300,000           314,250
- --------------------------------------------------------------------------------
Riverside Forest Products Ltd.,
7.875% Sr. Unsec. Sub. Nts., 3/1/14                    300,000           331,500
- --------------------------------------------------------------------------------
Tekni-Plex, Inc.:
8.75% Sr. Sec. Nts., 11/15/13 7                        669,000           669,000
12.75% Sr. Unsec. Sub. Nts.,
Series B, 6/15/10                                      200,000           191,000
- --------------------------------------------------------------------------------
Tembec Industries, Inc.,
8.50% Sr. Unsec. Nts., 2/1/11                           19,000            19,190
- --------------------------------------------------------------------------------
Western Forest Products, Inc.,
15% Sec. Nts., 7/28/09 7,14                            187,000           211,778
                                                                 ---------------
                                                                       5,207,218


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--3.2%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.3%
American Tower Corp.:
7.125% Sr. Unsec. Nts., 10/15/12 7               $     250,000   $       256,875
9.375% Sr. Nts., 2/1/09 5                              133,000           141,313
- --------------------------------------------------------------------------------
Citizens Communications Co.,
6.25% Sr. Nts., 1/15/13                                700,000           708,750
- --------------------------------------------------------------------------------
Crown Castle International Corp.,
7.50% Sr. Nts., 12/1/13                                400,000           432,000
- --------------------------------------------------------------------------------
MCI, Inc.:
6.908% Sr. Unsec. Nts., 5/1/07 1                       468,000           480,285
7.688% Sr. Unsec. Nts., 5/1/09 1                     1,150,000         1,193,125
- --------------------------------------------------------------------------------
PSINet, Inc., 11% Sr. Nts., 8/1/09 2,3,4               265,814             3,987
- --------------------------------------------------------------------------------
Qwest Capital Funding, Inc.,
7.90% Unsec. Nts., 8/15/10                             819,000           831,285
- --------------------------------------------------------------------------------
Qwest Communications
International, Inc.,
7.25% Sr. Nts., 2/15/11 7                              300,000           309,000
- --------------------------------------------------------------------------------
Qwest Corp.,
9.125% Nts., 3/15/12 7                                 800,000           928,000
- --------------------------------------------------------------------------------
Qwest Services Corp.:
14% Nts., 12/15/10 1,7                               2,700,000         3,260,250
14.50% Nts., 12/15/14 7                              1,000,000         1,270,000
- --------------------------------------------------------------------------------
Teligent, Inc.,
11.50% Sr. Nts., 12/1/07 2,3,4                         500,000                --
- --------------------------------------------------------------------------------
Telus Corp., 7.50% Nts., 6/1/07                        790,000           858,810
- --------------------------------------------------------------------------------
Time Warner Telecom LLC/
Time Warner Telecom, Inc.,
9.75% Sr. Nts., 7/15/08                                300,000           305,250
- --------------------------------------------------------------------------------
Winstar Communications, Inc.,
12.75% Sr. Nts., 4/15/10 2,3,4                         250,000                --
                                                                 ---------------
                                                                      10,978,930

- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--1.9%
Alamosa Delaware, Inc.:
8.50% Sr. Nts., 1/31/12                                400,000           439,000
11% Sr. Unsec. Nts., 7/31/10                            19,000            22,468
12.50% Sr. Unsec. Nts., 2/1/11                          50,000            56,750
- --------------------------------------------------------------------------------
American Cellular Corp.,
10% Sr. Nts., Series B, 8/1/11                         575,000           495,938
- --------------------------------------------------------------------------------
American Tower Corp.,
7.50% Sr. Nts., 5/1/12                                 400,000           422,000
- --------------------------------------------------------------------------------
American Tower Escrow Corp.,
12.25% Sr. Sub. Disc. Nts., 8/1/08 8                   800,000           602,000
- --------------------------------------------------------------------------------
AT&T Corp.:
9.05% Sr. Unsec. Nts., 11/15/11 1                    1,000,000         1,156,250
9.75% Sr. Nts., 11/15/31 1                             500,000           599,375
- --------------------------------------------------------------------------------
CellNet Data Systems, Inc.,
Sr. Unsec. Disc. Nts., 10/1/07 2,3,4                   400,000                --





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES Continued
Centennial Cellular
Operating Co. LLC/Centennial
Communications Corp.,
10.125% Sr. Nts., 6/15/13                        $   1,050,000   $     1,183,875
- --------------------------------------------------------------------------------
Crown Castle International Corp.,
10.75% Sr. Nts., 8/1/11                              1,000,000         1,090,000
- --------------------------------------------------------------------------------
Dobson Cellular Systems,
8.375% Sec. Nts., 11/1/11 7                            130,000           134,875
- --------------------------------------------------------------------------------
Dobson Communications Corp.:
8.875% Sr. Nts., 10/1/13                               219,000           154,943
10.875% Sr. Unsec. Nts., 7/1/10                        600,000           468,000
- --------------------------------------------------------------------------------
IWO Escrow Co.,
Sr. Sec. Nts., 1/15/12 1,5,7                           110,000           111,375
- --------------------------------------------------------------------------------
Nextel Communications, Inc.,
7.375% Sr. Nts., 8/1/15                              3,080,000         3,403,400
- --------------------------------------------------------------------------------
Nextel Partners, Inc.,
12.50% Sr. Nts., 11/15/09                              342,000           389,025
- --------------------------------------------------------------------------------
Rogers Wireless
Communications, Inc.:
7.50% Sr. Sec. Nts., 3/15/15 7                         450,000           477,000
8% Sr. Sub. Nts., 12/15/12 7                           400,000           425,000
- --------------------------------------------------------------------------------
Rural Cellular Corp.:
8.25% Sr. Sec. Nts., 3/15/12                           275,000           292,188
9.625% Sr. Sub. Nts.,
Series B, 5/15/08                                      500,000           477,500
9.75% Sr. Sub. Nts., 1/15/10                           519,000           472,290
9.875% Sr. Nts., 2/1/10                                300,000           306,750
- --------------------------------------------------------------------------------
SBA Communications Corp.,
8.50% Sr. Nts., 12/1/12 7                              550,000           563,750
- --------------------------------------------------------------------------------
SBA Telecommunications, Inc./
SBA Communications Corp.,
0%/9.75% Sr. Disc. Nts., 12/15/11 13                 1,169,000           990,728
- --------------------------------------------------------------------------------
Triton PCS, Inc.,
8.50% Sr. Unsec. Nts., 6/1/13                          550,000           533,500
- --------------------------------------------------------------------------------
UbiquiTel Operating Co.,
9.875% Sr. Nts., 3/1/11                                600,000           676,500
- --------------------------------------------------------------------------------
US Unwired, Inc.,
10% Sr. Sec. Nts., 6/15/12                             250,000           283,125
- --------------------------------------------------------------------------------
Western Wireless Corp.,
9.25% Sr. Unsec. Nts., 7/15/13                         469,000           512,383
                                                                 ---------------
                                                                      16,739,988

- --------------------------------------------------------------------------------
UTILITIES--2.0%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.3%
AES Corp. (The),
8.75% Sr. Sec. Nts., 5/15/13 7                         700,000           798,875
- --------------------------------------------------------------------------------
Caithness Coso Funding Corp.,
9.05% Sr. Sec. Nts.,
Series B, 12/15/09                                     293,438           324,249
- --------------------------------------------------------------------------------
Calpine Corp.,
7.625% Sr. Nts., 4/15/06                               200,000           197,500


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES Continued
CenterPoint Energy, Inc.,
7.25% Sr. Nts., Series B, 9/1/10                 $     200,000   $       223,330
- --------------------------------------------------------------------------------
CITGO Trustees Cayman Ltd.,
8.50% Nts., 12/21/14 2                                 610,000           611,525
- --------------------------------------------------------------------------------
CMS Energy Corp.:
7.50% Sr. Nts., 1/15/09                                 19,000            20,330
7.75% Sr. Nts., 8/1/10                                 200,000           219,750
8.50% Sr. Nts., 4/15/11                                250,000           285,313
9.875% Sr. Unsec. Nts., 10/15/07                       900,000         1,010,250
- --------------------------------------------------------------------------------
CMS Energy X-TRAS
Pass-Through Trust I,
7% Sr. Unsec. Pass-Through
Certificates, 1/15/05                                  300,000           300,000
- --------------------------------------------------------------------------------
Funding Corp./
Beaver Valley Funding Corp.,
9% Second Lease
Obligation Bonds, 6/1/17                               199,000           235,818
- --------------------------------------------------------------------------------
Midwest Generation LLC,
8.75% Sr. Sec. Nts., 5/1/34                          1,850,000         2,109,000
- --------------------------------------------------------------------------------
Mirant Americas Generation LLC,
7.625% Sr. Unsec. Nts., 5/1/06 3,4                     200,000           216,000
- --------------------------------------------------------------------------------
MSW Energy Holdings II LLC/
MSW Energy Finance Co. II, Inc.,
7.375% Sr. Sec. Nts.,
Series B, 9/1/10                                       350,000           369,250
- --------------------------------------------------------------------------------
MSW Energy Holdings LLC/
MSW Energy Finance Co., Inc.,
8.50% Sr. Sec. Nts., 9/1/10                            200,000           220,000
- --------------------------------------------------------------------------------
NRG Energy, Inc.,
8% Sr. Sec. Nts., 12/15/13 7                         1,100,000         1,204,500
- --------------------------------------------------------------------------------
Reliant Energy, Inc.,
6.75% Sr. Sec. Nts., 12/15/14                          400,000           399,500
- --------------------------------------------------------------------------------
Reliant Resources, Inc.:
9.25% Sr. Sec. Nts., 7/15/10                           669,000           749,280
9.50% Sr. Sec. Nts., 7/15/13                           900,000         1,027,125
- --------------------------------------------------------------------------------
Teco Energy, Inc.,
7.20% Unsec. Unsub. Nts., 5/1/11                       600,000           660,000
- --------------------------------------------------------------------------------
Texas Genco LLC,
6.875% Sr. Nts., 12/15/14 7                            550,000           571,313
                                                                 ---------------
                                                                      11,752,908

- --------------------------------------------------------------------------------
GAS UTILITIES--0.1%
AmeriGas Partners LP/
AmeriGas Eagle Finance Corp.,
8.875% Sr. Unsec. Nts.,
Series B, 5/20/11                                      500,000           547,500
- --------------------------------------------------------------------------------
SEMCO Energy, Inc.,
7.125% Sr. Nts., 5/15/08                               150,000           161,291
                                                                 ---------------
                                                                         708,791





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.6%
AES Red Oak LLC,
8.54% Sr. Sec. Bonds,
Series A, 11/30/19                               $     562,854   $       634,617
- --------------------------------------------------------------------------------
Consumers Energy Co.,
7.375% Nts., 9/15/23                                   250,000           258,610
- --------------------------------------------------------------------------------
Dynegy Holdings, Inc.:
6.875% Sr. Unsec. Unsub. Nts., 4/1/11                  850,000           822,375
8.75% Sr. Nts., 2/15/12                              1,669,000         1,756,623
10.125% Sr. Sec. Nts., 7/15/13 7                       800,000           920,000
- --------------------------------------------------------------------------------
Mirant Mid-Atlantic LLC,
8.625% Sec. Pass-Through
Certificates, Series A, 6/30/12                        429,280           476,770
- --------------------------------------------------------------------------------
NorthWestern Corp.,
5.875% Sr. Sec. Nts., 11/1/14 7                         90,000            92,517
                                                                 ---------------
                                                                       4,961,512
                                                                 ---------------
Total Corporate Bonds and
Notes (Cost $228,184,438)                                            240,328,675

                                                        SHARES
- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.3%
- --------------------------------------------------------------------------------
AmeriKing, Inc.,
13% Cum. Sr. Exchangeable,
Non-Vtg. 2,4,14                                          4,253                --
- --------------------------------------------------------------------------------
Doane Pet Care Co.,
14.25% Jr. Sub. Exchange Debs.,
Non-Vtg. 2,4                                             5,000           261,250
- --------------------------------------------------------------------------------
Dobson Communications Corp.,
6% Cv., Series F (converts into
Dobson Communications Corp.,
Cl. A common stock), Non-Vtg. 7                            550            38,549
- --------------------------------------------------------------------------------
e.spire Communications, Inc.,
12.75% Jr. Redeemable, Non-Vtg. 2,4,14                     216                22
- --------------------------------------------------------------------------------
Eagle-Picher Holdings, Inc.,
11.75% Cum. Exchangeable,
Series B, Non-Vtg. 2,4                                   5,000           436,250
- --------------------------------------------------------------------------------
ICG Holdings, Inc.,
14.25% Exchangeable, Non-Vtg. 2,4,14                       151                --
- --------------------------------------------------------------------------------
Paxson Communications Corp.:
14.25% Cum. Jr. Exchangeable, Non-Vtg. 2,14                 43           317,125
14.25% Cum. Jr. Exchangeable, Non-Vtg. 2,4,14                1             5,790
- --------------------------------------------------------------------------------
Pennsylvania Real Estate
Investment Trust, 11%                                    2,000           121,000
- --------------------------------------------------------------------------------
PTV, Inc., 10% Cum.,
Series A, Non-Vtg                                            7                24
- --------------------------------------------------------------------------------
Rural Cellular Corp.,
11.375% Cum.,
Series B, Non-Vtg. 2,4,14                                  630           489,825


                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
PREFERRED STOCKS Continued
Sovereign Real Estate Investment
Trust, 12% Non-Cum., Series A 2                          4,600   $       698,050
                                                                 ---------------
Total Preferred
Stocks (Cost $2,471,559)                                               2,367,885

- --------------------------------------------------------------------------------
COMMON STOCKS--2.8%
- --------------------------------------------------------------------------------
AboveNet, Inc. 4                                            72             2,304
- --------------------------------------------------------------------------------
ACE Ltd.                                                 4,100           175,275
- --------------------------------------------------------------------------------
Aegis Group plc                                         84,740           175,708
- --------------------------------------------------------------------------------
Aetna, Inc.                                              1,400           174,650
- --------------------------------------------------------------------------------
All Nippon Airways Co. Ltd.                             48,000           167,229
- --------------------------------------------------------------------------------
Allstate Corp.                                           3,300           170,676
- --------------------------------------------------------------------------------
Anadarko Petroleum Corp.                                 2,510           162,673
- --------------------------------------------------------------------------------
Apache Corp.                                             3,300           166,881
- --------------------------------------------------------------------------------
Apple Computer, Inc. 4                                   2,700           173,880
- --------------------------------------------------------------------------------
Arriva plc                                              17,920           185,785
- --------------------------------------------------------------------------------
Ashland, Inc.                                            2,900           169,302
- --------------------------------------------------------------------------------
Autodesk, Inc.                                           5,000           189,750
- --------------------------------------------------------------------------------
BAE Systems plc                                         35,850           158,650
- --------------------------------------------------------------------------------
Bear Stearns Cos., Inc. (The)                            1,600           163,696
- --------------------------------------------------------------------------------
Beverly Hills Bancorp, Inc.                              6,273            63,357
- --------------------------------------------------------------------------------
Black & Decker Corp.                                     2,000           176,660
- --------------------------------------------------------------------------------
Broadwing Corp.                                            688             6,268
- --------------------------------------------------------------------------------
Burlington Resources, Inc.                               3,900           169,650
- --------------------------------------------------------------------------------
Cebridge Connections
Holding LLC 4                                              529                --
- --------------------------------------------------------------------------------
Celesio AG                                               2,194           178,037
- --------------------------------------------------------------------------------
Centex Corp.                                             3,200           190,656
- --------------------------------------------------------------------------------
Charles River Laboratories
International, Inc. 4                                    2,660           122,387
- --------------------------------------------------------------------------------
Chesapeake Energy Corp.                                    416             6,864
- --------------------------------------------------------------------------------
ChevronTexaco Corp.                                      3,200           168,032
- --------------------------------------------------------------------------------
Chubu Electric Power Co., Inc.                           7,300           175,251
- --------------------------------------------------------------------------------
CIGNA Corp.                                              2,200           179,454
- --------------------------------------------------------------------------------
CNP Assurances SA                                        2,480           177,649
- --------------------------------------------------------------------------------
ConocoPhillips                                           1,900           164,977
- --------------------------------------------------------------------------------
Conseco, Inc. 4                                         13,986           279,021
- --------------------------------------------------------------------------------
Continental AG                                           2,750           174,749
- --------------------------------------------------------------------------------
Corus Group plc 4                                      161,310           156,398
- --------------------------------------------------------------------------------
Countrywide Financial Corp.                              4,900           181,349
- --------------------------------------------------------------------------------
Covad Communications
Group, Inc. 4                                           16,528            35,535
- --------------------------------------------------------------------------------
Criimi MAE, Inc. 4                                      71,447         1,150,297
- --------------------------------------------------------------------------------
Crunch Equity Holdings, Cl. A 2,4                          120           156,133
- --------------------------------------------------------------------------------
Cummins, Inc.                                            2,100           175,959





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
- --------------------------------------------------------------------------------
Dainippon Ink & Chemicals, Inc.                         74,000   $       170,430
- --------------------------------------------------------------------------------
Devon Energy Corp.                                       4,200           163,464
- --------------------------------------------------------------------------------
Dillard's, Inc., Cl. A                                   6,400           171,968
- --------------------------------------------------------------------------------
Dobson Communications
Corp., Cl. A 4                                          24,300            41,796
- --------------------------------------------------------------------------------
E.ON AG                                                  1,992           181,898
- --------------------------------------------------------------------------------
Energy Select Sector SPDR Fund                          18,200           658,840
- --------------------------------------------------------------------------------
EOG Resources, Inc.                                      2,300           164,128
- --------------------------------------------------------------------------------
Equinix, Inc. 4                                          1,887            80,650
- --------------------------------------------------------------------------------
Financial Select Sector SPDR Fund                       21,600           659,448
- --------------------------------------------------------------------------------
Freddie Mac                                              2,400           176,880
- --------------------------------------------------------------------------------
Friends Provident plc                                   54,940           162,438
- --------------------------------------------------------------------------------
General Motors Corp.                                     4,400           176,264
- --------------------------------------------------------------------------------
Geotek Communications, Inc.,
Series B, Escrow Shares 2,4,15                             210                --
- --------------------------------------------------------------------------------
Globix Corp. 4                                           6,880            24,768
- --------------------------------------------------------------------------------
Heidelberger Zement AG                                   2,960           179,362
- --------------------------------------------------------------------------------
Hokkaido Electric Power Co.                              8,800           173,046
- --------------------------------------------------------------------------------
Horizon Natural Resources Co. 2,4                        6,667                --
- --------------------------------------------------------------------------------
Humana, Inc. 4                                           6,400           190,016
- --------------------------------------------------------------------------------
ICO Global Communication
Holdings Ltd. 4                                          6,016             3,068
- --------------------------------------------------------------------------------
Imerys SA                                                2,210           185,493
- --------------------------------------------------------------------------------
iPCS, Inc. 4                                             8,548           260,714
- --------------------------------------------------------------------------------
Janus Capital Group, Inc.                               10,100           169,781
- --------------------------------------------------------------------------------
Japan Real Estate
Investment Corp.                                            20           168,635
- --------------------------------------------------------------------------------
Karstadt Quelle AG                                      16,370           169,107
- --------------------------------------------------------------------------------
Kawasaki Kisen Kaisha Ltd.                              25,000           161,344
- --------------------------------------------------------------------------------
KB Home                                                  1,800           187,920
- --------------------------------------------------------------------------------
Klepierre                                                1,960           173,568
- --------------------------------------------------------------------------------
Lafarge SA                                               1,790           172,747
- --------------------------------------------------------------------------------
Leap Wireless International, Inc. 4                      1,714            46,278
- --------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.                           2,000           174,960
- --------------------------------------------------------------------------------
Lincoln National Corp.                                   3,500           163,380
- --------------------------------------------------------------------------------
Lloyds TSB Group plc                                    20,870           189,523
- --------------------------------------------------------------------------------
Loews Corp.                                              2,400           168,720
- --------------------------------------------------------------------------------
Louisiana-Pacific Corp.                                  6,200           165,788
- --------------------------------------------------------------------------------
MAN AG                                                   4,423           169,718
- --------------------------------------------------------------------------------
Marathon Oil Corp.                                       4,500           169,245
- --------------------------------------------------------------------------------
MBIA, Inc.                                               2,700           170,856
- --------------------------------------------------------------------------------
MCI, Inc.                                                1,629            32,841
- --------------------------------------------------------------------------------
Merck KGaA                                               2,902           198,410
- --------------------------------------------------------------------------------
MetLife, Inc.                                            4,200           170,142
- --------------------------------------------------------------------------------
Mitsui O.S.K. Lines Ltd.                                27,000           162,047
- --------------------------------------------------------------------------------
Nippon Building Fund, Inc.                                  19           162,057



                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
- --------------------------------------------------------------------------------
Nippon Yusen Kabushiki Kaisha                           32,000   $       172,382
- --------------------------------------------------------------------------------
Norfolk Southern Corp.                                   4,700           170,093
- --------------------------------------------------------------------------------
Novar plc                                               54,100           195,529
- --------------------------------------------------------------------------------
NSK Ltd.                                                36,000           180,931
- --------------------------------------------------------------------------------
NTL, Inc. 4                                              7,842           572,152
- --------------------------------------------------------------------------------
Nucor Corp.                                              3,200           167,488
- --------------------------------------------------------------------------------
Occidental Petroleum Corp.                               3,000           175,080
- --------------------------------------------------------------------------------
Orbital Sciences Corp. 4                                   745             8,813
- --------------------------------------------------------------------------------
Peninsular & Oriental Steam
Navigation Co.                                          29,210           166,839
- --------------------------------------------------------------------------------
PG&E Corp. 4                                             5,200           173,056
- --------------------------------------------------------------------------------
Phelps Dodge Corp.                                       1,800           178,056
- --------------------------------------------------------------------------------
Pilkington plc                                          82,360           173,935
- --------------------------------------------------------------------------------
Pioneer Cos., Inc. 4                                     7,312           151,724
- --------------------------------------------------------------------------------
Prandium, Inc. 2,4                                      24,165               266
- --------------------------------------------------------------------------------
Premier Holdings Ltd. 2,4                               18,514                --
- --------------------------------------------------------------------------------
Prudential Financial, Inc.                               3,300           181,368
- --------------------------------------------------------------------------------
Pulte Homes, Inc.                                        2,910           185,658
- --------------------------------------------------------------------------------
Rakuten, Inc.                                               20            22,913
- --------------------------------------------------------------------------------
Rakuten, Inc. 4                                            180           161,608
- --------------------------------------------------------------------------------
RMC Group plc                                           10,440           170,172
- --------------------------------------------------------------------------------
Rolls-Royce Group plc                                   33,400           158,388
- --------------------------------------------------------------------------------
RWE AG                                                   3,155           174,110
- --------------------------------------------------------------------------------
Ryder Systems, Inc.                                      3,100           148,087
- --------------------------------------------------------------------------------
SABMiller plc                                           10,200           169,197
- --------------------------------------------------------------------------------
Safeco Corp.                                             3,400           177,616
- --------------------------------------------------------------------------------
Sears Roebuck & Co.                                      3,200           163,296
- --------------------------------------------------------------------------------
Sega Sammy Holdings, Inc. 4                              3,200           175,817
- --------------------------------------------------------------------------------
Sempra Energy                                            4,600           168,728
- --------------------------------------------------------------------------------
Severn Trent plc                                         9,880           183,427
- --------------------------------------------------------------------------------
Showa Shell Sekiyu K.K                                  18,380           167,352
- --------------------------------------------------------------------------------
Societe Generale, Cl. A                                  1,720           174,057
- --------------------------------------------------------------------------------
Star Gas Partners LP                                       187             1,393
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. 2,4                               716            26,671
- --------------------------------------------------------------------------------
Suedzucker AG                                            8,314           173,241
- --------------------------------------------------------------------------------
Suez SA                                                  7,140           190,413
- --------------------------------------------------------------------------------
Sunoco, Inc.                                             2,100           171,591
- --------------------------------------------------------------------------------
Tate & Lyle plc                                         17,860           162,103
- --------------------------------------------------------------------------------
Technip SA                                               1,000           184,858
- --------------------------------------------------------------------------------
Telewest Global, Inc. 4                                 31,828           559,536
- --------------------------------------------------------------------------------
Telus Corp.                                                269             7,774
- --------------------------------------------------------------------------------
Tohoku Electric Power Co.                                9,430           169,330
- --------------------------------------------------------------------------------
TonenGeneral Sekiyu K.K                                 17,870           162,708
- --------------------------------------------------------------------------------
Total SA, B Shares                                         760           166,561
- --------------------------------------------------------------------------------
Toys R Us, Inc. 4                                        8,400           171,948





                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
- --------------------------------------------------------------------------------
Transocean, Inc. 4                                       4,400   $       186,516
- --------------------------------------------------------------------------------
TUI AG                                                   7,536           178,746
- --------------------------------------------------------------------------------
TVMAX Holdings, Inc. 2,4                                 1,000             5,950
- --------------------------------------------------------------------------------
TXU Corp.                                                2,800           180,768
- --------------------------------------------------------------------------------
Unibail                                                  1,180           185,733
- --------------------------------------------------------------------------------
United States Steel Corp.                                3,300           169,125
- --------------------------------------------------------------------------------
United Utilities plc                                    15,620           188,930
- --------------------------------------------------------------------------------
UnitedGlobalCom, Inc., Cl. A 4                          58,063           560,889
- --------------------------------------------------------------------------------
Unocal Corp.                                             3,900           168,636
- --------------------------------------------------------------------------------
Utilities Select Sector SPDR Fund                       24,200           673,970
- --------------------------------------------------------------------------------
Valero Energy Corp.                                      3,900           177,060
- --------------------------------------------------------------------------------
Viatel Holding Ltd. (Bermuda) 2,4                        2,251             2,701
- --------------------------------------------------------------------------------
Vinci                                                    1,360           182,640
- --------------------------------------------------------------------------------
Western Forest Products, Inc. 4                         38,252           212,307
- --------------------------------------------------------------------------------
WRC Media Corp. 2,4                                      1,082                22
- --------------------------------------------------------------------------------
XO Communications, Inc. 4                                1,100             3,344
                                                                 ---------------
Total Common Stocks
(Cost $21,237,672)                                                    23,790,482

                                                         UNITS
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- --------------------------------------------------------------------------------
American Tower Corp. Wts.,
Exp. 8/1/08 4,7                                            800           184,400
- --------------------------------------------------------------------------------
ASAT Finance LLC Wts.,
Exp. 11/1/06 2,4                                           250                 2
- --------------------------------------------------------------------------------
Citigroup, Inc. Litigation Wts.,
Exp. 12/31/50 4                                          2,404             3,414
- --------------------------------------------------------------------------------
COLO.com, Inc. Wts.,
Exp. 3/15/10 2,4                                           400                 4
- --------------------------------------------------------------------------------
Concentric Network Corp. Wts.,
Exp. 12/15/07 2,4                                          100                --
- --------------------------------------------------------------------------------
Covergent Communications,
Inc. Wts., Exp. 4/1/08 2,4                                 400                 4
- --------------------------------------------------------------------------------
HF Holdings, Inc. Wts.,
Exp. 9/27/09 2,4                                           530                 5
- --------------------------------------------------------------------------------
Horizon PCS, Inc. Wts.,
Exp. 10/1/10 2,4                                         1,000                --
- --------------------------------------------------------------------------------
Huntsman Co. LLC Wts.,
Exp. 5/15/11 2,4                                           300           141,150
- --------------------------------------------------------------------------------
ICG Communications, Inc. Wts.,
Exp. 9/15/05 2,4                                           825                 8
- --------------------------------------------------------------------------------
ICO Global Communication
Holdings Ltd. Wts.:
Exp. 5/16/06 2,4                                         1,509                 8
Exp. 5/16/06 2,4                                             2                --
- --------------------------------------------------------------------------------
Imperial Credit Industries,
Inc. Wts., Exp. 1/31/08 2,4                              2,135                --
- --------------------------------------------------------------------------------
Insilco Corp. Wts., Exp. 8/15/07 2,4                       270                --

                                                                           VALUE
                                                         UNITS        SEE NOTE 1
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES Continued
- --------------------------------------------------------------------------------
iPCS, Inc. Wts., Exp. 6/15/10 2,4                          300   $             3
- --------------------------------------------------------------------------------
Leap Wireless International,
Inc. Wts., Exp. 4/15/10 2,4                                275                 3
- --------------------------------------------------------------------------------
Long Distance International,
Inc. Wts., Exp. 4/13/08 2,4                                200                --
- --------------------------------------------------------------------------------
Loral Space &
Communications Ltd. Wts.,
Exp. 1/15/07 2,4                                           150                 2
- --------------------------------------------------------------------------------
Millenium Seacarriers, Inc. Wts.,
Exp. 7/15/05 2,4                                           250                 3
- --------------------------------------------------------------------------------
Ntelos, Inc. Wts., Exp. 8/15/10 2,4                        450                 5
- --------------------------------------------------------------------------------
Pathmark Stores, Inc. Wts.,
Exp. 9/19/10 4                                           5,710             1,142
- --------------------------------------------------------------------------------
PLD Telekom, Inc. Wts.,
Exp. 6/1/06 2,4                                            300                 3
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. Wts.,
Exp. 12/19/08 2,4                                        1,165             5,432
- --------------------------------------------------------------------------------
Venezuela (Republic of) Oil
Linked Payment Obligation Wts.,
Exp. 4/15/20 2,4                                         3,256                --
- --------------------------------------------------------------------------------
Verado Holdings, Inc., Cl. B Wts.,
Exp. 4/15/08 4                                             175               119
- --------------------------------------------------------------------------------
XO Communications, Inc.,
Cl. A Wts., Exp. 1/16/10 4                               2,204             1,488
- --------------------------------------------------------------------------------
XO Communications, Inc.,
Cl. B Wts., Exp. 1/16/10 4                               1,653               793
- --------------------------------------------------------------------------------
XO Communications, Inc.,
Cl. C Wts., Exp. 1/16/10 4                               1,653               645
                                                                 ---------------
Total Rights, Warrants and
Certificates (Cost $80,050)                                              338,633

                                                     PRINCIPAL
                                                        AMOUNT
- --------------------------------------------------------------------------------
STRUCTURED NOTES--10.2%
- --------------------------------------------------------------------------------
Citigroup Global Markets
Holdings, Inc.:
Brazilian Real Unsec. Credit
Linked Nts., 0.93%, 1/14/05                      $   1,982,615         2,319,858
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 3/15/07 [COP]                               3,860,150,000         2,002,175
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 4/27/12 [COP]                               1,800,000,000           939,374
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 4/27/12 [COP]                               1,200,000,000           626,250
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 4/27/12 5 [COP]                             1,034,000,000           536,533
Colombia (Republic of)
Unsec. Credit Linked Nts.,
3.12%, 11/20/09                                      2,920,000         2,959,128





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Citigroup Global Markets
Holdings, Inc.: Continued
Dominican Republic Peso
Unsec. Credit Linked Nts.,
24.05%, 3/21/05 [DOP]                               21,604,000   $       711,287
Dominican Republic Peso
Unsec. Credit Linked Nts.,
24.32%, 3/7/05 [DOP]                                20,810,000           698,398
Peruvian Sol Unsec. Linked Nts.,
1.466%, 1/14/05 [PEN]                                4,200,000         1,356,450
Ukraine Hryvnia Unsec. Credit
Linked Nts., 7.50%, 5/6/05 2 [UAH]                   3,980,000           749,529
- --------------------------------------------------------------------------------
Credit Suisse First Boston
Corp. (Cayman):
Russia (Government of)
Linked Bonds,
Series 24, 15%, 9/2/05 [RUR]                        22,279,000           861,189
Russia (Government of)
Linked Bonds,
Series 26, 15%, 3/11/05 [RUR]                       22,587,000           838,872
- --------------------------------------------------------------------------------
Credit Suisse First Boston
International, OAO Gazprom
Credit Linked Nts.,
8.11%, 1/21/07 [RUR]                                28,065,000         1,058,573
- --------------------------------------------------------------------------------
Credit Suisse First Boston, Inc.:
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
20%, 10/18/07                                          352,000           387,633
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series EM 868, 27.50%, 8/25/05                       2,125,000         1,881,220
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series EM 872, 23.57%, 10/20/05 1                      396,000           425,904
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series EM 880, 20%, 10/18/07                         1,190,000         1,450,705
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series NA S 316, 24.45%, 2/23/06                       607,000           488,435
(USA), U.S. Dollar/South African
Rand Linked Nts.,
Series FBi 43, 1.468%, 5/23/22                         825,000           784,080
- --------------------------------------------------------------------------------
Deutsche Bank AG:
European Investment Bank
Credit Bonds, 5.65%, 1/19/10 5                         705,000           533,897
Indonesia (Republic of) Credit
Linked Nts., 14.25%, 6/22/13                           942,000         1,146,885
Indonesia (Republic of) Credit
Linked Nts., 14.25%, 6/22/13                           938,000         1,142,015
Korea (Republic of) Credit
Bonds, 2.49%, 6/20/09                                3,900,000         3,945,240
Moscow (City of) Linked Nts.,
10%, 5/27/05 [RUR]                                  13,440,000           498,080
Moscow (City of) Linked Nts.,
15%, 9/2/05 [RUR]                                   30,255,000         1,170,046


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Deutsche Bank AG: Continued
Nigeria (Federal Republic of)
Naira Linked Nts.,
13.25%, 3/17/05 [NGN]                               97,403,000   $       710,460
Nigeria (Federal Republic of)
Naira Linked Nts.,
13.75%, 3/3/05 [NGN]                                65,974,000           484,338
Nigeria (Republic of)
Credit Linked Nts.,
13.90%, 2/24/05 [NGN]                              119,040,000           876,149
OAO Gazprom I Credit Nts.,
6.20%, 10/20/07                                        790,000           841,076
OAO Gazprom II Credit Nts.,
5.95%, 4/20/07                                         790,000           831,663
Romania (The State of)
Leu Linked Nts., 11.49%,
12/4/06 [ROL]                                    7,886,400,000           274,045
Russian Federation Linked Nts.,
8.40%, 12/2/09 [RUR]                                19,221,000           698,266
Ukraine (Republic of)
Credit Linked Nts., 6.54%, 8/5/11                    4,070,000         4,389,292
Ukraine (Republic of)
Hryvnia Credit Linked Nts.,
0%, 12/17/05 [UAH]                                   1,469,000           276,274
Ukraine (Republic of)
Hryvnia Credit Linked Nts.,
11.70%, 5/31/06 [UAH]                                1,727,000           325,089
- --------------------------------------------------------------------------------
Dow Jones CDX High Yield
Index Pass-Through Certificates:
Series 3-1, 7.75%, 12/29/09 7,16                    13,200,000        13,587,750
Series 3-3, 8%, 12/29/09 7,16                       12,700,000        13,041,313
- --------------------------------------------------------------------------------
Lehman Brothers International:
Turkey (Republic of) Treasury
Bills Total Return Linked Nts.,
20%, 10/17/07                                        1,260,000         1,512,630
Turkey (Republic of) Treasury
Bills Total Return Linked Nts.,
24.20%, 8/25/05                                      1,165,000         1,003,182
Turkey (Republic of) Treasury
Bills Total Return Linked Nts.,
28.25%, 5/26/05                                      1,261,309         1,277,580
- --------------------------------------------------------------------------------
Lehman Brothers Special
Financing, Inc., High Yield Index
Linked Nts., 1.017%, 1/1/05 16                      10,000,000        10,145,251
- --------------------------------------------------------------------------------
Morgan Stanley Capital
Services, Inc., Venezuela
(Republic of) Credit Bonds,
5%, 9/20/09                                          1,665,000         1,844,587
- --------------------------------------------------------------------------------
Pioneer 2002 Ltd. Sec.
Catastrophe Linked Nts.:
Series 2002-1, Cl. E-A,
6.74%, 6/15/06 1                                       750,000           758,199
Series 2003-II, Cl. A,
8.49%, 6/15/06 1,7                                     500,000           512,183





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Pioneer 2002 Ltd. Sec
Catastrophe Linked Nts.: Continued
Series 2003-II, Cl. B,
7.49%, 6/15/06 1,7                               $     500,000   $      510,214
Series 2003-II, Cl. C,
8.24%, 6/15/06 1,7                                     500,000          508,153
- --------------------------------------------------------------------------------
Swiss Re Capital Markets Corp./
Oak Capital Ltd.
Catastrophe Linked Nts.,
7.24%, 6/15/07 1,2                                     250,000          256,949
- --------------------------------------------------------------------------------
Swiss Re Capital Markets Corp./
Pioneer 2002 Ltd. Sec
Catastrophe Linked Nts.,
Series 2002, Cl. A-A,
8.49%, 6/15/06 1,7                                     250,000          254,995
- --------------------------------------------------------------------------------
UBS AG:
Israel (State of) Shekel
Linked Nts., 7.50%, 4/5/14 [ILS]                     4,792,700        1,195,040
OAO Gazprom III Credit Nts.,
4.71%, 7/5/06                                        1,980,000        2,085,757
                                                                 ---------------
Total Structured Notes
(Cost $82,684,631)                                                   87,712,191

                                DATE    STRIKE       CONTRACTS
- --------------------------------------------------------------------------------
OPTIONS PURCHASED--0.0%
- --------------------------------------------------------------------------------
Brazilian Real Call 4        1/19/05    $ 2.80       1,175,000           10,575
- --------------------------------------------------------------------------------
Turkish Lira Put 4            1/6/05      1.00       1,150,000              575
- --------------------------------------------------------------------------------
U.S. Treasury Bonds,
5.375%, 2/15/31 Call 4       1/18/05   109.285%         35,720          125,598
                                                                 ---------------
Total Options Purchased (Cost $427,865)                                 136,748

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--10.0% 17
- --------------------------------------------------------------------------------
Undivided interest of 5.96% in joint repurchase
agreement (Principal Amount/Value
$1,443,703,000, with a maturity value of
$1,443,962,867) with UBS Warburg LLC, 2.16%,
dated 12/31/04, to be repurchased at
$86,039,484 on 1/3/05, collateralized by
Federal National Mortgage Assn., 5%--6%,
4/1/34--10/1/34, with a value of
$1,474,609,071
(Cost $86,024,000)                                  86,024,000       86,024,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
Total Investments, at Value
(excluding Investments
Purchased with Cash
Collateral from
Securities Loaned)
(Cost $859,418,744)                                              $  906,044,631

- --------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM
SECURITIES LOANED--1.7%
- --------------------------------------------------------------------------------
ASSET-BACKED FLOATING SECURITY--0.1%
Whitehawk CDO Funding
Corp., 2.56%, 3/15/05 18                         $   1,000,000        1,000,000
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--1.5% Undivided interest
of 5.96% in joint repurchase agreement
(Principal Amount/Value $155,205,723, with a
maturity value of $155,232,367) with Credit
Suisse First Boston LLC, 2.06%, dated
12/31/04, to be repurchased at $9,252,431 on
1/3/05, collateralized by AA Corporate
Bonds, 0%-15.73%, 1/1/06-7/16/44,
with a value of $158,312,640 18                      9,250,843        9,250,843
- --------------------------------------------------------------------------------
Undivided interest of 0.39% in joint repurchase
agreement (Principal Amount/Value
$2,800,000,000, with a maturity value of
$2,800,550,669) with Nomura Securities, 2.36%,
dated 12/31/04, to be repurchased at $3,827,941
on 1/3/05, collateralized by U.S. Government
Mortgage Agencies, 2.58%-7.50%,
1/15/08-10/15/44, with a value of
$2,908,566,289 18                                    3,827,188        3,827,188
                                                                 ---------------
                                                                     13,078,031

- --------------------------------------------------------------------------------
YANKEE FLOATING CERTIFICATES OF DEPOSIT--0.1%
Banco Bilbao Vizcaya NY,
2.248% Deposit Nts., 2/10/05 18                        799,967          799,967
                                                                 ---------------
Total Investments Purchased
with Cash Collateral from
Securities Loaned
(Cost $14,877,998)                                                   14,877,998

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $874,296,742)                                      107.4%     920,922,629
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF
OTHER ASSETS                                              (7.4)     (63,302,323)
                                                 -------------------------------
NET ASSETS                                               100.0%  $  857,620,306
                                                 ===============================





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

FOOTNOTES TO STATEMENT OF INVESTMENTS

Principal amount, contracts and exercise price are reported in U.S. Dollars,
except for those denoted in the following currencies:

ARP        Argentine Peso
AUD        Australian Dollar
BRR        Brazilian Real
CAD        Canadian Dollar
COP        Colombian Peso
DEM        German Mark
DKK        Danish Krone
DOP        Dominican Republic Peso
EUR        Euro
FRF        French Franc
GBP        British Pound Sterling
ILS        Israeli Shekel
JPY        Japanese Yen
MXN        Mexican Nuevo Peso
NGN        Nigeria Naira
NZD        New Zealand Dollar
PEN        Peruvian New Sol
PLZ        Polish Zloty
ROL        Romanian Leu
RUR        Russian Ruble
SEK        Swedish Krona
UAH        Ukraine Hryvnia
ZAR        South African Rand

1. Represents the current interest rate for a variable or increasing rate
security.

2. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of December 31, 2004 was $26,847,365, which represents
3.13% of the Fund's net assets, of which $70,658 is considered restricted. See
Note 11 of Notes to Financial Statements.

3. Issue is in default. See Note 1 of Notes to Financial Statements.

4. Non-income producing security.

5. When-issued security or forward commitment to be delivered and settled after
December 31, 2004. See Note 1 of Notes to Financial Statements.

6. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $2,971,051 or 0.35% of the Fund's net assets
as of December 31, 2004.

7. 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 $78,866,795 or 9.20% of the Fund's net
assets as of December 31, 2004.

8. Zero coupon bond reflects effective yield on the date of purchase.

9. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts with an aggregate
market value of $1,957,202. See Note 6 of Notes to Financial Statements.

10. A sufficient amount of securities has been designated to cover outstanding
foreign currency contracts. See Note 5 of Notes to Financial Statements.

11. A sufficient amount of securities has been designated to cover outstanding
written put options, as follows:

                                                   CONTRACTS         EXPIRATION     EXERCISE           PREMIUM          VALUE
                                               SUBJECT TO PUT             DATES        PRICE          RECEIVED     SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------

Brazilian Real (BRR)                                1,175,000           1/19/05        $2.65          $  1,792        $ 8,196
Turkish Lira (TRL)                                  1,150,000            1/6/05         1.00             3,565         11,499
                                                                                                      -----------------------
                                                                                                      $  5,357        $19,695
                                                                                                      =======================


12. A sufficient amount of liquid assets has been designated to cover
outstanding written call options, as follows:

                                                    CONTRACTS        EXPIRATION     EXERCISE           PREMIUM          VALUE
                                              SUBJECT TO CALL              DATE         RATE          RECEIVED     SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------

New Zealand (Government of) Bonds, 7% 7/15/09             945NZD         3/7/05         5.95%NZD      $  2,661        $   444


13. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.

14. Interest or dividend is paid-in-kind.

15. Received as the result of issuer reorganization.

16. Interest rate represents a weighted average rate comprised of the interest
rates of the underlying securities.

17. The Fund may have elements of risk due to concentrated investments. Such
concentrations may subject the Fund to additional risks.

18. The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 12 of Notes to Financial
Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------


- ---------------------------------------------------------------------------------------------------------------------

ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Investments, at value (including cost and market value of $$86,024,000 in repurchase agreements)
(including securities loaned of $44,013,349) (cost $874,296,742)--see accompanying
statement of investments                                                                             $   920,922,629
- ---------------------------------------------------------------------------------------------------------------------
Cash                                                                                                       2,055,902
- ---------------------------------------------------------------------------------------------------------------------
Collateral for securities loaned                                                                          29,980,833
- ---------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency contracts                                                      3,540,592
- ---------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $12,465,550 sold on a when-issued basis or forward commitment)                12,692,922
Interest, dividends and principal paydowns                                                                10,583,665
Shares of beneficial interest sold                                                                         3,295,957
Futures margins                                                                                               33,583
Other                                                                                                          9,827
                                                                                                     ----------------
Total assets                                                                                             983,115,910

- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------
Bank overdraft-foreign currencies (cost $96,882)                                                              96,964
- ---------------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $8,018)--see accompanying statement of investments               20,139
- ---------------------------------------------------------------------------------------------------------------------
Swaptions written, at value (premiums received $94,462)                                                       70,869
- ---------------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned                                                                44,858,831
- ---------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency contracts                                                      3,277,300
- ---------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts                                                                  1,458,503
- ---------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased on a when-issued basis or forward commitment                                        73,731,367
Closed foreign currency contracts                                                                          1,588,757
Shares of beneficial interest redeemed                                                                       147,125
Distribution and service plan fees                                                                           133,244
Shareholder communications                                                                                    34,768
Trustees' compensation                                                                                        14,921
Transfer and shareholder servicing agent fees                                                                  1,705
Other                                                                                                         61,111
                                                                                                     ----------------
Total liabilities                                                                                        125,495,604

- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS                                                                                           $   857,620,306
                                                                                                     ================

- ---------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                                           $       164,032
- ---------------------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                                               797,449,500
- ---------------------------------------------------------------------------------------------------------------------
Accumulated net investment income                                                                         39,051,911
- ---------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions                           (24,499,421)
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies                                                                         45,454,284
                                                                                                     ----------------
NET ASSETS                                                                                           $   857,620,306
                                                                                                     ================

- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ---------------------------------------------------------------------------------------------------------------------
Non-Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $614,915,045 and 118,133,764 shares of beneficial interest outstanding)      $          5.21
- ---------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $242,705,261 and 45,898,401 shares of beneficial interest outstanding)       $          5.29


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------------------------
Interest                                                                                             $    35,831,510
- ---------------------------------------------------------------------------------------------------------------------
Fee income                                                                                                 1,811,978
- ---------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $7,565)                                                       150,977
- ---------------------------------------------------------------------------------------------------------------------
Portfolio lending fees                                                                                        35,374
                                                                                                     ----------------
Total investment income                                                                                   37,829,839

- ---------------------------------------------------------------------------------------------------------------------
EXPENSES
- ---------------------------------------------------------------------------------------------------------------------
Management fees                                                                                            5,203,309
- ---------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares                                                           373,995
- ---------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares                                                                                            10,083
Service shares                                                                                                10,030
- ---------------------------------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares                                                                                            42,334
Service shares                                                                                                 8,511
- ---------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses                                                                                   92,792
- ---------------------------------------------------------------------------------------------------------------------
Trustees' compensation                                                                                        20,732
- ---------------------------------------------------------------------------------------------------------------------
Other                                                                                                         72,134
                                                                                                     ----------------
Total expenses                                                                                             5,833,920
Less reduction to custodian expenses                                                                         (21,553)
                                                                                                     ----------------
Net expenses                                                                                               5,812,367

- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                                                     32,017,472

- ---------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments (including premiums on options exercised)                                                      2,526,920
Closing of futures contracts                                                                                  28,864
Closing and expiration of option contracts written                                                           484,456
Closing and expiration of swaption contracts                                                                (326,048)
Foreign currency transactions                                                                              4,604,115
Swap contracts                                                                                               293,602
                                                                                                     ----------------
Net realized gain                                                                                          7,611,909
- ---------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments                                                                                               16,486,291
Translation of assets and liabilities denominated in foreign currencies                                    9,070,184
Futures contracts                                                                                             67,809
Option contracts                                                                                            (153,144)
Swaption contracts                                                                                            39,135
Swap contracts                                                                                              (502,851)
                                                                                                     ----------------
Net change in unrealized appreciation                                                                     25,007,424

- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                                                 $    64,636,805
                                                                                                     ================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                                   2004               2003
- ------------------------------------------------------------------------------------------------------------------

OPERATIONS
- ------------------------------------------------------------------------------------------------------------------
Net investment income                                                           $   32,017,472    $    28,077,622
- ------------------------------------------------------------------------------------------------------------------
Net realized gain                                                                    7,611,909         13,639,276
- ------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)                                25,007,424         41,999,716
                                                                                ----------------------------------
Net increase in net assets resulting from operations                                64,636,805         83,716,614

- ------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares                                                                 (29,467,620)       (28,473,133)
Service shares                                                                      (5,049,740)          (842,251)

- ------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Non-Service shares                                                                  23,501,705        115,808,103
Service shares                                                                     152,771,336         66,753,974

- ------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Total increase                                                                     206,392,486        236,963,307
- ------------------------------------------------------------------------------------------------------------------
Beginning of period                                                                651,227,820        414,264,513
                                                                                ----------------------------------
End of period (including accumulated net investment income of $39,051,911
and $32,618,798, respectively)                                                  $  857,620,306    $   651,227,820
                                                                                ==================================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,                2004              2003            2002            2001            2000
- -----------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period              $        5.05     $        4.57     $      4.62     $      4.69     $      4.97
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                       .22 1             .22             .29             .41             .41
Net realized and unrealized gain (loss)                     .20               .56             .03            (.19)           (.28)
                                                  ----------------------------------------------------------------------------------
Total from investment operations                            .42               .78             .32             .22             .13
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                       (.26)             (.30)           (.37)           (.29)           (.41)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                    $        5.21     $        5.05     $      4.57     $      4.62     $      4.69
                                                  =================================================================================

- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                         8.67%            18.07%           7.44%           4.85%           2.63%
- -----------------------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)          $     614,915     $     571,445     $   406,126     $   351,686     $   304,562
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                 $     584,878     $     472,213     $   374,519     $   330,711     $   289,923
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                      4.50%             5.61%           6.89%           8.78%           9.23%
Total expenses                                             0.74%             0.75%           0.79%           0.79%           0.79%
Expenses after payments and waivers and
reduction to custodian expenses                             N/A 4             N/A 4          0.78%            N/A 4           N/A 4
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                      88% 5            117%             65%            104%            104%


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$959,649,113 and $973,488,511, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





SERVICE SHARES  YEAR ENDED DECEMBER 31,                   2004           2003          2002        2001 1
- ---------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period              $       5.13     $     4.67     $    4.73     $  4.64
- ---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                      .19 2          .27           .03         .15
Net realized and unrealized gain (loss)                    .22            .49           .28        (.06)
                                                  -------------------------------------------------------
Total from investment operations                           .41            .76           .31         .09
- ---------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                      (.25)          (.30)         (.37)         --
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period                    $       5.29     $     5.13     $    4.67     $  4.73
                                                  =======================================================

- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                        8.43%         17.16%         7.03%       1.94%
- ---------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)          $    242,705     $   79,782     $   8,138     $     4
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                 $    150,040     $   34,744     $   2,307     $     2
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                     3.82%          4.57%         5.40%       8.17%
Total expenses                                            0.99%          1.02%         1.06%       0.92%
Expenses after payments and waivers and
reduction to custodian expenses                            N/A 5          N/A 5        1.03%        N/A 5
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                     88% 6         117%           65%        104%


1. For the period from March 19, 2001 (inception of offering) to December 31,
2001.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$959,649,113 and $973,488,511, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Strategic Bond Fund/VA (the Fund) is a separate series of
Oppenheimer Variable Account Funds (the Trust), an 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 principally derived from interest on debt securities. The Trust's
investment advisor is OppenheimerFunds, Inc. (the Manager).

      The Fund offers two classes of shares. Both classes are sold at their
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products. The class of shares designated as Service shares is subject to a
distribution and service plan. Both classes of shares have identical rights and
voting privileges with respect to the Fund in general and exclusive voting
rights on matters that affect that class alone. Earnings, net assets and net
asset value per share may differ due to each class having its own expenses, such
as transfer and shareholder servicing agent fees and shareholder communications,
directly attributable to that class.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in structured notes whose market values,
interest rates and/or redemption prices are linked to the performance of
underlying foreign currencies, interest rate spreads, stock market indices,
prices of individual securities, commodities or other financial instruments or
the occurrence of other specific events. The structured notes are often
leveraged, increasing the volatility of each note's market value relative to the
change in the underlying linked financial element or event. Fluctuations in
value of these securities are recorded as unrealized gains and losses in the
accompanying financial statements. The Fund records a realized gain or loss when
a structured note is sold or matures. As of December 31, 2004, the market value
of these securities comprised 10.2% of the Fund's net assets and resulted in
unrealized cumulative gains of $5,027,560.

- --------------------------------------------------------------------------------
SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment
for securities that have been purchased by the Fund on a when-issued basis or
forward commitment can take place up to ten days or more after the trade date.
Normally the settlement date occurs within six months after the trade date;
however, the Fund may, from time to time, purchase securities whose settlement
date extends six months or more beyond trade 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
internally designated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a when-issued
basis or forward commitment may increase the volatility of the Fund's net asset
value to the extent the Fund executes such transactions while
remaining substantially fully invested. The Fund may also sell securities that
it purchased on a when-issued basis or forward commitment prior to settlement of
the original purchase. As of December 31, 2004, the Fund had purchased
$73,731,367 of securities on a when-issued basis or forward commitment and sold
$12,465,550 of securities issued on a when-issued basis or forward commitment.

      In connection with its ability to purchase or sell securities on a
when-issued basis, the Fund may enter into forward roll transactions with
respect to mortgage-related securities. Forward roll transactions require the
sale of securities for delivery in the current month, and a simultaneous
agreement with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Fund
records the incremental difference between the forward purchase and sale of each
forward roll as realized gain (loss) on investments or as fee income in the case
of such transactions that have an associated fee in lieu of a difference in the
forward purchase and sale price.

      Risks of entering into forward roll transactions include the potential
inability of the counterparty to meet the terms of the agreement; the potential
of the Fund to receive inferior securities at redelivery as compared to the
securities sold to the counterparty; counterparty credit risk; and the potential
pay down speed variance between the mortgage-related pools.

- --------------------------------------------------------------------------------
SECURITY CREDIT RISK. The Fund invests in high-yield securities, which may be
subject to a greater degree of credit risk, market fluctuations and loss of
income and principal, and may be more sensitive to economic conditions than
lower-yielding, higher-rated fixed-income securities. The Fund may acquire
securities in default, and is not obligated to dispose of securities whose
issuers subsequently default. As of December 31, 2004, securities with an
aggregate market value of $4,866,448, representing 0.57% of the Fund's net
assets, were in default.

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

      Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

      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.

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                                  NET UNREALIZED
                                                                    APPRECIATION
                                                                BASED ON COST OF
                                                                  SECURITIES AND
UNDISTRIBUTED    UNDISTRIBUTED                  ACCUMULATED    OTHER INVESTMENTS
NET INVESTMENT       LONG-TERM                         LOSS   FOR FEDERAL INCOME
INCOME                    GAIN   CARRYFORWARD 1,2,3,4,5,6,7         TAX PURPOSES
- --------------------------------------------------------------------------------
$40,140,664                $--                  $24,032,280          $44,353,647

1. As of December 31, 2004, the Fund had $21,566,899 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of December 31, 2004,
details of the capital loss carryforwards were as follows:

                            EXPIRING
                            -----------------------------
                            2007            $   4,546,599
                            2008                  253,735
                            2009                9,904,928
                            2010                6,861,637
                                            -------------
                            Total           $  21,566,899
                                            =============

2. As of December 31, 2004, the Fund had $478,895 of post-October losses
available to offset future realized capital gains, if any. Such losses, if
unutilized, will expire in 2013.

3. The Fund had $1,979,188 of post-October foreign currency losses which were
deferred.

4. The Fund had $1,918 of post-October passive foreign investment company losses
which were deferred.

5. The Fund had $5,380 of straddle losses which were deferred.

6. During the fiscal year ended December 31, 2004, the Fund utilized $1,200,449
of capital loss carryforward to offset capital gains realized in that fiscal
year.

7. During the fiscal year ended December 31, 2003, the Fund utilized $666,406 of
capital loss carryforward to offset capital gains realized in that fiscal year.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

            INCREASE TO              INCREASE TO ACCUMULATED
            ACCUMULATED NET                NET REALIZED LOSS
            INVESTMENT INCOME                 ON INVESTMENTS
            ------------------------------------------------
            $8,933,001                            $8,933,001

The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:

                                              YEAR ENDED           YEAR ENDED
                                       DECEMBER 31, 2004    DECEMBER 31, 2003
            -----------------------------------------------------------------
            Distributions paid from:
            Ordinary income                  $34,517,360          $29,315,384





The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

            Federal tax cost of securities                  $  875,097,377
            Federal tax cost of other investments              (35,019,525)
                                                            ---------------
            Total federal tax cost                          $  840,077,852
                                                            ===============

            Gross unrealized appreciation                   $   61,496,783
            Gross unrealized depreciation                      (17,143,136)
                                                            ---------------
            Net unrealized appreciation                     $   44,353,647
                                                            ===============

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.



- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST

The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:

                                            YEAR ENDED DECEMBER 31, 2004    YEAR ENDED DECEMBER 31, 2003
                                                 SHARES           AMOUNT         SHARES           AMOUNT
- ---------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                                         24,003,073    $ 119,433,508     46,663,574    $ 222,213,838
Dividends and/or distributions reinvested     6,088,351       29,467,620      6,471,166       28,473,133
Redeemed                                    (25,208,632)    (125,399,423)   (28,764,717)    (134,878,868)
                                            -------------------------------------------------------------
Net increase                                  4,882,792    $  23,501,705     24,370,023    $ 115,808,103
                                            =============================================================

- ---------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold                                         31,450,838    $ 158,302,695     14,341,848    $  69,419,263
Dividends and/or distributions reinvested     1,026,369        5,049,740        187,166          842,251
Redeemed                                     (2,125,979)     (10,581,099)      (725,688)      (3,507,540)
                                            -------------------------------------------------------------
Net increase                                 30,351,228    $ 152,771,336     13,803,326    $  66,753,974
                                            =============================================================


- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than U.S. government obligations and short-term obligations, for the year ended
December 31, 2004, were $461,469,057 and $348,803,252, respectively. There were
purchases of $188,816,133 and sales of $149,557,330 of U.S. government and
government agency obligations for the year ended December 31, 2004. In addition,
there were purchases of $959,649,113 and sales of $973,488,511 of To Be
Announced (TBA) mortgage-related securities for the year ended December 31,
2004.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million, 0.60% on the next $200 million and 0.50% of average annual
net assets over $1 billion.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$20,075 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 per class for class level assets of $10
million or more. Each class is subject to the minimum fee in the event that the
per account fee does not equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FOR SERVICE SHARES. The Fund has adopted a
Distribution and Service Plan for Service shares to pay OppenheimerFunds
Distributor, Inc. (the Distributor), for distribution related services and
personal service and account maintenance for the Fund's Service shares. Under
the Plan, payments are made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Service shares of the Fund. The Distributor
currently uses all of those fees to compensate sponsor(s) of the insurance
product that offers Fund shares, for providing personal service and maintenance
of accounts of their variable contract owners that hold Service shares. The
impact of the service plan is to increase operating expenses of the Service
shares, which results in lower performance compared to the Fund's shares that
are not subject to a service fee. Fees incurred by the Fund under the Plan are
detailed in the Statement of Operations.





- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. OFS has voluntarily agreed to limit transfer
and shareholder servicing agent fees for all classes to 0.35% of average annual
net assets per class. This undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.

      The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.

      The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.

As of December 31, 2004, the Fund had outstanding foreign currency contracts as
follows:

                                                                         CONTRACT
                                                       EXPIRATION          AMOUNT      VALUATION AS OF     UNREALIZED     UNREALIZED
CONTRACT DESCRIPTION                                        DATES          (000S)        DEC. 31, 2004   APPRECIATION   DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
Argentine Peso (ARP)                                       2/2/05           3,375ARP   $     1,135,426   $     34,140   $         --
Australian Dollar (AUD)                                   1/21/05           3,700AUD         2,895,042         98,582             --
Brazilian Real (BRR)                               1/24/05-1/5/10          16,613BRR         6,773,392        692,000             --
British Pound Sterling (GBP)                              1/21/05           1,500GBP         2,875,473             --         15,027
Chilean Peso (CLP)                                        1/21/05         544,448CLP           979,661         39,661             --
Columbian Peso (COP)                               1/7/05-1/24/05       4,071,671COP         1,727,121         27,903             --
Czech Koruna (CZK)                                        4/22/05          31,700CZK         1,419,803        154,814             --
Euro (EUR)                                          3/2/05-4/1/05           9,390EUR        12,773,224        233,897             --
Indian Rupee (INR)                               11/9/05-12/20/05          43,280INR           983,430         23,106             --
Japanese Yen (JPY)                                3/15/05-3/31/05       4,184,500JPY        41,064,379      1,867,755             --
Mexican Nuevo Peso (MXN)                                   1/6/05          10,620MXN           951,676            318             --
New Zealand Dollar (NZD)                                  1/21/05           3,970NZD         2,860,055         49,295             --
Russian Ruble (RUR)                                      10/27/05          28,475RUR         1,012,819         37,314             --
Slovakia Koruna (SKK)                             2/18/05-3/21/05          57,110SKK         2,001,271         93,090             --
South Korean Won (KRW)                                    2/23/05         518,170KRW           499,985         12,983             --
Swedish Krona (SEK)                                       2/16/05          23,690SEK         3,566,562        150,891             --
Turkish Lira (TRL)                                       12/18/07           1,166TRL         1,163,905             --          2,443
                                                                                                         ---------------------------
                                                                                                            3,515,749         17,470
                                                                                                         ---------------------------
CONTRACTS TO SELL
Australian Dollar (AUD)                                    3/2/05           8,730AUD         6,810,313             --         81,851
Brazilian Real (BRR)                                       1/4/05             945BRR           355,262             --          5,355
British Pound Sterling (GBP)                        5/9/05-6/8/05           6,060GBP        11,544,808         24,843        425,528
Canadian Dollar (CAD)                                     2/24/05             330CAD           275,352             --         22,620
Columbian Peso (COP)                                      1/18/05       1,225,560COP           519,901             --          3,876
Euro (EUR)                                        2/18/05-6/08/05          37,815EUR        51,431,155             --      2,324,724
Japanese Yen (JPY)                                 1/20/05-6/8/05         955,800JPY         9,394,115             --        114,371
Norwegian Krone (NOK)                             1/20/05-2/16/05          38,300NOK         6,327,058             --        179,124
Swiss Franc (CHF)                                  1/20/05-4/1/05           7,590CHF         7,012,995             --         60,910
Turkish Lira (TRL)                                        6/21/05   1,760,669,590TRL         1,207,819             --         41,471
                                                                                                         ---------------------------
                                                                                                               24,843      3,259,830
                                                                                                         ---------------------------
Total unrealized appreciation and depreciation                                                           $  3,540,592   $  3,277,300
                                                                                                         ===========================



NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS

A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value of stocks and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.

      The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying securities.

      Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.

      Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported in the Statement of Operations.

      Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.

As of December 31, 2004, the Fund had outstanding futures contracts as follows:

                                                                                       UNREALIZED
                                      EXPIRATION   NUMBER OF     VALUATION AS OF     APPRECIATION
CONTRACT DESCRIPTION                       DATES   CONTRACTS   DECEMBER 31, 2004   (DEPRECIATION)
- --------------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
Japan (Government of) Bonds, 10 yr       3/10/05           1   $       1,350,249   $       (6,325)
NASDAQ 100 Index                         3/17/05          17           2,768,450           42,521
U.S. Long Bonds                          3/21/05         205          23,062,500           19,355
U.S. Treasury Nts., 10 yr                3/21/05         132          14,775,750           62,360
United Kingdom Long Gilt                 3/29/05           3             642,553            4,089
                                                                                   ---------------
                                                                                          122,000
                                                                                   ---------------
CONTRACTS TO SELL
CAC-40 10 Index                          3/18/05          22           1,144,556            2,698
DAX Index                                3/18/05           4             580,671           (1,326)
Euro-Bundesobligation                     3/8/05          13           2,095,514           13,355
FTSE 100 Index                           3/18/05          27           2,486,897          (31,159)
Japan (Government of) Bonds, 10 yr        3/9/05           5             675,222              927
Japan (Government of) Bonds, 10 yr       3/10/05           6           8,101,493            2,928
Nikkei 225 Index                         3/10/05          11           1,232,361          (72,997)
Standard & Poor's 500 Index              3/17/05          36          10,923,300         (157,363)
U.S. Long Bonds                          3/21/05         124          13,950,000          (29,185)
U.S. Treasury Nts., 2 yr                 3/31/05          70          14,671,563            4,242
U.S. Treasury Nts., 5 yr                 3/21/05         106          11,610,313          (63,909)
                                                                                   ---------------
                                                                                         (331,789)
                                                                                   ---------------
                                                                                   $     (209,789)
                                                                                   ===============


- --------------------------------------------------------------------------------
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. Contracts subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.

      The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.

Written option activity for the year ended December 31, 2004 was as follows:

                                                             CALL OPTIONS                    PUT OPTIONS
                                              ---------------------------    ----------------------------
                                                  PRINCIPAL/                     PRINCIPAL/
                                                   NUMBER OF    AMOUNT OF         NUMBER OF    AMOUNT OF
                                                   CONTRACTS     PREMIUMS         CONTRACTS     PREMIUMS
- ---------------------------------------------------------------------------------------------------------

Options outstanding as of December 31, 2003        9,765,000    $ 128,130       744,000,000    $ 138,880
Options written                                2,225,002,170      165,903       722,325,000      105,898
Options closed or expired                     (2,231,511,225)    (253,965)   (1,464,000,000)    (239,421)
Options exercised                                 (3,255,000)     (37,407)               --           --
                                              -----------------------------------------------------------
Options outstanding as of December 31, 2004              945    $   2,661         2,325,000    $   5,357
                                              ===========================================================


- --------------------------------------------------------------------------------
8. CREDIT SWAP CONTRACTS

The Fund may enter into a credit swap transaction to maintain a total return on
a particular investment or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as a notional principal amount. The Fund records an increase or
decrease to unrealized gain (loss), in the amount due to or owed by the Fund at
termination or settlement. Credit swaps are subject to credit risks (if the
counterparty fails to meet its obligations). The Fund pays an annual interest
fee on the notional amount in exchange for the counterparty paying in a
potential credit event.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
8. CREDIT SWAP CONTRACTS Continued

During the year ended December 31, 2004, the Fund entered into transactions to
hedge credit risk. Information regarding the credit swaps is as follows:

                                                                                                         UNREALIZED
                                                     EXPIRATION       NOTIONAL     VALUATION AS OF      APPRECIATION
CONTRACT DESCRIPTION                                      DATES         AMOUNT   DECEMBER 31, 2004    (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
Citigroup Global Markets Ltd.,
Venezuela (Republic of) Credit Nts.                    11/20/09    $ 6,350,000   $        (257,398)   $     (257,398)
Deutsche Bank AG:
Export-Import Bank of Korea Credit Bonds                6/20/09        780,000             (10,452)          (10,452)
Korea Deposit Insurance Corp. Credit Bonds              6/20/09        780,000             (10,374)          (10,374)
Korea Development Bank Credit Bonds                     6/20/09        780,000             (10,140)          (10,140)
Korea Electric Power Corp. Credit Bonds                 6/20/09        780,000             (10,686)          (10,686)
Philippines (Republic of) 10 yr. Credit Bonds           7/25/13        930,000              26,435            26,435
Samsung Electronic Co. Ltd. Credit Bonds                6/20/09        780,000              (9,828)           (9,828)
United Mexican States Credit Bonds                      9/20/13      1,235,000             (80,794)          (80,794)
Venezuela (Republic of) Credit Bonds                   10/20/09      4,715,000            (311,128)         (311,128)
JPMorgan Chase Bank:
Export-Import Bank of Korea Credit Bonds                6/20/09        390,000              (8,522)           (8,522)
Jordan (Kingdom of) Credit Nts.                          6/6/06        250,000                (752)             (752)
Korea Deposit Insurance Corp. Credit Bonds              6/20/09        390,000              (8,374)           (8,374)
Korea Development Bank Credit Bonds                     6/20/09        390,000              (8,358)           (8,358)
Korea Electric Power Co. Credit Bonds                   6/20/09        390,000              (8,942)           (8,942)
Russian Federation Credit Bonds                         10/9/13        730,000             (41,855)          (41,855)
Samsung Electronics Co. Ltd. Credit Bonds               6/20/09        390,000              (8,457)           (8,457)
Lehman Brothers Special Financing, Inc.:
Brazil (Federal Republic of) Credit Bonds               8/20/09      3,000,000            (464,999)         (464,999)
Turkey (Republic of) Credit Bonds                      11/11/09      1,850,000              (7,189)           (7,189)
Morgan Stanley Capital Services, Inc.:
Brazil (Federal Republic of) Credit Bonds               8/20/09      2,440,000            (377,069)         (377,069)
Hungary (Republic of) Credit Bonds                      12/2/13      1,880,000             (41,014)          (41,014)
Panama (Republic of) Credit Bonds                      11/20/14      1,730,000            (106,672)         (106,672)
Philippines (Republic of) Credit Bonds                  6/20/09      1,135,000             (17,102)          (17,102)
Philippines (Republic of) 5 yr. Credit Bonds            9/20/09        950,000              (5,696)           (5,696)
Venezuela (Republic of) Credit Bonds            8/20/06-2/20/14      5,050,000            (437,023)         (437,023)
UBS AG:
Brazil (Federal Republic of)
Credit Bonds                                           10/20/09        900,000             (65,111)          (65,111)
Russian Federation Credit Bonds                 11/2/14-11/5/14      3,825,000            (163,083)         (163,083)
Venezuela (Republic of) Credit Bonds            8/20/06-6/20/14      5,685,000            (798,858)         (798,858)
                                                                                                      ---------------
                                                                                                      $   (3,243,441)
                                                                                                      ===============


- --------------------------------------------------------------------------------
9. INTEREST RATE SWAP CONTRACTS

The Fund may enter into an interest rate swap transaction to maintain a total
return or yield spread on a particular investment, or portion of its portfolio,
or for other non-speculative purposes. Interest rate swaps involve the exchange
of commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The coupon payments are based on an agreed
upon principal amount and a specified index. Because the principal amount is not
exchanged, it represents neither an asset nor a liability to either
counterparty, and is referred to as notional. The Fund records an increase or
decrease to unrealized gain (loss), in the amount due to or owed by the Fund at
termination or settlement.

      Interest rate swaps are subject to credit risk (if the counterparty fails
to meet its obligations) and interest rate risk. The Fund could be obligated to
pay more under its swap agreements than it receives under them, as a result of
interest rate changes.





As of December 31, 2004, the Fund had entered into the following interest rate
swap agreements:

                                             FIXED RATE   FLOATING RATE
                                                PAID BY     RECEIVED BY                                    UNREALIZED
                            NOTIONAL        THE FUND AT     THE FUND AT      FLOATING   TERMINATION      APPRECIATION
SWAP COUNTERPARTY             AMOUNT      DEC. 31, 2004   DEC. 31, 2004    RATE INDEX         DATES    (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------

Deutsche Bank AG          74,350,000INR            4.88%           4.50%          IRS       1/15/09    $       66,467
                                                                          Three-Month
Deutsche Bank AG           3,185,000             3.1025            1.82    LIBOR flat        3/4/08            32,431
Deutsche Bank AG          55,240,000              2.585            1.04   90-day CPTW       8/19/09            (1,061)
                                                                          Three-Month
Deutsche Bank AG          10,000,000            2.27625            5.32     LIBOR BBA       5/12/14           582,127
                                                                            Six-Month
JPMorgan Chase Bank          880,000EUR           3.135            2.081   LIBOR flat       7/14/08           (13,503)
                                                                            Six-Month
JPMorgan Chase Bank      245,400,000HUF            9.13            7.00    LIBOR flat       7/14/08           (74,862)
                                                                               28 Day
JPMorgan Chase Bank       14,620,000MXN            9.10           10.88      MXN TIIE      11/16/14            16,172
                                                                          Three-Month
JPMorgan Chase Bank        6,625,000              3.052            1.86    LIBOR flat       3/10/08           111,767
                                                                          Three-Month
JPMorgan Chase Bank       50,000,000               2.21          4.0725     LIBOR BBA        5/6/09           417,937
                                                                          Three-Month
JPMorgan Chase Bank       35,000,000               1.70           4.985     LIBOR BBA        5/6/14         1,144,347
                                                                          Three-Month
JPMorgan Chase Bank       25,000,000               4.24            1.65         LIBOR       7/23/09          (648,784)
                                                                          Three-Month
JPMorgan Chase Bank        1,820,000               2.13            4.94     LIBOR BBA       4/30/14            55,137
Morgan Stanley Capital                                                    Three-Month
Services, Inc.            13,000,000               3.82            2.26    LIBOR flat      11/10/08           (27,411)
Morgan Stanley Capital                                                    Three-Month
Services, Inc.            22,000,000               2.32            1.71    LIBOR flat      11/10/05           124,174
                                                                                                       ---------------
                                                                                                       $    1,784,938
                                                                                                       ===============


Notional amount is reported in U.S. Dollars, except for those denoted in the
following currencies. Index abbreviations and currencies are as follows:

EUR         Euro
HUF         Hungarian Forint
INR         Indian Rupee
MXN         Mexican Nuevo Peso
BBA         British Bankers Association
CPTW        Bloomberg Taiwan Secondary Commercial Papers
IRS         India Swap Composites
LIBOR       London-Interbank Offered Rate
LIBOR BBA   London-Interbank Offered Rate British Bankers Association
TIIE        Interbank Equilibrium Interest Rate

- --------------------------------------------------------------------------------
10. SWAPTION TRANSACTIONS

The Fund may enter into a swaption transaction, whereby a contract that grants
the holder, in return for payment of the purchase price (the "premium") of the
option, the right, but not the obligation, to enter into an interest rate swap
at a preset rate within a specified period of time, with the writer of the
contract. The writer receives premiums and bears the risk of unfavorable changes
in the preset rate on the underlying interest rate swap. Swaption contracts
written by the Fund do not give rise to counterparty credit risk as they
obligate the Fund, not its counterparty, to perform. Swaptions written are
reported as a liability in the Statement of Assets and Liabilities.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
10. SWAPTION TRANSACTIONS Continued

Written swaption activity for the year ended December 31, 2004 was as follows:

                                                          CALL SWAPTIONS               PUT SWAPTIONS
                                                ------------------------    -------------------------
                                                   NOTIONAL    AMOUNT OF       NOTIONAL    AMOUNT OF
                                                     AMOUNT     PREMIUMS         AMOUNT     PREMIUMS
- -----------------------------------------------------------------------------------------------------

Swaptions outstanding as of December 31, 2003            --    $      --      2,220,000    $  19,758
Swaptions written                                22,660,000      240,122     19,060,000       77,390
Swaptions closed or expired                     (15,990,000)    (174,120)   (10,820,000)     (48,930)
Swaptions exercised                                      --           --     (2,220,000)     (19,758)
                                                -----------------------------------------------------
Swaptions outstanding as of December 31, 2004     6,670,000    $  66,002      8,240,000    $  28,460
                                                =====================================================


As of December 31, 2004, the Fund had entered into the following swaption
contracts:

                               NOTIONAL      EXPIRATION    EXERCISE        PREMIUM         VALUE
SWAPTIONS                        AMOUNT           DATES        RATE       RECEIVED    SEE NOTE 1
- ------------------------------------------------------------------------------------------------

British Pound Sterling Call   6,670,000GBP      3/29/05       4.792%GBP   $ 66,002    $   49,504
Deutsche Bank AG Put          8,240,000AUD       2/3/05       5.685%AUD     28,460        21,365
                                                                          ----------------------
                                                                          $ 94,462    $   70,869
                                                                          ======================


Notional amount and exercise price are denoted in the following currencies:

AUD         Australian Dollar
GBP         British Pound Sterling

- --------------------------------------------------------------------------------
11. ILLIQUID OR RESTRICTED SECURITIES AND CURRENCY

As of December 31, 2004, investments in securities included issues that are
illiquid or restricted. Restricted securities are purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund will not invest more than 15% of
its net assets (determined at the time of purchase and reviewed periodically) in
illiquid or restricted securities. Certain restricted securities, eligible for
resale to qualified institutional investors, are not subject to that limitation.
Information concerning restricted securities and currency is as follows:

                                                            ACQUISITION                  VALUATION AS OF      UNREALIZED
SECURITY                                                          DATES        COST    DECEMBER 31, 2004    DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------------

Geotek Communications, Inc., Series B, Escrow Shares             1/4/01    $    840             $     --        $    840
Prandium, Inc.                                          3/19/99-9/25/02     284,000                  266         283,734

CURRENCY
Argentine Peso                                                  6/25/04      70,732               70,392             340


- --------------------------------------------------------------------------------
12. SECURITIES LENDING

The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund also continues to receive
interest or dividends paid on the securities loaned. As of December 31, 2004,
the Fund had on loan securities valued at $44,013,349. Cash of $44,858,831 was
received as collateral for the loans, of which $14,877,998 was invested in
approved instruments.




- --------------------------------------------------------------------------------
13. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER VALUE FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Value Fund/VA, a series of Oppenheimer Variable Account Funds,
including the statement of investments, as of December 31, 2004, and the related
statement of operations for the year then ended, the statements of changes in
net assets for the year then ended and the period from January 2, 2003
(commencement of operations) to December 31, 2003, and the financial highlights
for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Value Fund/VA as of December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for the year then ended
and the period from January 2, 2003 (commencement of operations) to December 31,
2003, and the financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005



STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------

                                                                          VALUE
                                                          SHARES     SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--113.6%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--11.0%
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--1.2%
McDonald's Corp.                                           1,030   $      33,022
- --------------------------------------------------------------------------------
MEDIA--9.8%
Liberty Media Corp., Cl. A 1                              11,740         128,905
- --------------------------------------------------------------------------------
UnitedGlobalCom, Inc., Cl. A 1                            15,310         147,895
                                                                   -------------
                                                                         276,800

- --------------------------------------------------------------------------------
CONSUMER STAPLES--6.6%
- --------------------------------------------------------------------------------
TOBACCO--6.6%
Altria Group, Inc.                                         3,040         185,744
- --------------------------------------------------------------------------------
ENERGY--10.7%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & Services--1.7%
Halliburton Co.                                            1,240          48,658
- --------------------------------------------------------------------------------
OIL & GAS--9.0%
BP plc, ADR                                                2,720         158,848
- --------------------------------------------------------------------------------
Kinder Morgan, Inc.                                          330          24,133
- --------------------------------------------------------------------------------
LUKOIL, Sponsored ADR                                        300          36,750
- --------------------------------------------------------------------------------
Petroleo Brasileiro SA, ADR                                  800          31,824
                                                                   -------------
                                                                         251,555

- --------------------------------------------------------------------------------
FINANCIALS--29.7%
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--8.5%
Bank of America Corp.                                      2,988         140,406
- --------------------------------------------------------------------------------
Wells Fargo & Co.                                          1,570          97,576
                                                                   -------------
                                                                         237,982

- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--14.0%
Citigroup, Inc.                                            3,330         160,439
- --------------------------------------------------------------------------------
Franklin Resources, Inc.                                   1,490         103,779
- --------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.                             1,500         131,220
                                                                   -------------
                                                                         395,438

- --------------------------------------------------------------------------------
INSURANCE--4.4%
Genworth Financial, Inc., Cl. A                              550          14,850
- --------------------------------------------------------------------------------
Platinum Underwriters Holdings Ltd.                          800          24,880
- --------------------------------------------------------------------------------
Prudential Financial, Inc.                                 1,540          84,638
                                                                   -------------
                                                                         124,368

- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--2.8%
Countrywide Financial Corp.                                  700          25,907
- --------------------------------------------------------------------------------
Freddie Mac                                                  710          52,327
                                                                   -------------
                                                                          78,234

- --------------------------------------------------------------------------------
HEALTH CARE--3.1%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--2.5%
Wyeth                                                      1,650          70,274
- --------------------------------------------------------------------------------
PHARMACEUTICALS--0.6%
Pfizer, Inc.                                                 600          16,134


                                                                          VALUE
                                                          SHARES     SEE NOTE 1
- --------------------------------------------------------------------------------
INDUSTRIALS--23.3%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--11.1%
Empresa Brasileira de Aeronautica
SA, ADR                                                    1,770   $      59,189
- --------------------------------------------------------------------------------
Honeywell International, Inc.                              4,200         148,722
- --------------------------------------------------------------------------------
Raytheon Co.                                               2,710         105,229
                                                                   -------------
                                                                         313,140

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & Supplies--5.0%
Cendant Corp.                                              5,990         140,046
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--7.2%
General Electric Co.                                       3,440         125,560
- --------------------------------------------------------------------------------
Tyco International Ltd.                                    2,180          77,913
                                                                   -------------
                                                                         203,473

- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--13.4%
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--5.8%
International Business Machines Corp.                      1,670         164,629
- --------------------------------------------------------------------------------
SOFTWARE--7.6%
Compuware Corp. 1                                          2,900          18,763
- --------------------------------------------------------------------------------
Microsoft Corp.                                            1,200          32,052
- --------------------------------------------------------------------------------
Novell, Inc. 1                                             4,800          32,400
- --------------------------------------------------------------------------------
Synopsys, Inc. 1                                           1,400          27,468
- --------------------------------------------------------------------------------
Take-Two Interactive Software, Inc. 1                      2,960         102,978
                                                                   -------------
                                                                         213,661

- --------------------------------------------------------------------------------
MATERIALS--5.0%
- --------------------------------------------------------------------------------
CHEMICALS--2.4%
Praxair, Inc.                                              1,490          65,784
- --------------------------------------------------------------------------------
METALS & MINING--2.6%
Alcan, Inc.                                                  300          14,712
- --------------------------------------------------------------------------------
Inco Ltd. 1                                                1,060          38,987
- --------------------------------------------------------------------------------
Phelps Dodge Corp.                                           200          19,784
                                                                   -------------
                                                                          73,483

- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--4.6%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--4.6%
IDT Corp., Cl.B 1                                          4,280          66,254
- --------------------------------------------------------------------------------
Verizon Communications, Inc.                               1,580          64,006
                                                                   -------------
                                                                         130,260

- --------------------------------------------------------------------------------
UTILITIES--6.2%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--4.9%
AES Corp. (The) 1                                          7,040          96,237
- --------------------------------------------------------------------------------
PG&E Corp. 1                                                 980          32,614
- --------------------------------------------------------------------------------
Reliant Energy, Inc. 1                                       700           9,553
                                                                   -------------
                                                                         138,404




STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                          VALUE
                                                          SHARES     SEE NOTE 1
- --------------------------------------------------------------------------------
GAS UTILITIES--1.3%
Sempra Energy                                                970   $     35,580

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE

(COST $2,513,881)                                          113.6%     3,196,669
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS
OF OTHER ASSETS                                            (13.6)      (382,139)
                                                    ----------------------------
NET ASSETS                                                 100.0%  $  2,814,530
                                                    ============================

FOOTNOTE TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value (cost $2,513,881)--see accompanying statement of investments     $     3,196,669
- -------------------------------------------------------------------------------------------------------
Cash                                                                                           119,161
- -------------------------------------------------------------------------------------------------------
Receivables and other assets:
Dividends                                                                                        4,664
Other                                                                                            1,477
                                                                                       ----------------
Total assets                                                                                 3,321,971

- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Dividends                                                                                      459,831
Investments purchased                                                                           26,088
Shareholder communications                                                                       6,203
Trustees' compensation                                                                           2,640
Other                                                                                           12,679
                                                                                       ----------------
Total liabilities                                                                              507,441

- -------------------------------------------------------------------------------------------------------
NET ASSETS                                                                             $     2,814,530
                                                                                       ================

- -------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                             $           230
- -------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                                   2,132,982
- -------------------------------------------------------------------------------------------------------
Accumulated net investment loss                                                                 (1,470)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments                                                     682,788
                                                                                       ----------------
NET ASSETS--applicable to 229,559 shares of beneficial interest outstanding            $     2,814,530
                                                                                       ================

- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, REDEMPTION PRICE PER SHARE AND OFFERING PRICE PER SHARE               $         12.26


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $564)                $    57,968
- --------------------------------------------------------------------------------
Interest                                                                    811
                                                                    ------------
Total investment income                                                  58,779

- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees                                                          25,294
- --------------------------------------------------------------------------------
Legal, auditing and other professional fees                              17,638
- --------------------------------------------------------------------------------
Shareholder communications                                                8,574
- --------------------------------------------------------------------------------
Trustees' compensation                                                    4,669
- --------------------------------------------------------------------------------
Custodian fees and expenses                                                  73
- --------------------------------------------------------------------------------
Other                                                                     5,289
                                                                    ------------
Total expenses                                                           61,537
Less reduction to custodian expenses                                        (11)
                                                                    ------------
Net expenses                                                             61,526

- --------------------------------------------------------------------------------
NET INVESTMENT LOSS                                                      (2,747)

- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investments                                        462,480
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on investments                    (56,226)

- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                $   403,507
                                                                    ============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                             2004             2003 1
- -----------------------------------------------------------------------------------------------------------

OPERATIONS
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss)                                              $       (2,747)    $        8,769
- -----------------------------------------------------------------------------------------------------------
Net realized gain                                                                462,480            123,023
- -----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)                             (56,226)           739,014
                                                                          ---------------------------------
Net increase in net assets resulting from operations                             403,507            870,806

- -----------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------
Dividends from net investment income--Non-Service shares                         (10,068)                --
- -----------------------------------------------------------------------------------------------------------
Distributions from net realized gain--Non-Service shares                        (584,853)                --

- -----------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest
  transactions--Non-Service shares                                              (864,862)         3,000,000

- -----------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Total increase (decrease)                                                     (1,056,276)         3,870,806
- -----------------------------------------------------------------------------------------------------------
Beginning of period                                                            3,870,806                 --
                                                                          ---------------------------------
End of period (including accumulated net investment income (loss) of
 $(1,470) and $8,769, respectively)                                       $    2,814,530     $    3,870,806
                                                                          =================================


1. For the period from January 2, 2003 (commencement of operations) to December
31, 2003.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,                                         2004             2003 1
- --------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                                      $        12.90     $        10.00
- --------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)                                                        (.01) 2             .03
Net realized and unrealized gain                                                    1.82               2.87
                                                                          ------------------------------------
Total from investment operations                                                    1.81               2.90
- --------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                                                (.03)                --
Distributions from net realized gain                                               (2.42)                --
                                                                          ------------------------------------
Total dividends and/or distributions
to shareholders                                                                    (2.45)                --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                            $        12.26     $        12.90
                                                                          ====================================

- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                                                 14.50%             29.00%
- --------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)                                  $        2,815     $        3,871
- --------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                                         $        3,370     $        3,205
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income (loss)                                                       (0.08)%             0.27%
Total expenses                                                                      1.82% 5            1.39% 5
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                                              100%               120%


1. For the period from January 2, 2003 (commencement of operations) to December
31, 2003.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Value Fund/VA (the Fund) is a separate series of Oppenheimer
Variable Account Funds (the Trust), an 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 growth of capital by investing
primarily in common stocks with low price-earnings ratios and
better-than-anticipated earnings. The Trust's investment advisor is
OppenheimerFunds, Inc. (the Manager). As of December 31, 2004, the majority of
the Non-Service shares were owned by the Manager.

      The Fund currently offers Non-Service shares only. The class is sold at
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

      Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

      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.

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

pledged as collateral for repurchase agreements are held by a custodian bank
until the agreements mature. Each agreement requires that the market value of
the collateral be sufficient to cover payments of interest and principal. In the
event of default by the other party to the agreement, retention of the
collateral may be subject to legal proceedings.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders. Therefore, no federal income or excise tax provisions are
required, however, during the year ended December 31, 2004, the Fund paid
federal excise tax of $1,754.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                            NET UNREALIZED
                                                              APPRECIATION
                                                          BASED ON COST OF
                                                            SECURITIES AND
      UNDISTRIBUTED     UNDISTRIBUTED    ACCUMULATED     OTHER INVESTMENTS
      NET INVESTMENT        LONG-TERM           LOSS    FOR FEDERAL INCOME
      INCOME                     GAIN   CARRYFORWARD          TAX PURPOSES
      --------------------------------------------------------------------
      $--                         $--            $--              $682,788

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

                                                         REDUCTION TO
                                   REDUCTION TO       ACCUMULATED NET
              REDUCTION TO      ACCUMULATED NET         REALIZED GAIN
              PAID-IN CAPITAL   INVESTMENT LOSS        ON INVESTMENTS
              -------------------------------------------------------
              $1,926                     $2,576                  $650

The tax character of distributions paid during the year ended December 31, 2004
and the period ended December 31, 2003 was as follows:

                                        YEAR ENDED              PERIOD ENDED
                                 DECEMBER 31, 2004       DECEMBER 31, 2003 1
- ----------------------------------------------------------------------------
Distributions paid from:
Ordinary income                         $  305,198                       $--
Long-term capital gain                     289,723                        --
                                 -------------------------------------------
Total                                     $594,921                       $--
                                 ===========================================

1. For the period from January 2, 2003 (commencement of operations) to December
31, 2003.

The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.



Federal tax cost of securities                 $  2,513,881
                                               =============
Gross unrealized appreciation                  $    692,064
Gross unrealized depreciation                        (9,276)
                                               -------------
Net unrealized appreciation                    $    682,788
                                               =============

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.

- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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 Trust has authorized an unlimited number of $0.001 par value shares of
beneficial interest. Transactions in shares of beneficial interest were as
follows:

                                              YEAR ENDED DECEMBER 31, 2004      PERIOD ENDED DECEMBER 31, 2003 1
                                                  SHARES            AMOUNT              SHARES            AMOUNT
- ----------------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                                                  --        $       --             300,000      $  3,000,000
Dividends and/or distributions reinvested         10,679           135,090                  --                --
Redeemed                                         (81,120)         (999,952)                 --                --
                                              ------------------------------------------------------------------
Net increase (decrease)                          (70,441)       $ (864,862)            300,000      $  3,000,000
                                              ==================================================================


1. For the period from January 2, 2003 (commencement of operations) to December
31, 2003.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended December 31, 2004, were
$3,336,459 and $4,347,469, respectively.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million and 0.60% of average annual net assets over $800 million.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 for assets of $10 million or more. The Fund
is subject to the minimum fee in the event that the per account fee does not
equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. OFS has voluntarily agreed to limit transfer
and shareholder servicing agent fees to 0.35% of average annual net assets of
the Fund. This undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER MONEY FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Money Fund/VA, a series of Oppenheimer Variable Account Funds,
including the statement of investments, as of December 31, 2004, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, and the financial
highlights for each of the five 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Money Fund/VA as of December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005

STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------


                                                     PRINCIPAL           VALUE
                                                        AMOUNT      SEE NOTE 1
- -------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--13.7%
- -------------------------------------------------------------------------------
DOMESTIC CERTIFICATES OF DEPOSIT--2.0%
Citibank NA, 2.31%, 2/23/05                        $ 2,000,000   $   2,000,000
- -------------------------------------------------------------------------------
Washington Mutual Bank FA,
2.29%, 2/11/05                                       2,000,000       2,000,000
                                                                 --------------
                                                                     4,000,000

- -------------------------------------------------------------------------------
YANKEE CERTIFICATES OF DEPOSIT--11.7%
Bank of Montreal Chicago, 2.28%,
1/13/05                                              2,000,000       2,000,000
- -------------------------------------------------------------------------------
BNP Paribas, New York, 2.33%,
6/22/05 1                                            5,000,000       4,998,933
- -------------------------------------------------------------------------------
Fortis Bank SA/NV, New York,
2.10%, 1/5/05                                        2,500,000       2,500,000
- -------------------------------------------------------------------------------
Nordea Bank Finland plc, New York
Branch, 2.34%, 6/29/05 1                             3,000,000       2,999,482
- -------------------------------------------------------------------------------
Societe Generale, New York, 2.33%,
6/14/05 1                                            5,000,000       4,999,321
- -------------------------------------------------------------------------------
Svenska Handelsbanken NY, 2.47%,
3/24/05                                              3,500,000       3,500,000
- -------------------------------------------------------------------------------
Toronto Dominion Bank, New York,
2.34%, 2/10/05                                       2,000,000       2,000,000
                                                                 --------------
Total Certificates of Deposit (Cost $26,997,736)                    26,997,736

- -------------------------------------------------------------------------------
DIRECT BANK OBLIGATIONS--8.6%
- -------------------------------------------------------------------------------
AB SPINTAB, 2.39%, 2/23/05                           3,000,000       2,989,466
- -------------------------------------------------------------------------------
Barclays US Funding Corp.,
2.18%, 1/12/05                                       2,500,000       2,498,335
- -------------------------------------------------------------------------------
Calyon North America, Inc.,
2.25%, 1/4/05                                        2,000,000       1,999,625
- -------------------------------------------------------------------------------
DnB NOR Bank ASA, 2.27%, 2/1/05                      1,200,000       1,197,654
- -------------------------------------------------------------------------------
Governor & Co. of the Bank of
Ireland, 2.08%, 3/29/05 2                            2,000,000       1,989,947
- -------------------------------------------------------------------------------
HBOS Treasury Services, 2.33%,
2/28/05                                              1,250,000       1,245,308
- -------------------------------------------------------------------------------
Skandinaviska Enskilda Banken AB,
2.45%, 3/23/05 2                                     2,000,000       1,988,975
- -------------------------------------------------------------------------------
Standard Federal Bank, 2.17%, 1/7/05                 1,000,000       1,000,000
- -------------------------------------------------------------------------------
Swedbank AB, 2.31%, 2/9/05                           2,000,000       1,994,995
                                                                 --------------
Total Direct Bank Obligations
(Cost $16,904,305)                                                  16,904,305

- -------------------------------------------------------------------------------
LETTERS OF CREDIT--2.6%
- -------------------------------------------------------------------------------
Chase Manhattan Bank, guaranteeing
commercial paper of NATC
California LLC, 2.03%, 1/19/05
(Cost $4,994,925)                                    5,000,000       4,994,925

                                                     PRINCIPAL           VALUE
                                                        AMOUNT      SEE NOTE 1
- -------------------------------------------------------------------------------
SHORT-TERM NOTES--71.5%
- -------------------------------------------------------------------------------
ASSET-BACKED--25.0%
Cable Beach LP, 2.03%, 1/6/05 2                    $ 3,000,000   $   2,999,154
- -------------------------------------------------------------------------------
Chesham Finance LLC, 2.38%, 2/28/05 2                1,000,000         996,166
- -------------------------------------------------------------------------------
Crown Point Capital Co.:
1.85%, 1/21/05 2                                     4,100,000       4,095,786
2.11%, 3/21/05 2                                     2,325,000       2,314,235
- -------------------------------------------------------------------------------
Eiffel Funding LLC, 2.36%, 2/10/05 2                 2,040,000       2,034,651
- -------------------------------------------------------------------------------
FCAR Owner Trust I, 2.20%, 1/7/05                    1,000,000         999,633
- -------------------------------------------------------------------------------
Gotham Funding Corp., 2.31%,
1/10/05 2                                            1,500,000       1,499,134
- -------------------------------------------------------------------------------
GOVCO, Inc., 2.05%, 1/18/05 2                        4,000,000       3,996,128
- -------------------------------------------------------------------------------
Grampian Funding LLC, 2.32%,
2/1/05 2                                             1,300,000       1,297,403
- -------------------------------------------------------------------------------
Legacy Capital LLC, 2.02%, 3/4/05 2                  2,500,000       2,491,260
- -------------------------------------------------------------------------------
Lexington Parker Capital Co. LLC:
2.03%, 1/10/05 2                                     2,000,000       1,998,995
2.15%, 4/5/05 2                                      3,000,000       2,983,158
- -------------------------------------------------------------------------------
Neptune Funding Corp., 2.53%,
3/7/05 2                                             3,500,000       3,487,108
- -------------------------------------------------------------------------------
New Center Asset Trust, 2.21%,
1/14/05                                              2,500,000       2,498,005
- -------------------------------------------------------------------------------
Perry Global Funding LLC,
Series A, 2.06%, 1/24/05 2                           5,266,000       5,259,069
- -------------------------------------------------------------------------------
Regency Markets No. 1 LLC, 2.37%,
1/7/05 2                                             2,000,000       1,999,230
- -------------------------------------------------------------------------------
Sheffield Receivables Corp., 2.17%,
1/3/05 2                                             1,100,000       1,099,867
- -------------------------------------------------------------------------------
Thornburg Mortgage Capital
Resources, 2.11%, 1/31/05 2                          5,000,000       4,992,166
- -------------------------------------------------------------------------------
Victory Receivables Corp., 2.22%,
1/14/05 2                                            1,000,000         999,198
- -------------------------------------------------------------------------------
Windmill Funding Corp., 2.25%,
1/19/05 2                                            1,000,000         998,875
                                                                 --------------
                                                                    49,039,221

- -------------------------------------------------------------------------------
AUTOMOBILES--3.3%
Ande Chevrolet Olds, Inc.,
2.57%, 1/1/05 1                                      2,000,000       2,000,000
- -------------------------------------------------------------------------------
BMW US Capital LLC:
2.20%, 1/3/05 2                                      2,500,000       2,499,694
2.30%, 1/14/05 2                                     2,000,000       1,998,339
                                                                 --------------
                                                                     6,498,033

- -------------------------------------------------------------------------------
CAPITAL MARKETS--13.3%
Banc of America Securities LLC,
2.32%, 1/3/05 1                                      5,000,000       5,000,000
- -------------------------------------------------------------------------------
Bear Stearns Cos., Inc., 2.01%, 1/13/05              3,220,000       3,217,843
- -------------------------------------------------------------------------------
First Clearing LLC, 2.41%, 6/6/05 1                  8,000,000       8,000,000
- -------------------------------------------------------------------------------
Lehman Brothers, Inc., 2.38%,
12/15/05 1                                           5,000,000       5,000,000



                          6 | OPPENHEIMER MONEY FUND/VA


                                                     PRINCIPAL           VALUE
                                                        AMOUNT      SEE NOTE 1
- -------------------------------------------------------------------------------
CAPITAL MARKETS--13.3%
Morgan Stanley, 2.34%, 1/21/05                     $ 5,000,000   $   4,993,500
                                                                 --------------
                                                                    26,211,343

- -------------------------------------------------------------------------------
COMMERCIAL BANKS--0.8%
Bank of America Corp., 2.19%,
1/13/05                                              1,500,000       1,498,905
- -------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--5.8%
General Electric Capital Corp.,
2.32%, 2/25/05                                       3,000,000       2,989,367
- -------------------------------------------------------------------------------
General Electric Capital Services,
2.46%, 3/21/05                                       3,500,000       3,481,106
- -------------------------------------------------------------------------------
Household Finance Corp., 2%,
1/13/05                                              5,000,000       4,996,667
                                                                 --------------
                                                                    11,467,140

- -------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--1.2%
Alta Mira LLC, Series 2004, 2.57%,
1/3/05 1                                             2,250,000       2,250,000
- -------------------------------------------------------------------------------
INSURANCE--7.9%
Jackson National Life Global Funding,
Series 2004-6, 2.40%, 1/17/05 1,3                    2,500,000       2,500,000
- -------------------------------------------------------------------------------
Metropolitan Life Global Funding I,
Series 2003-5, 2.44%, 1/17/05 1,4                    4,000,000       4,000,000
- -------------------------------------------------------------------------------
Security Life of Denver Insurance
Co., 2.54%, 1/24/05 1,4                              5,000,000       5,000,000
- -------------------------------------------------------------------------------
United of Omaha Life Insurance
Co., 2.38%, 11/17/05 1,4                             4,000,000       4,000,000
                                                                 --------------
                                                                    15,500,000

- -------------------------------------------------------------------------------
LEASING & FACTORING--2.0%
American Honda Finance Corp.,
2.79%, 3/11/05 1,3                                   1,000,000       1,000,523
- -------------------------------------------------------------------------------
Toyota Motor Credit Corp.,
2.17%, 1/12/05                                       3,000,000       2,998,011
                                                                 --------------
                                                                     3,998,534

- -------------------------------------------------------------------------------
OIL & GAS--1.0%
Koch Industries LLC, 2.29%, 1/11/05 2                2,000,000       1,998,728
- -------------------------------------------------------------------------------
SPECIAL PURPOSE FINANCIAL--11.2%
Cooperative Assn. of Tractor
Dealers, Inc., Series A:
2.35%, 1/4/05                                        2,571,000       2,570,497
2.36%, 2/18/05                                       1,300,000       1,295,909
- -------------------------------------------------------------------------------
Cooperative Assn. of Tractor
Dealers, Inc., Series B:
2.36%, 2/15/05                                       1,000,000         997,050
2.40%, 1/5/05                                        2,500,000       2,499,333
2.48%, 3/15/05                                       1,500,000       1,492,457
- -------------------------------------------------------------------------------
K2 (USA) LLC:
2.12%, 1/25/05 2                                     1,250,000       1,248,233
2.38%, 6/30/05 1,3                                   3,000,000       2,999,699
- -------------------------------------------------------------------------------
LINKS Finance LLC, 2.35%, 12/15/05 1,3               3,000,000       2,999,142

                                                     PRINCIPAL           VALUE
                                                        AMOUNT      SEE NOTE 1
- -------------------------------------------------------------------------------
SPECIAL PURPOSE FINANCIAL Continued
Parkland (USA) LLC, 2.38%, 1/14/05 1,3             $ 2,000,000   $   1,999,993
- -------------------------------------------------------------------------------
RACERS Trust, Series 2004-6-MM,
2.41%, 1/24/05 1,3                                   1,000,000       1,000,000
- -------------------------------------------------------------------------------
Sigma Finance, Inc., 2.35%, 12/15/05 1,3             2,900,000       2,899,200
                                                                 --------------
                                                                    22,001,513
                                                                 --------------
Total Short-Term Notes
(Cost $140,463,417)                                                140,463,417

- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES--3.3%
- -------------------------------------------------------------------------------
Federal Home Loan Bank,
1.50%, 3/1/05                                        2,000,000       2,000,000
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.:
1.375%, 2/18/05                                      2,000,000       2,000,000
1.60%, 5/13/05                                       2,500,000       2,500,000
                                                                 --------------
Total U.S. Government Agencies
(Cost $6,500,000)                                                    6,500,000

- -------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $195,860,383)                                       99.7%    195,860,383
- -------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES                            0.3         642,440
                                                   ----------------------------
NET ASSETS                                               100.0%  $ 196,502,823
                                                   ============================


FOOTNOTES TO STATEMENT OF INVESTMENTS

SHORT-TERM  NOTES,  DIRECT BANK OBLIGATIONS AND LETTERS OF CREDIT ARE GENERALLY
TRADED ON A  DISCOUNT  BASIS; THE INTEREST RATE SHOWN IS THE  DISCOUNT RATE
RECEIVED BY THE FUND AT THE TIME OF PURCHASE. OTHER SECURITIES NORMALLY BEAR
INTEREST AT THE RATES SHOWN.

1. Represents the current interest rate for a variable or increasing rate
security.

2. Security  issued in an exempt transaction without registration under the
Securities Act of 1933. Such securities amount to $57,265,499,  or 29.14% of the
Fund's net assets, and have been determined to be liquid pursuant to guidelines
adopted by the Board of Trustees.

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 $15,398,557 or 7.84% of the Fund's net
assets as of December 31, 2004.

4. Illiquid security. The aggregate value of illiquid securities as of December
31, 2004 was $13,000,000, which represents 6.62% of the Fund's net assets. See
Note 4 of Notes to Financial Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------
Investments, at value (cost $195,860,383)--see accompanying statement of investments   $ 195,860,383
- -----------------------------------------------------------------------------------------------------
Cash                                                                                         151,267
- -----------------------------------------------------------------------------------------------------
Receivables and other assets:
Shares of beneficial interest sold                                                           674,010
Interest                                                                                     140,157
Other                                                                                          3,085
                                                                                       --------------
Total assets                                                                             196,828,902

- -----------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed                                                       176,208
Dividends                                                                                    112,938
Shareholder communications                                                                    17,299
Trustees' compensation                                                                         4,432
Transfer and shareholder servicing agent fees                                                    844
Other                                                                                         14,358
                                                                                       --------------
Total liabilities                                                                            326,079

- -----------------------------------------------------------------------------------------------------
NET ASSETS                                                                             $ 196,502,823
                                                                                       ==============

- -----------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -----------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                             $     196,475
- -----------------------------------------------------------------------------------------------------
Additional paid-in capital                                                               196,306,550
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments                                                    (202)
                                                                                       --------------
NET ASSETS--applicable to 196,475,255 shares of beneficial interest outstanding        $ 196,502,823
                                                                                       ==============

- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, REDEMPTION PRICE PER SHARE AND OFFERING PRICE PER SHARE               $        1.00


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

- -------------------------------------------------------------------
INVESTMENT INCOME
- -------------------------------------------------------------------
Interest                                               $ 3,151,606

- -------------------------------------------------------------------
EXPENSES
- -------------------------------------------------------------------
Management fees                                            982,603
- -------------------------------------------------------------------
Shareholder communications                                  19,605
- -------------------------------------------------------------------
Transfer and shareholder servicing agent fees               10,029
- -------------------------------------------------------------------
Trustees' compensation                                       5,499
- -------------------------------------------------------------------
Custodian fees and expenses                                  3,733
- -------------------------------------------------------------------
Other                                                       20,310
                                                       ------------
Total expenses                                           1,041,779
Less reduction to custodian expenses                        (1,310)
                                                       ------------
Net expenses                                             1,040,469

- -------------------------------------------------------------------
NET INVESTMENT INCOME                                    2,111,137

- -------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS                               481

- -------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS   $ 2,111,618
                                                       ============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                               2004             2003
- ------------------------------------------------------------------------------------------------------------

OPERATIONS
- ------------------------------------------------------------------------------------------------------------
Net investment income                                                        $   2,111,137    $   2,534,902
- ------------------------------------------------------------------------------------------------------------
Net realized gain (loss)                                                               481             (683)
                                                                             -------------------------------
Net increase in net assets resulting from operations                             2,111,618        2,534,219

- ------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------
Dividends from net investment income                                            (2,111,137)      (2,534,902)

- ------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from beneficial interest transactions     (41,110,557)    (142,355,858)
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Total decrease                                                                 (41,110,076)    (142,356,541)
- ------------------------------------------------------------------------------------------------------------
Beginning of period                                                            237,612,899      379,969,440
                                                                             -------------------------------
End of period                                                                $ 196,502,823    $ 237,612,899
                                                                             ===============================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------


YEAR ENDED DECEMBER 31,                                     2004          2003          2002          2001          2000
- ---------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                   $    1.00     $    1.00     $    1.00     $    1.00     $    1.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations--net
investment income and net realized gain                      .01 1         .01           .01           .04           .06
- ---------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                        (.01)         (.01)         (.01)         (.04)         (.06)
Dividends from net realized gain                              --            --            -- 2          --            --
                                                       --------------------------------------------------------------------
Total dividends and/or distributions to shareholders        (.01)         (.01)         (.01)         (.04)         (.06)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                         $    1.00     $    1.00     $    1.00     $    1.00     $    1.00
                                                       ====================================================================

- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3                                              0.98%         0.79%         1.47%         3.85%         6.26%
- ---------------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)               $ 196,503     $ 237,613     $ 379,969     $ 370,229     $ 215,771
- ---------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                      $ 218,243     $ 316,096     $ 386,457     $ 288,106     $ 204,586
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                       0.97%         0.80%         1.46%         3.59%         5.98%
Total expenses                                              0.48% 5       0.47% 5       0.47% 5       0.52% 5       0.51% 5


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Less than $0.005 per share.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Money Fund/VA (the Fund) is a separate series of Oppenheimer
Variable Account Funds (the Trust), an open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund's
investment objective is to seek maximum current income from investments in
"money market" securities consistent with low capital risk and the maintenance
of liquidity. The Trust's investment advisor is OppenheimerFunds, Inc. (the
Manager).

      Shares of the Fund are only sold to separate investment accounts of
participating insurance companies as an underlying investment for variable life
insurance policies, variable annuity contracts or other investment products.

     The following is a summary of significant  accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. Portfolio securities are valued on the basis of amortized
cost, which approximates market value.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years for
federal income tax purposes.

        UNDISTRIBUTED NET     UNDISTRIBUTED       ACCUMULATED CAPITAL
        INVESTMENT INCOME   LONG-TERM GAINS   LOSS CARRYFORWARD 1,2,3
        -------------------------------------------------------------
        $ 163,152                      $ --                     $ 202

1. As of December 31, 2004, the Fund had $202 of net capital loss carryforward
available to offset future realized capital gains, if any, and thereby reduce
future taxable gain distributions. As of December 31, 2004, details of the
capital loss carryforward were as follows:

               EXPIRING
               ----------------------
               2011             $ 202

2. During the fiscal year December 31, 2004, the Fund utilized $481 of capital
loss carryforward to offset capital gains realized in that fiscal year.

3. During the fiscal year December 31, 2003, the Fund did not utilize any
capital loss carryforwards.

The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:

                                        YEAR ENDED          YEAR ENDED
                                 DECEMBER 31, 2004   DECEMBER 31, 2003
      ----------------------------------------------------------------
      Distributions paid from:
      Ordinary income                  $ 2,111,137         $ 2,534,902

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income distributions, if any, are declared
daily and paid monthly. Capital gain distributions, if any, are declared and
paid annually but may be paid at other times to maintain the net asset value per
share at $1.00.





- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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 $0.001 par value shares of
beneficial interest. Transactions in shares of beneficial interest were as
follows:

                                             YEAR ENDED DECEMBER 31, 2004    YEAR ENDED DECEMBER 31, 2003
                                                  SHARES           AMOUNT         SHARES           AMOUNT
- ----------------------------------------------------------------------------------------------------------

Sold                                         135,559,970   $  135,559,970    339,107,835   $  339,107,835
Dividends and/or distributions reinvested      2,042,069        2,042,069      2,603,068        2,603,068
Redeemed                                    (178,712,596)    (178,712,596)  (484,066,761)    (484,066,761)
                                            --------------------------------------------------------------
Net decrease                                 (41,110,557)  $  (41,110,557)  (142,355,858)  $ (142,355,858)
                                            ==============================================================

- --------------------------------------------------------------------------------
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.45% of the first $500 million of average annual net assets,
0.425% of the next $500 million, 0.40% of the next $500 million and 0.375% of
average annual net assets in excess of $1.5 billion.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$10,018 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 for assets of $10 million or more. The Fund
is subject to the minimum fee in the event that the per account fee does not
equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. OFS has voluntarily agreed to limit transfer
and shareholder servicing agent fees to 0.35% of average annual net assets of
the Fund. This undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
4. ILLIQUID SECURITIES

As of December 31, 2004,  investments  in  securities  included  issues that are
illiquid.  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 will not invest more than 10% of its net assets  (determined at the time of
purchase and reviewed periodically) in illiquid securities.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
5. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER STRATEGIC BOND FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Strategic Bond Fund/VA, a series of Oppenheimer Variable Account
Funds, including the statement of investments, as of December 31, 2004, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Strategic Bond Fund/VA as of December 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.

/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005

STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--2.4%
- --------------------------------------------------------------------------------
Arbor I Ltd., Catastrophe
Linked Nts.,
Series 2004-4, 16.49%, 3/15/06 1                 $     250,000   $       253,774
- --------------------------------------------------------------------------------
Bank One Auto Securitization
Trust, Automobile Receivable
Certificates,
Series 2003-1, Cl. A2,
1.29%, 8/21/06                                         212,619           212,242
- --------------------------------------------------------------------------------
BMW Vehicle Owner Trust,
Automobile Loan Certificates,
Series 2004-A, Cl. A2,
1.88%, 10/25/06                                        716,519           714,221
- --------------------------------------------------------------------------------
Capital Auto Receivables Asset
Trust, Automobile Mtg.-Backed
Nts., Series 2004-2, Cl. A3, 3.58%,
1/15/09                                                740,000           739,075
- --------------------------------------------------------------------------------
Centex Home Equity Co. LLC,
Home Equity Loan Asset-Backed
Certificates:
Series 2003-C, Cl. AF1,
2.14%, 7/25/18                                          71,469            71,389
Series 2004-A, Cl. AF1,
2.03%, 6/25/19                                         136,318           135,794
Series 2004-D, Cl. AF1,
2.98%, 4/25/20 2                                       338,237           337,140
- --------------------------------------------------------------------------------
Chase Funding Mortgage Loan
Asset-Backed Certificates,
Home Equity Mtg. Obligations:
Series 2002-4, Cl. 1A3,
3.44%, 4/25/23                                         109,997           110,004
Series 2003-1, Cl. 1A3,
3.14%, 7/25/23                                         302,706           302,548
Series 2003-4, Cl. 1A1,
2.538%, 9/25/17 1                                       53,909            53,938
Series 2003-4, Cl. 1A2,
2.138%, 7/25/18                                        280,000           279,060
Series 2004-1, Cl. 2A1,
2.528%, 9/25/21 1                                      486,551           486,864
- --------------------------------------------------------------------------------
Chase Manhattan Auto Owner
Trust, Automobile Loan
Pass-Through Certificates:
Series 2002-A, Cl. A4,
4.24%, 9/15/08                                         152,203           153,155
Series 2003-B, Cl. A2,
1.28%, 3/15/06                                          58,362            58,330
- --------------------------------------------------------------------------------
CIT Equipment Collateral,
Equipment Receivable-Backed
Nts., Series 2004-DFS, Cl. A2,
2.66%, 11/20/06 2                                      550,000           547,659
- --------------------------------------------------------------------------------
CIT Group Home Equity Loan
Trust, Home Equity Loan
Asset-Backed Certificates,
Series 2003-1, Cl. A2, 2.35%,
4/20/27                                                292,505           291,952


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Citibank Credit Card Issuance
Trust, Credit Card Receivable Nts.,
Series 2002-A3, Cl. A3,
4.40%, 5/15/07                                   $     530,000   $       533,661
- --------------------------------------------------------------------------------
CitiFinancial Mortgage Securities,
Inc., Home Equity Collateralized
Mtg. Obligations:
Series 2003-2, Cl. AF1,
2.518%, 5/25/33 1                                       32,335            32,356
Series 2003-3, Cl. AF1,
2.538%, 8/25/33 1                                      144,250           144,346
- --------------------------------------------------------------------------------
Consumer Credit Reference Index
Securities Program, Credit Card
Asset-Backed Certificates,
Series 2002-B, Cl. FX,
10.421%, 3/22/07 2                                     500,000           514,941
- --------------------------------------------------------------------------------
DaimlerChrysler Auto Trust,
Automobile Loan
Pass-Through Certificates:
Series 2003-A, Cl. A2, 1.52%, 12/8/05                  177,134           177,116
Series 2003-B, Cl. A2, 1.61%, 7/10/06                  561,254           560,311
Series 2004-B, Cl. A2, 2.48%, 2/8/07 2                 600,000           598,561
Series 2004-C, Cl. A2, 2.62%, 6/8/07                 1,040,000         1,036,808
- --------------------------------------------------------------------------------
Embarcadero Aircraft
Securitization Trust, Airplane
Receivable Nts., Series 2000-A,
Cl. B, 0.678%, 8/15/25 2,3,4                         1,820,063               569
- --------------------------------------------------------------------------------
Ford Credit Auto Owner Trust,
Automobile Loan Pass-Through
Certificates, Series 2004-A,
Cl. A2, 2.13%, 10/15/06                              1,120,000         1,115,639
- --------------------------------------------------------------------------------
Harley-Davidson Motorcycle
Trust, Motorcycle Receivable Nts.,
Series 2003-3, Cl. A1, 1.50%, 1/15/08                  389,176           387,801
- --------------------------------------------------------------------------------
Honda Auto Receivables
Owner Trust, Automobile
Receivable Obligations:
Series 2003-3, Cl. A2, 1.52%, 4/21/06                  419,992           419,289
Series 2003-4, Cl. A2, 1.58%, 7/17/06                  524,914           523,743
- --------------------------------------------------------------------------------
Household Automotive Trust,
Automobile Loan Certificates,
Series 2003-2, Cl. A2,
1.56%, 12/18/06                                        192,376           191,996
- --------------------------------------------------------------------------------
M&I Auto Loan Trust,
Automobile Loan Certificates:
Series 2002-1, Cl. A3,
2.49%, 10/22/07                                        229,259           229,227
Series 2003-1, Cl. A2, 1.60%, 7/20/06                  371,164           370,628
- --------------------------------------------------------------------------------
National City Auto Receivables
Trust, Automobile Receivable
Obligations, Series 2004-A, Cl. A2,
1.50%, 2/15/07                                         431,428           429,910





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
NC Finance Trust, Collateralized
Mtg. Obligations, Series 1999-I,
Cl. ECFD, 8.75%, 1/25/29 2                       $      66,744   $        17,812
- --------------------------------------------------------------------------------
Nissan Auto Lease Trust,
Automobile Lease Obligations:
Series 2003-A, Cl. A2,
1.69%, 12/15/05                                         35,559            35,559
Series 2004-A, Cl. A2,
2.55%, 1/15/07                                         480,000           479,674
- --------------------------------------------------------------------------------
Nissan Auto Receivables Owner
Trust, Automobile Receivable Nts.:
Series 2002-A, Cl. A4,
4.28%, 10/16/06                                        120,752           121,361
Series 2003-B, Cl. A3,
1.51%, 8/15/07                                         125,776           124,783
Series 2004-A, Cl. A2,
1.40%, 7/17/06                                         499,348           497,341
- --------------------------------------------------------------------------------
Option One Mortgage Loan
Trust, Home Equity Mtg.
Obligations, Series 2004-3, Cl. A2,
2.568%, 11/25/34 1,2                                   326,595           326,805
- --------------------------------------------------------------------------------
Popular ABS Mortgage
Pass-Through Trust, Home Equity
Pass-Through Certificates,
Series 2004-5, Cl. A F2,
3.735%, 11/10/34 2                                     200,000           199,334
- --------------------------------------------------------------------------------
Sequoia Capital Ltd.,
Catastrophe Nts.,
Series 2004-2, 7.24%, 3/15/05 1                        250,000           249,931
- --------------------------------------------------------------------------------
Toyota Auto Receivables Owner
Trust, Automobile
Mtg.-Backed Obligations:
Series 2002-B, Cl. A3,
3.76%, 6/15/06                                          38,998            39,054
Series 2003-B, Cl. A2,
1.43%, 2/15/06                                         162,898           162,799
- --------------------------------------------------------------------------------
USAA Auto Owner Trust,
Automobile Loan Asset-Backed Nts.:
Series 2002-1, Cl. A3,
2.41%, 10/16/06                                        102,245           102,242
Series 2004-1, Cl. A2,
1.43%, 9/15/06                                       1,196,193         1,192,385
Series 2004-2, Cl. A2,
2.41%, 2/15/07                                         610,000           608,073
Series 2004-3, Cl. A2,
2.79%, 6/15/07                                         490,000           489,033
- --------------------------------------------------------------------------------
Volkswagen Auto Lease Trust,
Automobile Lease Asset-Backed
Securities, Series 2004-A, Cl. A2,
2.47%, 1/22/07                                         640,000           637,075


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Volkswagen Auto Loan Enhanced
Trust, Automobile Loan
Receivable Certificates:
Series 2003-1, Cl. A2,
1.11%, 12/20/05                                  $      73,599   $        73,574
Series 2003-2, Cl. A2,
1.55%, 6/20/06                                         283,939           283,387
- --------------------------------------------------------------------------------
Wachovia Auto Owner Trust,
Automobile Receivable Nts.,
Series 2004-B, Cl. A2,
2.40%, 5/21/07                                         460,000           458,107
- --------------------------------------------------------------------------------
Wells Fargo Home Equity Trust,
Collateralized Mtg. Obligations,
Series 2004-2, Cl. AI1B,
2.94%, 9/25/18                                         946,271           941,898
- --------------------------------------------------------------------------------
Whole Auto Loan Trust,
Automobile Loan Receivable
Certificates:
Series 2003-1, Cl. A2A,
1.40%, 4/15/06                                         383,197           382,479
Series 2003-1, Cl. A3B,
1.99%, 5/15/07                                         220,000           218,151
Series 2004-1, Cl. A2A,
2.59%, 5/15/07                                         620,000           617,718
                                                                 ---------------
Total Asset-Backed Securities
(Cost $22,179,442)                                                    20,272,622

- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--12.7%
- --------------------------------------------------------------------------------
Asset Securitization Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1997-D4, Cl. B1,
7.525%, 4/14/29                                        375,000           433,282
- --------------------------------------------------------------------------------
Banc of America Commercial
Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates,
Series 2004-6, Cl. A3,
4.512%, 12/10/42                                       560,000           560,000
- --------------------------------------------------------------------------------
Bank of America Mortgage
Securities, Inc., Collateralized
Mtg. Obligations Pass-Through
Certificates:
Series 2004-2, Cl. 2A1,
6.50%, 7/20/32                                         982,015         1,003,277
Series 2004-8, Cl. 5A1,
6.50%, 5/25/32                                         785,464           816,147
Series 2004-E, Cl. 2A9,
3.712%, 6/25/34                                        497,824           498,138
Series 2004-G, Cl. 2A1,
2.469%, 8/25/34                                        368,414           367,688
- --------------------------------------------------------------------------------
CIT Equipment Collateral,
Equipment Receivable-
Backed Nts.,
Series 2003-EF1, Cl. A2,
1.49%, 12/20/05                                         38,995            39,003





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Countrywide Alternative Loan Trust,
Collateralized Mtg. Obligations,
Series 2004-J9, Cl. 1A1,
2.598%, 10/25/34 1                               $     765,604   $       766,485
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
5%, 1/1/35 5                                         9,609,000         9,542,938
5.50%, 1/1/35 5                                      3,040,000         3,088,452
6%, 9/1/24                                           3,647,046         3,792,091
7%, 3/1/31-11/1/34                                   4,646,138         4,926,953
11%, 11/1/14                                            63,381            69,407
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Collateralized Mtg. Obligations,
Pass-Through Participation
Certificates, Series 151, Cl. F,
9%, 5/15/21                                            108,068           108,128
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Gtd. Real Estate Mtg.
Investment Conduit Multiclass
Pass-Through Certificates:
Series 1669, Cl. G, 6.50%, 2/15/23                     145,350           146,508
Series 2055, Cl. ZM, 6.50%, 5/15/28                    366,469           381,155
Series 2080, Cl. Z, 6.50%, 8/15/28                     227,788           234,885
Series 2387, Cl. PD, 6%, 4/15/30                       491,475           509,443
Series 2466, Cl. PD, 6.50%, 4/15/30                    139,825           140,498
Series 2498, Cl. PC, 5.50%, 10/15/14                    60,326            60,843
Series 2500, Cl. FD, 2.903%, 3/15/32 1                 138,846           139,391
Series 2526, Cl. FE, 2.803%, 6/15/29 1                 170,408           171,021
Series 2551, Cl. FD, 2.803%, 1/15/33 1                 136,801           137,739
Series 2551, Cl. TA, 4.50%, 2/15/18                     59,590            59,552
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 177, Cl. B, (1.91)%, 7/1/26 6                   430,500            79,803
Series 192, Cl. IO, 3.27%, 2/1/28 6                    112,605            20,926
Series 200, Cl. IO, 2.89%, 1/1/29 6                    137,998            26,456
Series 205, Cl. IO, (0.22)%, 9/1/29 6                  648,115           121,500
Series 208, Cl. IO, (29.18)%, 6/1/30 6                 741,029           136,045
Series 2074, Cl. S, 11.86%, 7/17/28 6                  144,882            18,659
Series 2079, Cl. S, 10.47%, 7/17/28 6                  225,939            29,433
Series 2526, Cl. SE, 17.17%, 6/15/29 6                 318,589            25,898
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 1/1/20 5                                      3,175,000         3,165,078
5%, 1/1/20-1/1/35 5                                  5,784,000         5,802,086
5.50%, 3/1/33-1/1/34                                 5,067,193         5,150,261
5.50%, 1/1/35 5                                     15,257,000        15,490,615
6%, 9/1/24                                           1,095,238         1,139,933
6%, 1/1/35 5                                         5,145,000         5,320,249
6.50%, 5/1/29-10/1/30                                  349,551           367,350
6.50%, 1/1/35 5                                      5,741,000         6,020,874
7%, 12/1/23-8/1/34                                  11,386,535        12,074,521
7%, 8/1/28-1/1/35 5                                  4,961,590         5,258,944
7.50%, 8/1/25-2/1/27                                   303,017           325,469
8.50%, 7/1/32                                           30,386            33,011


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Collateralized Mtg. Obligations,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates:
Trust 1998-63, Cl. PG, 6%, 3/25/27               $     134,095   $       134,735
Trust 2001-50, Cl. NE, 6%, 8/25/30                     263,368           267,008
Trust 2001-70, Cl. LR, 6%, 9/25/30                     257,913           262,970
Trust 2001-72, Cl. NH, 6%, 4/25/30                     206,421           211,102
Trust 2001-74, Cl. PD, 6%, 5/25/30                      87,676            88,865
Trust 2002-50, Cl. PD, 6%, 9/25/27                     143,345           143,441
Trust 2002-77, Cl. WF,
2.81%, 12/18/32 1                                      219,585           220,883
Trust 2002-94, Cl. MA,
4.50%, 8/25/09                                         389,325           390,178
Trust 2003-81, Cl. PA, 5%, 2/25/12                     110,657           111,064
Trust 2004-101, Cl. BG, 5%, 1/25/20                    630,000           635,513
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Gtd. Real Estate Mtg. Investment
Conduit Pass-Through Certificates,
Interest-Only Stripped
Mtg.-Backed Security:
Trust 319, Cl. 2, (3.08)% 2/1/32 6                     280,066            53,832
Trust 2002-28, Cl. SA,
12.58%, 4/25/32 6                                      171,247            17,021
Trust 2002-38, Cl. SO,
19.60%, 4/25/32 6                                      941,721            75,715
Trust 2002-48, Cl. S,
10.91%, 7/25/32 6                                      274,141            28,629
Trust 2002-52, Cl. SL,
11.27%, 9/25/32 6                                      172,075            18,084
Trust 2002-56, Cl. SN,
13.38%, 7/25/32 6                                      376,704            39,455
Trust 2002-77, Cl. IS,
15.90%, 12/18/32 6                                   1,604,414           169,157
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Interest-Only Stripped
Mtg.-Backed Security:
Trust 214, Cl. 2, 1.30%, 3/1/23 6                    1,743,262           332,038
Trust 221, Cl. 2, (1.23)%, 5/1/23 6                    197,058            38,107
Trust 240, Cl. 2, 3.35%, 9/1/23 6                      340,010            64,752
Trust 301, Cl. 2, (3.70)%, 4/1/29 6                    841,291           159,680
Trust 313, Cl. 2, (29.08)%, 7/1/31 6                   930,965           179,140
Trust 321, Cl. 2, (3.53)%, 3/1/32 6                  1,238,418           246,105
Trust 324, Cl. 2, (9.92)%, 6/1/32 6                  2,154,476           438,653
Trust 333, Cl. 2, 2.31%, 3/1/33 6                      817,230           176,743
Trust 2001-63, Cl. SD,
17.40%, 12/18/31 6                                     295,586            31,275
Trust 2001-68, Cl. SC,
13.63%, 11/25/31 6                                     217,386            23,651
Trust 2001-81, Cl. S,
13.68%, 1/25/32 6                                      297,295            36,260
Trust 2002-9, Cl. MS,
10.62%, 3/25/32 6                                      367,130            40,046
Trust 2002-77, Cl. SH,
21.15%, 12/18/32 6                                     371,337            37,605





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
First Chicago/Lennar Trust 1,
Commercial Mtg. Pass-Through
Certificates,
Series 1997-CHL1, Cl. D,
7.863%, 4/29/39 1,2                              $     350,000   $       356,617
- --------------------------------------------------------------------------------
First Union National Bank/
Lehman Brothers/Bank of
America Commercial Mtg. Trust,
Pass-Through Certificates,
Series 1998-C2, Cl. A2,
6.56%, 11/18/35                                        360,000           387,274
- --------------------------------------------------------------------------------
GE Capital Commercial
Mortgage Corp.,
Commercial Mtg. Obligations,
Series 2004-C3, Cl. A2,
4.433%, 7/10/39                                        390,000           395,179
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc.,
Commercial Mtg. Obligations,
Series 2004-C3, Cl. A4,
4.547%, 12/10/41                                       360,000           360,947
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Commercial Mtg.
Pass-Through Certificates,
Series 1997-C1, Cl. A3,
6.869%, 7/15/29                                        294,379           311,620
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Mtg. Pass-Through
Certificates, Series 1998-C1, Cl. F,
7.089%, 5/15/30 1                                    1,800,000         1,883,750
- --------------------------------------------------------------------------------
Government National
Mortgage Assn.:
4.625%, 11/20/25 1                                      18,008            18,430
7%, 3/15/28-7/15/28                                  1,148,877         1,223,374
7.50%, 2/15/27                                         158,177           170,305
8%, 11/15/25-5/15/26                                   148,485           161,741
- --------------------------------------------------------------------------------
Government National
Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security:
Series 1998-6, Cl. SA,
8.73%, 3/16/28 6                                       275,939            33,487
Series 1998-19, Cl. SB,
10.70%, 7/16/28 6                                      461,648            60,289
Series 2001-21, Cl. SB,
14.94%, 1/16/27 6                                    2,222,960           212,607
- --------------------------------------------------------------------------------
GS Mortgage Securities Corp. II,
Commercial Mtg. Pass-Through
Certificates:
Series 2004-C1, Cl. A1,
3.659%, 10/10/28                                       407,183           402,757
Series 2004-GG2, Cl. A3,
4.602%, 8/10/38                                        250,000           255,071


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
GSR Mortgage Loan Trust,
Collateralized Mtg. Obligations,
Series 04-12, Cl. 3A1,
4.593%, 12/25/34 1,2                             $   1,176,093   $     1,177,713
- --------------------------------------------------------------------------------
Mastr Alternative Loan Trust,
Pass-Through Collateralized Mtg.
Obligations, Series 2004-6, Cl. 10A1,
6%, 7/25/34                                          1,125,260         1,161,934
- --------------------------------------------------------------------------------
Mastr Seasoned Securities Trust,
Collateralized Mtg. Obligations,
Series 2004-2, Cl. PT65,
6.50%, 12/1/34 5                                     1,625,000         1,673,496
- --------------------------------------------------------------------------------
Merrill Lynch Mortgage Investors,
Inc., Mtg. Pass-Through Certificates,
Series 1995-C2, Cl. D,
7.545%, 6/15/21 1                                      165,632           169,720
- --------------------------------------------------------------------------------
Morgan Stanley Capital I Trust,
Commercial Mtg. Pass-Through
Certificates:
Series 1996-C1, Cl. F,
7.472%, 2/15/28 1,7                                    162,744           150,727
Series 1997-XL1, Cl. G,
7.695%, 10/3/30                                        390,000           258,472
- --------------------------------------------------------------------------------
Nomura Asset Securities Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1998-D6, Cl. A1B,
6.59%, 3/15/30                                         420,000           454,560
- --------------------------------------------------------------------------------
Prudential Mortgage Capital Co.
II LLC, Commercial Mtg.
Pass-Through Certificates,
Series PRU-HTG 2000-C1, Cl. A2,
7.306%, 10/6/15                                        556,000           640,926
- --------------------------------------------------------------------------------
Salomon Brothers Mortgage
Securities VII, Inc., Commercial
Mtg. Pass-Through Certificates:
Series 1996-B, Cl. 1,
4.357%, 4/25/26 1,2                                      5,768             5,325
Series 1996-C1, Cl. F,
8.384%, 1/20/28 1,2                                  1,000,000           823,125
- --------------------------------------------------------------------------------
Washington Mutual Mortgage
Securities Corp., Collateralized
Mtg. Pass-Through Certificates,
Series 2003-AR12, Cl. A2,
2.446%, 2/25/34 1                                        9,652             9,658
- --------------------------------------------------------------------------------
Wells Fargo Mortgage Backed
Securities Trust, Collateralized
Mtg. Obligations:
Series 2004-DD, Cl. 2 A1,
4.548%, 1/25/35                                      1,290,000         1,292,116
Series 2004-N, Cl. A10,
3.803%, 8/25/34 2                                      966,317           969,495
Series 2004-W, Cl. A2,
4.635%, 11/25/34 1                                     575,342           576,930
                                                                 ---------------
Total Mortgage-Backed
Obligations (Cost $109,143,597)                                      108,869,487





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--8.8%
- --------------------------------------------------------------------------------
Federal Home Loan Bank
Unsec. Bonds, 2.75%, 10/15/06                    $   5,135,000   $     5,096,575
- --------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp. Nts.,
3.75%, 7/15/09 [EUR]                                 1,090,000         1,521,140
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
Unsec. Nts., 6.875%, 9/15/10                         4,420,000         5,051,901
- --------------------------------------------------------------------------------
Federal National
Mortgage Assn. Unsec. Nts.:
1.80%, 5/27/05                                       1,390,000         1,386,226
2.50%, 6/15/06                                       1,325,000         1,313,765
3.01%, 6/2/06                                        1,400,000         1,394,277
4.25%, 7/15/07                                       6,465,000         6,604,437
6.625%, 9/15/09                                      8,000,000         8,941,696
7.25%, 1/15/10-5/15/30                               5,765,000         6,733,930
- --------------------------------------------------------------------------------
Resolution Funding Corp. Federal
Book Entry Principal Strips,
5.85%, 1/15/21 8                                     1,220,000           535,562
- --------------------------------------------------------------------------------
Tennessee Valley Authority Bonds:
7.125%, 5/1/30                                         330,000           411,820
Series A, 6.79%, 5/23/12                             9,663,000        11,143,024
- --------------------------------------------------------------------------------
U.S. Treasury Bonds:
5.50%, 8/15/28                                       1,034,000         1,119,467
7.25%, 5/15/16                                       1,670,000         2,090,893
8.875%, 8/15/17 9                                    1,630,000         2,310,398
9.25%, 2/15/16                                         208,000           296,977
STRIPS, 4.20%, 2/15/11 8                               900,000           708,919
STRIPS, 4.60%, 2/15/16 8                               491,000           295,829
- --------------------------------------------------------------------------------
U.S. Treasury Nts.:
2.50%, 9/30/06-10/31/06                             14,025,000        13,903,978
2.75%, 8/15/07 10,11                                   525,000           519,401
2.75%, 7/31/06 9                                     3,839,000         3,827,756
                                                                 ---------------
Total U.S. Government
Obligations (Cost $75,011,468)                                        75,207,971

- --------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--29.9%
- --------------------------------------------------------------------------------
ARGENTINA--0.8%
Argentina (Republic of) Bonds:
1.98%, 8/3/12 1                                      6,465,000         5,438,849
2.352%, 5/3/05 1                                        56,000            55,064
Series PRE8, 2%, 1/3/10 2,3,4 [ARP]                  1,980,000           997,161
Series PR12, 2%, 1/3/16 2,3,4 [ARP]                  1,335,300           574,999
- --------------------------------------------------------------------------------
Argentina (Republic of) Disc. Bonds,
3/31/23 2,3,4                                          260,000           146,900
- --------------------------------------------------------------------------------
Buenos Aires (Province of) Bonds,
Bonos de Consolidacion de Deudas,
Series PBA1, 4/1/07 2,3,4 [ARP]                         59,785            24,123
                                                                 ---------------
                                                                       7,237,096
- --------------------------------------------------------------------------------
AUSTRALIA--0.8%
Queensland Treasury Corp.
Unsec. Nts., Series 09G,
6%, 7/14/09 [AUD]                                    8,300,000         6,670,330



                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
AUSTRIA--0.9%
Austria (Republic of) Bonds,
6.25%, 7/15/27 [EUR]                                 3,480,000   $     6,113,012
- --------------------------------------------------------------------------------
Austria (Republic of) Nts.,
Series 98-1, 5%, 1/15/08 [EUR]                       1,095,000         1,586,512
                                                                 ---------------
                                                                       7,699,524

- --------------------------------------------------------------------------------
BELGIUM--1.4%
Belgium (Kingdom of) Bonds:
5%, 9/28/11 [EUR]                                      540,000           806,734
Series 19, 6.50%, 3/31/05 [EUR]                      1,180,000         1,620,114
Series 26, 6.25%, 3/28/07 [EUR]                      2,170,000         3,184,063
Series 28, 5.75%, 3/28/08 [EUR]                        755,000         1,120,134
Series 32, 3.75%, 3/28/09 [EUR]                      2,905,000         4,070,238
Series 35, 5.75%, 9/28/10 [EUR]                      1,050,000         1,616,175
                                                                 ---------------
                                                                      12,417,458

- --------------------------------------------------------------------------------
BRAZIL--2.2%
Brazil (Federal Republic of) Bonds:
8.875%, 10/14/19                                     1,030,000         1,088,195
10.50%, 7/14/14                                        725,000           860,938
Series 15 yr., 3.125%, 4/15/09 1                        13,236            13,170
- --------------------------------------------------------------------------------
Brazil (Federal Republic of) Debt
Capitalization Bonds, Series 20 yr.,
8%, 4/15/14                                          7,252,993         7,429,785
- --------------------------------------------------------------------------------
Brazil (Federal Republic of) Nts.,
12%, 4/15/10                                         4,015,000         4,978,600
- --------------------------------------------------------------------------------
Brazil (Federal Republic of)
Unsec. Unsub. Bonds:
10%, 8/7/11                                            760,000           884,640
11%, 8/17/40                                         1,905,000         2,262,664
Cl. B, 8.875%, 4/15/24                                 958,000           996,320
                                                                 ---------------
                                                                      18,514,312

- --------------------------------------------------------------------------------
BULGARIA--0.2%
Bulgaria (Republic of) Bonds:
8.25%, 1/15/15                                         800,000         1,004,000
8.25%, 1/15/15 7                                       800,000         1,004,000
                                                                 ---------------
                                                                       2,008,000

- --------------------------------------------------------------------------------
COLOMBIA--0.5%
Colombia (Republic of) Nts.,
11.75%, 3/1/10 [COP]                             3,755,000,000         1,640,708
- --------------------------------------------------------------------------------
Colombia (Republic of) Unsec.
Unsub. Bonds, 8.375%, 2/15/27                          615,000           599,625
- --------------------------------------------------------------------------------
Colombia (Republic of) Unsec.
Unsub. Nts., 11.375%, 1/31/08 [EUR]                  1,125,000         1,829,100
                                                                 ---------------
                                                                       4,069,433

- --------------------------------------------------------------------------------
DENMARK--0.3%
Denmark (Kingdom of) Nts.,
4%, 8/15/08 [DKK]                                   12,375,000         2,344,727
- --------------------------------------------------------------------------------
DOMINICAN REPUBLIC--0.1%
Dominican Republic Bonds,
Series REGS, 9.04%, 1/23/13                            720,000           610,200





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ECUADOR--0.2%
Ecuador (Republic of) Unsec.
Bonds, 8%, 8/15/30 1                             $   1,810,000   $     1,570,175
- --------------------------------------------------------------------------------
EL SALVADOR--0.1%
El Salvador (Republic of) Bonds,
7.625%, 9/21/34 7                                      590,000           610,650
- --------------------------------------------------------------------------------
FINLAND--0.0%
Finland (Republic of) Sr. Unsec.
Unsub. Bonds, 2.75%, 7/4/06 [EUR]                      220,000           300,721
- --------------------------------------------------------------------------------
FRANCE--2.2%
France (Government of)
Obligations Assimilables du
Tresor Bonds:
5.50%, 10/25/07 [EUR]                                1,080,000         1,577,061
5.50%, 10/25/10 [EUR]                                6,085,000         9,266,867
5.75%, 10/25/32 [EUR]                                3,300,000         5,555,232
- --------------------------------------------------------------------------------
France (Government of)
Treasury Nts.:
3 yr., 3.50%, 1/12/05 [EUR]                          1,460,000         1,985,308
5 yr., 4.75%, 7/12/07 [EUR]                            120,000           171,593
                                                                 ---------------
                                                                      18,556,061

- --------------------------------------------------------------------------------
GERMANY--2.6%
Germany (Republic of) Bonds:
2%, 6/17/05 [EUR]                                    2,120,000         2,880,169
5.375%, 1/4/10 [EUR]                                 1,285,000         1,928,635
Series 01, 5%, 7/4/11 [EUR]                          3,685,000         5,494,692
Series 140, 4.50%, 8/17/07 [EUR]                     1,395,000         1,983,756
Series 143, 3.50%, 10/10/08 [EUR]                    7,470,000        10,374,944
                                                                 ---------------
                                                                      22,662,196

- --------------------------------------------------------------------------------
GREECE--1.9%
Greece (Republic of) Bonds:
3.50%, 4/18/08 [EUR]                                 1,055,000         1,462,521
4.60%, 5/20/13 [EUR]                                 1,545,000         2,234,250
5.35%, 5/18/11 [EUR]                                 6,735,000        10,152,575
- --------------------------------------------------------------------------------
Greece (Republic of) Sr.
Unsub. Bonds, 4.65%, 4/19/07 [EUR]                   1,610,000         2,285,355
                                                                 ---------------
                                                                      16,134,701

- --------------------------------------------------------------------------------
GUATEMALA--0.0%
Guatemala (Republic of) Nts.:
10.25%, 11/8/11 7                                      250,000           295,938
10.25%, 11/8/11                                         95,000           112,456
                                                                 ---------------
                                                                         408,394

- --------------------------------------------------------------------------------
IRELAND--0.2%
Ireland (Republic of) Treasury Bonds,
3.25%, 4/18/09 [EUR]                                 1,045,000         1,434,620
- --------------------------------------------------------------------------------
ISRAEL--0.1%
United States (Government of) Gtd.
Israel Aid Bonds, 5.50%, 12/4/23                       960,000         1,006,320


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ITALY--1.7%
Italy (Republic of) Treasury Bonds:
Buoni del Tesoro Poliennali,
4%, 3/1/05 [EUR]                                       520,000   $       708,916
Buoni del Tesoro Poliennali,
4.50%, 3/1/07 [EUR]                                  1,150,000         1,626,444
Buoni del Tesoro Poliennali,
5%, 10/15/07 [EUR]                                   5,080,000         7,324,121
Buoni del Tesoro Poliennali,
5%, 2/1/12 [EUR]                                     1,030,000         1,535,690
Buoni del Tesoro Poliennali,
5.25%, 12/15/05 [EUR]                                2,590,000         3,611,989
                                                                 ---------------
                                                                      14,807,160

- --------------------------------------------------------------------------------
IVORY COAST--0.0%
Ivory Coast (Government of)
Past Due Interest Bonds,
3/29/18 2,3,4 [FRF]                                  2,194,500            76,737
- --------------------------------------------------------------------------------
JAPAN--2.0%
Japan (Government of) Bonds,
5 yr., Series 14, 0.40%, 6/20/06 [JPY]           1,719,000,000        16,864,301
- --------------------------------------------------------------------------------
KOREA, REPUBLIC OF SOUTH--0.2%
Korea (Republic of) Nts.:
4.25%, 6/1/13                                          780,000           749,174
8.875%, 4/15/08                                      1,170,000         1,359,615
                                                                 ---------------
                                                                       2,108,789

- --------------------------------------------------------------------------------
MEXICO--0.8%
United Mexican States Bonds:
7.50%, 4/8/33                                          930,000         1,006,725
8.30%, 8/15/31                                         400,000           469,800
Series MI10, 8%, 12/19/13 [MXN]                      9,290,000           745,424
Series M20, 8%, 12/7/23 [MXN]                       23,040,000         1,672,890
- --------------------------------------------------------------------------------
United Mexican States Nts.,
7.50%, 1/14/12                                       1,300,000         1,477,450
- --------------------------------------------------------------------------------
United Mexican States Unsec.
Unsub. Nts.,
Series 6 BR, 6.75%, 6/6/06 [JPY]                   155,000,000         1,649,078
                                                                 ---------------
                                                                       7,021,367

- --------------------------------------------------------------------------------
NEW ZEALAND--0.1%
New Zealand (Government of)
Bonds, 7%, 7/15/09 12 [NZD]                            945,000           708,711
- --------------------------------------------------------------------------------
NIGERIA--0.1%
Central Bank of Nigeria
Gtd. Bonds,
Series WW, 6.25%, 11/15/20                             275,000           258,500
- --------------------------------------------------------------------------------
Nigeria (Federal Republic of)
Promissory Nts.,
Series RC, 5.092%, 1/5/10                              234,574           203,111
                                                                 ---------------
                                                                         461,611





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
PANAMA--0.8%
Panama (Republic of) Bonds:
7.25%, 3/15/15                                   $   3,030,000   $     3,166,350
8.125%, 4/28/34                                        805,000           853,300
9.375%, 1/16/23                                      2,215,000         2,569,400
                                                                 ---------------
                                                                       6,589,050

- --------------------------------------------------------------------------------
PERU--0.3%
Peru (Republic of) Past Due
Interest Bonds,
Series 20 yr., 5%, 3/7/17 1                          1,760,000         1,698,400
- --------------------------------------------------------------------------------
Peru (Republic of) Sr. Nts.,
4.53%, 2/28/16 8                                     1,464,785           884,525
                                                                 ---------------
                                                                       2,582,925

- --------------------------------------------------------------------------------
PHILIPPINES--0.1%
Philippines (Republic of) Bonds,
8.375%, 2/15/11                                        438,000           439,382
- --------------------------------------------------------------------------------
POLAND--1.3%
Poland (Republic of) Bonds:
Series 0K0805, 5.26%, 8/12/05 8 [PLZ]               17,265,000         5,558,069
Series DS0509, 6%, 5/24/09 [PLZ]                    10,840,000         3,604,407
Series DS1013, 5%, 10/24/13 [PLZ]                    4,640,000         1,458,191
Series WS0922, 5.75%, 9/23/22 [PLZ]                  1,000,000           337,184
                                                                 ---------------
                                                                      10,957,851

- --------------------------------------------------------------------------------
PORTUGAL--0.7%
Portugal (Republic of)
Obrig Do Tes Medio Prazo Nts.,
4.875%, 8/17/07 [EUR]                                1,620,000         2,324,085
- --------------------------------------------------------------------------------
Portugal (Republic of)
Obrig Do Tes Medio Prazo
Unsec. Unsub. Nts.,
5.85%, 5/20/10 [EUR]                                 2,450,000         3,771,268
                                                                 ---------------
                                                                       6,095,353

- --------------------------------------------------------------------------------
RUSSIA--1.3%
Aries Vermoegensverwaltungs
GmbH Credit Linked Nts.,
9.60%, 10/25/14                                      1,950,000         2,410,190
- --------------------------------------------------------------------------------
Aries Vermoegensverwaltungs
GmbH Unsub. Nts., Series B,
7.75%, 10/25/09 2 [EUR]                                700,000         1,084,681
- --------------------------------------------------------------------------------
Ministry Finance of Russia Debs.,
Series VI, 3%, 5/14/06 2                             1,980,000         1,947,934
- --------------------------------------------------------------------------------
Russian Federation Unsec.
Unsub. Bonds, 5%, 3/31/30 1,7                        3,065,000         3,172,275
- --------------------------------------------------------------------------------
Russian Federation Unsub. Nts.,
5%, 3/31/30 1                                        2,735,875         2,821,303
                                                                 ---------------
                                                                      11,436,383


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
SOUTH AFRICA--0.4%
South Africa (Republic of) Bonds:
Series R157,
13.50%, 9/15/15 [ZAR]                                7,300,000   $     1,790,648
Series R186,
10.50%, 12/21/26 [ZAR]                               2,960,000           693,472
Series R203,
8.25%, 9/15/17 [ZAR]                                 3,000,000           539,828
Series R204, 8%, 12/21/18 [ZAR]                      3,175,000           560,505
                                                                 ---------------
                                                                       3,584,453

- --------------------------------------------------------------------------------
SPAIN--1.6%
Spain (Kingdom of) Bonds:
Bonos y Obligacion del Estado,
5.35%, 10/31/11 [EUR]                                3,695,000         5,630,267
Bonos y Obligacion del Estado,
5.75%, 7/30/32 [EUR]                                 2,530,000         4,247,319
- --------------------------------------------------------------------------------
Spain (Kingdom of)
Treasury Bills,
2.10%, 2/18/05 8 [EUR]                               2,730,000         3,700,725
                                                                 ---------------
                                                                      13,578,311

- --------------------------------------------------------------------------------
SWEDEN--0.2%
Sweden (Kingdom of) Bonds,
Series 1043, 5%, 1/28/09 [SEK]                      10,760,000         1,733,975
- --------------------------------------------------------------------------------
THE NETHERLANDS--0.7%
Netherlands (Kingdom of the)
Bonds:
5%, 7/15/11 [EUR]                                    1,615,000         2,410,536
5.50%, 1/15/28 [EUR]                                 2,340,000         3,779,878
                                                                 ---------------
                                                                       6,190,414

- --------------------------------------------------------------------------------
TURKEY--0.4%
Turkey (Republic of) Nts.,
7.25%, 3/15/15                                       3,105,000         3,205,913
- --------------------------------------------------------------------------------
UNITED KINGDOM--1.9%
United Kingdom Treasury Nts.,
4%, 3/7/09 [GBP]                                     8,670,000        16,354,251
- --------------------------------------------------------------------------------
VENEZUELA--0.8%
Venezuela (Republic of) Nts.:
3.09%, 4/20/11 1                                       750,000           682,500
8.50%, 10/8/14                                       1,285,000         1,365,698
10.75%, 9/13/13                                      4,280,000         5,120,592
                                                                 ---------------
                                                                       7,168,790
                                                                 ---------------
Total Foreign Government
Obligations (Cost $227,294,778)                                      256,220,645





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
LOAN PARTICIPATIONS--0.6%
- --------------------------------------------------------------------------------
Algeria (Republic of) Loan
Participation Nts., 2.183%, 3/4/10 1,2           $     427,167   $       420,759
- --------------------------------------------------------------------------------
Deutsche Bank AG:
Indonesia (Republic of) Rupiah
Loan Participation Nts.,
2.636%, 1/25/06 1                                    1,490,000         1,470,779
- --------------------------------------------------------------------------------
Indonesia (Republic of)
Rupiah Loan Participation Nts.,
2.636%, 3/21/05 1                                    1,330,000         1,331,530
OAO Gazprom Loan
Participation Nts., 6.50%, 8/4/05 2                  1,520,000         1,552,224
                                                                 ---------------
Total Loan Participations
(Cost $4,679,244)                                                      4,775,292

- --------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--28.0%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--8.0%
- --------------------------------------------------------------------------------
AUTO COMPONENTS--0.6%
ArvinMeritor, Inc., 8.75% Sr.
Unsec. Unsub. Nts., 3/1/12                             700,000           812,000
- --------------------------------------------------------------------------------
Collins & Aikman
Floorcoverings, Inc.,
9.75% Sr. Sub. Nts.,
Series B, 2/15/10                                      200,000           216,000
- --------------------------------------------------------------------------------
Cooper Standard
Automotive Group:
7% Sr. Nts., 12/15/12 7                                 90,000            91,800
8.375% Sr. Sub. Nts., 12/15/14 7                       425,000           426,063
- --------------------------------------------------------------------------------
Dana Corp.,
10.125% Nts., 3/15/10 2                                200,000           226,716
- --------------------------------------------------------------------------------
Dura Operating Corp.:
9% Sr. Sub. Nts., Series B,
5/1/09 [EUR]                                           200,000           258,257
9% Sr. Unsec. Sub. Nts.,
Series D, 5/1/09                                       500,000           497,500
- --------------------------------------------------------------------------------
Eagle-Picher, Inc.,
9.75% Sr. Nts., 9/1/13                                 300,000           301,500
- --------------------------------------------------------------------------------
Goodyear Tire &
Rubber Co. (The),
7.857% Nts., 8/15/11                                   500,000           510,000
- --------------------------------------------------------------------------------
Metaldyne Corp.:
10% Sr. Nts., 11/1/13 7                                200,000           191,000
11% Sr. Sub. Nts., 6/15/12                             300,000           250,500
- --------------------------------------------------------------------------------
Stoneridge, Inc.,
11.50% Sr. Nts., 5/1/12                                500,000           583,750
- --------------------------------------------------------------------------------
Tenneco Automotive, Inc.:
8.625% Sr. Sub. Nts., 11/15/14 7                       500,000           522,500
10.25% Sr. Sec. Nts.,
Series B, 7/15/13                                      150,000           177,750
- --------------------------------------------------------------------------------
United Components, Inc.,
9.375% Sr. Sub. Nts., 6/15/13                          200,000           218,000
                                                                 ---------------
                                                                       5,283,336


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--2.2%
Apcoa, Inc.,
9.25% Sr. Unsec. Sub. Nts., 3/15/08              $     100,000   $        98,500
- --------------------------------------------------------------------------------
Aztar Corp.,
9% Sr. Unsec. Sub. Nts., 8/15/11                       850,000           941,375
- --------------------------------------------------------------------------------
Boyd Gaming Corp.,
8.75% Sr. Sub. Nts., 4/15/12                           300,000           335,250
- --------------------------------------------------------------------------------
Carrols Corp.,
9% Sr. Sub. Nts., 1/15/13 7                            130,000           135,200
- --------------------------------------------------------------------------------
Domino's, Inc.,
8.25% Sr. Unsec. Sub. Nts., 7/1/11                     547,000           600,333
- --------------------------------------------------------------------------------
Gaylord Entertainment Co.,
8% Sr. Nts., 11/15/13                                  300,000           325,500
- --------------------------------------------------------------------------------
Hilton Hotels Corp.,
7.625% Nts., 12/1/12                                   400,000           468,482
- --------------------------------------------------------------------------------
Hollywood Park, Inc.,
9.25% Sr. Unsec. Sub. Nts.,
Series B, 2/15/07                                      325,000           332,313
- --------------------------------------------------------------------------------
Intrawest Corp.,
7.50% Sr. Unsec. Nts., 10/15/13                        625,000           667,969
- --------------------------------------------------------------------------------
Isle of Capri Casinos, Inc.:
7% Sr. Unsec. Sub. Nts., 3/1/14                        400,000           410,000
9% Sr. Sub. Nts., 3/15/12                              500,000           553,750
- --------------------------------------------------------------------------------
John Q. Hammons Hotels, Inc.,
8.875% Sr. Nts., Series B, 5/15/12                     300,000           340,500
- --------------------------------------------------------------------------------
La Quinta Properties, Inc.,
7% Sr. Sec. Nts., 8/15/12                              250,000           265,625
- --------------------------------------------------------------------------------
Mandalay Resort Group,
10.25% Sr. Unsec. Sub. Nts.,
Series B, 8/1/07                                       650,000           737,750
- --------------------------------------------------------------------------------
MGM Mirage, Inc.:
8.375% Sr. Unsec. Sub. Nts., 2/1/11                    600,000           679,500
9.75% Sr. Unsec. Sub. Nts., 6/1/07                     350,000           390,250
- --------------------------------------------------------------------------------
Mohegan Tribal
Gaming Authority:
6.375% Sr. Sub. Nts., 7/15/09                          250,000           258,125
8% Sr. Sub. Nts., 4/1/12                               200,000           218,000
- --------------------------------------------------------------------------------
NCL Corp.,
10.625% Sr. Nts., 7/15/14 7                            300,000           301,500
- --------------------------------------------------------------------------------
Park Place Entertainment Corp.:
7.875% Sr. Sub. Nts., 3/15/10                          200,000           226,250
9.375% Sr. Unsec. Sub. Nts.,
2/15/07                                                800,000           884,000
- --------------------------------------------------------------------------------
Pinnacle Entertainment, Inc.,
8.25% Sr. Unsec. Sub. Nts.,
3/15/12                                                700,000           747,250
- --------------------------------------------------------------------------------
Premier Cruise Ltd.,
11% Sr. Nts., 3/15/08 2,3,4                            250,000                --
- --------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd.,
8.75% Sr. Unsub. Nts., 2/2/11                          300,000           355,875
- --------------------------------------------------------------------------------
Six Flags, Inc.:
8.875% Sr. Unsec. Nts., 2/1/10                       1,234,000         1,255,595
9.625% Sr. Nts., 6/1/14                                 19,000            19,190
9.75% Sr. Nts., 4/15/13                                100,000           102,000





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE Continued
Starwood Hotels &
Resorts Worldwide, Inc.,
7.875% Sr. Nts., 5/1/12                          $     900,000   $     1,032,750
- --------------------------------------------------------------------------------
Station Casinos, Inc.:
6.50% Sr. Unsec. Sub. Nts., 2/1/14                     800,000           826,000
9.875% Sr. Unsec. Sub. Nts., 7/1/10                  1,000,000         1,057,500
- --------------------------------------------------------------------------------
Sun International Hotels Ltd.,
8.875% Sr. Unsec. Sub. Nts.,
8/15/11                                                700,000           768,250
- --------------------------------------------------------------------------------
Universal City Development
Partners Ltd.,
11.75% Sr. Nts., 4/1/10                                500,000           593,125
- --------------------------------------------------------------------------------
Vail Resorts, Inc.,
6.75% Sr. Sub. Nts., 2/15/14                           500,000           511,250
- --------------------------------------------------------------------------------
Venetian Casino Resort LLC/
Las Vegas Sands, Inc.,
11% Sec. Nts., 6/15/10                                 400,000           458,500
- --------------------------------------------------------------------------------
Wynn Las Vegas LLC/
Wynn Las Vegas Capital Corp.,
6.625% Nts., 12/1/14 7                               1,800,000         1,791,000
                                                                 ---------------
                                                                      18,688,457

- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.6%
Beazer Homes USA, Inc.,
8.375% Sr. Nts., 4/15/12                               400,000           442,000
- --------------------------------------------------------------------------------
Blount, Inc.,
8.875% Sr. Sub. Nts., 8/1/12                           350,000           381,500
- --------------------------------------------------------------------------------
D.R. Horton, Inc.:
9.375% Sr. Unsec. Sub. Nts.,
3/15/11                                                400,000           444,000
9.75% Sr. Sub. Nts., 9/15/10                           400,000           486,000
- --------------------------------------------------------------------------------
KB Home:
8.625% Sr. Sub. Nts., 12/15/08                         250,000           283,750
9.50% Sr. Unsec. Sub. Nts., 2/15/11                    400,000           442,000
- --------------------------------------------------------------------------------
Meritage Corp.,
9.75% Sr. Unsec. Nts., 6/1/11                          350,000           388,500
- --------------------------------------------------------------------------------
Sealy Mattress Co.,
8.25% Sr. Sub. Nts., 6/15/14                           450,000           479,250
- --------------------------------------------------------------------------------
Standard Pacific Corp.,
9.25% Sr. Sub. Nts., 4/15/12                           200,000           233,000
- --------------------------------------------------------------------------------
WCI Communities, Inc.,
9.125% Sr. Sub. Nts., 5/1/12                           300,000           334,500
- --------------------------------------------------------------------------------
William Lyon Homes, Inc.,
10.75% Sr. Nts., 4/1/13                                400,000           451,500
- --------------------------------------------------------------------------------
Williams Scotsman, Inc.,
9.875% Sr. Unsec. Nts., 6/1/07                         800,000           804,000
                                                                 ---------------
                                                                       5,170,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA--3.8%
Adelphia Communications Corp.:
7.875% Sr. Unsec. Nts., 5/1/09 3,4               $     350,000   $       327,250
10.25% Sr. Unsec. Nts., 11/1/06 3,4                    400,000           391,000
10.25% Sr. Unsec. Sub. Nts.,
6/15/11 3,4                                            200,000           203,500
10.875% Sr. Unsec. Nts., 10/1/10 3,4                   400,000           398,000
- --------------------------------------------------------------------------------
Allbritton Communications Co.,
7.75% Sr. Unsec. Sub. Nts.,
12/15/12                                               600,000           624,000
- --------------------------------------------------------------------------------
AMC Entertainment, Inc.:
8% Sr. Unsec. Sub. Nts., 3/1/14                        650,000           650,000
9.50% Sr. Unsec. Sub. Nts., 2/1/11                     360,000           373,950
- --------------------------------------------------------------------------------
American Media Operations, Inc.:
8.875% Sr. Unsec. Sub. Nts.,
1/15/11                                                150,000           160,313
10.25% Sr. Unsec. Sub. Nts.,
Series B, 5/1/09                                       400,000           423,500
- --------------------------------------------------------------------------------
Block Communications, Inc.,
9.25% Sr. Sub. Nts., 4/15/09                           400,000           438,000
- --------------------------------------------------------------------------------
Carmike Cinemas, Inc.,
7.50% Sr. Sub. Nts., 2/15/14                           500,000           514,375
- --------------------------------------------------------------------------------
Charter Communications
Holdings LLC/
Charter Communications
Holdings Capital Corp.:
0%/11.75% Sr. Unsec. Sub.
Disc. Nts., 5/15/11 13                                 925,000           684,500
8.375% Sr. Nts., Second Lien,
4/30/14 7                                            3,450,000         3,657,000
- --------------------------------------------------------------------------------
Cinemark USA, Inc.,
9% Sr. Unsec. Sub. Nts., 2/1/13                        300,000           343,875
- --------------------------------------------------------------------------------
Cinemark, Inc., 0%/9.75%
Sr. Unsec. Disc. Nts.,
3/15/14 13                                             500,000           380,000
- --------------------------------------------------------------------------------
Corus Entertainment, Inc.,
8.75% Sr. Sub. Nts., 3/1/12                            300,000           330,750
- --------------------------------------------------------------------------------
CSC Holdings, Inc.,
7.625% Sr. Unsec. Unsub. Nts.,
Series B, 4/1/11                                     1,100,000         1,190,750
- --------------------------------------------------------------------------------
Dex Media East LLC/
Dex Media East Finance Co.,
9.875% Sr. Unsec. Nts., 11/15/09                       200,000           228,750
- --------------------------------------------------------------------------------
Dex Media West LLC,
5.875% Sr. Nts., 11/15/11 7                            900,000           900,000
- --------------------------------------------------------------------------------
Dex Media West LLC/
Dex Media West Finance Co.:
8.50% Sr. Nts., 8/15/10                                300,000           335,250
9.875% Sr. Sub. Nts., 8/15/13                          586,000           678,295
- --------------------------------------------------------------------------------
Dex Media, Inc.,
8% Unsec. Nts., 11/15/13                             1,350,000         1,468,125
- --------------------------------------------------------------------------------
DirecTV Holdings LLC/
DirecTV Financing Co., Inc.,
8.375% Sr. Unsec. Nts., 3/15/13                      1,800,000         2,027,250





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
EchoStar DBS Corp.:
6.625% Sr. Nts., 10/1/14 7                       $     800,000   $       814,000
9.125% Sr. Nts., 1/15/09                             1,075,000         1,187,875
- --------------------------------------------------------------------------------
Emmis Operating Co.,
6.875% Sr. Unsec. Sub. Nts.,
5/15/12                                                600,000           630,750
- --------------------------------------------------------------------------------
Entravision
Communications Corp.,
8.125% Sr. Sub. Nts., 3/15/09                          400,000           429,000
- --------------------------------------------------------------------------------
Granite Broadcasting Corp.,
9.75% Sr. Sec. Nts., 12/1/10                           619,000           594,240
- --------------------------------------------------------------------------------
Insight Midwest LP/
Insight Capital, Inc.,
9.75% Sr. Nts., 10/1/09                                200,000           210,500
- --------------------------------------------------------------------------------
Lin Television Corp.,
6.50% Sr. Sub. Nts., 5/15/13                           400,000           413,500
- --------------------------------------------------------------------------------
LodgeNet Entertainment Corp.,
9.50% Sr. Sub. Debs., 6/15/13                          200,000           222,000
- --------------------------------------------------------------------------------
Mediacom LLC/
Mediacom Capital Corp.,
9.50% Sr. Unsec. Nts., 1/15/13                         769,000           775,729
- --------------------------------------------------------------------------------
MediaNews Group, Inc.,
6.375% Sr. Sub. Nts., 4/1/14                           800,000           796,000
- --------------------------------------------------------------------------------
News America Holdings, Inc.,
8.875% Sr. Debs., 4/26/23                              625,000           814,644
- --------------------------------------------------------------------------------
PanAmSat Corp.,
9% Sr. Nts., 8/15/14 7                               1,000,000         1,121,250
- --------------------------------------------------------------------------------
PRIMEDIA, Inc.:
8% Sr. Nts., 5/15/13                                   900,000           930,375
8.875% Sr. Unsec. Nts., 5/15/11                         19,000            20,188
- --------------------------------------------------------------------------------
R.H. Donnelley Financial Corp. I,
10.875% Sr. Sub. Nts., 12/15/12 7                      400,000           477,000
- --------------------------------------------------------------------------------
Radio One, Inc.,
8.875% Sr. Unsec. Sub. Nts.,
Series B, 7/1/11                                       600,000           656,250
- --------------------------------------------------------------------------------
Rainbow National Services LLC,
8.75% Sr. Nts., 9/1/12 7                               800,000           882,000
- --------------------------------------------------------------------------------
Rogers Cable, Inc.,
6.75% Sr. Sec.
Second Priority Nts., 3/15/15 7                        250,000           256,875
- --------------------------------------------------------------------------------
Shaw Communications, Inc.,
8.54% Debs., 9/30/27 [CAD]                             340,000           283,771
- --------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.:
8% Sr. Unsec. Sub. Nts., 3/15/12                     1,050,000         1,120,875
8.75% Sr. Sub. Nts., 12/15/11                          300,000           328,125
- --------------------------------------------------------------------------------
Spanish Broadcasting System, Inc.,
9.625% Sr. Unsec. Sub. Nts., 11/1/09                   800,000           842,000
- --------------------------------------------------------------------------------
Vertis, Inc., 9.75% Sr.
Sec. Nts., 4/1/09                                      200,000           218,000
- --------------------------------------------------------------------------------
WMG Holdings Corp.:
0%/9.50% Sr. Disc. Nts., 12/15/14 7,13               1,000,000           643,750
6.905% Sr. Nts., 12/15/11 1,7                          400,000           405,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
WRC Media, Inc./
Weekly Reader Corp./
CompassLearning, Inc.,
12.75% Sr. Sub. Nts., 11/15/09                   $     500,000   $       478,125
                                                                 ---------------
                                                                      32,280,255

- --------------------------------------------------------------------------------
MULTILINE RETAIL--0.1%
Saks, Inc.:
8.25% Sr. Unsec. Nts., 11/15/08                        700,000           770,000
9.875% Nts., 10/1/11                                   200,000           238,000
                                                                 ---------------
                                                                       1,008,000

- --------------------------------------------------------------------------------
SPECIALTY RETAIL--0.4%
Asbury Automotive Group, Inc.,
9% Sr. Sub. Nts., 6/15/12                              300,000           316,500
- --------------------------------------------------------------------------------
Atlantic Broadband Finance LLC,
9.375% Sr. Sub. Nts., 1/15/14 7                        250,000           243,125
- --------------------------------------------------------------------------------
AutoNation, Inc.,
9% Sr. Unsec. Nts., 8/1/08                             500,000           573,750
- --------------------------------------------------------------------------------
Boise Cascade LLC/
Boise Cascade Finance Corp.,
7.125% Sr. Sub. Nts., 10/15/14 7                       450,000           478,125
- --------------------------------------------------------------------------------
Eye Care Centers of America, Inc.,
9.125% Sr. Unsec. Sub. Nts., 5/1/08                    400,000           402,000
- --------------------------------------------------------------------------------
Finlay Fine Jewelry Corp.,
8.375% Sr. Unsec. Nts., 6/1/12                         400,000           434,000
- --------------------------------------------------------------------------------
Hollywood Entertainment Corp.,
9.625% Sr. Sub. Nts., 3/15/11                          300,000           319,500
- --------------------------------------------------------------------------------
Petco Animal Supplies, Inc.,
10.75% Sr. Sub. Nts., 11/1/11                          200,000           235,000
- --------------------------------------------------------------------------------
Rent-A-Center, Inc.,
7.50% Sr. Unsec. Sub. Nts.,
Series B, 5/1/10                                       150,000           156,188
                                                                 ---------------
                                                                       3,158,188

- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--0.3%
Invista, Inc., 9.25% Sr. Nts., 5/1/12 7                900,000         1,008,000
- --------------------------------------------------------------------------------
Levi Strauss & Co.:
9.75% Sr. Nts., 1/15/15 7                              500,000           497,500
12.25% Sr. Nts., 12/15/12                              600,000           670,500
- --------------------------------------------------------------------------------
Oxford Industries, Inc.,
8.875% Sr. Nts., 6/1/11                                250,000           269,688
- --------------------------------------------------------------------------------
Russell Corp., 9.25% Sr. Nts.,
5/1/10                                                 200,000           215,500
                                                                 ---------------
                                                                       2,661,188

- --------------------------------------------------------------------------------
CONSUMER STAPLES--1.0%
- --------------------------------------------------------------------------------
BEVERAGES--0.1%
Constellation Brands, Inc.,
8.125% Sr. Sub. Nts., 1/15/12                          300,000           327,375





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.2%
Great Atlantic &
Pacific Tea Co., Inc. (The),
9.125% Sr. Nts., 12/15/11                        $     419,000   $       394,908
- --------------------------------------------------------------------------------
Ingles Markets, Inc.,
8.875% Sr. Unsec. Sub. Nts.,
12/1/11                                                 19,000            20,425
- --------------------------------------------------------------------------------
Jean Coutu Group (PJC), Inc. (The):
7.625% Sr. Nts., 8/1/12 7                              250,000           265,625
8.50% Sr. Sub. Nts., 8/1/14 7                          600,000           618,000
- --------------------------------------------------------------------------------
Real Time Data Co.,
11% Disc. Nts., 5/31/09 2,3,4,14                       142,981                --
- --------------------------------------------------------------------------------
Rite Aid Corp.:
8.125% Sr. Sec. Nts., 5/1/10                           450,000           478,125
9.50% Sr. Sec. Nts., 2/15/11                           200,000           220,500
                                                                 ---------------
                                                                       1,997,583

- --------------------------------------------------------------------------------
FOOD PRODUCTS--0.6%
American Seafoods Group LLC,
10.125% Sr. Sub. Nts., 4/15/10                         200,000           215,000
- --------------------------------------------------------------------------------
Burns Philp Capital Property Ltd.,
9.75% Sr. Unsec. Sub. Nts., 7/15/12                    450,000           497,250
- --------------------------------------------------------------------------------
Chiquita Brands International, Inc.,
7.50% Sr. Nts., 11/1/14 2                              150,000           152,625
- --------------------------------------------------------------------------------
Del Monte Corp.,
8.625% Sr. Sub. Nts., 12/15/12                         400,000           450,000
- --------------------------------------------------------------------------------
Doane Pet Care Co.:
9.75% Sr. Unsec. Sub. Nts., 5/15/07                    400,000           396,000
10.75% Sr. Nts., 3/1/10                                460,000           494,500
- --------------------------------------------------------------------------------
Dole Food Co., Inc.:
8.625% Sr. Nts., 5/1/09                                400,000           437,000
8.875% Sr. Unsec. Nts., 3/15/11                        200,000           218,500
- --------------------------------------------------------------------------------
Hines Nurseries, Inc.,
10.25% Sr. Unsec. Sub. Nts.,
10/1/11                                                200,000           219,500
- --------------------------------------------------------------------------------
Pinnacle Foods Holding Corp.:
8.25% Sr. Sub. Nts., 12/1/13 7                          40,000            38,300
8.25% Sr. Sub. Nts., 12/1/13 7                         400,000           383,000
- --------------------------------------------------------------------------------
Smithfield Foods, Inc.,
7.625% Sr. Unsec. Sub. Nts.,
2/15/08                                                400,000           430,000
- --------------------------------------------------------------------------------
United Biscuits Finance plc,
10.75% Sr. Sub. Nts., 4/15/11 2 [GBP]                  400,000           787,160
                                                                 ---------------
                                                                       4,718,835

- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.1%
Church & Dwight Co., Inc.,
6% Sr. Sub. Nts., 12/15/12 7                           300,000           306,750
- --------------------------------------------------------------------------------
Playtex Products, Inc.:
8% Sr. Sec. Nts., 3/1/11                               500,000           548,750
9.375% Sr. Unsec. Sub. Nts., 6/1/11                    200,000           214,500
                                                                 ---------------
                                                                       1,070,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.0%
Elizabeth Arden, Inc.,
7.75% Sr. Unsec. Sub. Nts., 1/15/14              $     175,000   $       186,375
- --------------------------------------------------------------------------------
ENERGY--3.1%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.3%
Dresser, Inc.,
9.375% Sr. Sub. Nts., 4/15/11                          300,000           330,000
- --------------------------------------------------------------------------------
Hanover Compress Co.,
8.625% Sr. Nts., 12/15/10                              300,000           329,250
- --------------------------------------------------------------------------------
Hanover Equipment Trust 2001A,
8.50% Sr. Sec. Nts., Series A, 9/1/08                  500,000           540,000
- --------------------------------------------------------------------------------
Hornbeck Offshore Services, Inc.,
6.125% Sr. Nts., 12/1/14 7                             350,000           353,500
- --------------------------------------------------------------------------------
Ocean Rig Norway AS,
10.25% Sr. Sec. Nts., 6/1/08                           575,000           595,125
- --------------------------------------------------------------------------------
Petroleum Helicopters, Inc.,
9.375% Sr. Nts., 5/1/09                                200,000           220,000
- --------------------------------------------------------------------------------
Universal Compression, Inc.,
7.25% Sr. Unsec. Sub. Nts., 5/15/10 2                  400,000           429,000
                                                                 ---------------
                                                                       2,796,875

- --------------------------------------------------------------------------------
OIL & GAS--2.8%
Chesapeake Energy Corp.:
6.375% Sr. Nts., 6/15/15 7                             250,000           258,125
6.875% Sr. Unsec. Nts., 1/15/16                        672,000           707,280
- --------------------------------------------------------------------------------
El Paso Corp.,
7.875% Sr. Unsec. Nts., 6/15/12                      1,519,000         1,596,849
- --------------------------------------------------------------------------------
El Paso Energy Corp.,
7.625% Nts., 7/15/11                                   200,000           208,000
- --------------------------------------------------------------------------------
El Paso Production Holding Co.,
7.75% Sr. Unsec. Nts., 6/1/13                        1,200,000         1,263,000
- --------------------------------------------------------------------------------
EXCO Resources, Inc.,
7.25% Sr. Nts., 1/15/11                                400,000           430,000
- --------------------------------------------------------------------------------
Forest Oil Corp.,
7.75% Sr. Nts., 5/1/14                                 300,000           327,750
- --------------------------------------------------------------------------------
Frontier Oil Corp.,
6.625% Sr. Nts., 10/1/11 7                             200,000           205,000
- --------------------------------------------------------------------------------
Gazprom International SA,
7.201% Sr. Unsec. Bonds, 2/1/20                      4,110,000         4,377,376
- --------------------------------------------------------------------------------
MarkWest Energy Partners LP/
MarkWest Energy Finance Corp.,
6.875% Sr. Nts., 11/1/14 7                             150,000           153,000
- --------------------------------------------------------------------------------
Newfield Exploration Co.:
6.625% Sr. Unsec. Sub. Nts., 9/1/14 7                  600,000           637,500
8.375% Sr. Sub. Nts., 8/15/12                          500,000           562,500
- --------------------------------------------------------------------------------
Pemex Project Funding Master Trust:
8.50% Unsub. Nts., 2/15/08                             420,000           474,600
9.125% Unsec. Unsub. Nts.,
10/13/10                                               610,000           732,915
- --------------------------------------------------------------------------------
Plains Exploration & Production Co.,
7.125% Sr. Nts., 6/15/14                               300,000           328,500





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
OIL & GAS Continued
Premcor Refining Group, Inc.:
6.75% Sr. Nts., 5/1/14                           $     350,000   $       373,625
9.50% Sr. Nts., 2/1/13                                 900,000         1,048,500
- --------------------------------------------------------------------------------
Range Resources Corp.,
7.375% Sr. Sub. Nts., 7/15/13                          200,000           215,500
- --------------------------------------------------------------------------------
Southern Natural Gas Co.,
8% Sr. Unsub. Nts., 3/1/32 2                           300,000           328,875
- --------------------------------------------------------------------------------
Stone Energy Corp.,
6.75% Sr. Sub. Nts., 12/15/14 7                        170,000           170,425
- --------------------------------------------------------------------------------
Tengizchevroil LLP, 6.124% Nts.,
11/15/14 7                                           1,520,000         1,531,400
- --------------------------------------------------------------------------------
Tennessee Gas Pipeline Co.,
7.50% Bonds, 4/1/17                                  1,800,000         1,993,500
- --------------------------------------------------------------------------------
Tesoro Petroleum Corp.:
8% Sr. Sec. Nts., 4/15/08                            1,000,000         1,092,500
9.625% Sr. Sub. Nts., 4/1/12                            19,000            21,945
- --------------------------------------------------------------------------------
Whiting Petroleum Corp.,
7.25% Sr. Sub. Nts., 5/1/12                            400,000           420,000
- --------------------------------------------------------------------------------
Williams Cos., Inc. (The):
7.125% Nts., 9/1/11                                    800,000           878,000
7.625% Nts., 7/15/19                                 1,000,000         1,105,000
8.75% Unsec. Nts., 3/15/32                           1,400,000         1,615,250
- --------------------------------------------------------------------------------
XTO Energy, Inc., 7.50% Sr. Nts.,
4/15/12                                                500,000           585,943
                                                                 ---------------
                                                                      23,642,858

- --------------------------------------------------------------------------------
FINANCIALS--1.2%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--0.3%
American Color Graphics, Inc.,
10% Sr. Sec. Nts., 6/15/10                             200,000           169,750
- --------------------------------------------------------------------------------
BCP Caylux Holdings
Luxembourg SCA,
9.625% Sr. Sub. Nts., 6/15/14 7                      1,250,000         1,415,625
- --------------------------------------------------------------------------------
Berry Plastics Corp.,
10.75% Sr. Sub. Nts., 7/15/12                          750,000           862,500
                                                                 ---------------
                                                                       2,447,875

- --------------------------------------------------------------------------------
COMMERCIAL BANKS--0.1%
Bank Plus Corp., 12% Sr. Nts.,
7/18/07                                                  7,000             7,525
- --------------------------------------------------------------------------------
BankUnited Capital Trust,
10.25% Capital Securities,
12/31/26                                               100,000           108,750
- --------------------------------------------------------------------------------
Inter-American
Development Bank,
6.26% Nts., 12/8/09 1 [BRR]                            920,000           347,252
- --------------------------------------------------------------------------------
Ongko International
Finance Co. BV,
10.50% Sec. Nts., 3/29/10 2,3,4                         90,000               563
- --------------------------------------------------------------------------------
Western Financial Bank,
9.625% Unsec. Sub. Debs., 5/15/12                      500,000           572,500
                                                                 ---------------
                                                                       1,036,590


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--0.4%
Affinia Group, Inc.,
9% Sr. Sub. Nts., 11/30/14 7                     $     200,000   $       209,500
- --------------------------------------------------------------------------------
Global Cash Access LLC/
Global Cash Finance Corp.,
8.75% Sr. Sub. Nts., 3/15/12 2                         275,000           297,688
- --------------------------------------------------------------------------------
Helix 04 Ltd.,
7.96% Sec. Nts., 6/30/09 1                           1,000,000         1,003,950
- --------------------------------------------------------------------------------
Pemex Project Funding
Master Trust,
7.375% Unsec. Unsub. Nts.,
12/15/14                                               740,000           824,360
- --------------------------------------------------------------------------------
Redwood Capital V Ltd.,
6.71% Nts., 1/9/07 1,2                                 750,000           750,000
- --------------------------------------------------------------------------------
SBS Agro Finance BV,
10.25% Bonds, 7/21/00 2,3,4                            339,000                --
- --------------------------------------------------------------------------------
Universal City Florida:
7.20% Sr. Nts., 5/1/10 1,2                             130,000           135,850
8.375% Sr. Nts., 5/1/10 2                              130,000           135,525
                                                                 ---------------
                                                                       3,356,873

- --------------------------------------------------------------------------------
INSURANCE--0.0%
Arbor I Ltd., 17.99% Nts., 6/15/06 1,7                 500,000           518,756
- --------------------------------------------------------------------------------
REAL ESTATE--0.4%
American Casino &
Entertainment Properties LLC,
7.85% Sr. Sec. Nts., 2/1/12                            500,000           533,750
- --------------------------------------------------------------------------------
Felcor Lodging LP,
9% Sr. Nts., 6/1/11                                    425,000           483,438
- --------------------------------------------------------------------------------
Foundation RE Ltd.,
6.40% Nts., 11/24/08 1,2                               500,000           501,363
- --------------------------------------------------------------------------------
HMH Properties, Inc.,
7.875% Sr. Nts., Series B, 8/1/08                      202,000           208,565
- --------------------------------------------------------------------------------
Host Marriott LP,
9.50% Sr. Nts., 1/15/07                                400,000           440,000
- --------------------------------------------------------------------------------
MeriStar Hospitality Corp.,
9.125% Sr. Unsec. Nts., 1/15/11                      1,019,000         1,105,615
                                                                 ---------------
                                                                       3,272,731

- --------------------------------------------------------------------------------
HEALTH CARE--1.9%
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.2%
Fisher Scientific International, Inc.,
8.125% Sr. Sub. Nts., 5/1/12                           261,000           291,015
- --------------------------------------------------------------------------------
HMP Equity Holdings Corp.,
16.25% Sr. Disc. Nts., 5/15/08 8                       900,000           599,625
- --------------------------------------------------------------------------------
Inverness Medical
Innovations, Inc.,
8.75% Sr. Sub. Nts., 2/15/12 2                         350,000           367,500





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES Continued
Sybron Dental Specialties, Inc.,
8.125% Sr. Sub. Nts., 6/15/12                    $     300,000   $       328,500
- --------------------------------------------------------------------------------
Universal Hospital Services, Inc.,
10.125% Sr. Unsec. Nts., 11/1/11                       300,000           313,500
                                                                 ---------------
                                                                       1,900,140

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.6%
Alderwoods Group, Inc.,
7.75% Sr. Nts., 9/15/12 7                              450,000           488,250
- --------------------------------------------------------------------------------
AmeriPath, Inc.,
10.50% Sr. Unsec. Sub. Nts., 4/1/13                    300,000           320,250
- --------------------------------------------------------------------------------
Beverly Enterprises, Inc.,
7.875% Sr. Sub. Nts., 6/15/14 2                        300,000           323,250
- --------------------------------------------------------------------------------
Community Health Systems, Inc.,
6.50% Sr. Sub. Nts., 12/15/12 7                        400,000           405,000
- --------------------------------------------------------------------------------
Extendicare Health Services, Inc.:
6.875% Sr. Sub. Nts., 5/1/14                           300,000           307,500
9.50% Sr. Unsec. Sub. Nts., 7/1/10                     300,000           337,500
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust II,
7.875% Nts., 2/1/08                                    900,000           978,750
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust III,
7.375% Nts., 2/1/08 [DEM]                               25,000            19,068
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust IV,
7.875% Trust Preferred Nts.,
6/15/11                                                600,000           672,000
- --------------------------------------------------------------------------------
Genesis HealthCare Corp.,
8% Sr. Sub. Nts., 10/15/13                             200,000           218,000
- --------------------------------------------------------------------------------
HCA, Inc.:
6.30% Sr. Unsec. Nts., 10/1/12                       1,400,000         1,422,044
6.375% Nts., 1/15/15                                 1,350,000         1,357,954
- --------------------------------------------------------------------------------
HealthSouth Corp.:
7.625% Nts., 6/1/12                                  1,000,000         1,010,000
10.75% Sr. Unsec. Sub. Nts.,
10/1/08                                                 19,000            20,140
- --------------------------------------------------------------------------------
Magellan Health Services, Inc.,
9.375% Sr. Unsec. Nts.,
Series A, 11/15/08                                     653,675           714,957
- --------------------------------------------------------------------------------
Medquest, Inc.,
11.875% Sr. Unsec. Sub. Nts.,
Series B, 8/15/12 2                                    600,000           708,000
- --------------------------------------------------------------------------------
NDCHealth Corp.,
10.50% Sr. Unsec. Sub. Nts.,
12/1/12                                                250,000           270,000
- --------------------------------------------------------------------------------
PacifiCare Health Systems, Inc.,
10.75% Sr. Unsec. Unsub. Nts.,
6/1/09                                                 585,000           678,600
- --------------------------------------------------------------------------------
Quintiles Transnational Corp.,
10% Sr. Sub. Nts., 10/1/13 2                           300,000           337,500


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES Continued
Tenet Healthcare Corp.:
6.375% Sr. Nts., 12/1/11                         $     744,000   $       693,780
7.375% Nts., 2/1/13                                     19,000            18,525
9.875% Sr. Nts., 7/1/14 7                              950,000         1,040,250
- --------------------------------------------------------------------------------
Triad Hospitals, Inc.:
7% Sr. Nts., 5/15/12                                   200,000           211,500
7% Sr. Sub. Nts., 11/15/13                             500,000           513,750
- --------------------------------------------------------------------------------
US Oncology, Inc.:
9% Sr. Nts., 8/15/12 7                                 300,000           336,750
10.75% Sr. Sub. Nts., 8/15/14 7                        300,000           348,750
                                                                 ---------------
                                                                      13,752,068

- --------------------------------------------------------------------------------
PHARMACEUTICALS--0.1%
Valeant Pharmaceuticals
International, Inc.,
7% Sr. Nts., 12/15/11                                  350,000           365,750
- --------------------------------------------------------------------------------
INDUSTRIALS--2.6%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.4%
Alliant Techsystems, Inc.,
8.50% Sr. Unsec. Sub. Nts., 5/15/11                    300,000           330,000
- --------------------------------------------------------------------------------
BE Aerospace, Inc.:
8.50% Sr. Unsec. Nts., 10/1/10                         200,000           221,000
8.875% Sr. Unsec. Sub. Nts., 5/1/11                    219,000           229,950
- --------------------------------------------------------------------------------
L-3 Communications Corp.:
5.875% Sr. Sub. Nts., 1/15/15 7                        700,000           701,750
7.625% Sr. Sub. Nts., 6/15/12                          300,000           330,750
- --------------------------------------------------------------------------------
Rexnord Corp.,
10.125% Sr. Unsec. Sub. Nts.,
12/15/12                                               350,000           397,250
- --------------------------------------------------------------------------------
TD Funding Corp.,
8.375% Sr. Sub. Nts., 7/15/11                          400,000           431,000
- --------------------------------------------------------------------------------
TRW Automotive, Inc.:
9.375% Sr. Nts., 2/15/13                               223,000           259,795
11% Sr. Sub. Nts., 2/15/13                             194,000           234,740
- --------------------------------------------------------------------------------
Vought Aircraft Industries, Inc.,
8% Sr. Nts., 7/15/11                                   200,000           195,500
                                                                 ---------------
                                                                       3,331,735

- --------------------------------------------------------------------------------
AIRLINES--0.1%
America West Airlines, Inc.,
10.75% Sr. Nts., 9/1/05                                450,000           451,125
- --------------------------------------------------------------------------------
ATA Holdings Corp.,
13% Sr. Unsec. Nts., 2/1/09 3,4                        735,000           422,625
                                                                 ---------------
                                                                         873,750

- --------------------------------------------------------------------------------
BUILDING PRODUCTS--0.1%
Associated Materials, Inc.,
9.75% Sr. Sub. Nts., 4/15/12                           200,000           224,500
- --------------------------------------------------------------------------------
Goodman Global
Holding Co., Inc.,
7.875% Sr. Sub. Nts., 12/15/12 7                       170,000           169,150





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
BUILDING PRODUCTS Continued
Jacuzzi Brands, Inc.,
9.625% Sr. Sec. Nts., 7/1/10                     $     311,000   $       346,765
- --------------------------------------------------------------------------------
North America Energy
Partners, Inc.,
8.75% Sr. Unsec. Nts., 12/1/11                         150,000           153,750
                                                                 ---------------
                                                                         894,165

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.7%
Allied Waste North America, Inc.:
7.875% Sr. Nts., 4/15/13                               400,000           412,000
8.50% Sr. Sub. Nts., 12/1/08                           900,000           958,500
8.875% Sr. Nts., Series B, 4/1/08                      800,000           860,000
9.25% Sr. Sec. Debs., Series B, 9/1/12                 950,000         1,033,125
- --------------------------------------------------------------------------------
Cenveo Corp.,
7.875% Sr. Sub. Nts., 12/1/13                        1,000,000           935,000
- --------------------------------------------------------------------------------
Corrections Corp. of America:
7.50% Sr. Nts., 5/1/11                                 200,000           214,750
9.875% Sr. Nts., 5/1/09                                300,000           334,500
- --------------------------------------------------------------------------------
Hydrochem Industrial
Services, Inc.,
10.375% Sr. Sub. Nts., 8/1/07 2                        150,000           151,875
- --------------------------------------------------------------------------------
Kindercare Learning
Centers, Inc.,
9.50% Sr. Sub. Nts., 2/15/09                           384,000           387,360
- --------------------------------------------------------------------------------
Mail-Well I Corp.,
9.625% Sr. Nts., 3/15/12 2                             400,000           441,000
- --------------------------------------------------------------------------------
Protection One, Inc./
Protection One Alarm
Monitoring, Inc.,
7.375% Sr. Unsec. Nts., 8/15/05                        400,000           406,000
- --------------------------------------------------------------------------------
Synagro Technologies, Inc.,
9.50% Sr. Sub. Nts., 4/1/09                            200,000           219,000
                                                                 ---------------
                                                                       6,353,110

- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.1%
Integrated Electrical Services, Inc.,
9.375% Sr. Sub. Nts.,
Series C, 2/1/09                                       405,000           382,725
- --------------------------------------------------------------------------------
URS Corp.:
11.50% Sr. Unsec. Nts., 9/15/09                         97,000           112,035
12.25% Sr. Sub. Nts.,
Series B, 5/1/09 2                                      19,000            20,330
                                                                 ---------------
                                                                         515,090

- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.2%
Belden & Blake Corp.,
8.75% Sr. Sec. Nts., 7/15/12 2                         325,000           331,500
- --------------------------------------------------------------------------------
Dayton Superior Corp.,
13% Sr. Unsec. Sub. Nts., 6/15/09                      200,000           209,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT Continued
General Cable Corp.,
9.50% Sr. Nts., 11/15/10                         $     200,000   $       227,000
- --------------------------------------------------------------------------------
Tennessee Gas Pipeline Co.,
7% Sr. Unsec. Debs., 10/15/28                          500,000           503,750
                                                                 ---------------
                                                                       1,271,250

- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.0%
Great Lakes Dredge & Dock Co.,
7.75% Sr. Unsec. Sub. Nts.,
12/15/13                                               120,000           109,800
- --------------------------------------------------------------------------------
MACHINERY--0.5%
AGCO Corp.,
9.50% Sr. Unsec. Nts., 5/1/08                          800,000           856,000
- --------------------------------------------------------------------------------
Douglas Dynamics LLC,
7.75% Sr. Nts., 1/15/12 7                              300,000           305,625
- --------------------------------------------------------------------------------
Dresser-Rand Group, Inc.,
7.375% Sr. Sub. Nts., 11/1/14 7                        100,000           102,500
- --------------------------------------------------------------------------------
Manitowoc Co., Inc. (The),
10.50% Sr. Sub. Nts., 8/1/12                           500,000           577,500
- --------------------------------------------------------------------------------
Milacron Escrow Corp.,
11.50% Sr. Sec. Nts., 5/15/11 2                        600,000           639,000
- --------------------------------------------------------------------------------
Navistar International Corp.,
7.50% Sr. Nts., 6/15/11                                400,000           431,000
- --------------------------------------------------------------------------------
NMHG Holding Co.,
10% Sr. Nts., 5/15/09                                  300,000           333,000
- --------------------------------------------------------------------------------
SPX Corp., 7.50% Sr. Nts., 1/1/13                      600,000           654,000
- --------------------------------------------------------------------------------
Terex Corp., 9.25% Sr. Unsec.
Sub. Nts., 7/15/11                                     400,000           451,000
- --------------------------------------------------------------------------------
Trinity Industries, Inc.,
6.50% Sr. Nts., 3/15/14                                300,000           301,500
                                                                 ---------------
                                                                       4,651,125

- --------------------------------------------------------------------------------
MARINE--0.1%
CP Ships Ltd.,
10.375% Sr. Nts., 7/15/12                              600,000           695,250
- --------------------------------------------------------------------------------
Millenium Seacarriers, Inc.,
12% Sr. Sec. Nts., 7/15/05 2,3,4                       250,000             6,025
- --------------------------------------------------------------------------------
Navigator Gas Transport plc,
10.50% First Priority Ship
Mtg. Nts., 6/30/07 2,3,4                               175,000           132,344
                                                                 ---------------
                                                                         833,619

- --------------------------------------------------------------------------------
ROAD & RAIL--0.2%
Kansas City Southern
Railway Co. (The),
7.50% Sr. Nts., 6/15/09                                400,000           422,000
- --------------------------------------------------------------------------------
Stena AB:
7% Sr. Nts., 12/1/16 7                                 800,000           796,000
7.50% Sr. Unsec. Nts., 11/1/13                         387,000           407,318
9.625% Sr. Nts., 12/1/12                               250,000           283,750
                                                                 ---------------
                                                                       1,909,068





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--0.1%
United Rentals, Inc.,
7% Sr. Sub. Nts., 2/15/14                        $     900,000   $       846,000
- --------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE--0.1%
Horizon Lines LLC, 9% Nts.,
11/1/12 7                                              300,000           324,000
- --------------------------------------------------------------------------------
Worldspan LP/
Worldspan Financial Corp.,
9.625% Sr. Nts., 6/15/11                               400,000           400,000
                                                                 ---------------
                                                                         724,000

- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.9%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.1%
Lucent Technologies, Inc.,
6.45% Unsec. Debs., 3/15/29                            500,000           455,000
- --------------------------------------------------------------------------------
Orion Network Systems, Inc.,
12.50% Sr. Unsub. Disc. Nts.,
1/15/07 2,3,4                                          675,000           354,375
                                                                 ---------------
                                                                         809,375

- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.0%
Seagate Technology
Hdd Holdings,
8% Sr. Nts., 5/15/09                                   200,000           217,000
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.3%
Flextronics International Ltd.,
6.25% Sr. Sub. Nts., 11/15/14 7                      1,100,000         1,094,500
- --------------------------------------------------------------------------------
Ingram Micro, Inc., 9.875% Sr.
Unsec. Sub. Nts., 8/15/08                              700,000           764,750
- --------------------------------------------------------------------------------
LCE Acquisition Corp.,
9% Sr. Sub. Nts., 8/1/14 7                             425,000           462,188
- --------------------------------------------------------------------------------
Sensus Metering System, Inc.,
8.625% Sr. Unsec. Sub. Nts., 12/15/13                  450,000           463,500
                                                                 ---------------
                                                                       2,784,938

- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.0%
Exodus Communications, Inc.,
10.75% Sr. Nts., 12/15/09 2,3,4 [EUR]                  338,620             4,603
- --------------------------------------------------------------------------------
Globix Corp., 11% Sr. Nts., 5/1/08 14                   42,888            39,671
- --------------------------------------------------------------------------------
NorthPoint Communications
Group, Inc.,
12.875% Nts., 2/15/10 2,3,4                            200,173                --
- --------------------------------------------------------------------------------
PSINet, Inc.,
10.50% Sr. Unsec. Nts.,
12/1/06 2,3,4 [EUR]                                    100,000             5,437
                                                                 ---------------
                                                                          49,711


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
IT SERVICES--0.1%
Iron Mountain, Inc.,
7.75% Sr. Sub. Nts., 1/15/15                     $     400,000   $       408,000
- --------------------------------------------------------------------------------
Titan Corp. (The),
8% Sr. Sub. Nts., 5/15/11                              100,000           107,000
                                                                 ---------------
                                                                         515,000

- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--0.4%
AMI Semiconductor, Inc.,
10.75% Sr. Unsec. Sub. Nts., 2/1/13                    389,000           459,020
- --------------------------------------------------------------------------------
Amkor Technology, Inc.:
7.75% Sr. Nts., 5/15/13                                200,000           189,000
9.25% Sr. Unsec. Sub. Nts., 2/15/08                    250,000           256,875
- --------------------------------------------------------------------------------
Freescale Semiconductor, Inc.,
7.125% Sr. Unsec. Nts., 7/15/14                        600,000           654,000
- --------------------------------------------------------------------------------
Huntsman International LLC,
7.375% Sr. Sub. Nts., 1/1/15 7                       1,100,000         1,108,250
- --------------------------------------------------------------------------------
MagnaChip Semiconductor Ltd.,
8% Sr. Sub. Nts., 12/15/14 7                            87,000            91,133
- --------------------------------------------------------------------------------
Micron Technology, Inc.,
6.50% Sub. Nts., 9/30/05                             1,000,000           995,000
                                                                 ---------------
                                                                       3,753,278

- --------------------------------------------------------------------------------
MATERIALS--4.1%
- --------------------------------------------------------------------------------
CHEMICALS--1.3%
Compass Minerals Group, Inc.,
10% Sr. Sub. Nts., 8/15/11                             450,000           508,500
- --------------------------------------------------------------------------------
Crompton Corp.,
9.875% Sr. Nts., 8/1/12 7                              350,000           402,500
- --------------------------------------------------------------------------------
Equistar Chemicals LP/
Equistar Funding Corp.:
8.75% Sr. Unsec. Nts., 2/15/09                         400,000           450,000
10.125% Sr. Unsec. Nts., 9/1/08                         19,000            21,993
10.625% Sr. Unsec. Nts., 5/1/11                        900,000         1,048,500
- --------------------------------------------------------------------------------
Huntsman Co. LLC:
11.625% Sr. Unsec. Nts., 10/15/10                       19,000            22,563
11.75% Sr. Nts., 7/15/12 7                             700,000           831,250
- --------------------------------------------------------------------------------
Huntsman Corp./
ICI Chemical Co. plc:
13.09% Sr. Unsec. Disc. Nts.,
12/31/09 8                                             600,000           339,000
10.125% Sr. Unsec. Sub. Nts.,
7/1/09 [EUR]                                           124,000           177,396
10.125% Sr. Unsec. Sub. Nts.,
7/1/09                                                 853,000           902,048
- --------------------------------------------------------------------------------
Huntsman International LLC,
9.875% Sr. Nts., 3/1/09                                850,000           937,125
- --------------------------------------------------------------------------------
IMC Global, Inc.,
10.875% Sr. Unsec. Nts., 8/1/13 2                       19,000            23,845
- --------------------------------------------------------------------------------
Innophos, Inc.,
8.875% Sr. Sub. Nts., 8/15/14 2                        400,000           434,000





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
CHEMICALS Continued
ISP Holdings, Inc.,
10.625% Sr. Sec. Nts., 12/15/09                  $     200,000   $       222,500
- --------------------------------------------------------------------------------
KI Holdings, Inc., 0%/9.875%
Sr. Disc. Nts., 11/15/14 7,13                          350,000           225,750
- --------------------------------------------------------------------------------
Lyondell Chemical Co.:
9.50% Sec. Nts., 12/15/08                               19,000            20,710
9.625% Sr. Sec. Nts.,
Series A, 5/1/07                                       200,000           221,000
9.875% Sec. Nts., Series B, 5/1/07                     980,000         1,031,450
- --------------------------------------------------------------------------------
Millennium America, Inc.,
9.25% Sr. Unsec. Sub. Nts., 6/15/08                    100,000           114,250
- --------------------------------------------------------------------------------
PCI Chemicals Canada,
10% Sr. Sec. Nts., 12/31/08                            113,061           120,410
- --------------------------------------------------------------------------------
Pioneer Cos., Inc.,
6.05% Sr. Sec. Nts., 12/31/06 1                         35,804            37,773
- --------------------------------------------------------------------------------
PolyOne Corp.:
8.875% Sr. Unsec. Nts., 5/1/12                       1,200,000         1,311,000
10.625% Sr. Unsec. Nts., 5/15/10                        19,000            21,470
- --------------------------------------------------------------------------------
Resolution Performance
Products LLC:
8% Sr. Sec. Nts., 12/15/09                             250,000           270,000
13.50% Sr. Unsec. Sub. Nts., 11/15/10                  100,000           109,250
- --------------------------------------------------------------------------------
Rhodia SA,
10.25% Sr. Unsec. Nts., 6/1/10                         550,000           621,500
- --------------------------------------------------------------------------------
Rockwood Specialties Group, Inc.,
7.50% Sr. Sub. Nts., 11/15/14 7                        200,000           208,500
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc.,
10% Sr. Sec. Nts., 12/19/07 14                         170,473           171,325
- --------------------------------------------------------------------------------
Westlake Chemical Corp.,
8.75% Sr. Nts., 7/15/11                                260,000           295,100
                                                                 ---------------
                                                                      11,100,708

- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.0%
Texas Industries, Inc.,
10.25% Sr. Unsec. Nts., 6/15/11                        400,000           470,000
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING--1.1%
Crown Euro Holdings SA:
9.50% Sr. Sec. Nts., 3/1/11                            500,000           572,500
10.875% Sr. Sec. Nts., 3/1/13                          200,000           237,500
- --------------------------------------------------------------------------------
Graham Packaging Co., Inc.:
8.50% Sr. Nts., 10/15/12 7                             200,000           211,000
9.875% Sub. Nts., 10/15/14 7                           300,000           321,750
- --------------------------------------------------------------------------------
Graphic Packaging
International Corp.:
8.50% Sr. Nts., 8/15/11                                500,000           548,750
9.50% Sr. Sub. Nts., 8/15/13                           350,000           399,875
- --------------------------------------------------------------------------------
Jefferson Smurfit Corp.:
7.50% Sr. Unsec. Unsub. Nts., 6/1/13                   300,000           321,750
8.25% Sr. Unsec. Nts., 10/1/12                         250,000           273,750


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING Continued
MDP Acquisitions plc,
9.625% Sr. Nts., 10/1/12                         $     400,000   $       448,000
- --------------------------------------------------------------------------------
Owens-Brockway
Glass Container, Inc.:
7.75% Sr. Sec. Nts., 5/15/11                           450,000           489,375
8.25% Sr. Unsec. Nts., 5/15/13                         419,000           462,995
8.75% Sr. Sec. Nts., 11/15/12                        1,000,000         1,132,500
8.875% Sr. Sec. Nts., 2/15/09                          200,000           218,250
- --------------------------------------------------------------------------------
Pliant Corp., 0%/11.125%
Sr. Sec. Disc. Nts., 6/15/09 13                        400,000           371,500
- --------------------------------------------------------------------------------
Solo Cup Co.,
8.50% Sr. Sub. Nts., 2/15/14                           500,000           522,500
- --------------------------------------------------------------------------------
Stone Container Corp.:
8.375% Sr. Nts., 7/1/12                                850,000           930,750
9.25% Sr. Unsec. Nts., 2/1/08                          200,000           222,000
9.75% Sr. Unsec. Nts., 2/1/11                          600,000           660,000
- --------------------------------------------------------------------------------
Stone Container Finance Co.
of Canada II,
7.375% Sr. Unsec. Nts., 7/15/14                        300,000           321,000
- --------------------------------------------------------------------------------
TriMas Corp., 9.875% Sr.
Unsec. Sub. Nts., 6/15/12 2                            500,000           532,500
                                                                 ---------------
                                                                       9,198,245

- --------------------------------------------------------------------------------
METALS & MINING--1.1%
AK Steel Corp.:
7.75% Sr. Unsec. Nts., 6/15/12                         219,000           226,665
7.875% Sr. Unsec. Nts., 2/15/09                        500,000           511,875
- --------------------------------------------------------------------------------
Arch Western Finance LLC,
6.75% Sr. Nts., 7/1/13                                 400,000           415,000
- --------------------------------------------------------------------------------
Asia Aluminum Holdings Ltd.,
8% Sr. Sec. Nts., 12/23/11 2                           925,000           938,875
- --------------------------------------------------------------------------------
California Steel Industries, Inc.,
6.125% Sr. Nts., 3/15/14                               400,000           399,000
- --------------------------------------------------------------------------------
Century Aluminum Co.,
7.50% Sr. Nts., 8/15/14 7                              600,000           642,000
- --------------------------------------------------------------------------------
Foundation PA Coal Co.,
7.25% Sr. Nts., 8/1/14 7                               250,000           267,500
- --------------------------------------------------------------------------------
IMCO Recycling, Inc.,
10.375% Sr. Sec. Nts., 10/15/10                        300,000           342,000
- --------------------------------------------------------------------------------
International Steel Group, Inc.,
6.50% Sr. Nts., 4/15/14                                200,000           215,500
- --------------------------------------------------------------------------------
International Utility
Structures, Inc.,
13% Unsec. Sub. Nts., 2/1/08 2,3,4                      71,000                --
- --------------------------------------------------------------------------------
Ispat Inland ULC,
9.75% Sr. Sec. Nts., 4/1/14                            585,000           725,400
- --------------------------------------------------------------------------------
Jorgensen (Earle M.) Co.,
9.75% Sr. Sec. Nts., 6/1/12                            500,000           565,000





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
METALS & MINING Continued
Kaiser Aluminum &
Chemical Corp.,
10.875% Sr. Nts.,
Series B, 10/15/06 3,4                           $     500,000   $       443,750
- --------------------------------------------------------------------------------
Koppers Industry, Inc.,
9.875% Sr. Sec. Nts., 10/15/13                         300,000           343,500
- --------------------------------------------------------------------------------
Massey Energy Co.,
6.625% Sr. Nts., 11/15/10                              200,000           210,000
- --------------------------------------------------------------------------------
Metallurg, Inc.,
11% Sr. Nts., 12/1/07                                  500,000           437,500
- --------------------------------------------------------------------------------
Oregon Steel Mills, Inc.,
10% Sr. Nts., 7/15/09                                  400,000           447,000
- --------------------------------------------------------------------------------
Peabody Energy Corp.,
6.875% Sr. Unsec. Nts.,
Series B, 3/15/13                                      400,000           435,000
- --------------------------------------------------------------------------------
Steel Dynamics, Inc.,
9.50% Sr. Nts., 3/15/09                                200,000           220,000
- --------------------------------------------------------------------------------
UCAR Finance, Inc.,
10.25% Sr. Nts., 2/15/12 2                             300,000           344,250
- --------------------------------------------------------------------------------
United States Steel Corp.:
9.75% Sr. Nts., 5/15/10                                336,000           384,720
10.75% Sr. Nts., 8/1/08                                519,000           613,718
                                                                 ---------------
                                                                       9,128,253

- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.6%
Abitibi-Consolidated, Inc.,
8.55% Nts., 8/1/10                                     200,000           217,750
- --------------------------------------------------------------------------------
Appleton Papers, Inc.,
8.125% Sr. Nts., 6/15/11                               300,000           324,750
- --------------------------------------------------------------------------------
Buckeye Technologies, Inc.,
8.50% Sr. Nts., 10/1/13                                100,000           109,000
- --------------------------------------------------------------------------------
Fort James Corp.,
6.875% Sr. Nts., 9/15/07                               500,000           533,750
- --------------------------------------------------------------------------------
Georgia-Pacific Corp.:
8.125% Sr. Unsec. Nts., 5/15/11                      1,050,000         1,212,750
9.375% Sr. Unsec. Nts., 2/1/13                         800,000           936,000
- --------------------------------------------------------------------------------
Inland Fiber Group LLC,
9.625% Sr. Unsec. Nts., 11/15/07 2,3,4                 300,000           136,500
- --------------------------------------------------------------------------------
Norske Skog Canada Ltd.,
7.375% Sr. Unsec. Nts., 3/1/14                         300,000           314,250
- --------------------------------------------------------------------------------
Riverside Forest Products Ltd.,
7.875% Sr. Unsec. Sub. Nts., 3/1/14                    300,000           331,500
- --------------------------------------------------------------------------------
Tekni-Plex, Inc.:
8.75% Sr. Sec. Nts., 11/15/13 7                        669,000           669,000
12.75% Sr. Unsec. Sub. Nts.,
Series B, 6/15/10                                      200,000           191,000
- --------------------------------------------------------------------------------
Tembec Industries, Inc.,
8.50% Sr. Unsec. Nts., 2/1/11                           19,000            19,190
- --------------------------------------------------------------------------------
Western Forest Products, Inc.,
15% Sec. Nts., 7/28/09 7,14                            187,000           211,778
                                                                 ---------------
                                                                       5,207,218


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--3.2%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.3%
American Tower Corp.:
7.125% Sr. Unsec. Nts., 10/15/12 7               $     250,000   $       256,875
9.375% Sr. Nts., 2/1/09 5                              133,000           141,313
- --------------------------------------------------------------------------------
Citizens Communications Co.,
6.25% Sr. Nts., 1/15/13                                700,000           708,750
- --------------------------------------------------------------------------------
Crown Castle International Corp.,
7.50% Sr. Nts., 12/1/13                                400,000           432,000
- --------------------------------------------------------------------------------
MCI, Inc.:
6.908% Sr. Unsec. Nts., 5/1/07 1                       468,000           480,285
7.688% Sr. Unsec. Nts., 5/1/09 1                     1,150,000         1,193,125
- --------------------------------------------------------------------------------
PSINet, Inc., 11% Sr. Nts., 8/1/09 2,3,4               265,814             3,987
- --------------------------------------------------------------------------------
Qwest Capital Funding, Inc.,
7.90% Unsec. Nts., 8/15/10                             819,000           831,285
- --------------------------------------------------------------------------------
Qwest Communications
International, Inc.,
7.25% Sr. Nts., 2/15/11 7                              300,000           309,000
- --------------------------------------------------------------------------------
Qwest Corp.,
9.125% Nts., 3/15/12 7                                 800,000           928,000
- --------------------------------------------------------------------------------
Qwest Services Corp.:
14% Nts., 12/15/10 1,7                               2,700,000         3,260,250
14.50% Nts., 12/15/14 7                              1,000,000         1,270,000
- --------------------------------------------------------------------------------
Teligent, Inc.,
11.50% Sr. Nts., 12/1/07 2,3,4                         500,000                --
- --------------------------------------------------------------------------------
Telus Corp., 7.50% Nts., 6/1/07                        790,000           858,810
- --------------------------------------------------------------------------------
Time Warner Telecom LLC/
Time Warner Telecom, Inc.,
9.75% Sr. Nts., 7/15/08                                300,000           305,250
- --------------------------------------------------------------------------------
Winstar Communications, Inc.,
12.75% Sr. Nts., 4/15/10 2,3,4                         250,000                --
                                                                 ---------------
                                                                      10,978,930

- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--1.9%
Alamosa Delaware, Inc.:
8.50% Sr. Nts., 1/31/12                                400,000           439,000
11% Sr. Unsec. Nts., 7/31/10                            19,000            22,468
12.50% Sr. Unsec. Nts., 2/1/11                          50,000            56,750
- --------------------------------------------------------------------------------
American Cellular Corp.,
10% Sr. Nts., Series B, 8/1/11                         575,000           495,938
- --------------------------------------------------------------------------------
American Tower Corp.,
7.50% Sr. Nts., 5/1/12                                 400,000           422,000
- --------------------------------------------------------------------------------
American Tower Escrow Corp.,
12.25% Sr. Sub. Disc. Nts., 8/1/08 8                   800,000           602,000
- --------------------------------------------------------------------------------
AT&T Corp.:
9.05% Sr. Unsec. Nts., 11/15/11 1                    1,000,000         1,156,250
9.75% Sr. Nts., 11/15/31 1                             500,000           599,375
- --------------------------------------------------------------------------------
CellNet Data Systems, Inc.,
Sr. Unsec. Disc. Nts., 10/1/07 2,3,4                   400,000                --





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES Continued
Centennial Cellular
Operating Co. LLC/Centennial
Communications Corp.,
10.125% Sr. Nts., 6/15/13                        $   1,050,000   $     1,183,875
- --------------------------------------------------------------------------------
Crown Castle International Corp.,
10.75% Sr. Nts., 8/1/11                              1,000,000         1,090,000
- --------------------------------------------------------------------------------
Dobson Cellular Systems,
8.375% Sec. Nts., 11/1/11 7                            130,000           134,875
- --------------------------------------------------------------------------------
Dobson Communications Corp.:
8.875% Sr. Nts., 10/1/13                               219,000           154,943
10.875% Sr. Unsec. Nts., 7/1/10                        600,000           468,000
- --------------------------------------------------------------------------------
IWO Escrow Co.,
Sr. Sec. Nts., 1/15/12 1,5,7                           110,000           111,375
- --------------------------------------------------------------------------------
Nextel Communications, Inc.,
7.375% Sr. Nts., 8/1/15                              3,080,000         3,403,400
- --------------------------------------------------------------------------------
Nextel Partners, Inc.,
12.50% Sr. Nts., 11/15/09                              342,000           389,025
- --------------------------------------------------------------------------------
Rogers Wireless
Communications, Inc.:
7.50% Sr. Sec. Nts., 3/15/15 7                         450,000           477,000
8% Sr. Sub. Nts., 12/15/12 7                           400,000           425,000
- --------------------------------------------------------------------------------
Rural Cellular Corp.:
8.25% Sr. Sec. Nts., 3/15/12                           275,000           292,188
9.625% Sr. Sub. Nts.,
Series B, 5/15/08                                      500,000           477,500
9.75% Sr. Sub. Nts., 1/15/10                           519,000           472,290
9.875% Sr. Nts., 2/1/10                                300,000           306,750
- --------------------------------------------------------------------------------
SBA Communications Corp.,
8.50% Sr. Nts., 12/1/12 7                              550,000           563,750
- --------------------------------------------------------------------------------
SBA Telecommunications, Inc./
SBA Communications Corp.,
0%/9.75% Sr. Disc. Nts., 12/15/11 13                 1,169,000           990,728
- --------------------------------------------------------------------------------
Triton PCS, Inc.,
8.50% Sr. Unsec. Nts., 6/1/13                          550,000           533,500
- --------------------------------------------------------------------------------
UbiquiTel Operating Co.,
9.875% Sr. Nts., 3/1/11                                600,000           676,500
- --------------------------------------------------------------------------------
US Unwired, Inc.,
10% Sr. Sec. Nts., 6/15/12                             250,000           283,125
- --------------------------------------------------------------------------------
Western Wireless Corp.,
9.25% Sr. Unsec. Nts., 7/15/13                         469,000           512,383
                                                                 ---------------
                                                                      16,739,988

- --------------------------------------------------------------------------------
UTILITIES--2.0%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.3%
AES Corp. (The),
8.75% Sr. Sec. Nts., 5/15/13 7                         700,000           798,875
- --------------------------------------------------------------------------------
Caithness Coso Funding Corp.,
9.05% Sr. Sec. Nts.,
Series B, 12/15/09                                     293,438           324,249
- --------------------------------------------------------------------------------
Calpine Corp.,
7.625% Sr. Nts., 4/15/06                               200,000           197,500


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES Continued
CenterPoint Energy, Inc.,
7.25% Sr. Nts., Series B, 9/1/10                 $     200,000   $       223,330
- --------------------------------------------------------------------------------
CITGO Trustees Cayman Ltd.,
8.50% Nts., 12/21/14 2                                 610,000           611,525
- --------------------------------------------------------------------------------
CMS Energy Corp.:
7.50% Sr. Nts., 1/15/09                                 19,000            20,330
7.75% Sr. Nts., 8/1/10                                 200,000           219,750
8.50% Sr. Nts., 4/15/11                                250,000           285,313
9.875% Sr. Unsec. Nts., 10/15/07                       900,000         1,010,250
- --------------------------------------------------------------------------------
CMS Energy X-TRAS
Pass-Through Trust I,
7% Sr. Unsec. Pass-Through
Certificates, 1/15/05                                  300,000           300,000
- --------------------------------------------------------------------------------
Funding Corp./
Beaver Valley Funding Corp.,
9% Second Lease
Obligation Bonds, 6/1/17                               199,000           235,818
- --------------------------------------------------------------------------------
Midwest Generation LLC,
8.75% Sr. Sec. Nts., 5/1/34                          1,850,000         2,109,000
- --------------------------------------------------------------------------------
Mirant Americas Generation LLC,
7.625% Sr. Unsec. Nts., 5/1/06 3,4                     200,000           216,000
- --------------------------------------------------------------------------------
MSW Energy Holdings II LLC/
MSW Energy Finance Co. II, Inc.,
7.375% Sr. Sec. Nts.,
Series B, 9/1/10                                       350,000           369,250
- --------------------------------------------------------------------------------
MSW Energy Holdings LLC/
MSW Energy Finance Co., Inc.,
8.50% Sr. Sec. Nts., 9/1/10                            200,000           220,000
- --------------------------------------------------------------------------------
NRG Energy, Inc.,
8% Sr. Sec. Nts., 12/15/13 7                         1,100,000         1,204,500
- --------------------------------------------------------------------------------
Reliant Energy, Inc.,
6.75% Sr. Sec. Nts., 12/15/14                          400,000           399,500
- --------------------------------------------------------------------------------
Reliant Resources, Inc.:
9.25% Sr. Sec. Nts., 7/15/10                           669,000           749,280
9.50% Sr. Sec. Nts., 7/15/13                           900,000         1,027,125
- --------------------------------------------------------------------------------
Teco Energy, Inc.,
7.20% Unsec. Unsub. Nts., 5/1/11                       600,000           660,000
- --------------------------------------------------------------------------------
Texas Genco LLC,
6.875% Sr. Nts., 12/15/14 7                            550,000           571,313
                                                                 ---------------
                                                                      11,752,908

- --------------------------------------------------------------------------------
GAS UTILITIES--0.1%
AmeriGas Partners LP/
AmeriGas Eagle Finance Corp.,
8.875% Sr. Unsec. Nts.,
Series B, 5/20/11                                      500,000           547,500
- --------------------------------------------------------------------------------
SEMCO Energy, Inc.,
7.125% Sr. Nts., 5/15/08                               150,000           161,291
                                                                 ---------------
                                                                         708,791





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.6%
AES Red Oak LLC,
8.54% Sr. Sec. Bonds,
Series A, 11/30/19                               $     562,854   $       634,617
- --------------------------------------------------------------------------------
Consumers Energy Co.,
7.375% Nts., 9/15/23                                   250,000           258,610
- --------------------------------------------------------------------------------
Dynegy Holdings, Inc.:
6.875% Sr. Unsec. Unsub. Nts., 4/1/11                  850,000           822,375
8.75% Sr. Nts., 2/15/12                              1,669,000         1,756,623
10.125% Sr. Sec. Nts., 7/15/13 7                       800,000           920,000
- --------------------------------------------------------------------------------
Mirant Mid-Atlantic LLC,
8.625% Sec. Pass-Through
Certificates, Series A, 6/30/12                        429,280           476,770
- --------------------------------------------------------------------------------
NorthWestern Corp.,
5.875% Sr. Sec. Nts., 11/1/14 7                         90,000            92,517
                                                                 ---------------
                                                                       4,961,512
                                                                 ---------------
Total Corporate Bonds and
Notes (Cost $228,184,438)                                            240,328,675

                                                        SHARES
- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.3%
- --------------------------------------------------------------------------------
AmeriKing, Inc.,
13% Cum. Sr. Exchangeable,
Non-Vtg. 2,4,14                                          4,253                --
- --------------------------------------------------------------------------------
Doane Pet Care Co.,
14.25% Jr. Sub. Exchange Debs.,
Non-Vtg. 2,4                                             5,000           261,250
- --------------------------------------------------------------------------------
Dobson Communications Corp.,
6% Cv., Series F (converts into
Dobson Communications Corp.,
Cl. A common stock), Non-Vtg. 7                            550            38,549
- --------------------------------------------------------------------------------
e.spire Communications, Inc.,
12.75% Jr. Redeemable, Non-Vtg. 2,4,14                     216                22
- --------------------------------------------------------------------------------
Eagle-Picher Holdings, Inc.,
11.75% Cum. Exchangeable,
Series B, Non-Vtg. 2,4                                   5,000           436,250
- --------------------------------------------------------------------------------
ICG Holdings, Inc.,
14.25% Exchangeable, Non-Vtg. 2,4,14                       151                --
- --------------------------------------------------------------------------------
Paxson Communications Corp.:
14.25% Cum. Jr. Exchangeable, Non-Vtg. 2,14                 43           317,125
14.25% Cum. Jr. Exchangeable, Non-Vtg. 2,4,14                1             5,790
- --------------------------------------------------------------------------------
Pennsylvania Real Estate
Investment Trust, 11%                                    2,000           121,000
- --------------------------------------------------------------------------------
PTV, Inc., 10% Cum.,
Series A, Non-Vtg                                            7                24
- --------------------------------------------------------------------------------
Rural Cellular Corp.,
11.375% Cum.,
Series B, Non-Vtg. 2,4,14                                  630           489,825


                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
PREFERRED STOCKS Continued
Sovereign Real Estate Investment
Trust, 12% Non-Cum., Series A 2                          4,600   $       698,050
                                                                 ---------------
Total Preferred
Stocks (Cost $2,471,559)                                               2,367,885

- --------------------------------------------------------------------------------
COMMON STOCKS--2.8%
- --------------------------------------------------------------------------------
AboveNet, Inc. 4                                            72             2,304
- --------------------------------------------------------------------------------
ACE Ltd.                                                 4,100           175,275
- --------------------------------------------------------------------------------
Aegis Group plc                                         84,740           175,708
- --------------------------------------------------------------------------------
Aetna, Inc.                                              1,400           174,650
- --------------------------------------------------------------------------------
All Nippon Airways Co. Ltd.                             48,000           167,229
- --------------------------------------------------------------------------------
Allstate Corp.                                           3,300           170,676
- --------------------------------------------------------------------------------
Anadarko Petroleum Corp.                                 2,510           162,673
- --------------------------------------------------------------------------------
Apache Corp.                                             3,300           166,881
- --------------------------------------------------------------------------------
Apple Computer, Inc. 4                                   2,700           173,880
- --------------------------------------------------------------------------------
Arriva plc                                              17,920           185,785
- --------------------------------------------------------------------------------
Ashland, Inc.                                            2,900           169,302
- --------------------------------------------------------------------------------
Autodesk, Inc.                                           5,000           189,750
- --------------------------------------------------------------------------------
BAE Systems plc                                         35,850           158,650
- --------------------------------------------------------------------------------
Bear Stearns Cos., Inc. (The)                            1,600           163,696
- --------------------------------------------------------------------------------
Beverly Hills Bancorp, Inc.                              6,273            63,357
- --------------------------------------------------------------------------------
Black & Decker Corp.                                     2,000           176,660
- --------------------------------------------------------------------------------
Broadwing Corp.                                            688             6,268
- --------------------------------------------------------------------------------
Burlington Resources, Inc.                               3,900           169,650
- --------------------------------------------------------------------------------
Cebridge Connections
Holding LLC 4                                              529                --
- --------------------------------------------------------------------------------
Celesio AG                                               2,194           178,037
- --------------------------------------------------------------------------------
Centex Corp.                                             3,200           190,656
- --------------------------------------------------------------------------------
Charles River Laboratories
International, Inc. 4                                    2,660           122,387
- --------------------------------------------------------------------------------
Chesapeake Energy Corp.                                    416             6,864
- --------------------------------------------------------------------------------
ChevronTexaco Corp.                                      3,200           168,032
- --------------------------------------------------------------------------------
Chubu Electric Power Co., Inc.                           7,300           175,251
- --------------------------------------------------------------------------------
CIGNA Corp.                                              2,200           179,454
- --------------------------------------------------------------------------------
CNP Assurances SA                                        2,480           177,649
- --------------------------------------------------------------------------------
ConocoPhillips                                           1,900           164,977
- --------------------------------------------------------------------------------
Conseco, Inc. 4                                         13,986           279,021
- --------------------------------------------------------------------------------
Continental AG                                           2,750           174,749
- --------------------------------------------------------------------------------
Corus Group plc 4                                      161,310           156,398
- --------------------------------------------------------------------------------
Countrywide Financial Corp.                              4,900           181,349
- --------------------------------------------------------------------------------
Covad Communications
Group, Inc. 4                                           16,528            35,535
- --------------------------------------------------------------------------------
Criimi MAE, Inc. 4                                      71,447         1,150,297
- --------------------------------------------------------------------------------
Crunch Equity Holdings, Cl. A 2,4                          120           156,133
- --------------------------------------------------------------------------------
Cummins, Inc.                                            2,100           175,959





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
- --------------------------------------------------------------------------------
Dainippon Ink & Chemicals, Inc.                         74,000   $       170,430
- --------------------------------------------------------------------------------
Devon Energy Corp.                                       4,200           163,464
- --------------------------------------------------------------------------------
Dillard's, Inc., Cl. A                                   6,400           171,968
- --------------------------------------------------------------------------------
Dobson Communications
Corp., Cl. A 4                                          24,300            41,796
- --------------------------------------------------------------------------------
E.ON AG                                                  1,992           181,898
- --------------------------------------------------------------------------------
Energy Select Sector SPDR Fund                          18,200           658,840
- --------------------------------------------------------------------------------
EOG Resources, Inc.                                      2,300           164,128
- --------------------------------------------------------------------------------
Equinix, Inc. 4                                          1,887            80,650
- --------------------------------------------------------------------------------
Financial Select Sector SPDR Fund                       21,600           659,448
- --------------------------------------------------------------------------------
Freddie Mac                                              2,400           176,880
- --------------------------------------------------------------------------------
Friends Provident plc                                   54,940           162,438
- --------------------------------------------------------------------------------
General Motors Corp.                                     4,400           176,264
- --------------------------------------------------------------------------------
Geotek Communications, Inc.,
Series B, Escrow Shares 2,4,15                             210                --
- --------------------------------------------------------------------------------
Globix Corp. 4                                           6,880            24,768
- --------------------------------------------------------------------------------
Heidelberger Zement AG                                   2,960           179,362
- --------------------------------------------------------------------------------
Hokkaido Electric Power Co.                              8,800           173,046
- --------------------------------------------------------------------------------
Horizon Natural Resources Co. 2,4                        6,667                --
- --------------------------------------------------------------------------------
Humana, Inc. 4                                           6,400           190,016
- --------------------------------------------------------------------------------
ICO Global Communication
Holdings Ltd. 4                                          6,016             3,068
- --------------------------------------------------------------------------------
Imerys SA                                                2,210           185,493
- --------------------------------------------------------------------------------
iPCS, Inc. 4                                             8,548           260,714
- --------------------------------------------------------------------------------
Janus Capital Group, Inc.                               10,100           169,781
- --------------------------------------------------------------------------------
Japan Real Estate
Investment Corp.                                            20           168,635
- --------------------------------------------------------------------------------
Karstadt Quelle AG                                      16,370           169,107
- --------------------------------------------------------------------------------
Kawasaki Kisen Kaisha Ltd.                              25,000           161,344
- --------------------------------------------------------------------------------
KB Home                                                  1,800           187,920
- --------------------------------------------------------------------------------
Klepierre                                                1,960           173,568
- --------------------------------------------------------------------------------
Lafarge SA                                               1,790           172,747
- --------------------------------------------------------------------------------
Leap Wireless International, Inc. 4                      1,714            46,278
- --------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.                           2,000           174,960
- --------------------------------------------------------------------------------
Lincoln National Corp.                                   3,500           163,380
- --------------------------------------------------------------------------------
Lloyds TSB Group plc                                    20,870           189,523
- --------------------------------------------------------------------------------
Loews Corp.                                              2,400           168,720
- --------------------------------------------------------------------------------
Louisiana-Pacific Corp.                                  6,200           165,788
- --------------------------------------------------------------------------------
MAN AG                                                   4,423           169,718
- --------------------------------------------------------------------------------
Marathon Oil Corp.                                       4,500           169,245
- --------------------------------------------------------------------------------
MBIA, Inc.                                               2,700           170,856
- --------------------------------------------------------------------------------
MCI, Inc.                                                1,629            32,841
- --------------------------------------------------------------------------------
Merck KGaA                                               2,902           198,410
- --------------------------------------------------------------------------------
MetLife, Inc.                                            4,200           170,142
- --------------------------------------------------------------------------------
Mitsui O.S.K. Lines Ltd.                                27,000           162,047
- --------------------------------------------------------------------------------
Nippon Building Fund, Inc.                                  19           162,057



                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
- --------------------------------------------------------------------------------
Nippon Yusen Kabushiki Kaisha                           32,000   $       172,382
- --------------------------------------------------------------------------------
Norfolk Southern Corp.                                   4,700           170,093
- --------------------------------------------------------------------------------
Novar plc                                               54,100           195,529
- --------------------------------------------------------------------------------
NSK Ltd.                                                36,000           180,931
- --------------------------------------------------------------------------------
NTL, Inc. 4                                              7,842           572,152
- --------------------------------------------------------------------------------
Nucor Corp.                                              3,200           167,488
- --------------------------------------------------------------------------------
Occidental Petroleum Corp.                               3,000           175,080
- --------------------------------------------------------------------------------
Orbital Sciences Corp. 4                                   745             8,813
- --------------------------------------------------------------------------------
Peninsular & Oriental Steam
Navigation Co.                                          29,210           166,839
- --------------------------------------------------------------------------------
PG&E Corp. 4                                             5,200           173,056
- --------------------------------------------------------------------------------
Phelps Dodge Corp.                                       1,800           178,056
- --------------------------------------------------------------------------------
Pilkington plc                                          82,360           173,935
- --------------------------------------------------------------------------------
Pioneer Cos., Inc. 4                                     7,312           151,724
- --------------------------------------------------------------------------------
Prandium, Inc. 2,4                                      24,165               266
- --------------------------------------------------------------------------------
Premier Holdings Ltd. 2,4                               18,514                --
- --------------------------------------------------------------------------------
Prudential Financial, Inc.                               3,300           181,368
- --------------------------------------------------------------------------------
Pulte Homes, Inc.                                        2,910           185,658
- --------------------------------------------------------------------------------
Rakuten, Inc.                                               20            22,913
- --------------------------------------------------------------------------------
Rakuten, Inc. 4                                            180           161,608
- --------------------------------------------------------------------------------
RMC Group plc                                           10,440           170,172
- --------------------------------------------------------------------------------
Rolls-Royce Group plc                                   33,400           158,388
- --------------------------------------------------------------------------------
RWE AG                                                   3,155           174,110
- --------------------------------------------------------------------------------
Ryder Systems, Inc.                                      3,100           148,087
- --------------------------------------------------------------------------------
SABMiller plc                                           10,200           169,197
- --------------------------------------------------------------------------------
Safeco Corp.                                             3,400           177,616
- --------------------------------------------------------------------------------
Sears Roebuck & Co.                                      3,200           163,296
- --------------------------------------------------------------------------------
Sega Sammy Holdings, Inc. 4                              3,200           175,817
- --------------------------------------------------------------------------------
Sempra Energy                                            4,600           168,728
- --------------------------------------------------------------------------------
Severn Trent plc                                         9,880           183,427
- --------------------------------------------------------------------------------
Showa Shell Sekiyu K.K                                  18,380           167,352
- --------------------------------------------------------------------------------
Societe Generale, Cl. A                                  1,720           174,057
- --------------------------------------------------------------------------------
Star Gas Partners LP                                       187             1,393
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. 2,4                               716            26,671
- --------------------------------------------------------------------------------
Suedzucker AG                                            8,314           173,241
- --------------------------------------------------------------------------------
Suez SA                                                  7,140           190,413
- --------------------------------------------------------------------------------
Sunoco, Inc.                                             2,100           171,591
- --------------------------------------------------------------------------------
Tate & Lyle plc                                         17,860           162,103
- --------------------------------------------------------------------------------
Technip SA                                               1,000           184,858
- --------------------------------------------------------------------------------
Telewest Global, Inc. 4                                 31,828           559,536
- --------------------------------------------------------------------------------
Telus Corp.                                                269             7,774
- --------------------------------------------------------------------------------
Tohoku Electric Power Co.                                9,430           169,330
- --------------------------------------------------------------------------------
TonenGeneral Sekiyu K.K                                 17,870           162,708
- --------------------------------------------------------------------------------
Total SA, B Shares                                         760           166,561
- --------------------------------------------------------------------------------
Toys R Us, Inc. 4                                        8,400           171,948





                                                                           VALUE
                                                        SHARES        SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
- --------------------------------------------------------------------------------
Transocean, Inc. 4                                       4,400   $       186,516
- --------------------------------------------------------------------------------
TUI AG                                                   7,536           178,746
- --------------------------------------------------------------------------------
TVMAX Holdings, Inc. 2,4                                 1,000             5,950
- --------------------------------------------------------------------------------
TXU Corp.                                                2,800           180,768
- --------------------------------------------------------------------------------
Unibail                                                  1,180           185,733
- --------------------------------------------------------------------------------
United States Steel Corp.                                3,300           169,125
- --------------------------------------------------------------------------------
United Utilities plc                                    15,620           188,930
- --------------------------------------------------------------------------------
UnitedGlobalCom, Inc., Cl. A 4                          58,063           560,889
- --------------------------------------------------------------------------------
Unocal Corp.                                             3,900           168,636
- --------------------------------------------------------------------------------
Utilities Select Sector SPDR Fund                       24,200           673,970
- --------------------------------------------------------------------------------
Valero Energy Corp.                                      3,900           177,060
- --------------------------------------------------------------------------------
Viatel Holding Ltd. (Bermuda) 2,4                        2,251             2,701
- --------------------------------------------------------------------------------
Vinci                                                    1,360           182,640
- --------------------------------------------------------------------------------
Western Forest Products, Inc. 4                         38,252           212,307
- --------------------------------------------------------------------------------
WRC Media Corp. 2,4                                      1,082                22
- --------------------------------------------------------------------------------
XO Communications, Inc. 4                                1,100             3,344
                                                                 ---------------
Total Common Stocks
(Cost $21,237,672)                                                    23,790,482

                                                         UNITS
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- --------------------------------------------------------------------------------
American Tower Corp. Wts.,
Exp. 8/1/08 4,7                                            800           184,400
- --------------------------------------------------------------------------------
ASAT Finance LLC Wts.,
Exp. 11/1/06 2,4                                           250                 2
- --------------------------------------------------------------------------------
Citigroup, Inc. Litigation Wts.,
Exp. 12/31/50 4                                          2,404             3,414
- --------------------------------------------------------------------------------
COLO.com, Inc. Wts.,
Exp. 3/15/10 2,4                                           400                 4
- --------------------------------------------------------------------------------
Concentric Network Corp. Wts.,
Exp. 12/15/07 2,4                                          100                --
- --------------------------------------------------------------------------------
Covergent Communications,
Inc. Wts., Exp. 4/1/08 2,4                                 400                 4
- --------------------------------------------------------------------------------
HF Holdings, Inc. Wts.,
Exp. 9/27/09 2,4                                           530                 5
- --------------------------------------------------------------------------------
Horizon PCS, Inc. Wts.,
Exp. 10/1/10 2,4                                         1,000                --
- --------------------------------------------------------------------------------
Huntsman Co. LLC Wts.,
Exp. 5/15/11 2,4                                           300           141,150
- --------------------------------------------------------------------------------
ICG Communications, Inc. Wts.,
Exp. 9/15/05 2,4                                           825                 8
- --------------------------------------------------------------------------------
ICO Global Communication
Holdings Ltd. Wts.:
Exp. 5/16/06 2,4                                         1,509                 8
Exp. 5/16/06 2,4                                             2                --
- --------------------------------------------------------------------------------
Imperial Credit Industries,
Inc. Wts., Exp. 1/31/08 2,4                              2,135                --
- --------------------------------------------------------------------------------
Insilco Corp. Wts., Exp. 8/15/07 2,4                       270                --

                                                                           VALUE
                                                         UNITS        SEE NOTE 1
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES Continued
- --------------------------------------------------------------------------------
iPCS, Inc. Wts., Exp. 6/15/10 2,4                          300   $             3
- --------------------------------------------------------------------------------
Leap Wireless International,
Inc. Wts., Exp. 4/15/10 2,4                                275                 3
- --------------------------------------------------------------------------------
Long Distance International,
Inc. Wts., Exp. 4/13/08 2,4                                200                --
- --------------------------------------------------------------------------------
Loral Space &
Communications Ltd. Wts.,
Exp. 1/15/07 2,4                                           150                 2
- --------------------------------------------------------------------------------
Millenium Seacarriers, Inc. Wts.,
Exp. 7/15/05 2,4                                           250                 3
- --------------------------------------------------------------------------------
Ntelos, Inc. Wts., Exp. 8/15/10 2,4                        450                 5
- --------------------------------------------------------------------------------
Pathmark Stores, Inc. Wts.,
Exp. 9/19/10 4                                           5,710             1,142
- --------------------------------------------------------------------------------
PLD Telekom, Inc. Wts.,
Exp. 6/1/06 2,4                                            300                 3
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. Wts.,
Exp. 12/19/08 2,4                                        1,165             5,432
- --------------------------------------------------------------------------------
Venezuela (Republic of) Oil
Linked Payment Obligation Wts.,
Exp. 4/15/20 2,4                                         3,256                --
- --------------------------------------------------------------------------------
Verado Holdings, Inc., Cl. B Wts.,
Exp. 4/15/08 4                                             175               119
- --------------------------------------------------------------------------------
XO Communications, Inc.,
Cl. A Wts., Exp. 1/16/10 4                               2,204             1,488
- --------------------------------------------------------------------------------
XO Communications, Inc.,
Cl. B Wts., Exp. 1/16/10 4                               1,653               793
- --------------------------------------------------------------------------------
XO Communications, Inc.,
Cl. C Wts., Exp. 1/16/10 4                               1,653               645
                                                                 ---------------
Total Rights, Warrants and
Certificates (Cost $80,050)                                              338,633

                                                     PRINCIPAL
                                                        AMOUNT
- --------------------------------------------------------------------------------
STRUCTURED NOTES--10.2%
- --------------------------------------------------------------------------------
Citigroup Global Markets
Holdings, Inc.:
Brazilian Real Unsec. Credit
Linked Nts., 0.93%, 1/14/05                      $   1,982,615         2,319,858
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 3/15/07 [COP]                               3,860,150,000         2,002,175
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 4/27/12 [COP]                               1,800,000,000           939,374
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 4/27/12 [COP]                               1,200,000,000           626,250
Colombia (Republic of)
Unsec. Credit Linked Nts.,
15%, 4/27/12 5 [COP]                             1,034,000,000           536,533
Colombia (Republic of)
Unsec. Credit Linked Nts.,
3.12%, 11/20/09                                      2,920,000         2,959,128





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------
                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Citigroup Global Markets
Holdings, Inc.: Continued
Dominican Republic Peso
Unsec. Credit Linked Nts.,
24.05%, 3/21/05 [DOP]                               21,604,000   $       711,287
Dominican Republic Peso
Unsec. Credit Linked Nts.,
24.32%, 3/7/05 [DOP]                                20,810,000           698,398
Peruvian Sol Unsec. Linked Nts.,
1.466%, 1/14/05 [PEN]                                4,200,000         1,356,450
Ukraine Hryvnia Unsec. Credit
Linked Nts., 7.50%, 5/6/05 2 [UAH]                   3,980,000           749,529
- --------------------------------------------------------------------------------
Credit Suisse First Boston
Corp. (Cayman):
Russia (Government of)
Linked Bonds,
Series 24, 15%, 9/2/05 [RUR]                        22,279,000           861,189
Russia (Government of)
Linked Bonds,
Series 26, 15%, 3/11/05 [RUR]                       22,587,000           838,872
- --------------------------------------------------------------------------------
Credit Suisse First Boston
International, OAO Gazprom
Credit Linked Nts.,
8.11%, 1/21/07 [RUR]                                28,065,000         1,058,573
- --------------------------------------------------------------------------------
Credit Suisse First Boston, Inc.:
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
20%, 10/18/07                                          352,000           387,633
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series EM 868, 27.50%, 8/25/05                       2,125,000         1,881,220
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series EM 872, 23.57%, 10/20/05 1                      396,000           425,904
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series EM 880, 20%, 10/18/07                         1,190,000         1,450,705
(Nassau Branch), Turkey
(Republic of) Credit Linked Nts.,
Series NA S 316, 24.45%, 2/23/06                       607,000           488,435
(USA), U.S. Dollar/South African
Rand Linked Nts.,
Series FBi 43, 1.468%, 5/23/22                         825,000           784,080
- --------------------------------------------------------------------------------
Deutsche Bank AG:
European Investment Bank
Credit Bonds, 5.65%, 1/19/10 5                         705,000           533,897
Indonesia (Republic of) Credit
Linked Nts., 14.25%, 6/22/13                           942,000         1,146,885
Indonesia (Republic of) Credit
Linked Nts., 14.25%, 6/22/13                           938,000         1,142,015
Korea (Republic of) Credit
Bonds, 2.49%, 6/20/09                                3,900,000         3,945,240
Moscow (City of) Linked Nts.,
10%, 5/27/05 [RUR]                                  13,440,000           498,080
Moscow (City of) Linked Nts.,
15%, 9/2/05 [RUR]                                   30,255,000         1,170,046


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Deutsche Bank AG: Continued
Nigeria (Federal Republic of)
Naira Linked Nts.,
13.25%, 3/17/05 [NGN]                               97,403,000   $       710,460
Nigeria (Federal Republic of)
Naira Linked Nts.,
13.75%, 3/3/05 [NGN]                                65,974,000           484,338
Nigeria (Republic of)
Credit Linked Nts.,
13.90%, 2/24/05 [NGN]                              119,040,000           876,149
OAO Gazprom I Credit Nts.,
6.20%, 10/20/07                                        790,000           841,076
OAO Gazprom II Credit Nts.,
5.95%, 4/20/07                                         790,000           831,663
Romania (The State of)
Leu Linked Nts., 11.49%,
12/4/06 [ROL]                                    7,886,400,000           274,045
Russian Federation Linked Nts.,
8.40%, 12/2/09 [RUR]                                19,221,000           698,266
Ukraine (Republic of)
Credit Linked Nts., 6.54%, 8/5/11                    4,070,000         4,389,292
Ukraine (Republic of)
Hryvnia Credit Linked Nts.,
0%, 12/17/05 [UAH]                                   1,469,000           276,274
Ukraine (Republic of)
Hryvnia Credit Linked Nts.,
11.70%, 5/31/06 [UAH]                                1,727,000           325,089
- --------------------------------------------------------------------------------
Dow Jones CDX High Yield
Index Pass-Through Certificates:
Series 3-1, 7.75%, 12/29/09 7,16                    13,200,000        13,587,750
Series 3-3, 8%, 12/29/09 7,16                       12,700,000        13,041,313
- --------------------------------------------------------------------------------
Lehman Brothers International:
Turkey (Republic of) Treasury
Bills Total Return Linked Nts.,
20%, 10/17/07                                        1,260,000         1,512,630
Turkey (Republic of) Treasury
Bills Total Return Linked Nts.,
24.20%, 8/25/05                                      1,165,000         1,003,182
Turkey (Republic of) Treasury
Bills Total Return Linked Nts.,
28.25%, 5/26/05                                      1,261,309         1,277,580
- --------------------------------------------------------------------------------
Lehman Brothers Special
Financing, Inc., High Yield Index
Linked Nts., 1.017%, 1/1/05 16                      10,000,000        10,145,251
- --------------------------------------------------------------------------------
Morgan Stanley Capital
Services, Inc., Venezuela
(Republic of) Credit Bonds,
5%, 9/20/09                                          1,665,000         1,844,587
- --------------------------------------------------------------------------------
Pioneer 2002 Ltd. Sec.
Catastrophe Linked Nts.:
Series 2002-1, Cl. E-A,
6.74%, 6/15/06 1                                       750,000           758,199
Series 2003-II, Cl. A,
8.49%, 6/15/06 1,7                                     500,000           512,183





                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Pioneer 2002 Ltd. Sec
Catastrophe Linked Nts.: Continued
Series 2003-II, Cl. B,
7.49%, 6/15/06 1,7                               $     500,000   $      510,214
Series 2003-II, Cl. C,
8.24%, 6/15/06 1,7                                     500,000          508,153
- --------------------------------------------------------------------------------
Swiss Re Capital Markets Corp./
Oak Capital Ltd.
Catastrophe Linked Nts.,
7.24%, 6/15/07 1,2                                     250,000          256,949
- --------------------------------------------------------------------------------
Swiss Re Capital Markets Corp./
Pioneer 2002 Ltd. Sec
Catastrophe Linked Nts.,
Series 2002, Cl. A-A,
8.49%, 6/15/06 1,7                                     250,000          254,995
- --------------------------------------------------------------------------------
UBS AG:
Israel (State of) Shekel
Linked Nts., 7.50%, 4/5/14 [ILS]                     4,792,700        1,195,040
OAO Gazprom III Credit Nts.,
4.71%, 7/5/06                                        1,980,000        2,085,757
                                                                 ---------------
Total Structured Notes
(Cost $82,684,631)                                                   87,712,191

                                DATE    STRIKE       CONTRACTS
- --------------------------------------------------------------------------------
OPTIONS PURCHASED--0.0%
- --------------------------------------------------------------------------------
Brazilian Real Call 4        1/19/05    $ 2.80       1,175,000           10,575
- --------------------------------------------------------------------------------
Turkish Lira Put 4            1/6/05      1.00       1,150,000              575
- --------------------------------------------------------------------------------
U.S. Treasury Bonds,
5.375%, 2/15/31 Call 4       1/18/05   109.285%         35,720          125,598
                                                                 ---------------
Total Options Purchased (Cost $427,865)                                 136,748

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--10.0% 17
- --------------------------------------------------------------------------------
Undivided interest of 5.96% in joint repurchase
agreement (Principal Amount/Value
$1,443,703,000, with a maturity value of
$1,443,962,867) with UBS Warburg LLC, 2.16%,
dated 12/31/04, to be repurchased at
$86,039,484 on 1/3/05, collateralized by
Federal National Mortgage Assn., 5%--6%,
4/1/34--10/1/34, with a value of
$1,474,609,071
(Cost $86,024,000)                                  86,024,000       86,024,000


                                                     PRINCIPAL             VALUE
                                                        AMOUNT        SEE NOTE 1
- --------------------------------------------------------------------------------
Total Investments, at Value
(excluding Investments
Purchased with Cash
Collateral from
Securities Loaned)
(Cost $859,418,744)                                              $  906,044,631

- --------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM
SECURITIES LOANED--1.7%
- --------------------------------------------------------------------------------
ASSET-BACKED FLOATING SECURITY--0.1%
Whitehawk CDO Funding
Corp., 2.56%, 3/15/05 18                         $   1,000,000        1,000,000
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS--1.5% Undivided interest
of 5.96% in joint repurchase agreement
(Principal Amount/Value $155,205,723, with a
maturity value of $155,232,367) with Credit
Suisse First Boston LLC, 2.06%, dated
12/31/04, to be repurchased at $9,252,431 on
1/3/05, collateralized by AA Corporate
Bonds, 0%-15.73%, 1/1/06-7/16/44,
with a value of $158,312,640 18                      9,250,843        9,250,843
- --------------------------------------------------------------------------------
Undivided interest of 0.39% in joint repurchase
agreement (Principal Amount/Value
$2,800,000,000, with a maturity value of
$2,800,550,669) with Nomura Securities, 2.36%,
dated 12/31/04, to be repurchased at $3,827,941
on 1/3/05, collateralized by U.S. Government
Mortgage Agencies, 2.58%-7.50%,
1/15/08-10/15/44, with a value of
$2,908,566,289 18                                    3,827,188        3,827,188
                                                                 ---------------
                                                                     13,078,031

- --------------------------------------------------------------------------------
YANKEE FLOATING CERTIFICATES OF DEPOSIT--0.1%
Banco Bilbao Vizcaya NY,
2.248% Deposit Nts., 2/10/05 18                        799,967          799,967
                                                                 ---------------
Total Investments Purchased
with Cash Collateral from
Securities Loaned
(Cost $14,877,998)                                                   14,877,998

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $874,296,742)                                      107.4%     920,922,629
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF
OTHER ASSETS                                              (7.4)     (63,302,323)
                                                 -------------------------------
NET ASSETS                                               100.0%  $  857,620,306
                                                 ===============================





STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

FOOTNOTES TO STATEMENT OF INVESTMENTS

Principal amount, contracts and exercise price are reported in U.S. Dollars,
except for those denoted in the following currencies:

ARP        Argentine Peso
AUD        Australian Dollar
BRR        Brazilian Real
CAD        Canadian Dollar
COP        Colombian Peso
DEM        German Mark
DKK        Danish Krone
DOP        Dominican Republic Peso
EUR        Euro
FRF        French Franc
GBP        British Pound Sterling
ILS        Israeli Shekel
JPY        Japanese Yen
MXN        Mexican Nuevo Peso
NGN        Nigeria Naira
NZD        New Zealand Dollar
PEN        Peruvian New Sol
PLZ        Polish Zloty
ROL        Romanian Leu
RUR        Russian Ruble
SEK        Swedish Krona
UAH        Ukraine Hryvnia
ZAR        South African Rand

1. Represents the current interest rate for a variable or increasing rate
security.

2. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of December 31, 2004 was $26,847,365, which represents
3.13% of the Fund's net assets, of which $70,658 is considered restricted. See
Note 11 of Notes to Financial Statements.

3. Issue is in default. See Note 1 of Notes to Financial Statements.

4. Non-income producing security.

5. When-issued security or forward commitment to be delivered and settled after
December 31, 2004. See Note 1 of Notes to Financial Statements.

6. Interest-Only Strips represent the right to receive the monthly interest
payments on an underlying pool of mortgage loans. These securities typically
decline in price as interest rates decline. Most other fixed income securities
increase in price when interest rates decline. The principal amount of the
underlying pool represents the notional amount on which current interest is
calculated. The price of these securities is typically more sensitive to changes
in prepayment rates than traditional mortgage-backed securities (for example,
GNMA pass-throughs). Interest rates disclosed represent current yields based
upon the current cost basis and estimated timing and amount of future cash
flows. These securities amount to $2,971,051 or 0.35% of the Fund's net assets
as of December 31, 2004.

7. 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 $78,866,795 or 9.20% of the Fund's net
assets as of December 31, 2004.

8. Zero coupon bond reflects effective yield on the date of purchase.

9. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures sales contracts with an aggregate
market value of $1,957,202. See Note 6 of Notes to Financial Statements.

10. A sufficient amount of securities has been designated to cover outstanding
foreign currency contracts. See Note 5 of Notes to Financial Statements.

11. A sufficient amount of securities has been designated to cover outstanding
written put options, as follows:

                                                   CONTRACTS         EXPIRATION     EXERCISE           PREMIUM          VALUE
                                               SUBJECT TO PUT             DATES        PRICE          RECEIVED     SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------

Brazilian Real (BRR)                                1,175,000           1/19/05        $2.65          $  1,792        $ 8,196
Turkish Lira (TRL)                                  1,150,000            1/6/05         1.00             3,565         11,499
                                                                                                      -----------------------
                                                                                                      $  5,357        $19,695
                                                                                                      =======================


12. A sufficient amount of liquid assets has been designated to cover
outstanding written call options, as follows:

                                                    CONTRACTS        EXPIRATION     EXERCISE           PREMIUM          VALUE
                                              SUBJECT TO CALL              DATE         RATE          RECEIVED     SEE NOTE 1
- -----------------------------------------------------------------------------------------------------------------------------

New Zealand (Government of) Bonds, 7% 7/15/09             945NZD         3/7/05         5.95%NZD      $  2,661        $   444


13. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.

14. Interest or dividend is paid-in-kind.

15. Received as the result of issuer reorganization.

16. Interest rate represents a weighted average rate comprised of the interest
rates of the underlying securities.

17. The Fund may have elements of risk due to concentrated investments. Such
concentrations may subject the Fund to additional risks.

18. The security has been segregated to satisfy the forward commitment to return
the cash collateral received in securities lending transactions upon the
borrower's return of the securities loaned. See Note 12 of Notes to Financial
Statements.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------


- ---------------------------------------------------------------------------------------------------------------------

ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Investments, at value (including cost and market value of $$86,024,000 in repurchase agreements)
(including securities loaned of $44,013,349) (cost $874,296,742)--see accompanying
statement of investments                                                                             $   920,922,629
- ---------------------------------------------------------------------------------------------------------------------
Cash                                                                                                       2,055,902
- ---------------------------------------------------------------------------------------------------------------------
Collateral for securities loaned                                                                          29,980,833
- ---------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency contracts                                                      3,540,592
- ---------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $12,465,550 sold on a when-issued basis or forward commitment)                12,692,922
Interest, dividends and principal paydowns                                                                10,583,665
Shares of beneficial interest sold                                                                         3,295,957
Futures margins                                                                                               33,583
Other                                                                                                          9,827
                                                                                                     ----------------
Total assets                                                                                             983,115,910

- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------------------------------
Bank overdraft-foreign currencies (cost $96,882)                                                              96,964
- ---------------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $8,018)--see accompanying statement of investments               20,139
- ---------------------------------------------------------------------------------------------------------------------
Swaptions written, at value (premiums received $94,462)                                                       70,869
- ---------------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned                                                                44,858,831
- ---------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency contracts                                                      3,277,300
- ---------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts                                                                  1,458,503
- ---------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased on a when-issued basis or forward commitment                                        73,731,367
Closed foreign currency contracts                                                                          1,588,757
Shares of beneficial interest redeemed                                                                       147,125
Distribution and service plan fees                                                                           133,244
Shareholder communications                                                                                    34,768
Trustees' compensation                                                                                        14,921
Transfer and shareholder servicing agent fees                                                                  1,705
Other                                                                                                         61,111
                                                                                                     ----------------
Total liabilities                                                                                        125,495,604

- ---------------------------------------------------------------------------------------------------------------------
NET ASSETS                                                                                           $   857,620,306
                                                                                                     ================

- ---------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                                           $       164,032
- ---------------------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                                               797,449,500
- ---------------------------------------------------------------------------------------------------------------------
Accumulated net investment income                                                                         39,051,911
- ---------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions                           (24,499,421)
- ---------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies                                                                         45,454,284
                                                                                                     ----------------
NET ASSETS                                                                                           $   857,620,306
                                                                                                     ================

- ---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ---------------------------------------------------------------------------------------------------------------------
Non-Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $614,915,045 and 118,133,764 shares of beneficial interest outstanding)      $          5.21
- ---------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $242,705,261 and 45,898,401 shares of beneficial interest outstanding)       $          5.29


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------------------------------
Interest                                                                                             $    35,831,510
- ---------------------------------------------------------------------------------------------------------------------
Fee income                                                                                                 1,811,978
- ---------------------------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $7,565)                                                       150,977
- ---------------------------------------------------------------------------------------------------------------------
Portfolio lending fees                                                                                        35,374
                                                                                                     ----------------
Total investment income                                                                                   37,829,839

- ---------------------------------------------------------------------------------------------------------------------
EXPENSES
- ---------------------------------------------------------------------------------------------------------------------
Management fees                                                                                            5,203,309
- ---------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares                                                           373,995
- ---------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares                                                                                            10,083
Service shares                                                                                                10,030
- ---------------------------------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares                                                                                            42,334
Service shares                                                                                                 8,511
- ---------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses                                                                                   92,792
- ---------------------------------------------------------------------------------------------------------------------
Trustees' compensation                                                                                        20,732
- ---------------------------------------------------------------------------------------------------------------------
Other                                                                                                         72,134
                                                                                                     ----------------
Total expenses                                                                                             5,833,920
Less reduction to custodian expenses                                                                         (21,553)
                                                                                                     ----------------
Net expenses                                                                                               5,812,367

- ---------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME                                                                                     32,017,472

- ---------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments (including premiums on options exercised)                                                      2,526,920
Closing of futures contracts                                                                                  28,864
Closing and expiration of option contracts written                                                           484,456
Closing and expiration of swaption contracts                                                                (326,048)
Foreign currency transactions                                                                              4,604,115
Swap contracts                                                                                               293,602
                                                                                                     ----------------
Net realized gain                                                                                          7,611,909
- ---------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments                                                                                               16,486,291
Translation of assets and liabilities denominated in foreign currencies                                    9,070,184
Futures contracts                                                                                             67,809
Option contracts                                                                                            (153,144)
Swaption contracts                                                                                            39,135
Swap contracts                                                                                              (502,851)
                                                                                                     ----------------
Net change in unrealized appreciation                                                                     25,007,424

- ---------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                                                 $    64,636,805
                                                                                                     ================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                                   2004               2003
- ------------------------------------------------------------------------------------------------------------------

OPERATIONS
- ------------------------------------------------------------------------------------------------------------------
Net investment income                                                           $   32,017,472    $    28,077,622
- ------------------------------------------------------------------------------------------------------------------
Net realized gain                                                                    7,611,909         13,639,276
- ------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)                                25,007,424         41,999,716
                                                                                ----------------------------------
Net increase in net assets resulting from operations                                64,636,805         83,716,614

- ------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares                                                                 (29,467,620)       (28,473,133)
Service shares                                                                      (5,049,740)          (842,251)

- ------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Non-Service shares                                                                  23,501,705        115,808,103
Service shares                                                                     152,771,336         66,753,974

- ------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
Total increase                                                                     206,392,486        236,963,307
- ------------------------------------------------------------------------------------------------------------------
Beginning of period                                                                651,227,820        414,264,513
                                                                                ----------------------------------
End of period (including accumulated net investment income of $39,051,911
and $32,618,798, respectively)                                                  $  857,620,306    $   651,227,820
                                                                                ==================================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,                2004              2003            2002            2001            2000
- -----------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period              $        5.05     $        4.57     $      4.62     $      4.69     $      4.97
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                       .22 1             .22             .29             .41             .41
Net realized and unrealized gain (loss)                     .20               .56             .03            (.19)           (.28)
                                                  ----------------------------------------------------------------------------------
Total from investment operations                            .42               .78             .32             .22             .13
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                       (.26)             (.30)           (.37)           (.29)           (.41)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                    $        5.21     $        5.05     $      4.57     $      4.62     $      4.69
                                                  =================================================================================

- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2                         8.67%            18.07%           7.44%           4.85%           2.63%
- -----------------------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)          $     614,915     $     571,445     $   406,126     $   351,686     $   304,562
- -----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                 $     584,878     $     472,213     $   374,519     $   330,711     $   289,923
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income                                      4.50%             5.61%           6.89%           8.78%           9.23%
Total expenses                                             0.74%             0.75%           0.79%           0.79%           0.79%
Expenses after payments and waivers and
reduction to custodian expenses                             N/A 4             N/A 4          0.78%            N/A 4           N/A 4
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                      88% 5            117%             65%            104%            104%


1. Per share amounts calculated based on the average shares outstanding during
the period.

2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

3. Annualized for periods of less than one full year.

4. Reduction to custodian expenses less than 0.01%.

5. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$959,649,113 and $973,488,511, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





SERVICE SHARES  YEAR ENDED DECEMBER 31,                   2004           2003          2002        2001 1
- ---------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period              $       5.13     $     4.67     $    4.73     $  4.64
- ---------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income                                      .19 2          .27           .03         .15
Net realized and unrealized gain (loss)                    .22            .49           .28        (.06)
                                                  -------------------------------------------------------
Total from investment operations                           .41            .76           .31         .09
- ---------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                      (.25)          (.30)         (.37)         --
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period                    $       5.29     $     5.13     $    4.67     $  4.73
                                                  =======================================================

- ---------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                        8.43%         17.16%         7.03%       1.94%
- ---------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)          $    242,705     $   79,782     $   8,138     $     4
- ---------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                 $    150,040     $   34,744     $   2,307     $     2
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income                                     3.82%          4.57%         5.40%       8.17%
Total expenses                                            0.99%          1.02%         1.06%       0.92%
Expenses after payments and waivers and
reduction to custodian expenses                            N/A 5          N/A 5        1.03%        N/A 5
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                     88% 6         117%           65%        104%


1. For the period from March 19, 2001 (inception of offering) to December 31,
2001.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

6. The portfolio turnover rate excludes purchase transactions and sales
transactions of To Be Announced (TBA) mortgage-related securities of
$959,649,113 and $973,488,511, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Strategic Bond Fund/VA (the Fund) is a separate series of
Oppenheimer Variable Account Funds (the Trust), an 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 principally derived from interest on debt securities. The Trust's
investment advisor is OppenheimerFunds, Inc. (the Manager).

      The Fund offers two classes of shares. Both classes are sold at their
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products. The class of shares designated as Service shares is subject to a
distribution and service plan. Both classes of shares have identical rights and
voting privileges with respect to the Fund in general and exclusive voting
rights on matters that affect that class alone. Earnings, net assets and net
asset value per share may differ due to each class having its own expenses, such
as transfer and shareholder servicing agent fees and shareholder communications,
directly attributable to that class.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
STRUCTURED NOTES. The Fund invests in structured notes whose market values,
interest rates and/or redemption prices are linked to the performance of
underlying foreign currencies, interest rate spreads, stock market indices,
prices of individual securities, commodities or other financial instruments or
the occurrence of other specific events. The structured notes are often
leveraged, increasing the volatility of each note's market value relative to the
change in the underlying linked financial element or event. Fluctuations in
value of these securities are recorded as unrealized gains and losses in the
accompanying financial statements. The Fund records a realized gain or loss when
a structured note is sold or matures. As of December 31, 2004, the market value
of these securities comprised 10.2% of the Fund's net assets and resulted in
unrealized cumulative gains of $5,027,560.

- --------------------------------------------------------------------------------
SECURITIES ON A WHEN-ISSUED BASIS OR FORWARD COMMITMENT. Delivery and payment
for securities that have been purchased by the Fund on a when-issued basis or
forward commitment can take place up to ten days or more after the trade date.
Normally the settlement date occurs within six months after the trade date;
however, the Fund may, from time to time, purchase securities whose settlement
date extends six months or more beyond trade 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
internally designated assets with a market value equal to or greater than the
amount of its purchase commitments. The purchase of securities on a when-issued
basis or forward commitment may increase the volatility of the Fund's net asset
value to the extent the Fund executes such transactions while
remaining substantially fully invested. The Fund may also sell securities that
it purchased on a when-issued basis or forward commitment prior to settlement of
the original purchase. As of December 31, 2004, the Fund had purchased
$73,731,367 of securities on a when-issued basis or forward commitment and sold
$12,465,550 of securities issued on a when-issued basis or forward commitment.

      In connection with its ability to purchase or sell securities on a
when-issued basis, the Fund may enter into forward roll transactions with
respect to mortgage-related securities. Forward roll transactions require the
sale of securities for delivery in the current month, and a simultaneous
agreement with the same counterparty to repurchase similar (same type, coupon
and maturity) but not identical securities on a specified future date. The Fund
records the incremental difference between the forward purchase and sale of each
forward roll as realized gain (loss) on investments or as fee income in the case
of such transactions that have an associated fee in lieu of a difference in the
forward purchase and sale price.

      Risks of entering into forward roll transactions include the potential
inability of the counterparty to meet the terms of the agreement; the potential
of the Fund to receive inferior securities at redelivery as compared to the
securities sold to the counterparty; counterparty credit risk; and the potential
pay down speed variance between the mortgage-related pools.

- --------------------------------------------------------------------------------
SECURITY CREDIT RISK. The Fund invests in high-yield securities, which may be
subject to a greater degree of credit risk, market fluctuations and loss of
income and principal, and may be more sensitive to economic conditions than
lower-yielding, higher-rated fixed-income securities. The Fund may acquire
securities in default, and is not obligated to dispose of securities whose
issuers subsequently default. As of December 31, 2004, securities with an
aggregate market value of $4,866,448, representing 0.57% of the Fund's net
assets, were in default.

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

      Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

      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.

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis to each class of shares based upon the relative proportion of net
assets represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                                  NET UNREALIZED
                                                                    APPRECIATION
                                                                BASED ON COST OF
                                                                  SECURITIES AND
UNDISTRIBUTED    UNDISTRIBUTED                  ACCUMULATED    OTHER INVESTMENTS
NET INVESTMENT       LONG-TERM                         LOSS   FOR FEDERAL INCOME
INCOME                    GAIN   CARRYFORWARD 1,2,3,4,5,6,7         TAX PURPOSES
- --------------------------------------------------------------------------------
$40,140,664                $--                  $24,032,280          $44,353,647

1. As of December 31, 2004, the Fund had $21,566,899 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of December 31, 2004,
details of the capital loss carryforwards were as follows:

                            EXPIRING
                            -----------------------------
                            2007            $   4,546,599
                            2008                  253,735
                            2009                9,904,928
                            2010                6,861,637
                                            -------------
                            Total           $  21,566,899
                                            =============

2. As of December 31, 2004, the Fund had $478,895 of post-October losses
available to offset future realized capital gains, if any. Such losses, if
unutilized, will expire in 2013.

3. The Fund had $1,979,188 of post-October foreign currency losses which were
deferred.

4. The Fund had $1,918 of post-October passive foreign investment company losses
which were deferred.

5. The Fund had $5,380 of straddle losses which were deferred.

6. During the fiscal year ended December 31, 2004, the Fund utilized $1,200,449
of capital loss carryforward to offset capital gains realized in that fiscal
year.

7. During the fiscal year ended December 31, 2003, the Fund utilized $666,406 of
capital loss carryforward to offset capital gains realized in that fiscal year.

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

            INCREASE TO              INCREASE TO ACCUMULATED
            ACCUMULATED NET                NET REALIZED LOSS
            INVESTMENT INCOME                 ON INVESTMENTS
            ------------------------------------------------
            $8,933,001                            $8,933,001

The tax character of distributions paid during the years ended December 31, 2004
and December 31, 2003 was as follows:

                                              YEAR ENDED           YEAR ENDED
                                       DECEMBER 31, 2004    DECEMBER 31, 2003
            -----------------------------------------------------------------
            Distributions paid from:
            Ordinary income                  $34,517,360          $29,315,384





The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.

            Federal tax cost of securities                  $  875,097,377
            Federal tax cost of other investments              (35,019,525)
                                                            ---------------
            Total federal tax cost                          $  840,077,852
                                                            ===============

            Gross unrealized appreciation                   $   61,496,783
            Gross unrealized depreciation                      (17,143,136)
                                                            ---------------
            Net unrealized appreciation                     $   44,353,647
                                                            ===============

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.



- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST

The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:

                                            YEAR ENDED DECEMBER 31, 2004    YEAR ENDED DECEMBER 31, 2003
                                                 SHARES           AMOUNT         SHARES           AMOUNT
- ---------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                                         24,003,073    $ 119,433,508     46,663,574    $ 222,213,838
Dividends and/or distributions reinvested     6,088,351       29,467,620      6,471,166       28,473,133
Redeemed                                    (25,208,632)    (125,399,423)   (28,764,717)    (134,878,868)
                                            -------------------------------------------------------------
Net increase                                  4,882,792    $  23,501,705     24,370,023    $ 115,808,103
                                            =============================================================

- ---------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold                                         31,450,838    $ 158,302,695     14,341,848    $  69,419,263
Dividends and/or distributions reinvested     1,026,369        5,049,740        187,166          842,251
Redeemed                                     (2,125,979)     (10,581,099)      (725,688)      (3,507,540)
                                            -------------------------------------------------------------
Net increase                                 30,351,228    $ 152,771,336     13,803,326    $  66,753,974
                                            =============================================================


- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than U.S. government obligations and short-term obligations, for the year ended
December 31, 2004, were $461,469,057 and $348,803,252, respectively. There were
purchases of $188,816,133 and sales of $149,557,330 of U.S. government and
government agency obligations for the year ended December 31, 2004. In addition,
there were purchases of $959,649,113 and sales of $973,488,511 of To Be
Announced (TBA) mortgage-related securities for the year ended December 31,
2004.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Trust which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million, 0.60% on the next $200 million and 0.50% of average annual
net assets over $1 billion.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2004, the Fund paid
$20,075 to OFS for services to the Fund.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 per class for class level assets of $10
million or more. Each class is subject to the minimum fee in the event that the
per account fee does not equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN FOR SERVICE SHARES. The Fund has adopted a
Distribution and Service Plan for Service shares to pay OppenheimerFunds
Distributor, Inc. (the Distributor), for distribution related services and
personal service and account maintenance for the Fund's Service shares. Under
the Plan, payments are made quarterly at an annual rate of up to 0.25% of the
average annual net assets of Service shares of the Fund. The Distributor
currently uses all of those fees to compensate sponsor(s) of the insurance
product that offers Fund shares, for providing personal service and maintenance
of accounts of their variable contract owners that hold Service shares. The
impact of the service plan is to increase operating expenses of the Service
shares, which results in lower performance compared to the Fund's shares that
are not subject to a service fee. Fees incurred by the Fund under the Plan are
detailed in the Statement of Operations.





- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. OFS has voluntarily agreed to limit transfer
and shareholder servicing agent fees for all classes to 0.35% of average annual
net assets per class. This undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.

      The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.

      The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.

As of December 31, 2004, the Fund had outstanding foreign currency contracts as
follows:

                                                                         CONTRACT
                                                       EXPIRATION          AMOUNT      VALUATION AS OF     UNREALIZED     UNREALIZED
CONTRACT DESCRIPTION                                        DATES          (000S)        DEC. 31, 2004   APPRECIATION   DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
Argentine Peso (ARP)                                       2/2/05           3,375ARP   $     1,135,426   $     34,140   $         --
Australian Dollar (AUD)                                   1/21/05           3,700AUD         2,895,042         98,582             --
Brazilian Real (BRR)                               1/24/05-1/5/10          16,613BRR         6,773,392        692,000             --
British Pound Sterling (GBP)                              1/21/05           1,500GBP         2,875,473             --         15,027
Chilean Peso (CLP)                                        1/21/05         544,448CLP           979,661         39,661             --
Columbian Peso (COP)                               1/7/05-1/24/05       4,071,671COP         1,727,121         27,903             --
Czech Koruna (CZK)                                        4/22/05          31,700CZK         1,419,803        154,814             --
Euro (EUR)                                          3/2/05-4/1/05           9,390EUR        12,773,224        233,897             --
Indian Rupee (INR)                               11/9/05-12/20/05          43,280INR           983,430         23,106             --
Japanese Yen (JPY)                                3/15/05-3/31/05       4,184,500JPY        41,064,379      1,867,755             --
Mexican Nuevo Peso (MXN)                                   1/6/05          10,620MXN           951,676            318             --
New Zealand Dollar (NZD)                                  1/21/05           3,970NZD         2,860,055         49,295             --
Russian Ruble (RUR)                                      10/27/05          28,475RUR         1,012,819         37,314             --
Slovakia Koruna (SKK)                             2/18/05-3/21/05          57,110SKK         2,001,271         93,090             --
South Korean Won (KRW)                                    2/23/05         518,170KRW           499,985         12,983             --
Swedish Krona (SEK)                                       2/16/05          23,690SEK         3,566,562        150,891             --
Turkish Lira (TRL)                                       12/18/07           1,166TRL         1,163,905             --          2,443
                                                                                                         ---------------------------
                                                                                                            3,515,749         17,470
                                                                                                         ---------------------------
CONTRACTS TO SELL
Australian Dollar (AUD)                                    3/2/05           8,730AUD         6,810,313             --         81,851
Brazilian Real (BRR)                                       1/4/05             945BRR           355,262             --          5,355
British Pound Sterling (GBP)                        5/9/05-6/8/05           6,060GBP        11,544,808         24,843        425,528
Canadian Dollar (CAD)                                     2/24/05             330CAD           275,352             --         22,620
Columbian Peso (COP)                                      1/18/05       1,225,560COP           519,901             --          3,876
Euro (EUR)                                        2/18/05-6/08/05          37,815EUR        51,431,155             --      2,324,724
Japanese Yen (JPY)                                 1/20/05-6/8/05         955,800JPY         9,394,115             --        114,371
Norwegian Krone (NOK)                             1/20/05-2/16/05          38,300NOK         6,327,058             --        179,124
Swiss Franc (CHF)                                  1/20/05-4/1/05           7,590CHF         7,012,995             --         60,910
Turkish Lira (TRL)                                        6/21/05   1,760,669,590TRL         1,207,819             --         41,471
                                                                                                         ---------------------------
                                                                                                               24,843      3,259,830
                                                                                                         ---------------------------
Total unrealized appreciation and depreciation                                                           $  3,540,592   $  3,277,300
                                                                                                         ===========================



NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS

A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may buy and
sell futures contracts that relate to broadly based securities indices
(financial futures) or debt securities (interest rate futures) in order to gain
exposure to or protection from changes in market value of stocks and bonds or
interest rates. The Fund may also buy or write put or call options on these
futures contracts.

      The Fund generally sells futures contracts as a hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying securities.

      Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.

      Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations as the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported in the Statement of Operations.

      Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.

As of December 31, 2004, the Fund had outstanding futures contracts as follows:

                                                                                       UNREALIZED
                                      EXPIRATION   NUMBER OF     VALUATION AS OF     APPRECIATION
CONTRACT DESCRIPTION                       DATES   CONTRACTS   DECEMBER 31, 2004   (DEPRECIATION)
- --------------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
Japan (Government of) Bonds, 10 yr       3/10/05           1   $       1,350,249   $       (6,325)
NASDAQ 100 Index                         3/17/05          17           2,768,450           42,521
U.S. Long Bonds                          3/21/05         205          23,062,500           19,355
U.S. Treasury Nts., 10 yr                3/21/05         132          14,775,750           62,360
United Kingdom Long Gilt                 3/29/05           3             642,553            4,089
                                                                                   ---------------
                                                                                          122,000
                                                                                   ---------------
CONTRACTS TO SELL
CAC-40 10 Index                          3/18/05          22           1,144,556            2,698
DAX Index                                3/18/05           4             580,671           (1,326)
Euro-Bundesobligation                     3/8/05          13           2,095,514           13,355
FTSE 100 Index                           3/18/05          27           2,486,897          (31,159)
Japan (Government of) Bonds, 10 yr        3/9/05           5             675,222              927
Japan (Government of) Bonds, 10 yr       3/10/05           6           8,101,493            2,928
Nikkei 225 Index                         3/10/05          11           1,232,361          (72,997)
Standard & Poor's 500 Index              3/17/05          36          10,923,300         (157,363)
U.S. Long Bonds                          3/21/05         124          13,950,000          (29,185)
U.S. Treasury Nts., 2 yr                 3/31/05          70          14,671,563            4,242
U.S. Treasury Nts., 5 yr                 3/21/05         106          11,610,313          (63,909)
                                                                                   ---------------
                                                                                         (331,789)
                                                                                   ---------------
                                                                                   $     (209,789)
                                                                                   ===============


- --------------------------------------------------------------------------------
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. Contracts subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.

      The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.

Written option activity for the year ended December 31, 2004 was as follows:

                                                             CALL OPTIONS                    PUT OPTIONS
                                              ---------------------------    ----------------------------
                                                  PRINCIPAL/                     PRINCIPAL/
                                                   NUMBER OF    AMOUNT OF         NUMBER OF    AMOUNT OF
                                                   CONTRACTS     PREMIUMS         CONTRACTS     PREMIUMS
- ---------------------------------------------------------------------------------------------------------

Options outstanding as of December 31, 2003        9,765,000    $ 128,130       744,000,000    $ 138,880
Options written                                2,225,002,170      165,903       722,325,000      105,898
Options closed or expired                     (2,231,511,225)    (253,965)   (1,464,000,000)    (239,421)
Options exercised                                 (3,255,000)     (37,407)               --           --
                                              -----------------------------------------------------------
Options outstanding as of December 31, 2004              945    $   2,661         2,325,000    $   5,357
                                              ===========================================================


- --------------------------------------------------------------------------------
8. CREDIT SWAP CONTRACTS

The Fund may enter into a credit swap transaction to maintain a total return on
a particular investment or portion of its portfolio, or for other
non-speculative purposes. Because the principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as a notional principal amount. The Fund records an increase or
decrease to unrealized gain (loss), in the amount due to or owed by the Fund at
termination or settlement. Credit swaps are subject to credit risks (if the
counterparty fails to meet its obligations). The Fund pays an annual interest
fee on the notional amount in exchange for the counterparty paying in a
potential credit event.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
8. CREDIT SWAP CONTRACTS Continued

During the year ended December 31, 2004, the Fund entered into transactions to
hedge credit risk. Information regarding the credit swaps is as follows:

                                                                                                         UNREALIZED
                                                     EXPIRATION       NOTIONAL     VALUATION AS OF      APPRECIATION
CONTRACT DESCRIPTION                                      DATES         AMOUNT   DECEMBER 31, 2004    (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
Citigroup Global Markets Ltd.,
Venezuela (Republic of) Credit Nts.                    11/20/09    $ 6,350,000   $        (257,398)   $     (257,398)
Deutsche Bank AG:
Export-Import Bank of Korea Credit Bonds                6/20/09        780,000             (10,452)          (10,452)
Korea Deposit Insurance Corp. Credit Bonds              6/20/09        780,000             (10,374)          (10,374)
Korea Development Bank Credit Bonds                     6/20/09        780,000             (10,140)          (10,140)
Korea Electric Power Corp. Credit Bonds                 6/20/09        780,000             (10,686)          (10,686)
Philippines (Republic of) 10 yr. Credit Bonds           7/25/13        930,000              26,435            26,435
Samsung Electronic Co. Ltd. Credit Bonds                6/20/09        780,000              (9,828)           (9,828)
United Mexican States Credit Bonds                      9/20/13      1,235,000             (80,794)          (80,794)
Venezuela (Republic of) Credit Bonds                   10/20/09      4,715,000            (311,128)         (311,128)
JPMorgan Chase Bank:
Export-Import Bank of Korea Credit Bonds                6/20/09        390,000              (8,522)           (8,522)
Jordan (Kingdom of) Credit Nts.                          6/6/06        250,000                (752)             (752)
Korea Deposit Insurance Corp. Credit Bonds              6/20/09        390,000              (8,374)           (8,374)
Korea Development Bank Credit Bonds                     6/20/09        390,000              (8,358)           (8,358)
Korea Electric Power Co. Credit Bonds                   6/20/09        390,000              (8,942)           (8,942)
Russian Federation Credit Bonds                         10/9/13        730,000             (41,855)          (41,855)
Samsung Electronics Co. Ltd. Credit Bonds               6/20/09        390,000              (8,457)           (8,457)
Lehman Brothers Special Financing, Inc.:
Brazil (Federal Republic of) Credit Bonds               8/20/09      3,000,000            (464,999)         (464,999)
Turkey (Republic of) Credit Bonds                      11/11/09      1,850,000              (7,189)           (7,189)
Morgan Stanley Capital Services, Inc.:
Brazil (Federal Republic of) Credit Bonds               8/20/09      2,440,000            (377,069)         (377,069)
Hungary (Republic of) Credit Bonds                      12/2/13      1,880,000             (41,014)          (41,014)
Panama (Republic of) Credit Bonds                      11/20/14      1,730,000            (106,672)         (106,672)
Philippines (Republic of) Credit Bonds                  6/20/09      1,135,000             (17,102)          (17,102)
Philippines (Republic of) 5 yr. Credit Bonds            9/20/09        950,000              (5,696)           (5,696)
Venezuela (Republic of) Credit Bonds            8/20/06-2/20/14      5,050,000            (437,023)         (437,023)
UBS AG:
Brazil (Federal Republic of)
Credit Bonds                                           10/20/09        900,000             (65,111)          (65,111)
Russian Federation Credit Bonds                 11/2/14-11/5/14      3,825,000            (163,083)         (163,083)
Venezuela (Republic of) Credit Bonds            8/20/06-6/20/14      5,685,000            (798,858)         (798,858)
                                                                                                      ---------------
                                                                                                      $   (3,243,441)
                                                                                                      ===============


- --------------------------------------------------------------------------------
9. INTEREST RATE SWAP CONTRACTS

The Fund may enter into an interest rate swap transaction to maintain a total
return or yield spread on a particular investment, or portion of its portfolio,
or for other non-speculative purposes. Interest rate swaps involve the exchange
of commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The coupon payments are based on an agreed
upon principal amount and a specified index. Because the principal amount is not
exchanged, it represents neither an asset nor a liability to either
counterparty, and is referred to as notional. The Fund records an increase or
decrease to unrealized gain (loss), in the amount due to or owed by the Fund at
termination or settlement.

      Interest rate swaps are subject to credit risk (if the counterparty fails
to meet its obligations) and interest rate risk. The Fund could be obligated to
pay more under its swap agreements than it receives under them, as a result of
interest rate changes.





As of December 31, 2004, the Fund had entered into the following interest rate
swap agreements:

                                             FIXED RATE   FLOATING RATE
                                                PAID BY     RECEIVED BY                                    UNREALIZED
                            NOTIONAL        THE FUND AT     THE FUND AT      FLOATING   TERMINATION      APPRECIATION
SWAP COUNTERPARTY             AMOUNT      DEC. 31, 2004   DEC. 31, 2004    RATE INDEX         DATES    (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------

Deutsche Bank AG          74,350,000INR            4.88%           4.50%          IRS       1/15/09    $       66,467
                                                                          Three-Month
Deutsche Bank AG           3,185,000             3.1025            1.82    LIBOR flat        3/4/08            32,431
Deutsche Bank AG          55,240,000              2.585            1.04   90-day CPTW       8/19/09            (1,061)
                                                                          Three-Month
Deutsche Bank AG          10,000,000            2.27625            5.32     LIBOR BBA       5/12/14           582,127
                                                                            Six-Month
JPMorgan Chase Bank          880,000EUR           3.135            2.081   LIBOR flat       7/14/08           (13,503)
                                                                            Six-Month
JPMorgan Chase Bank      245,400,000HUF            9.13            7.00    LIBOR flat       7/14/08           (74,862)
                                                                               28 Day
JPMorgan Chase Bank       14,620,000MXN            9.10           10.88      MXN TIIE      11/16/14            16,172
                                                                          Three-Month
JPMorgan Chase Bank        6,625,000              3.052            1.86    LIBOR flat       3/10/08           111,767
                                                                          Three-Month
JPMorgan Chase Bank       50,000,000               2.21          4.0725     LIBOR BBA        5/6/09           417,937
                                                                          Three-Month
JPMorgan Chase Bank       35,000,000               1.70           4.985     LIBOR BBA        5/6/14         1,144,347
                                                                          Three-Month
JPMorgan Chase Bank       25,000,000               4.24            1.65         LIBOR       7/23/09          (648,784)
                                                                          Three-Month
JPMorgan Chase Bank        1,820,000               2.13            4.94     LIBOR BBA       4/30/14            55,137
Morgan Stanley Capital                                                    Three-Month
Services, Inc.            13,000,000               3.82            2.26    LIBOR flat      11/10/08           (27,411)
Morgan Stanley Capital                                                    Three-Month
Services, Inc.            22,000,000               2.32            1.71    LIBOR flat      11/10/05           124,174
                                                                                                       ---------------
                                                                                                       $    1,784,938
                                                                                                       ===============


Notional amount is reported in U.S. Dollars, except for those denoted in the
following currencies. Index abbreviations and currencies are as follows:

EUR         Euro
HUF         Hungarian Forint
INR         Indian Rupee
MXN         Mexican Nuevo Peso
BBA         British Bankers Association
CPTW        Bloomberg Taiwan Secondary Commercial Papers
IRS         India Swap Composites
LIBOR       London-Interbank Offered Rate
LIBOR BBA   London-Interbank Offered Rate British Bankers Association
TIIE        Interbank Equilibrium Interest Rate

- --------------------------------------------------------------------------------
10. SWAPTION TRANSACTIONS

The Fund may enter into a swaption transaction, whereby a contract that grants
the holder, in return for payment of the purchase price (the "premium") of the
option, the right, but not the obligation, to enter into an interest rate swap
at a preset rate within a specified period of time, with the writer of the
contract. The writer receives premiums and bears the risk of unfavorable changes
in the preset rate on the underlying interest rate swap. Swaption contracts
written by the Fund do not give rise to counterparty credit risk as they
obligate the Fund, not its counterparty, to perform. Swaptions written are
reported as a liability in the Statement of Assets and Liabilities.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
10. SWAPTION TRANSACTIONS Continued

Written swaption activity for the year ended December 31, 2004 was as follows:

                                                          CALL SWAPTIONS               PUT SWAPTIONS
                                                ------------------------    -------------------------
                                                   NOTIONAL    AMOUNT OF       NOTIONAL    AMOUNT OF
                                                     AMOUNT     PREMIUMS         AMOUNT     PREMIUMS
- -----------------------------------------------------------------------------------------------------

Swaptions outstanding as of December 31, 2003            --    $      --      2,220,000    $  19,758
Swaptions written                                22,660,000      240,122     19,060,000       77,390
Swaptions closed or expired                     (15,990,000)    (174,120)   (10,820,000)     (48,930)
Swaptions exercised                                      --           --     (2,220,000)     (19,758)
                                                -----------------------------------------------------
Swaptions outstanding as of December 31, 2004     6,670,000    $  66,002      8,240,000    $  28,460
                                                =====================================================


As of December 31, 2004, the Fund had entered into the following swaption
contracts:

                               NOTIONAL      EXPIRATION    EXERCISE        PREMIUM         VALUE
SWAPTIONS                        AMOUNT           DATES        RATE       RECEIVED    SEE NOTE 1
- ------------------------------------------------------------------------------------------------

British Pound Sterling Call   6,670,000GBP      3/29/05       4.792%GBP   $ 66,002    $   49,504
Deutsche Bank AG Put          8,240,000AUD       2/3/05       5.685%AUD     28,460        21,365
                                                                          ----------------------
                                                                          $ 94,462    $   70,869
                                                                          ======================


Notional amount and exercise price are denoted in the following currencies:

AUD         Australian Dollar
GBP         British Pound Sterling

- --------------------------------------------------------------------------------
11. ILLIQUID OR RESTRICTED SECURITIES AND CURRENCY

As of December 31, 2004, investments in securities included issues that are
illiquid or restricted. Restricted securities are purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. The Fund will not invest more than 15% of
its net assets (determined at the time of purchase and reviewed periodically) in
illiquid or restricted securities. Certain restricted securities, eligible for
resale to qualified institutional investors, are not subject to that limitation.
Information concerning restricted securities and currency is as follows:

                                                            ACQUISITION                  VALUATION AS OF      UNREALIZED
SECURITY                                                          DATES        COST    DECEMBER 31, 2004    DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------------

Geotek Communications, Inc., Series B, Escrow Shares             1/4/01    $    840             $     --        $    840
Prandium, Inc.                                          3/19/99-9/25/02     284,000                  266         283,734

CURRENCY
Argentine Peso                                                  6/25/04      70,732               70,392             340


- --------------------------------------------------------------------------------
12. SECURITIES LENDING

The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of US
Treasury obligations or cash, against the loaned securities and maintains
collateral in an amount not less than 100% of the market value of the loaned
securities during the period of the loan. The market value of the loaned
securities is determined at the close of business of the funds and any
additional required collateral is delivered to the Fund on the next business
day. If the borrower defaults on its obligation to return the securities loaned
because of insolvency or other reasons, the Fund could experience delays and
cost in recovering the securities loaned or in gaining access to the collateral.
Cash collateral is invested in cash equivalents. The Fund retains a portion of
the interest earned from the collateral. The Fund also continues to receive
interest or dividends paid on the securities loaned. As of December 31, 2004,
the Fund had on loan securities valued at $44,013,349. Cash of $44,858,831 was
received as collateral for the loans, of which $14,877,998 was invested in
approved instruments.




- --------------------------------------------------------------------------------
13. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER VALUE FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Value Fund/VA, a series of Oppenheimer Variable Account Funds,
including the statement of investments, as of December 31, 2004, and the related
statement of operations for the year then ended, the statements of changes in
net assets for the year then ended and the period from January 2, 2003
(commencement of operations) to December 31, 2003, and the financial highlights
for the periods presented. 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 the standards of the Public
Company Accounting Oversight Board (United States). 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 consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also 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, 2004, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
Additionally, an audit 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
Oppenheimer Value Fund/VA as of December 31, 2004, the results of its operations
for the year then ended, the changes in its net assets for the year then ended
and the period from January 2, 2003 (commencement of operations) to December 31,
2003, and the financial highlights for the periods presented, in conformity with
accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Denver, Colorado
February 11, 2005



STATEMENT OF INVESTMENTS  December 31, 2004
- --------------------------------------------------------------------------------

                                                                          VALUE
                                                          SHARES     SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--113.6%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--11.0%
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--1.2%
McDonald's Corp.                                           1,030   $      33,022
- --------------------------------------------------------------------------------
MEDIA--9.8%
Liberty Media Corp., Cl. A 1                              11,740         128,905
- --------------------------------------------------------------------------------
UnitedGlobalCom, Inc., Cl. A 1                            15,310         147,895
                                                                   -------------
                                                                         276,800

- --------------------------------------------------------------------------------
CONSUMER STAPLES--6.6%
- --------------------------------------------------------------------------------
TOBACCO--6.6%
Altria Group, Inc.                                         3,040         185,744
- --------------------------------------------------------------------------------
ENERGY--10.7%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & Services--1.7%
Halliburton Co.                                            1,240          48,658
- --------------------------------------------------------------------------------
OIL & GAS--9.0%
BP plc, ADR                                                2,720         158,848
- --------------------------------------------------------------------------------
Kinder Morgan, Inc.                                          330          24,133
- --------------------------------------------------------------------------------
LUKOIL, Sponsored ADR                                        300          36,750
- --------------------------------------------------------------------------------
Petroleo Brasileiro SA, ADR                                  800          31,824
                                                                   -------------
                                                                         251,555

- --------------------------------------------------------------------------------
FINANCIALS--29.7%
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--8.5%
Bank of America Corp.                                      2,988         140,406
- --------------------------------------------------------------------------------
Wells Fargo & Co.                                          1,570          97,576
                                                                   -------------
                                                                         237,982

- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--14.0%
Citigroup, Inc.                                            3,330         160,439
- --------------------------------------------------------------------------------
Franklin Resources, Inc.                                   1,490         103,779
- --------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.                             1,500         131,220
                                                                   -------------
                                                                         395,438

- --------------------------------------------------------------------------------
INSURANCE--4.4%
Genworth Financial, Inc., Cl. A                              550          14,850
- --------------------------------------------------------------------------------
Platinum Underwriters Holdings Ltd.                          800          24,880
- --------------------------------------------------------------------------------
Prudential Financial, Inc.                                 1,540          84,638
                                                                   -------------
                                                                         124,368

- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--2.8%
Countrywide Financial Corp.                                  700          25,907
- --------------------------------------------------------------------------------
Freddie Mac                                                  710          52,327
                                                                   -------------
                                                                          78,234

- --------------------------------------------------------------------------------
HEALTH CARE--3.1%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--2.5%
Wyeth                                                      1,650          70,274
- --------------------------------------------------------------------------------
PHARMACEUTICALS--0.6%
Pfizer, Inc.                                                 600          16,134


                                                                          VALUE
                                                          SHARES     SEE NOTE 1
- --------------------------------------------------------------------------------
INDUSTRIALS--23.3%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--11.1%
Empresa Brasileira de Aeronautica
SA, ADR                                                    1,770   $      59,189
- --------------------------------------------------------------------------------
Honeywell International, Inc.                              4,200         148,722
- --------------------------------------------------------------------------------
Raytheon Co.                                               2,710         105,229
                                                                   -------------
                                                                         313,140

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & Supplies--5.0%
Cendant Corp.                                              5,990         140,046
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--7.2%
General Electric Co.                                       3,440         125,560
- --------------------------------------------------------------------------------
Tyco International Ltd.                                    2,180          77,913
                                                                   -------------
                                                                         203,473

- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--13.4%
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--5.8%
International Business Machines Corp.                      1,670         164,629
- --------------------------------------------------------------------------------
SOFTWARE--7.6%
Compuware Corp. 1                                          2,900          18,763
- --------------------------------------------------------------------------------
Microsoft Corp.                                            1,200          32,052
- --------------------------------------------------------------------------------
Novell, Inc. 1                                             4,800          32,400
- --------------------------------------------------------------------------------
Synopsys, Inc. 1                                           1,400          27,468
- --------------------------------------------------------------------------------
Take-Two Interactive Software, Inc. 1                      2,960         102,978
                                                                   -------------
                                                                         213,661

- --------------------------------------------------------------------------------
MATERIALS--5.0%
- --------------------------------------------------------------------------------
CHEMICALS--2.4%
Praxair, Inc.                                              1,490          65,784
- --------------------------------------------------------------------------------
METALS & MINING--2.6%
Alcan, Inc.                                                  300          14,712
- --------------------------------------------------------------------------------
Inco Ltd. 1                                                1,060          38,987
- --------------------------------------------------------------------------------
Phelps Dodge Corp.                                           200          19,784
                                                                   -------------
                                                                          73,483

- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--4.6%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--4.6%
IDT Corp., Cl.B 1                                          4,280          66,254
- --------------------------------------------------------------------------------
Verizon Communications, Inc.                               1,580          64,006
                                                                   -------------
                                                                         130,260

- --------------------------------------------------------------------------------
UTILITIES--6.2%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--4.9%
AES Corp. (The) 1                                          7,040          96,237
- --------------------------------------------------------------------------------
PG&E Corp. 1                                                 980          32,614
- --------------------------------------------------------------------------------
Reliant Energy, Inc. 1                                       700           9,553
                                                                   -------------
                                                                         138,404




STATEMENT OF INVESTMENTS  Continued
- --------------------------------------------------------------------------------

                                                                          VALUE
                                                          SHARES     SEE NOTE 1
- --------------------------------------------------------------------------------
GAS UTILITIES--1.3%
Sempra Energy                                                970   $     35,580

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE

(COST $2,513,881)                                          113.6%     3,196,669
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS
OF OTHER ASSETS                                            (13.6)      (382,139)
                                                    ----------------------------
NET ASSETS                                                 100.0%  $  2,814,530
                                                    ============================

FOOTNOTE TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF ASSETS AND LIABILITIES  December 31, 2004
- --------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------
Investments, at value (cost $2,513,881)--see accompanying statement of investments     $     3,196,669
- -------------------------------------------------------------------------------------------------------
Cash                                                                                           119,161
- -------------------------------------------------------------------------------------------------------
Receivables and other assets:
Dividends                                                                                        4,664
Other                                                                                            1,477
                                                                                       ----------------
Total assets                                                                                 3,321,971

- -------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Dividends                                                                                      459,831
Investments purchased                                                                           26,088
Shareholder communications                                                                       6,203
Trustees' compensation                                                                           2,640
Other                                                                                           12,679
                                                                                       ----------------
Total liabilities                                                                              507,441

- -------------------------------------------------------------------------------------------------------
NET ASSETS                                                                             $     2,814,530
                                                                                       ================

- -------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest                                             $           230
- -------------------------------------------------------------------------------------------------------
Additional paid-in capital                                                                   2,132,982
- -------------------------------------------------------------------------------------------------------
Accumulated net investment loss                                                                 (1,470)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments                                                     682,788
                                                                                       ----------------
NET ASSETS--applicable to 229,559 shares of beneficial interest outstanding            $     2,814,530
                                                                                       ================

- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, REDEMPTION PRICE PER SHARE AND OFFERING PRICE PER SHARE               $         12.26


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENT OF OPERATIONS  For the Year Ended December 31, 2004
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $564)                $    57,968
- --------------------------------------------------------------------------------
Interest                                                                    811
                                                                    ------------
Total investment income                                                  58,779

- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees                                                          25,294
- --------------------------------------------------------------------------------
Legal, auditing and other professional fees                              17,638
- --------------------------------------------------------------------------------
Shareholder communications                                                8,574
- --------------------------------------------------------------------------------
Trustees' compensation                                                    4,669
- --------------------------------------------------------------------------------
Custodian fees and expenses                                                  73
- --------------------------------------------------------------------------------
Other                                                                     5,289
                                                                    ------------
Total expenses                                                           61,537
Less reduction to custodian expenses                                        (11)
                                                                    ------------
Net expenses                                                             61,526

- --------------------------------------------------------------------------------
NET INVESTMENT LOSS                                                      (2,747)

- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------
Net realized gain on investments                                        462,480
- --------------------------------------------------------------------------------
Net change in unrealized appreciation on investments                    (56,226)

- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                $   403,507
                                                                    ============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31,                                                             2004             2003 1
- -----------------------------------------------------------------------------------------------------------

OPERATIONS
- -----------------------------------------------------------------------------------------------------------
Net investment income (loss)                                              $       (2,747)    $        8,769
- -----------------------------------------------------------------------------------------------------------
Net realized gain                                                                462,480            123,023
- -----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)                             (56,226)           739,014
                                                                          ---------------------------------
Net increase in net assets resulting from operations                             403,507            870,806

- -----------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------
Dividends from net investment income--Non-Service shares                         (10,068)                --
- -----------------------------------------------------------------------------------------------------------
Distributions from net realized gain--Non-Service shares                        (584,853)                --

- -----------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest
  transactions--Non-Service shares                                              (864,862)         3,000,000

- -----------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------
Total increase (decrease)                                                     (1,056,276)         3,870,806
- -----------------------------------------------------------------------------------------------------------
Beginning of period                                                            3,870,806                 --
                                                                          ---------------------------------
End of period (including accumulated net investment income (loss) of
 $(1,470) and $8,769, respectively)                                       $    2,814,530     $    3,870,806
                                                                          =================================


1. For the period from January 2, 2003 (commencement of operations) to December
31, 2003.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES  YEAR ENDED DECEMBER 31,                                         2004             2003 1
- --------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period                                      $        12.90     $        10.00
- --------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss)                                                        (.01) 2             .03
Net realized and unrealized gain                                                    1.82               2.87
                                                                          ------------------------------------
Total from investment operations                                                    1.81               2.90
- --------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income                                                (.03)                --
Distributions from net realized gain                                               (2.42)                --
                                                                          ------------------------------------
Total dividends and/or distributions
to shareholders                                                                    (2.45)                --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                            $        12.26     $        12.90
                                                                          ====================================

- --------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3                                                 14.50%             29.00%
- --------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands)                                  $        2,815     $        3,871
- --------------------------------------------------------------------------------------------------------------
Average net assets (in thousands)                                         $        3,370     $        3,205
- --------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income (loss)                                                       (0.08)%             0.27%
Total expenses                                                                      1.82% 5            1.39% 5
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover rate                                                              100%               120%


1. For the period from January 2, 2003 (commencement of operations) to December
31, 2003.

2. Per share amounts calculated based on the average shares outstanding during
the period.

3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for
periods less than one full year. Total return information does not reflect
expenses that apply at the separate account level or to related insurance
products. Inclusion of these charges would reduce the total return figures for
all periods shown. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.

4. Annualized for periods of less than one full year.

5. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.





NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Value Fund/VA (the Fund) is a separate series of Oppenheimer
Variable Account Funds (the Trust), an 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 growth of capital by investing
primarily in common stocks with low price-earnings ratios and
better-than-anticipated earnings. The Trust's investment advisor is
OppenheimerFunds, Inc. (the Manager). As of December 31, 2004, the majority of
the Non-Service shares were owned by the Manager.

      The Fund currently offers Non-Service shares only. The class is sold at
offering price, which is the net asset value per share, to separate investment
accounts of participating insurance companies as an underlying investment for
variable life insurance policies, variable annuity contracts or other investment
products.

      The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of The New York Stock Exchange (the Exchange), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities listed
or traded on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the last sale price of the security traded on that exchange
prior to the time when the Fund's assets are valued. Securities traded on NASDAQ
are valued based on the closing price provided by NASDAQ prior to the time when
the Fund's assets are valued. In the absence of a sale, the security is valued
at the last sale price on the prior trading day, if it is within the spread of
the closing bid and asked prices, and if not, at the closing bid price.
Corporate, government and municipal debt instruments having a remaining maturity
in excess of 60 days and all mortgage-backed securities will be valued at the
mean between the "bid" and "asked" prices. Securities may be valued primarily
using dealer-supplied valuations or a portfolio pricing service authorized by
the Board of Trustees. Securities (including restricted securities) for which
market quotations are not readily available are valued at their fair value.
Foreign and domestic securities whose values have been materially affected by
what the Manager identifies as a significant event occurring before the Fund's
assets are valued but after the close of their respective exchanges will be fair
valued. Fair value is determined in good faith using consistently applied
procedures under the supervision of the Board of Trustees. Short-term "money
market type" debt securities with remaining maturities of sixty days or less are
valued at amortized cost (which approximates market value).

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars as of the close of The New York Stock Exchange (the
Exchange), normally 4:00 P.M. Eastern time, on each day the Exchange is open for
business. Amounts related to the purchase and sale of foreign securities and
investment income are translated at the rates of exchange prevailing on the
respective dates of such transactions. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

      Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.

      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.

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

pledged as collateral for repurchase agreements are held by a custodian bank
until the agreements mature. Each agreement requires that the market value of
the collateral be sufficient to cover payments of interest and principal. In the
event of default by the other party to the agreement, retention of the
collateral may be subject to legal proceedings.

- --------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders. Therefore, no federal income or excise tax provisions are
required, however, during the year ended December 31, 2004, the Fund paid
federal excise tax of $1,754.

The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.

                                                            NET UNREALIZED
                                                              APPRECIATION
                                                          BASED ON COST OF
                                                            SECURITIES AND
      UNDISTRIBUTED     UNDISTRIBUTED    ACCUMULATED     OTHER INVESTMENTS
      NET INVESTMENT        LONG-TERM           LOSS    FOR FEDERAL INCOME
      INCOME                     GAIN   CARRYFORWARD          TAX PURPOSES
      --------------------------------------------------------------------
      $--                         $--            $--              $682,788

Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal 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 dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2004. Net assets of
the Fund were unaffected by the reclassifications.

                                                         REDUCTION TO
                                   REDUCTION TO       ACCUMULATED NET
              REDUCTION TO      ACCUMULATED NET         REALIZED GAIN
              PAID-IN CAPITAL   INVESTMENT LOSS        ON INVESTMENTS
              -------------------------------------------------------
              $1,926                     $2,576                  $650

The tax character of distributions paid during the year ended December 31, 2004
and the period ended December 31, 2003 was as follows:

                                        YEAR ENDED              PERIOD ENDED
                                 DECEMBER 31, 2004       DECEMBER 31, 2003 1
- ----------------------------------------------------------------------------
Distributions paid from:
Ordinary income                         $  305,198                       $--
Long-term capital gain                     289,723                        --
                                 -------------------------------------------
Total                                     $594,921                       $--
                                 ===========================================

1. For the period from January 2, 2003 (commencement of operations) to December
31, 2003.

The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2004 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.



Federal tax cost of securities                 $  2,513,881
                                               =============
Gross unrealized appreciation                  $    692,064
Gross unrealized depreciation                        (9,276)
                                               -------------
Net unrealized appreciation                    $    682,788
                                               =============

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of trustees' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income per share. Amounts will be
deferred until distributed in accordance to the Plan.

- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. Income and capital gain distributions, if
any, are declared and paid annually.

- --------------------------------------------------------------------------------
INVESTMENT INCOME. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.

- --------------------------------------------------------------------------------
CUSTODIAN FEES. Custodian Fees and Expenses in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts at a rate equal to the Federal
Funds Rate plus 0.50%. The Reduction to Custodian Expenses line item, if
applicable, represents earnings on cash balances maintained by the Fund during
the period. Such interest expense and other custodian fees may be paid with
these earnings.

- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.

- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. 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 Trust has authorized an unlimited number of $0.001 par value shares of
beneficial interest. Transactions in shares of beneficial interest were as
follows:

                                              YEAR ENDED DECEMBER 31, 2004      PERIOD ENDED DECEMBER 31, 2003 1
                                                  SHARES            AMOUNT              SHARES            AMOUNT
- ----------------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold                                                  --        $       --             300,000      $  3,000,000
Dividends and/or distributions reinvested         10,679           135,090                  --                --
Redeemed                                         (81,120)         (999,952)                 --                --
                                              ------------------------------------------------------------------
Net increase (decrease)                          (70,441)       $ (864,862)            300,000      $  3,000,000
                                              ==================================================================


1. For the period from January 2, 2003 (commencement of operations) to December
31, 2003.





NOTES TO FINANCIAL STATEMENTS  Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended December 31, 2004, were
$3,336,459 and $4,347,469, respectively.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

MANAGEMENT FEES. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million and 0.60% of average annual net assets over $800 million.

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICES. The Fund pays the Manager a fee of $1,500 per year for
preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee.

      Additionally, funds offered in variable annuity separate accounts are
subject to minimum fees of $10,000 for assets of $10 million or more. The Fund
is subject to the minimum fee in the event that the per account fee does not
equal or exceed the applicable minimum fee.

- --------------------------------------------------------------------------------
PAYMENTS AND WAIVERS OF EXPENSES. OFS has voluntarily agreed to limit transfer
and shareholder servicing agent fees to 0.35% of average annual net assets of
the Fund. This undertaking may be amended or withdrawn at any time.

- --------------------------------------------------------------------------------
5. LITIGATION

A consolidated amended complaint has been filed as putative derivative and class
actions against the Manager, OFS and the Distributor (collectively, the
"Oppenheimer defendants"), as well as 51 of the Oppenheimer funds (as "Nominal
Defendants") excluding the Fund, 31 present and former Directors or Trustees and
9 present and former officers of the funds. This complaint, filed in the U.S.
District Court for the Southern District of New York on January 10, 2005,
consolidates into a single action and amends six individual previously-filed
putative derivative and class action complaints. Like those prior complaints,
the complaint alleges that the Manager charged excessive fees for distribution
and other costs, improperly used assets of the funds in the form of directed
brokerage commissions and 12b-1 fees to pay brokers to promote sales of the
funds, and failed to properly disclose the use of assets of the funds to make
those payments in violation of the Investment Company Act of 1940 and the
Investment Advisers Act of 1940. Also, like those prior complaints, the
complaint further alleges that by permitting and/or participating in those
actions, the Directors/Trustees and the Officers breached their fiduciary duties
to shareholders of the funds under the Investment Company Act of 1940 and at
common law. The complaint seeks unspecified compensatory and punitive damages,
rescission of the funds' investment advisory agreements, an accounting of all
fees paid, and an award of attorneys' fees and litigation expenses.

      The Oppenheimer defendants believe that the allegations contained in the
Complaints are without merit and that they, the funds named as Nominal
Defendants, and the Directors/Trustees of those funds have meritorious defenses
against the claims asserted. The Oppenheimer defendants intend to defend these
lawsuits vigorously and to contest any claimed liability, and they have retained
legal counsel to defend such suits. The Oppenheimer defendants believe that it
is premature to render any opinion as to the likelihood of an outcome
unfavorable to them and that no estimate can yet be made with any degree of
certainty as to the amount or range of any potential loss.

EX-99 6 sai4497.htm SAI - PART 4 OF 4 sai part 4

              Appendix A

         RATINGS DEFINITIONS

Below are summaries of the rating definitions used by the  nationally-recognized
rating agencies listed below.  Those ratings represent the opinion of the agency
as to the credit quality of issues that they rate. The summaries below are based
upon publicly available information provided by the rating organizations.

Moody's Investors Service, Inc. ("Moody's")

Long-Term Ratings: Bonds and Preferred Stock Issuer Ratings

Aaa:  Bonds and  preferred  stock rated "Aaa" are judged to be the best quality.
They  carry the  smallest  degree of  investment  risk.  Interest  payments  are
protected  by a large or by an  exceptionally  stable  margin and  principal  is
secure.  While the various protective elements are likely to change, the changes
that can be  expected  are most  unlikely  to impair  the  fundamentally  strong
position of such issues.

Aa: Bonds and preferred stock rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection  may not be as large  as with  "Aaa"  securities  or  fluctuation  of
protective  elements may be of greater  amplitude or there may be other elements
present which make the long-term risk appear  somewhat larger than that of "Aaa"
securities.

A:  Bonds and  preferred  stock  rated "A"  possess  many  favorable  investment
attributes and are to be considered as upper-medium grade  obligations.  Factors
giving  security to principal and interest are considered  adequate but elements
may be present which  suggest a  susceptibility  to impairment  some time in the
future.

Baa:  Bonds  and  preferred  stock  rated  "Baa"  are  considered   medium-grade
obligations;  that is, they are neither  highly  protected  nor poorly  secured.
Interest  payments and principal  security  appear  adequate for the present but
certain  protective  elements  may  be  lacking  or  may  be  characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and have speculative characteristics as well.

Ba:  Bonds  and  preferred  stock  rated  "Ba" are  judged  to have  speculative
elements. Their future cannot be considered  well-assured.  Often the protection
of interest and  principal  payments  may be very  moderate and thereby not well
safeguarded  during  both good and bad times  over the  future.  Uncertainty  of
position characterizes bonds in this class.

B: Bonds and preferred  stock rated "B" generally  lack  characteristics  of the
desirable  investment.  Assurance  of  interest  and  principal  payments  or of
maintenance  of other terms of the contract  over any long period of time may be
small.

Caa: Bonds and preferred stock rated "Caa" are of poor standing. Such issues may
be in  default  or there may be  present  elements  of danger  with  respect  to
principal or interest.

Ca:  Bonds and  preferred  stock  rated  "Ca"  represent  obligations  which are
speculative  in a high  degree.  Such  issues are often in default or have other
marked shortcomings.

C: Bonds and  preferred  stock rated "C" are the lowest class of rated bonds and
can be regarded as having  extremely  poor  prospects of ever attaining any real
investment standing.

Moody's  applies  numerical  modifiers  1,  2,  and  3 in  each  generic  rating
classification  from "Aa" through  "Caa." The modifier  "1"  indicates  that the
obligation ranks in the higher end of its generic rating category;  the modifier
"2" indicates a mid-range  ranking;  and the modifier "3" indicates a ranking in
the lower end of that generic rating category. Advanced refunded issues that are
secured by certain assets are identified with a # symbol.

Prime  Rating  System  (Short-Term  Ratings - Taxable  Debt)  These  ratings are
opinions of the ability of issuers to honor  senior  financial  obligations  and
contracts.  Such obligations  generally have an original  maturity not exceeding
one year, unless explicitly noted.

Prime-1:  Issuer has a superior ability for repayment of senior  short-term debt
obligations.

Prime-2:  Issuer has a strong  ability for repayment of senior  short-term  debt
obligations.  Earnings  trends and coverage  ratios,  while  sound,  may be more
subject to variation. Capitalization characteristics,  while appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.

Prime-3:  Issuer has an acceptable  ability for  repayment of senior  short-term
obligations.  The effect of industry characteristics and market compositions may
be more  pronounced.  Variability  in earnings and  profitability  may result in
changes in the level of debt protection  measurements and may require relatively
high financial leverage. Adequate alternate liquidity is maintained.

Not Prime: Issuer does not fall within any Prime rating category.

Standard amp; Poor's Ratings Services  ("Standard amp;  Poor's"),  a division of
The McGraw-Hill Companies, Inc.

Long-Term  Issue  Credit  Ratings  Issue  credit  ratings  are based in  varying
degrees, on the following  considerations:  o Likelihood of payment-capacity and
willingness of the obligor to meet its financial  commitment on an obligation in
accordance with the terms of the  obligation;  o Nature of and provisions of the
obligation;  and o  Protection  afforded  by,  and  relative  position  of,  the
obligation  in the event of  bankruptcy,  reorganization,  or other  arrangement
under the laws of bankruptcy and other laws  affecting  creditors'  rights.  The
issue ratings  definitions are expressed in terms of default risk. As such, they
pertain to senior  obligations of an entity.  Junior  obligations  are typically
rated  lower  than  senior  obligations,   to  reflect  the  lower  priority  in
bankruptcy, as noted above.

AAA: An obligation rated "AAA" have the highest rating assigned by Standard amp;
Poor's.  The  obligor's  capacity  to  meet  its  financial  commitment  on  the
obligation is extremely strong.

AA: An obligation  rated "AA" differ from the highest rated  obligations only in
small  degree.  The obligor's  capacity to meet its financial  commitment on the
obligation is very strong.

A: An obligation  rated "A" are somewhat more susceptible to the adverse effects
of  changes  in  circumstances  and  economic  conditions  than  obligations  in
higher-rated  categories.  However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB: An obligation rated "BBB" exhibit adequate protection parameters.  However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened  capacity  of the  obligor to meet its  financial  commitment  on the
obligation.

BB, B, CCC, CC, and C An obligation  rated `BB', `B',  `CCC',  `CC', and `C' are
regarded as having significant speculative  characteristics.  `BB' indicates the
least degree of speculation  and `C' the highest.  While such  obligations  will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.

BB: An  obligation  rated  "BB" are less  vulnerable  to  nonpayment  than other
speculative issues.  However,  they face major ongoing uncertainties or exposure
to adverse business,  financial,  or economic conditions which could lead to the
obligor's   inadequate  capacity  to  meet  its  financial   commitment  on  the
obligation.

B: An obligation  rated "B" are more vulnerable to nonpayment  than  obligations
rated "BB",  but the obligor  currently  has the capacity to meet its  financial
commitment  on  the  obligation.   Adverse  business,   financial,  or  economic
conditions will likely impair the obligor's  capacity or willingness to meet its
financial commitment on the obligation.

CCC: An obligation rated "CCC" are currently  vulnerable to nonpayment,  and are
dependent upon favorable  business,  financial,  and economic conditions for the
obligor to meet its  financial  commitment  on the  obligation.  In the event of
adverse business,  financial, or economic conditions,  the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.

CC: An obligation rated "CC" are currently highly vulnerable to nonpayment.

C:  Subordinated  debt or preferred  stock  obligations  rated "C" are currently
highly vulnerable to nonpayment. The "C" rating may be used to cover a situation
where a bankruptcy petition has been filed or similar action taken, but payments
on this  obligation  are  being  continued.  A "C" also  will be  assigned  to a
preferred stock issue in arrears on dividends or sinking fund payments, but that
is currently paying.

D: An obligation  rated "D" are in payment  default.  The "D" rating category is
used when  payments  on an  obligation  are not made on the date due even if the
applicable  grace period has not expired,  unless  Standard amp; Poor's believes
that such payments  will be made during such grace  period.  The "D" rating also
will be used upon the filing of a bankruptcy petition or the taking of a similar
action if payments on an obligation are jeopardized.

     The ratings  from "AA" to "CCC" may be  modified by the  addition of a plus
     (+) or minus (-) sign to show  relative  standing  within the major  rating
     categories.

     c: The `c' subscript is used to provide additional information to investors
     that the bank may terminate its  obligation to purchase  tendered  bonds if
     the  long-term  credit  rating of the  issuer is below an  investment-grade
     level and/or the issuer's bonds are deemed taxable.

     p: The letter `p' indicates that the rating is  provisional.  A provisional
     rating  assumes the  successful  completion of the project  financed by the
     debt being rated and indicates that payment of debt service requirements is
     largely or entirely dependent upon the successful, timely completion of the
     project. This rating,  however,  while addressing credit quality subsequent
     to completion of the project,  makes no comment on the likelihood of or the
     risk of  default  upon  failure of such  completion.  The  investor  should
     exercise his own judgment with respect to such likelihood and risk.

     Continuance of the ratings is contingent  upon Standard amp; Poor's receipt
     of an  executed  copy of the  escrow  agreement  or  closing  documentation
     confirming investments and cash flows.

     r: The `r' highlights  derivative,  hybrid,  and certain other  obligations
     that Standard amp;  Poor's  believes may experience high volatility or high
     variability in expected returns as a result of noncredit risks. Examples of
     such  obligations  are securities with principal or interest return indexed
     to equities,  commodities,  or currencies;  certain swaps and options;  and
     interest-only and principal-only mortgage securities. The absence of an `r'
     symbol should not be taken as an indication that an obligation will exhibit
     no volatility or variability in total return.

     N.R. Not rated.

     Debt  obligations of issuers  outside the United States and its territories
     are rated on the same basis as domestic corporate and municipal issues. The
     ratings  measure the  creditworthiness  of the obligor but do not take into
     account currency exchange and related uncertainties.

     Bond Investment Quality Standards

     Under present  commercial bank regulations issued by the Comptroller of the
     Currency,  bonds rated in the top four categories (`AAA', `AA', `A', `BBB',
     commonly  known as  investment-grade  ratings)  generally  are  regarded as
     eligible for bank  investment.  Also, the laws of various states  governing
     legal investments  impose certain rating or other standards for obligations
     eligible  for  investment  by savings  banks,  trust  companies,  insurance
     companies, and fiduciaries in general

     Short-Term Issue Credit Ratings  Short-term  ratings are generally assigned
     to those obligations  considered  short-term in the relevant market. In the
     U.S., for example,  that means  obligations with an original maturity of no
     more than 365 days-including commercial paper.

     A-1: A short-term  obligation  rated "A-1" is rated in the highest category
     by Standard  amp;  Poor's.  The  obligor's  capacity to meet its  financial
     commitment  on the  obligation  is strong.  Within this  category,  certain
     obligations  are  designated  with a plus sign (+). This indicates that the
     obligor's capacity to meet its financial commitment on these obligations is
     extremely strong.

     A-2: A short-term  obligation  rated "A-2" is somewhat more  susceptible to
     the adverse  effects of changes in  circumstances  and economic  conditions
     than  obligations  in higher  rating  categories.  However,  the  obligor's
     capacity  to  meet  its   financial   commitment   on  the   obligation  is
     satisfactory.

     A-3: A  short-term  obligation  rated "A-3"  exhibits  adequate  protection
     parameters.  However, adverse economic conditions or changing circumstances
     are more  likely to lead to a weakened  capacity of the obligor to meet its
     financial commitment on the obligation.

     B: A  short-term  obligation  rated "B" is regarded  as having  significant
     speculative characteristics. The obligor currently has the capacity to meet
     its financial commitment on the obligation; however, it faces major ongoing
     uncertainties which could lead to the obligor's inadequate capacity to meet
     its financial commitment on the obligation.

     C: A short-term  obligation rated "C" is currently vulnerable to nonpayment
     and  is  dependent  upon  favorable  business,   financial,   and  economic
     conditions  for  the  obligor  to  meet  its  financial  commitment  on the
     obligation.

     D: A short-term  obligation rated "D" is in payment default. The "D" rating
     category is used when  payments on an  obligation  are not made on the date
     due even if the applicable  grace period has not expired,  unless  Standard
     amp;  Poor's  believes  that such  payments  will be made during such grace
     period.  The "D" rating  also will be used upon the filing of a  bankruptcy
     petition or the taking of a similar action if payments on an obligation are
     jeopardized.

     Notes: A Standard amp;  Poor's note rating  reflects the liquidity  factors
     and market  access risks unique to notes.  Notes due in three years or less
     will likely receive a note rating.  Notes maturing  beyond three years will
     most likely receive a long-term debt rating. The following criteria will be
     used in making that  assessment:  o  Amortization  schedule-the  larger the
     final  maturity  relative to other  maturities,  the more likely it will be
     treated as a note; and o Source of payment-the  more dependent the issue is
     on the market for its refinancing,  the more likely it will be treated as a
     note.

     SP-1:  Strong capacity to pay principal and interest.  An issue with a very
     strong capacity to pay debt service is given a (+) designation.

     SP-2:  Satisfactory  capacity  to pay  principal  and  interest,  with some
     vulnerability  to adverse  financial and economic  changes over the term of
     the notes.

     SP-3: Speculative capacity to pay principal and interest.

     Fitch,  Inc.  International  credit  ratings  assess the  capacity  to meet
     foreign currency or local currency commitments. Both "foreign currency" and
     "local currency" ratings are internationally  comparable  assessments.  The
     local  currency  rating  measures  the  probability  of payment  within the
     relevant sovereign state's currency and jurisdiction and therefore,  unlike
     the foreign  currency  rating,  does not take account of the possibility of
     foreign exchange controls limiting transfer into foreign currency.

     International  Long-Term Credit Ratings The following ratings scale applies
     to foreign currency and local currency ratings.

     Investment Grade:

     AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
     credit risk.  They are assigned  only in the case of  exceptionally  strong
     capacity for timely  payment of  financial  commitments.  This  capacity is
     highly unlikely to be adversely affected by foreseeable events.

     AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
     credit risk.  They  indicate a very strong  capacity for timely  payment of
     financial  commitments.  This capacity is not  significantly  vulnerable to
     foreseeable events.

     A: High Credit  Quality.  "A" ratings  denote a low  expectation  of credit
     risk.  The  capacity  for  timely  payment  of  financial   commitments  is
     considered strong. This capacity may,  nevertheless,  be more vulnerable to
     changes in  circumstances  or in economic  conditions  than is the case for
     higher ratings.

     BBB: Good Credit Quality.  "BBB" ratings indicate that there is currently a
     low  expectation  of credit  risk.  The  capacity  for  timely  payment  of
     financial  commitments  is  considered  adequate,  but  adverse  changes in
     circumstances  and in  economic  conditions  are more likely to impair this
     capacity. This is the lowest investment-grade category.

Speculative Grade:

          BB: Speculative.  "BB" ratings indicate that there is a possibility of
          credit risk developing, particularly as the result of adverse economic
          change over time. However,  business or financial  alternatives may be
          available to allow financial  commitments to be met.  Securities rated
          in this category are not investment grade.

          B: Highly  Speculative.  "B" ratings indicate that significant  credit
          risk is present,  but a limited  margin of safety  remains.  Financial
          commitments are currently being met.  However,  capacity for continued
          payment  is  contingent  upon  a  sustained,  favorable  business  and
          economic environment.

          CCC, CC C: High Default Risk. Default is a real possibility.  Capacity
          for meeting  financial  commitments is solely reliant upon  sustained,
          favorable business or economic  developments.  A "CC" rating indicates
          that  default  of some  kind  appears  probable.  "C"  ratings  signal
          imminent default.

          DDD, DD, and D: Default.  The ratings of  obligations in this category
          are based on their prospects for achieving partial or full recovery in
          a  reorganization  or  liquidation  of  the  obligor.  While  expected
          recovery  values are highly  speculative  and cannot be estimated with
          any  precision,  the  following  serve as  general  guidelines.  "DDD"
          obligations have the highest  potential for recovery,  around 90%-100%
          of outstanding amounts and accrued interest.  "DD" indicates potential
          recoveries  in the  range  of  50%-90%,  and "D" the  lowest  recovery
          potential, i.e., below 50%.

          Entities rated in this category have defaulted on some or all of their
          obligations.  Entities  rated  "DDD"  have the  highest  prospect  for
          resumption of  performance  or continued  operation  with or without a
          formal  reorganization  process.  Entities  rated  "DD"  and  "D"  are
          generally  undergoing a formal  reorganization or liquidation process;
          those  rated  "DD" are  likely to  satisfy a higher  portion  of their
          outstanding obligations, while entities rated "D" have a poor prospect
          for repaying all obligations.

          Plus (+) and minus (-) signs  may be  appended  to a rating  symbol to
          denote  relative status within the major rating  categories.  Plus and
          minus signs are not added to the "AAA" category or to categories below
          "CCC," nor to short-term ratings other than "F1" (see below).

          International  Short-Term  Credit Ratings The following  ratings scale
          applies to foreign currency and local currency  ratings.  A short-term
          rating has a time horizon of less than 12 months for most obligations,
          or up to three  years for U.S.  public  finance  securities,  and thus
          places greater  emphasis on the liquidity  necessary to meet financial
          commitments in a timely manner.

          F1: Highest credit quality.  Strongest  capacity for timely payment of
          financial   commitments.   May  have  an  added  "+"  to  denote   any
          exceptionally strong credit feature.

          F2: Good credit quality. A satisfactory capacity for timely payment of
          financial commitments,  but the margin of safety is not as great as in
          the case of higher ratings.

          F3: Fair credit  quality.  Capacity  for timely  payment of  financial
          commitments  is adequate.  However,  near-term  adverse  changes could
          result in a reduction to non-investment grade.

          B:  Speculative.  Minimal  capacity  for timely  payment of  financial
          commitments,  plus  vulnerability  to  near-term  adverse  changes  in
          financial and economic conditions.

          C: High  default  risk.  Default is a real  possibility.  Capacity for
          meeting  financial  commitments  is solely  reliant  upon a sustained,
          favorable business and economic environment.

          D: Default. Denotes actual or imminent payment default.

          Dominion Bond Rating Service Limited ("DBRS")

          R-1:  Short  term debt rated "R-1  (high)"  is of the  highest  credit
          quality, and indicates an entity which possesses  unquestioned ability
          to repay current  liabilities as they fall due. Entities rated in this
          category  normally maintain strong liquidity  positions,  conservative
          debt levels and profitability  which is both stable and above average.
          Companies  achieving  an "R-1 (high)"  rating are normally  leaders in
          structurally  sound  industry  segments  with  proven  track  records,
          sustainable  positive  future  results and no  substantial  qualifying
          negative factors.  Given the extremely tough definition which DBRS has
          established  for an "R-1  (high)",  few entities are strong  enough to
          achieve  this  rating.  Short  term debt rated  "R-1  (middle)"  is of
          superior  credit quality and, in most cases,  ratings in this category
          differ from "R-1  (high)"  credits to only a small  degree.  Given the
          extremely  tough  definition  which  DBRS  has  for the  "R-1  (high)"
          category  (which few  companies are able to achieve),  entities  rated
          "R-1  (middle)" are also  considered  strong  credits which  typically
          exemplify  above average  strength in key areas of  consideration  for
          debt protection.  Short term debt rated "R-1 (low)" is of satisfactory
          credit  quality.  The overall  strength and outlook for key liquidity,
          debt and  profitability  ratios is not  normally as  favorable as with
          higher  rating   categories,   but  these   considerations  are  still
          respectable.   Any  qualifying   negative   factors  which  exist  are
          considered  manageable,  and the entity is normally of sufficient size
          to have some influence in its industry.

          R-2:  Short term debt rated  "R-2" is of adequate  credit  quality and
          within the three subset grades (high,  middle,  low),  debt protection
          ranges from having reasonable  ability for timely repayment to a level
          which is considered only just adequate.  The liquidity and debt ratios
          of entities in the "R-2"  classification are not as strong as those in
          the "R-1"  category,  and the past and future  trend may suggest  some
          risk of  maintaining  the  strength  of key  ratios  in  these  areas.
          Alternative sources of liquidity support are considered  satisfactory;
          however,  even the  strongest  liquidity  support will not improve the
          commercial  paper  rating of the  issuer.  The size of the  entity may
          restrict its flexibility, and its relative position in the industry is
          not  typically as strong as the "R-1  credit".  Profitability  trends,
          past and future,  may be less favorable,  earnings not as stable,  and
          there are often negative  qualifying  factors present which could also
          make the entity more  vulnerable  to adverse  changes in financial and
          economic conditions.







              Appendix B

INDUSTRY CLASSIFICATIONS (Oppenheimer Money Fund/VA)

Aerospace amp; Defense                 Industrial Conglomerates
Air Freight amp; Couriers              Insurance
Airlines                               Internet amp; Catalog Retail
Asset Backed Securities                Internet amp; Software amp; Services
Auto Components                        IT Services
Automobiles                            Leasing amp; Factoring
Beverages                              Leisure Equipment amp; Products
Biotechnology                          Machinery
Broker-Dealer                          Marine
Building Products                      Media
Capital Markets                        Metals amp; Mining
Chemicals                              Multiline Retail
Commercial Banks                       Multi-Utilities
Commercial Finance                     Municipal
Commercial Services amp; Supplies      Office Electronics
Communications Equipment               Oil amp; Gas
Computers amp; Peripherals             Paper amp; Forest Products
Construction amp; Engineering          Personal Products
Construction Materials                 Pharmaceuticals
Consulting amp; Services               Real Estate
Consumer Finance                       Repurchase Agreements
Containers amp; Packaging              Road amp; Rail
Distributors                           Semiconductor and Semiconductor Equipment
Diversified Financial Services         Software
Diversified Telecommunication          Special Purpose Financial
Electric Utilities                     Specialty Retail
Electrical Equipment                   Textiles, Apparel amp; Luxury Goods
Electronic Equipment amp; Instruments  Thrifts amp; Mortgage Finance
Energy Equipment amp; Services         Tobacco
Food amp; Drug Retailing               Trading Companies amp; Distributors
Food Products                          Transportation Infrastructure
Foreign Government                     U.S. Government Agencies-Full Faith and Credit
Gas Utilities                          U.S. Government Agencies-Government Sponsored
                                       Enterprises
Health Care Equipment amp; Supplies    U.S. Government Instrumentalities
Health Care Providers amp; Services    U.S. Government Obligations
Hotels Restaurants amp; Leisure        Water Utilities
Household Durables                     Wireless Transportation Services
Household Products



                                  Appendix C

    INDUSTRY CLASSIFICATIONS (all Funds except Oppenheimer Money Fund/VA)

Aerospace amp; Defense                 Household Products
Air Freight amp; Couriers              Industrial Conglomerates
Airlines                            Insurance
Auto Components                     Internet amp; Catalog Retail
Automobiles                         Internet Software amp; Services
Beverages                           IT Services
Biotechnology                       Leisure Equipment amp; Products
Building Products                   Machinery
Chemicals                           Marine
Consumer Finance                    Media
Commercial Banks                    Metals amp; Mining
Commercial Services amp; Supplies      Multiline Retail
Communications Equipment            Multi-Utilities
Computers amp; Peripherals             Office Electronics
Construction amp; Engineering          Oil amp; Gas
Construction Materials              Paper amp; Forest Products
Containers amp; Packaging              Personal Products
Distributors                        Pharmaceuticals
Diversified Financial Services      Real Estate
Diversified Telecommunication       Road amp; Rail
Services
Electric Utilities                  Semiconductors and Semiconductor
                                    Equipment
Electrical Equipment                Software
Electronic Equipment amp; Instruments  Specialty Retail
Energy Equipment amp; Services         Textiles, Apparel amp; Luxury Goods
Food amp; Staples Retailing            Thrifts amp; Mortgage Finance
Food Products                       Tobacco
Gas Utilities                       Trading Companies amp; Distributors
Health Care Equipment amp; Supplies    Transportation Infrastructure
Health Care Providers amp; Services    Water Utilities
Hotels Restaurants amp; Leisure        Wireless Telecommunication Services
Household Durables


                                  Appendix D

Major Shareholders. As of March 31, 2005 the total number of shares
outstanding, and the number of shares and approximate percentage of Fund
shares held of record by separate accounts of the following insurance
companies (and their respective subsidiaries) and by OppenheimerFunds, Inc.
("OFI") were as follows. ["*" indicates less than 5% of the outstanding
shares of that fund or class]:

Oppenheimer Variable Account
Funds
(consisting of 11 separate       Total Shares              Allmerica  Allstate
Funds)                            in the fund    Allianz   Financial  Financial
Aggressive Growth Fund/VA        26,781,056.324          *          *         *
Non-Service Shares

Aggressive Growth Fund/VA           603,238.283          *          *         *
Service Shares

Balanced Fund/VA                 32,450,812.347          *          *         *
Non-Service Shares

Balanced Fund/VA                  4,077,834.698          * 580,503.917        *
Service Shares
                                                               14.24%
Capital Appreciation Fund/VA     46,827,565.765          *                    *
Non-Service Shares

Capital Appreciation Fund/VA      7,385,080.732          * 507,274.107        *
Service Shares
                                                                6.87%
Core Bond Fund/VA                44,017,325.636          *          *         *
Non-Service Shares

Core Bond Fund/VA                   468,185.238          *          *         *
Service Shares

Global Securities Fund/VA        85,501,337.512 8,215,672.743       *         *
Non-Service Shares
                                                     9.61%
Global Securities Fund/VA        12,805,429.819          * 1,162,413.377      *
Service Shares
                                                                9.08%
Global Securities Fund/VA         9,613,031.055          *          *         *
Class 3 shares

Global Securities Fund/VA         1,625,936.088          *          *         *
Class 4 shares

High Income Fund/VA              54,637,269.586 5,310,746.846       *         *
Non-Service Shares
                                                     9.72%
High Income/VA                   15,825,669.459          * 3,367,162.723      *
Service Shares
                                                               21.28%
Main Street Fund/VA              58,105,140.430 9,063,829.785       *         *
Non-Service Shares
                                                    15.60%
Main Street Fund/VA              19,831,863.824          *          *         *
Service Shares

Main Street Small Cap Fund/VA     2,527,035.289          *          * 282,588.373
Non-Service Shares
                                                                         11.18%
Main Street Small Cap Fund/VA    11,988,173.961          *          *         *
Service Shares

Money Fund/VA                   189,404,895.300          *          *         *
Non-Service Shares

Strategic Bond Fund/VA          125,859,150.212          *          *         *
Non-Service Shares
                                              *
Strategic Bond Fund/VA           58,844,095.379          *          *         *
Service Shares
                                              *
Value Fund/VA                                 *          *          *         *
Non-Service Shares


Oppenheimer Variable Account
Funds                            Allstate
(consisting of 11 separate         Life     Allstate Life   American    American
Funds)                             of NY      Ins. Co.      Express     General
Aggressive Growth Fund/VA                 *             *            *          *
Non-Service Shares

Aggressive Growth Fund/VA        53,788.546   334,387.046            *          *
Service Shares
                                      8.92%        55.43%
Balanced Fund/VA                          *             *            *          *
Non-Service Shares

Balanced Fund/VA                337,941.382 2,218,853.805            *          *
Service Shares
                                      8.29%        54.41%
Capital Appreciation Fund/VA              *             *            *          *
Non-Service Shares

Capital Appreciation Fund/VA              * 1,218,973.166  891,053.502          *
Service Shares
                                                   16.51%       12.07%
Core Bond Fund/VA                         *             *            *          *
Non-Service Shares

Core Bond Fund/VA                87,130.170   156,817.619            *          *
Service Shares
                                     18.61%        33.49%
Global Securities Fund/VA                 *             *            *          *
Non-Service Shares

Global Securities Fund/VA                 *   971,431.913            *          *
Service Shares
                                                    7.59%
Global Securities Fund/VA                 *             *            *          *
Class 3 shares

Global Securities Fund/VA                 *             *            *          *
Class 4 shares

High Income Fund/VA                       *             *            *          *
Non-Service Shares

High Income/VA                  906,702.112 4,130,160.942            *          *
Service Shares
                                      5.73%        26.10%
Main Street Fund/VA                       *             *            *          *
Non-Service Shares

Main Street Fund/VA                       * 2,895,841.007            *          *
Service Shares
                                                   14.60%
Main Street Small Cap Fund/VA   144,181.237             *            * 318,185.813
Non-Service Shares
                                      5.71%                                12.59%
Main Street Small Cap Fund/VA             * 1,961,925.917  687,171.522          *
Service Shares
                                                   16.37%        5.73%
Money Fund/VA                             *             *            *          *
Non-Service Shares

Strategic Bond Fund/VA                    *             *            *          *
Non-Service Shares

Strategic Bond Fund/VA          2,946,934.2716,581,698.96813,363,031.431        *
Service Shares
                                      5.01%        28.18%       22.71%
Value Fund/VA                             *             *            *          *
Non-Service Shares


Oppenheimer Variable Account
Funds
(consisting of 11 separate                    Security
Funds)                              Cuna      Benefit        GE        IDS Life
Aggressive Growth Fund/VA                  *          * 2,424,195.293           *
Non-Service Shares
                                                               9.05%
Aggressive Growth Fund/VA                  *          *  153,225.794            *
Service Shares
                                                              25.40%
Balanced Fund/VA                           *          * 5,106,237.963           *
Non-Service Shares
                                                              15.74%
Balanced Fund/VA                           *          *  892,969.487            *
Service Shares
                                                              21.90%
Capital Appreciation Fund/VA               *          * 4,617,366.648           *
Non-Service Shares
                                                               9.86%
Capital Appreciation Fund/VA               *          *  489,562.758            *
Service Shares
                                                               6.63%
Core Bond Fund/VA                          *          * 7,724,610.929           *
Non-Service Shares
                                                              17.55%
Core Bond Fund/VA                          *          *            *            *
Service Shares

Global Securities Fund/VA                  *          *            *            *
Non-Service Shares

Global Securities Fund/VA                  *          * 3,821,670.8281,340,540.525
Service Shares
                                                              29.84%       10.47%
Global Securities Fund/VA                  *          *            *            *
Class 3 shares

Global Securities Fund/VA                  *          *            *            *
Class 4 shares

High Income Fund/VA             8,829,384.258         * 10,661,396.170          *
Non-Service Shares
                                      16.16%                  19.51%
High Income/VA                             *          *            *            *
Service Shares

Main Street Fund/VA                        *          *            *            *
Non-Service Shares

Main Street Fund/VA                        *          * 3,283,512.159           *
Service Shares
                                                              16.56%
Main Street Small Cap Fund/VA              *          *            *            *
Non-Service Shares

Main Street Small Cap Fund/VA              * 622,924.0381,818,115.0151,616,514.898
Service Shares
                                                  5.20%       15.17%       13.48%
Money Fund/VA                              *          *            *            *
Non-Service Shares

Strategic Bond Fund/VA                     *          *            *            *
Non-Service Shares

Strategic Bond Fund/VA                     *          *            * 15,954,272.458
Service Shares
                                                                           27.11%
Value Fund/VA                              *          *            *            *
Non-Service Shares


Oppenheimer Variable Account
Funds
(consisting of 11 separate                                Lincoln        Mass
Funds)                              ING        Kemper     Benefit       Mutual
Aggressive Growth Fund/VA                  *          *            * 14,626,387.364
Non-Service Shares
                                                                            54.61%
Aggressive Growth Fund/VA                  *          *            *             *
Service Shares

Balanced Fund/VA                           *          *            * 10,415,229.884
Non-Service Shares
                                                                            32.10%
Balanced Fund/VA                           *          *            *             *
Service Shares

Capital Appreciation Fund/VA               *          *            * 13,747,926.263
Non-Service Shares
                                                                            29.36%
Capital Appreciation Fund/VA               *          *            *             *
Service Shares

Core Bond Fund/VA                          *          *            * 17,530,992.366
Non-Service Shares
                                                                            39.83%
Core Bond Fund/VA                          *          *            *             *
Service Shares

Global Securities Fund/VA       17,116,243.379        *            * 33,858,537.926
Non-Service Shares
                                      20.02%                                39.60%
Global Securities Fund/VA                  * 922,694.041           *             *
Service Shares
                                                  7.21%
Global Securities Fund/VA                  *          *            *             *
Class 3 shares

Global Securities Fund/VA                  *          *            *             *
Class 4 shares

High Income Fund/VA                        *          *            * 21,145,084.899
Non-Service Shares
                                                                            38.70%
High Income/VA                             *          *            *             *
Service Shares

Main Street Fund/VA             3,534,160.562         *            * 15,947,530.795
Non-Service Shares
                                       6.08%                                27.45%
Main Street Fund/VA                        *          *            *             *
Service Shares

Main Street Small Cap Fund/VA              *          *            *   994,605.123
Non-Service Shares
                                                                            39.36%
Main Street Small Cap Fund/VA              * 601,227.6222,767,597.168            *
Service Shares
                                                  5.02%       23.09%
Money Fund/VA                              *          *            * 151,541,495.820
Non-Service Shares
                                                                            80.01%
Strategic Bond Fund/VA          24,709,486.581        *            * 75,791,209.495
Non-Service Shares
                                      19.63%                                60.22%
Strategic Bond Fund/VA                     *          *            *             *
Service Shares

Value Fund/VA                              *          *            *             *
Non-Service Shares


Oppenheimer Variable Account
Funds
(consisting of 11 separate        Merrill     Minnesota      MONY
Funds)                             Lynch         Life        Life      Nationwide
Aggressive Growth Fund/VA                  *            *           * 7,166,013.071
Non-Service Shares
                                                                            26.76%
Aggressive Growth Fund/VA                  *            *           *
Service Shares

Balanced Fund/VA                2,298,787.985           *           * 11,465,669.286
Non-Service Shares
                                       7.08%                                35.33%
Balanced Fund/VA                           *            *           *            *
Service Shares

Capital Appreciation Fund/VA               *            *           * 21,898,855.207
Non-Service Shares
                                                                            46.76%
Capital Appreciation Fund/VA               *            *           * 2,050,675.390
Service Shares
                                                                            27.77%
Core Bond Fund/VA                          *            *           * 16,132,965.875
Non-Service Shares
                                                                            36.65%
Core Bond Fund/VA                          *            *           *            *
Service Shares

Global Securities Fund/VA                  *            *           * 22,231,333.933
Non-Service Shares
                                                                            26.00%
Global Securities Fund/VA                  *            * 1,016,583.121,313,346.600
Service Shares
                                                                7.94%       10.26%
Global Securities Fund/VA                  *            *           * 9,613,031.055
Class 3 shares
                                                                           100.00%
Global Securities Fund/VA                  *            *           * 1,625,936.088
Class 4 shares
                                                                           100.00%
High Income Fund/VA                        *            *           *            *
Non-Service Shares

High Income/VA                             * 2,783,539.293          * 3,063,180.015
Service Shares
                                                   17.59%                   19.36%
Main Street Fund/VA                        *            *           * 22,312,739.087
Non-Service Shares
                                                                            38.40%
Main Street Fund/VA                        *            *           * 3,084,943.221
Service Shares
                                                                            15.56%
Main Street Small Cap Fund/VA              *            *           *  460,703.579
Non-Service Shares
                                                                            18.23%
Main Street Small Cap Fund/VA              *            *           *  932,149.856
Service Shares
                                                                             7.78%
Money Fund/VA                   16,161,004.130          *           *            *
Non-Service Shares
                                       8.53%
Strategic Bond Fund/VA                     *            *           *            *
Non-Service Shares

Strategic Bond Fund/VA                     *            *           * 4,692,183.731
Service Shares
                                                                             7.97%
Value Fund/VA                              *            *           *            *
Non-Service Shares


Oppenheimer Variable Account
Funds
(consisting of 11 separate                                SunLife
Funds)                           Protective     Sage     Financial    Travelers
Aggressive Growth Fund/VA                  *          *            *           *
Non-Service Shares

Aggressive Growth Fund/VA                  *          *            *           *
Service Shares

Balanced Fund/VA                           *          *            *           *
Non-Service Shares

Balanced Fund/VA                           *          *            *           *
Service Shares

Capital Appreciation Fund/VA               *          *            *           *
Non-Service Shares

Capital Appreciation Fund/VA               *          *  874,085.538 520,990.307
Service Shares
                                                              11.84%       7.05%
Core Bond Fund/VA                          *          *            *           *
Non-Service Shares

Core Bond Fund/VA                          * 224,237.449           *           *
Service Shares
                                                 47.90%
Global Securities Fund/VA                  *          *            *           *
Non-Service Shares

Global Securities Fund/VA                  *          *            *           *
Service Shares

Global Securities Fund/VA                  *          *            *           *
Class 3 shares

Global Securities Fund/VA                  *          *            *           *
Class 4 shares

High Income Fund/VA                        *          *            *           *
Non-Service Shares

High Income/VA                             *          *            *           *
Service Shares

Main Street Fund/VA             3,261,298.056         *            *           *
Non-Service Shares
                                       5.61%
Main Street Fund/VA                        *          * 7,268,178.7681,136,163.499
Service Shares
                                                              36.65%       5.73%
Main Street Small Cap Fund/VA              *          *            *           *
Non-Service Shares

Main Street Small Cap Fund/VA              *          *            *           *
Service Shares

Money Fund/VA                   15,365,629.760        *            *           *
Non-Service Shares
                                       8.11%
Strategic Bond Fund/VA          17,993,662.069        *            *           *
Non-Service Shares
                                      14.30%
Strategic Bond Fund/VA                     *          *            *           *
Service Shares

Value Fund/VA                              *          *            *           *
Non-Service Shares





- ------------------------------------------------------------------------------
Oppenheimer Variable Account Funds
- ------------------------------------------------------------------------------

Investment Advisor
      OppenheimerFunds, Inc.
      Two World Financial Center
      225 Liberty Street, 11th Floor
      New York, New York 10281-1008

Distributor
      OppenheimerFunds Distributor, Inc.
      Two World Financial Center
      225 Liberty Street, 11th Floor
      New York, New York 10281-1008


Transfer Agent
      OppenheimerFunds Services
      P.O. Box 5270
      Denver, Colorado 80217
      1.800.981.2871

Custodian Bank
      JPMorgan Chase Bank
      4 Chase Metro Tech Center
      Brooklyn, New York 11245

Independent Registered Public Accounting Firm
      Deloitte amp; Touche LLP
      555 Seventeenth Street
      Denver, Colorado 80202

Counsel to the Funds
      Myer, Swanson, Adams amp; Wolf, P.C.
      1600 Broadway
      Denver, Colorado 80202

Counsel to the Independent Trustees
      Bell, Boyd amp; Lloyd LLC
      70 West Madison Street, Suite 3100
      Chicago, Illinois 60602

(logo)
PXOVAF.001.0405

-----END PRIVACY-ENHANCED MESSAGE-----