Oppenheimer Variable Funds

-----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, PFnrIRLVWOoUzpqx3dbK6mEDB44hgldL8672XnS1MyikvqNsOcSRnZurqhqTUVka kx3RbKNzo4ifkHhmlB71hQ== 0000728889-07-000457.txt : 20070501 0000728889-07-000457.hdr.sgml : 20070501 20070501154415 ACCESSION NUMBER: 0000728889-07-000457 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20070501 DATE AS OF CHANGE: 20070501 EFFECTIVENESS DATE: 20070501 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: 07805880 BUSINESS ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 BUSINESS PHONE: 3036713200 MAIL ADDRESS: STREET 1: 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

0000752737 S000010331 Oppenheimer Balanced Fund/VA

C000028586 Non-Service

C000028587 Service

0000752737 S000010332 Oppenheimer Value Fund/VA

C000028588 Non-Service

C000028589 Service

0000752737 S000010333 Oppenheimer Aggressive Growth Fund/VA

C000028590 Non-Service

C000028591 Service

0000752737 S000010334 Oppenheimer Capital Appreciation Fund

C000028592 Non-Service

C000028593 Service

0000752737 S000010335 Oppenheimer Core Bond Fund/VA

C000028594 Non-Service

C000028595 Service

0000752737 S000010336 Oppenheimer Global Securities/VA

C000028596 Non-Service

C000028597 Service

C000028916 Class 3

C000028917 Class4

0000752737 S000010337 Oppenheimer High Income Fund/VA

C000028598 Non-Service

C000028599 Service

C000047467 3

C000047468 4

0000752737 S000010338 Oppenheimer Main Street Fund/VA

C000028600 Non-Service

C000028601 Service

0000752737 S000010339 Oppenheimer Main Street Small Cap Fund/VA

C000028602 Non-Service

C000028603 Service

0000752737 S000010340 Oppenheimer Money Fund/VA

C000028604 Non-Service

C000028605 Service

0000752737 S000010341 Oppenheimer Strategic Bond Fund/VA

C000028606 Non-Service

C000028607 Service

497 1 psp_sai.htm PROSPECTUSES AND SAI Oppenheimer Variable Funds

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 30, 2007 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 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.

Contents

About the Fund
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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
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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

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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.
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What Does the Fund Mainly Invest In? The Fund's investment manager,
OppenheimerFunds, Inc. (the "Manager"), 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 may 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 emerging or
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 the Fund invests a significant amount of its assets in
foreign securities, it may be exposed 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 before
the close of the New York Stock Exchange (the "NYSE") 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, credit derivatives 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.

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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.
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The Fund's Past Performance

The bar chart and table below show one measure of the risks of
investing in the Fund, by showing changes in the Fund's performance for
Non-Service shares from year to year for the last 10 calendar years and by
showing how the average annual total returns compared to those of broad-based
market indices. Because the Fund's Service shares are subject to a service
fee, their performance is expected to be lower for any given period. The
Fund's past investment performance is not necessarily an indication of how
the Fund will perform in the future.

Annual Total Returns (as of 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 12.53% (2nd Qtr `03) and the lowest return (not
annualized) for a calendar quarter was -10.96% (3rd Qtr `01).

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5 Years 10 Years
Average Annual Total Returns for the (or life of (or life of
periods ended December 31, 2006 1 Year Class if Class if
less) less)
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Oppenheimer Balanced Fund/VA Non-Service
Shares 11.15% 7.32% 8.03%
(inception date: 2/9/87)
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Oppenheimer Balanced Fund/VA Service
Shares 10.86% 7.88% N/A
(inception date: 5/1/02)
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S&P 500 Index 15.78% 6.18% 8.42%
8.02%(1)
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Lehman Bros. Aggregate Bond Index 4.33% 5.06% 6.24%
4.98%(1)
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1. From 4/30/02.

The Fund's average annual total 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 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
performance includes reinvestment of income but does not reflect transaction
costs, fees or expenses. The Fund's investments vary from those in 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

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,
2006.

Shareholder Fees. The Fund does not charge an 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.

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Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
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Non-Service Shares Service Shares
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Management Fees 0.72% 0.72%
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Distribution and Service None 0.25%
(12b-1) Fees
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Other Expenses 0.03% 0.04%
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Total Annual Operating Expenses 0.75% 1.01%
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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, 2006, 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 reinvest your dividends and distributions. The
example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Separate account or contract
expenses are not included and if they were included, overall expenses would
be higher. 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:

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.

|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.

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.

|_| 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| 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| 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| 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| 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.

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

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

Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to
this prospectus. Fundamental policies 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| 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| 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| 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 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| Hedging. The Fund can buy and sell certain futures contracts, put
and call options, including options on futures and broadly-based securities
indices, and forward contracts. These investments are referred to as "hedging
instruments." The Fund has limits on its use of hedging instruments and is
not required to use hedging instruments to seek its objective. The Fund does
not use hedging instruments for speculative purposes.

The Fund can 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. Forward contracts can be used to try to
manage foreign currency risks on the Fund's foreign investments.

There are special risks in particular hedging strategies. For example,
options trading involves the payment of premiums and can increase portfolio
turnover. If an investment that is subject to a covered call written by the
Fund increases in value above the call price, the Fund may be required to
sell the investment at the call price and may not be able to realize any gain
above that price. In writing a put, there is a risk that the Fund may be
required to buy the underlying security at a disadvantageous price. If the
Manager uses a hedging instrument at the wrong time or judges market
conditions incorrectly, the hedge might fail 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| 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| Investments in Oppenheimer Institutional Money Market Fund. The
Fund can invest its free cash balances in the Class E shares of Oppenheimer
Institutional Money Market Fund, to seek current income while preserving
liquidity. The Oppenheimer Institutional Money Market Fund is a registered
open-end management investment company, regulated as a money market fund
under the Investment Company Act of 1940, as amended. It invests in a variety
of short-term, high-quality, dollar-denominated money market instruments
issued by the U.S. government, domestic and foreign corporations and
financial institutions, and other entities. As a shareholder, the Fund will
be subject to its proportional share of the Oppenheimer Institutional Money
Market Fund's Class E expenses, including its advisory fee. However, the
Manager will waive a portion of the Fund's advisory fee to the extent of the
Fund's share of the advisory fee it receives from the Oppenheimer
Institutional Money Market Fund.

|X| Loans of Portfolio Securities. The Fund may make loans of its
portfolio securities, with a value not to exceed 25% of its net assets, in
accordance with policies approved by the Fund's Board. The Fund has entered
into a securities lending agreement with JPMorgan Chase Bank, N.A. ("JPMorgan
Chase") for that purpose. Under the agreement, the Fund's portfolio
securities may be loaned to brokers, dealers and financial institutions,
provided that such loans comply with the collateralization and other
requirements of the securities lending agreement, the Fund's policies and
applicable government regulations. JPMorgan Chase has agreed, in general, to
bear the risk that a borrower may default on its obligation to return loaned
securities. However, the Fund will be responsible for risks associated with
the investment of cash collateral, including the risk of a default by the
issuer of a security in which cash collateral has been invested. If that
occurs, the Fund may incur additional costs in seeking to obtain the
collateral or may lose the amount of the collateral investment. The Fund may
also lose money if the value of the investments purchased with cash
collateral decreases.

|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.

|X| Portfolio Turnover. The Fund may engage in active and frequent
trading to try to achieve its objective. It might have a turnover rate in
excess of 100% annually. 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. The
Financial Highlights table at the end of this prospectus shows the Fund's
portfolio turnover rates during prior fiscal years.

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 discloses its portfolio holdings in its Statements
of Investments on Form N-Q, which are filed with the Securities and Exchange
Commission no later than 60 days after the close of its first and third
fiscal quarters. These required filings are publicly available at the
Securities and Exchange Commission. Therefore, portfolio holdings of the Fund
are made publicly available no later than 60 days after the close of each of
the Fund's fiscal quarters.

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 $245 billion in
assets as of March 31, 2007, including other Oppenheimer funds with more than
6 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, 2006, was 0.72% of the Fund's average annual net assets
for each class of shares.

A discussion regarding the basis for the Board of Trustees' approval of
the Fund's investment advisory contract is available in the Fund's Annual
Report to shareholders for the year ended December 31, 2006.

|X| Portfolio Managers. The equity component of the Fund's portfolio is
managed by Emmanuel Ferreira, and the fixed income component of the Fund's
portfolio is managed by Angelo Manioudakis, together with a team of
investment professionals including Benjamin J. Gord, Geoffrey Caan, Thomas
Swaney and Antulio N. Bomfim.

Mr. Ferreira is the portfolio manager of the equity component of the Fund's
portfolio. He has been a Vice President and portfolio manager of the Fund,
and Vice President of the Manager since January 2003. He 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. Ferreira is primarily responsible for the day-to-day
management of the equity component of the Fund's portfolio.

The Fund's fixed-income component is managed by a portfolio management team
comprised of Angelo Manioudakis, Benjamin Gord, Geoffrey Caan, Thomas Swaney
and Antulio N. Bomfim. This portfolio management team is primarily
responsible for the day-to-day management of the fixed-income component of
the Fund's portfolio.

Mr. Manioudakis has been a Vice President and portfolio manager of the Fund
since January 2003, 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 and Vice President of Oppenheimer Real Asset Management, Inc. since
November 2006. 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 Vice President and portfolio manager of the Fund since
February 2006 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 from April 1992 through March 2002.

Mr. Caan has been a Vice President and portfolio manager of the Fund since
February 2006 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. Swaney has been a Vice President and portfolio manager of the Fund and a
Vice President of the Manager since April 2006. He is also a portfolio
manager of other portfolios in the OppenheimerFunds complex. Mr. Swaney was
a senior analyst of the Manager's High Grade Investment Team from June 2002
to March 2006. Prior to joining the Manager in June 2002, Mr. Swaney was a
senior fixed income analyst at Miller, Anderson & Sherrerd, a division of
Morgan Stanley Investment Management, from May 1998 through May 2002.

Mr. Bomfim has been a Vice President and portfolio manager of the Fund since
February 2006 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 Managers' compensation, other accounts they manage and their
ownership of Fund shares.

|X| Possible Conflicts of Interest. The investment activities of the
Manager and its affiliates in regard to other accounts they manage may
present conflicts of interest that could disadvantage the Fund and its
shareholders. The Manager or its affiliates may provide investment advisory
services to other funds and accounts that have investment objectives or
strategies that differ from, or are contrary to, those of the Fund. That may
result in another such fund or account holding investment positions that are
adverse to the Fund's investment strategies or activities. For example, the
Fund may take a long position in a security at the same time that another
fund or account advised by the Manager takes a short position in the same
security.

Other funds or accounts advised by the Manager or its affiliates may
have conflicting interests arising from investment objectives that are
similar to those of the Fund. Those funds and accounts may engage in, and
compete for, transactions in the same types of securities or other
investments as the Fund. At other times, there may be conflicts of interest
with other funds or accounts that invest in one of the same issuers that the
Fund invests in. For example, the Fund may invest in an issuer's equity or
debt securities that are subordinate to other securities of that issuer held
by another fund or account the Manager advises.

The Manager and its affiliates are not obligated to make available to
the Fund's investment personnel any information regarding the strategies or
investment activities of other funds or accounts that the Manager and its
affiliates advise. The trading and other investment activities of those other
funds or accounts are carried out without regard to the investment activities
of the Fund and, as a result, the value of securities held by the Fund or the
Fund's investment strategies may be adversely affected. The Fund's investment
performance will usually differ from the performance of other accounts
advised by the Manager or its affiliates and the Fund may experience losses
during periods in which other accounts advised by the Manager or its
affiliates achieve significant gains.

The Fund offers its shares to separate accounts of different insurance
companies, 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. Such
policies and procedures may also limit the Fund's investment activities and
affect its performance. 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 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, may increase the Fund's transaction and
administrative costs and/or may affect the Fund's performance. For example,
if large dollar amounts were involved in redemption transactions, the Fund
might be required to sell portfolio securities at unfavorable times to meet
such redemption requests, and the Fund's transaction or administrative
expenses might be increased. The extent to which the Fund might be affected
by such trading activity would depend on various factors, such as the current
asset size of the Fund, the nature of its investments, the amount of Fund
assets the portfolio managers maintain in cash or cash equivalents, and the
aggregate dollar amount, number and frequency of the share trades.

Policies on Disruptive Activity. The Manager and the Fund's Board of Trustees
have adopted the following policies and procedures to try to prevent frequent
and/or excessive purchase and redemption activity.

The Transfer Agent and the Distributor, on behalf of the Fund, have
entered into agreements with participating insurance companies designed to
detect and restrict excessive short term trading activity by contract or
policy owners or their financial advisers in their accounts. The Transfer
Agent generally does not consider periodic asset allocation or re-balancing
that affects a portion of the Fund shares held in the account of a policy or
contract owner to be "excessive trading." However, the Transfer Agent has
advised participating insurance companies that it generally considers certain
other types of trading activity to be "excessive," such as making a
"transfer" out of the Fund within 30 days of buying Fund shares (by the sale
of the recently purchased Fund shares and the purchase of shares of another
fund) or making more than six "round trip transfers" between funds during one
year. The agreements require participating insurance companies to provide
transaction information to the Fund and to execute Fund instructions to
restrict trading in Fund shares.

A participating insurance company may also have its own policies and
procedures and may impose its own restrictions or limitations to discourage
short-term and/or excessive trading by its policy or contract owners. Those
policies and procedures may be different from the Fund's in certain respects.
You should refer to the prospectus for your insurance company variable
annuity contract for specific information about the insurance company's
policies. To the extent that the Fund has agreed to utilize an insurance
company's short-term or excessive trading restrictions, policy or contract
owners may be required to only transmit purchase or redemption orders by
first class U.S. mail.

Monitoring the Policies. The Fund's policies and procedures for detecting and
deterring frequent or excessive trading are administered by the Fund's
transfer agent. However, the Transfer Agent presently does not have the
ability to directly monitor trading activity in the accounts of policy or
contract owners within the participating insurance companies' accounts. The
Transfer Agent's ability to monitor and deter excessive short-term trading in
such insurance company accounts ultimately depends on the capability and
diligence of each participating insurance company, under their agreements
with the Transfer Agent, the Distributor and the Fund, in monitoring and
controlling the trading activity of the policy or contract owners in the
insurance company's accounts.

The Transfer Agent will attempt to monitor the net effect on the Fund's
assets from the purchase and redemption activity in the accounts of
participating insurance companies and will seek to identify patterns that may
suggest excessive trading by the contract or policy owners who invest in the
insurance company's accounts. If the Transfer Agent believes it has observed
evidence of possible excessive trading activity, it will ask the
participating insurance companies or other registered owners to provide
information about the transaction activity of the contract or policy holders
in their respective accounts, and to take appropriate action. In that case,
the insurance company must confirm to the Transfer Agent that appropriate
action has been taken to curtail the excessive trading activity.

The Transfer Agent will, subject to the limitations described in this
section, limit or terminate the trading activity of any person, group or
account that it believes would be excessive or disruptive. However, the
Transfer Agent may not be able to detect or curtail all such trading activity
in the Fund. The Transfer Agent will evaluate trading activity on a case by
case basis and the limitations placed on trading may vary between accounts.

There is no guarantee that the policies and procedures described above
will be effective to enable the Fund's Transfer Agent to identify and deter
excessive short-term trading, and if the Transfer Agent is not able to detect
and curtail such activity, frequent trading could occur in the Fund.

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.

- ------------------------------------------------------------------------------
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 NYSE, on each day the NYSE is open for trading
(referred to in this prospectus as a "regular business day"). The NYSE
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 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 the Fund's portfolio securities,
although it may not always be able to accurately determine such values. There
can be no assurance that the Fund could obtain the fair value assigned to a
security if it were to sell the security at the same time at which the Fund
determines its net asset value per share. In addition, the discussion of
"time-zone arbitrage" describes effects that the Fund's fair value pricing
policy is intended to counteract.

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, an 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 currently offers only two classes of shares. The classes 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 classes of shares that are not subject to a Plan has no class "name"
designation, but is referred to herein as "Non-Service" 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.

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.

OTHER PAYMENTS TO FINANCIAL INTERMEDIARIES AND SERVICE PROVIDERS. The Manager
and the Distributor, in their discretion, also may pay dealers or other
financial intermediaries and service providers for distribution and/or
shareholder servicing activities. These payments are made out of the
Manager's and/or the Distributor's own resources, including from the profits
derived from the advisory fees the Manager receives from the Fund. These cash
payments, which may be substantial, are paid to many firms having business
relationships with the Manager and Distributor. These payments are in
addition to any distribution fees, servicing fees, or transfer agency fees
paid directly or indirectly by the Fund to these financial intermediaries.
These payments by the Manager or Distributor from their own resources are not
reflected in the tables in the section called "Fees and Expenses of the Fund"
in this prospectus because they are not paid by the Fund.

"Financial intermediaries" are firms that offer and sell Fund shares to
their clients, or provide shareholder services to the Fund, or both, and
receive compensation for doing so. Your securities dealer or insurance agent,
for example, is a financial intermediary, and there are other types of
financial intermediaries that could receive payments relating to the sale or
servicing of the Fund's shares. In addition to dealers and insurance agents,
the financial intermediaries that may receive payments include the insurance
companies that offer variable annuity or variable life insurance products.

In general, these payments to financial intermediaries can be
categorized as "distribution-related" or "servicing" payments. Payments for
distribution-related expenses, such as marketing or promotional expenses, are
often referred to as "revenue sharing." Revenue sharing payments may be made
on the basis of the sales of shares attributable to that financial
intermediary, the average net assets of the Fund and other Oppenheimer funds
attributable to the accounts of that financial intermediary and its clients,
negotiated lump sum payments for distribution services provided, or sales
support fees. In some circumstances, revenue sharing payments may create an
incentive for a dealer or other financial intermediary or their
representatives to recommend or offer shares of the Fund or other Oppenheimer
funds to their customers. These payments also may give an intermediary an
incentive to cooperate with the Distributor's marketing efforts. A revenue
sharing payment may, for example, qualify the Fund for preferred status with
the intermediary receiving the payment or provide representatives of the
Distributor with access to representatives of the intermediary's sales force,
in some cases on a preferential basis over funds of competitors.
Additionally, as firm support, the Manager or Distributor may reimburse
expenses related to educational seminars and "due diligence" or training
meetings (to the extent permitted by applicable laws or the rules of the
NASD) designed to increase sales representatives' awareness about Oppenheimer
funds, including travel and lodging expenditures. However, the Manager does
not consider a financial intermediary's sale of shares of the Fund or other
Oppenheimer funds when selecting brokers or dealers to effect portfolio
transactions for the funds.

Various factors are used to determine whether to make revenue sharing
payments. Possible considerations include, without limitation, the types of
services provided by the intermediary, sales of Fund shares, the redemption
rates on accounts of clients of the intermediary or overall asset levels of
Oppenheimer funds held for or by clients of the intermediary, the willingness
of the intermediary to allow the Distributor to provide educational and
training support for the intermediary's sales personnel relating to the
Oppenheimer funds, the availability of the Oppenheimer funds on the
intermediary's sales system, as well as the overall quality of the services
provided by the intermediary, and the Manager or Distributor's relationship
with the intermediary. The Manager and Distributor have adopted guidelines
for assessing and implementing each prospective revenue sharing arrangement.
To the extent that financial intermediaries receiving distribution-related
payments from the Manager or Distributor sell more shares of the Oppenheimer
funds or retain more shares of the funds in their client accounts, the
Manager and Distributor benefit from the incremental management and other
fees they receive with respect to those assets.

Payments may also be made by the Manager, the Distributor or the
Transfer Agent to financial intermediaries to compensate or reimburse them
for administrative or other client services provided, such as sub-transfer
agency services for shareholders, omnibus accounting or sub-accounting,
participation in networking arrangements, account set-up, recordkeeping and
other shareholder services. Payments may also be made for administrative
services related to the distribution of Fund shares through the intermediary.
Firms that may receive servicing fees with respect to Oppenheimer funds
include insurance companies that offer variable annuity or variable life
insurance products, retirement plan administrators, qualified tuition program
sponsors, banks and trust companies, and others. These fees may be used by
the service provider to offset or reduce fees that would otherwise be paid
directly to them by certain account holders.

The Statement of Additional Information contains more information about
revenue sharing and service payments made by the Manager or the Distributor.
Your dealer may charge you fees or commissions in addition to those disclosed
in this prospectus. You should ask your dealer or financial intermediary for
details about any such payments it receives from the Manager or the
Distributor and their affiliates, or any other fees or expenses it charges.

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

The share price that applies to a redemption order is the next net
asset value per share that is determined after the participating insurance
company (as the Fund's designated agent) receives a redemption request on a
regular business day from its contract or policy holder, provided that the
Fund receives the order from the insurance company, generally by 9:30 a.m.
the next regular business day at the office of its Transfer Agent in
Colorado. The participating insurance company must receive that order before
the close of the NYSE (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.

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 adviser 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 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.

20 | OPPENHEIMER BALANCED FUND/VA

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

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.07 $ 17.35 $ 15.92 $ 13.16 $ 15.40
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .40 1 .33 1 .26 1 .27 .50
Net realized and unrealized gain (loss) 1.38 .31 1.33 2.90 (2.02)
------------------------------------------------------------------------
Total from investment operations 1.78 .64 1.59 3.17 (1.52)
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.36) (.30) (.16) (.41) (.51)
Distributions from net realized gain (.80) (.62) -- -- (.21)
------------------------------------------------------------------------
Total dividends and/or distributions to shareholders (1.16) (.92) (.16) (.41) (.72)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.69 $ 17.07 $ 17.35 $ 15.92 $ 13.16
========================================================================

- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 11.15% 3.89% 10.10% 24.96% (10.40)%
- -------------------------------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 435,639 $ 503,753 $ 547,290 $ 533,710 $ 458,848
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 456,513 $ 522,754 $ 528,655 $ 475,389 $ 517,516
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 2.42% 1.98% 1.59% 1.82% 3.31%
Total expenses 0.75% 4,5 0.74% 6 0.74% 6 0.76% 6 0.74% 6
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 76% 7 67% 7 68% 7 248% 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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.75%

5. Voluntary waiver of affiliated funds management fees less than 0.01%.

6. Reduction to custodian expenses less than 0.01%.

7. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

PURCHASE TRANSACTIONS SALE TRANSACTIONS
----------------------------------------------------------------------------
Year Ended December 31, 2006 $ 612,825,833 $ 666,549,894
Year Ended December 31, 2005 1,224,652,741 1,250,455,539
Year Ended December 31, 2004 1,460,076,994 1,473,590,963

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

21 | OPPENHEIMER BALANCED FUND/VA

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

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002 1
- -------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.97 $ 17.26 $ 15.87 $ 13.14 $ 14.51
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .36 2 .29 2 .23 2 .39 .13
Net realized and unrealized gain (loss) 1.37 .31 1.31 2.74 (1.50)
------------------------------------------------------------------------
Total from investment operations 1.73 .60 1.54 3.13 (1.37)
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.33) (.27) (.15) (.40) --
Distributions from net realized gain (.80) (.62) -- -- --
------------------------------------------------------------------------
Total dividends and/or distributions to shareholders (1.13) (.89) (.15) (.40) --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.57 $ 16.97 $ 17.26 $ 15.87 $ 13.14
========================================================================

- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 10.86% 3.67% 9.79% 24.69% (9.44)%
- -------------------------------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 111,363 $ 88,156 $ 59,650 $ 25,302 $ 2,306
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 100,010 $ 72,977 $ 39,851 $ 9,908 $ 1,037
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 2.17% 1.74% 1.41% 1.37% 3.30%
Total expenses 1.01% 5,6 1.00% 7 1.02% 7 1.01% 7 0.99% 7
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 76% 8 67% 8 68% 8 248% 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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 1.01%

6. Voluntary waiver of affiliated funds management fees less than 0.01%.

7. Reduction to custodian expenses less than 0.01%.

8. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

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

- ------------------------------------------------------------------------------
Information about the Fund including the Statement of Additional Information
can be reviewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling the Securities and Exchange
Commission at 1.202.551.8090. Reports and other information about the Fund
are available on the EDGAR database on the Securities and Exchange
Commission's Internet website at www.sec.gov. Copies may be obtained after
payment of a duplicating fee by electronic request at the Securities and
Exchange Commission's e-mail address: publicinfo@sec.gov or by writing to the
Securities and Exchange Commission'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
PR0670.001.0407 [logo] OppenheimerFunds
Distributor, Inc.
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 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

12/31/97 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%
12/31/05 3.89%
12/31/06 11.15%

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

Prospectus dated April 30, 2007

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 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.

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 newer companies or established companies
of any capitalization range that the portfolio managers believe may
appreciate in value over the long term. The Fund currently focuses mainly on
large-cap and mid-cap domestic companies, but can buy foreign stocks as well.

How Do the Portfolio Managers Decide What Securities to Buy or Sell? The
Fund's portfolio managers look primarily for growth companies that they
believe have reasonably priced stock in relation to overall stock market
valuations. The portfolio managers focus 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
managers look for:
o companies in businesses with above-average growth potential,
o companies with growth rates that the portfolio managers believe are
sustainable over time,
o stocks with reasonable valuations relative to their growth potential.

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. (the "Manager"), 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 larger capitalization
companies, but can also invest in smaller capitalization companies, which may
have more volatile stock prices than larger 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 or group of industries.

|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.

Additionally, if the Fund invests a significant amount of its assets in
foreign securities, it may be exposed 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 before
the close of the New York Stock Exchange (the "NYSE") 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 of Trustees believe to be their fair value may help deter those
activities.

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 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 Fund's performance for Non-Service shares
from year to year for the last ten calendar years and by showing how the
average annual total returns of the Fund's shares compared to those of a
broad-based market index. Because the Fund's Service shares are subject to a
service fee, their performance is expected to be lower for any given period.
The Fund's past investment performance is not necessarily an indication of
how the Fund will perform in the future.

Annual Total Returns (as of 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% (4thQtr `99) and the lowest return (not
annualized) for a calendar quarter was -20.45% (3rdQtr `01).

- -------------------------------------------------------------------------------------
Average Annual Total Returns
- ----------------------------------- 5 Years 10 Years
for the periods ended December 31, (or life of (or life of
2006 1 Year class, if less) class, if less)
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation 7.95% 3.05% 8.47%
Fund/VA
Non-Service Shares (inception
April 3, 1985)
- -------------------------------------------------------------------------------------
Oppenheimer Capital Appreciation
Fund/VA
Service Shares (inception
September 18, 2001) 7.68% 2.78% 5.47%
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
S&P 500 Index 15.78% 6.18% 8.42%(1)
7.95%(2)
(1) Since December 31, 1996.
(2) Since September 30, 2001.

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 0.64% 0.64%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution and Service None 0.25%
(12b-1) Fees
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other Expenses 0.03% 0.03%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.67% 0.92%
- --------------------------------------------------------------------------------

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, 2006, 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.

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 in this prospectus. 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 or group of
industries.

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| 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 newer
companies or 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 large-cap and mid-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 stocks of issuers with smaller capitalizations, 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 total assets invested in foreign securities, although it
has the ability to invest in them without limit.

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 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| Hedging. The Fund can buy and sell certain futures contracts, put and
call options, including options on futures and broadly-based securities
indices, swaps, forward contracts and other derivative securities. These
investments are referred to as "hedging instruments." The Fund does not
currently use hedging extensively and is not required to use hedging
instruments to seek its objective. The does not use hedging instruments for
speculative purposes.

The Fund can buy and sell options, swaps, 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. Forward contracts can be
used to try to manage foreign currency risks on the Fund's foreign
investments. Foreign currency options can be used to try to protect against
declines in the dollar value of foreign securities the Fund owns, or to
protect against an increase in the dollar cost of buying foreign securities.

There are special risks in particular hedging strategies. For example,
options trading involves the payment of premiums and can increase portfolio
turnover. If an investment that is subject to a covered call written by the
Fund increases in value above the call price, the Fund may be required to
sell the investment at the call price and may not be able to realize any gain
above that price. If the Manager uses a hedging instrument at the wrong time
or judges market conditions incorrectly, the hedge might fail 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| Investments in Oppenheimer Institutional Money Market Fund. The Fund
can invest its free cash balances in the Class E shares of Oppenheimer
Institutional Money Market Fund, to seek current income while preserving
liquidity. The Oppenheimer Institutional Money Market Fund is a registered
open-end management investment company, regulated as a money market fund
under the Investment Company Act of 1940, as amended. It invests in a variety
of short-term, high-quality, dollar-denominated money market instruments
issued by the U.S. government, domestic and foreign corporations and
financial institutions, and other entities. As a shareholder, the Fund will
be subject to its proportional share of the Oppenheimer Institutional Money
Market Fund's Class E expenses, including its advisory fee. However, the
Manager will waive a portion of the Fund's advisory fee to the extent of the
Fund's share of the advisory fee it receives from the Oppenheimer
Institutional Money Market Fund.

|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.

|X| Loans of Portfolio Securities. The Fund may make loans of its portfolio
securities, with a value not to exceed 25% of its net assets, in accordance
with policies approved by the Fund's Board. The Fund has entered into a
securities lending agreement with JPMorgan Chase Bank, N.A. ("JPMorgan
Chase") for that purpose. Under the agreement, the Fund's portfolio
securities may be loaned to brokers, dealers and financial institutions,
provided that such loans comply with the collateralization and other
requirements of the securities lending agreement, the Fund's policies and
applicable government regulations. JPMorgan Chase has agreed, in general, to
bear the risk that a borrower may default on its obligation to return loaned
securities. However, the Fund will be responsible for risks associated with
the investment of cash collateral, including the risk of a default by the
issuer of a security in which cash collateral has been invested. If that
occurs, the Fund may incur additional costs in seeking to obtain the
collateral or may lose the amount of the collateral investment. The Fund may
also lose money if the value of the investments purchased with cash
collateral decreases.

|X| Portfolio Turnover. The Fund may engage in active and frequent trading
to try to achieve its objective. It might have a turnover rate in excess of
100% annually. 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. The Financial Highlights
table at the end of this prospectus shows the Fund's portfolio turnover rates
during prior fiscal years.

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 discloses its portfolio holdings in its Statements of Investments
on Form N-Q, which are filed with the Securities and Exchange Commission no
later than 60 days after the close of its first and third fiscal quarters.
These required filings are publicly available at the Securities and Exchange
Commission. Therefore, portfolio holdings of the Fund are made publicly
available no later than 60 days after the close of each of the Fund's fiscal
quarters.

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

|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 fiscal year ended
December 31, 2006, was 0.64% of the Fund's average annual net assets for each
class of shares.

|X| Portfolio Manager. The Fund's portfolio is co-managed by William L.
Wilby and Marc L. Baylin who are primarily responsible for the day-to-day
management of the Fund's investments.

William L. Wilby, CFA, is a Vice President of the Fund and has been
a portfolio manager of the Fund since October 2005, a Senior Vice
President of the Manager since July 1994 and a Senior Investment Officer
and Director of Equities of the Manager since July 2004. Mr. Wilby was
Director of International Global Equities of the Manager from December
1992 through July 2004 and Senior Vice President of HarbourView Asset
Management Corporation from May 1999 through November 2001. Before joining
OppenheimerFunds in 1991, Mr. Wilby was an International Investment
Strategist at Brown Brothers Harriman & Co., a Managing Director and
Portfolio Manager at AIG Global Investors, an International Pension
Manager at Northern Trust Bank in Chicago and an International Financial
Economist at Northern Trust Bank and at the Federal Reserve Bank in
Chicago.

Marc L. Baylin, CFA, is a Vice President of the Fund and the Manager
and has been a member of the Growth Equity Investment Team since September
2005. He was Managing Director and Lead Portfolio Manager at JP Morgan
Fleming Investment Management from June 2002 to August 2005 and was a Vice
President of T. Rowe Price, where he was an analyst from June 1993 and a
portfolio manager from March 1999 to June 2002.

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

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

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.

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.

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.
Eastern time 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 currently offers only two classes of shares. The classes 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 classes of shares that are not subject to a Plan have no class "name"
designation, but is referred to herein as "Non-Service" 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.

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 Colorado.
The participating insurance company must receive that order before the close
of the NYSE (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.

Dividends, Capital Gains and Taxes

Financial Highlights

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

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
Net asset value, beginning of period $ 38.52 $ 36.99 $ 34.70 $ 26.62 $ 36.58
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .07 1 .18 1 .35 1,2 .12 .11
Net realized and unrealized gain (loss) 2.98 1.68 2.05 8.07 (9.89)
----------------------------------------------------------------------------------
Total from investment operations 3.05 1.86 2.40 8.19 (9.78)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.14) (.33) (.11) (.11) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 41.43 $ 38.52 $ 36.99 $ 34.70 $ 26.62
==================================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 7.95% 5.10% 6.93% 30.94% (26.86)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,598,967 $1,652,282 $1,770,273 $1,715,240 $1,338,769
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,615,352 $1,658,910 $1,708,511 $1,468,297 $1,630,430
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 0.17% 0.47% 0.99% 2 0.39% 0.35%
Total expenses 0.67% 5,6,7 0.66% 6 0.66% 6 0.67% 6 0.66% 6
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 47% 70% 44% 48% 32%

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

2. Net investment income per share and the net investment income ratio include
$.16 and 0.43%, respectively, resulting from a special dividend from Microsoft
Corp. in November 2004.

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

5. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.67%

6. Reduction to custodian expenses less than 0.01%.

7. Voluntary waiver of affiliated funds management fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
Net asset value, beginning of period $ 38.23 $ 36.73 $ 34.53 $ 26.53 $ 36.56
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.03) 1 .08 1 .29 1,2 .08 .20
Net realized and unrealized gain (loss) 2.96 1.69 1.99 8.02 (10.05)
--------------------------------------------------------------------------
Total from investment operations 2.93 1.77 2.28 8.10 (9.85)
- ------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.07) (.27) (.08) (.10) (.18)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 41.09 $ 38.23 $ 36.73 $ 34.53 $ 26.53
==========================================================================

- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 7.68% 4.87% 6.62% 30.69% (27.09)%
- ------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $463,140 $381,852 $248,649 $119,699 $ 18,260
- ------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $426,539 $301,780 $184,273 $ 48,178 $ 6,263
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income (loss) (0.08)% 0.20% 0.85% 2 0.14% 0.26%
Total expenses 0.92% 5,6,7 0.91% 6 0.91% 6 0.94% 6 0.81% 6,8
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 47% 70% 44% 48% 32%

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

2. Net investment income per share and the net investment income ratio include
$.16 and 0.43%, respectively, resulting from a special dividend from Microsoft
Corp. in November 2004.

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

5. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.92%

6. Reduction to custodian expenses less than 0.01%.

7. Voluntary waiver of affiliated funds management fees less than 0.01%.

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

- ------------------------------------------------------------------------------
By Telephone:
Call OppenheimerFunds Services toll-free: 1.800.981.2871

The Fund's SEC File No.: 811-4108 [logo]
OppenheimerFunds
PR0610.001.0407 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 December 31 each year)":

Calendar Year Ended Annual Total Returns
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%
12/31/05 5.10%
12/31/06 7.95%

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

Prospectus dated April 30, Oppenheimer Core Bond Fund/VA is a mutual
2007 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.
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 eligible to purchase Service
shares of the Fund.
This Prospectus contains important
information about the Fund's objective,
investment policies, strategies and risks.
As with all mutual funds, the Please read this prospectus (and your insurance
Securities and Exchange product prospectus) carefully before you invest
Commission has not approved and keep them for future reference about your
or disapproved the Fund's account.
securities nor has it
determined that this
prospectus is accurate or
complete. It is a criminal
offense to represent
otherwise.

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 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.

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 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'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.

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 however has no
limitations on the range of maturities of the debt securities in which it can
invest and therefore may hold securities with short, medium or long-term
maturities. Because of market events and interest rate changes, the duration
of the portfolio might not meet that target at all times. 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 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 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 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., (the "Manager"), will cause the
Fund to underperform other funds having similar objectives.

Credit Risk. Debt securities are subject to credit risk. Credit
risk is the risk that the issuer of a debt security might not make interest
and principal payments on the security as it becomes due. A downgrade in an
issuer's credit rating or other adverse news about an issuer can reduce the
value of that issuer's securities. Securities directly issued by the U.S.
Treasury and certain agencies that are backed by the full faith and credit of
the U.S. government have little credit risk, and securities issued by other
agencies of the U.S. government generally have low credit risks. Securities
issued by private issuers have greater credit risks. If an issuer fails to
pay interest, the Fund's income may be reduced. If an issuer fails to repay
principal, the value of that security and of the Fund's share prices may be
reduced.

o Special Risks of Lower-Grade Securities. Because the Fund can invest up
to 20% of its total assets in securities (including convertible
securities) below investment grade, 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 the Fund invests a significant amount of its assets in
foreign securities, it may be exposed 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 before
the close of the New York Stock Exchange (the "NYSE") 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 of Trustees believe to be their fair value may help deter those
activities.

Credit Default Swaps. The Fund may enter into credit default
swaps. A credit default swap enables an investor to buy or sell
protection against a credit event, such as an issuer's failure to make
timely payments of interest or principal, bankruptcy or restructuring.
The terms of the instrument are generally negotiated by the Fund and the
swap counterparty.

If the Fund buys credit protection using a credit default swap, the
Fund will make fixed payments to the counterparty. If a credit event
occurs, the Fund will deliver the defaulted bonds underlying the swap and
the swap counterparty will pay the par amount of the bonds. If the Fund
sells credit protection using a credit default swap, the Fund will receive
fixed payments from the counterparty. If a credit event occurs, the Fund
will pay the par amount of the defaulted bonds underlying the swap 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 bonds, and the fixed payments are then made on the
reduced notional amount.

Credit default swaps are subject to counterparty credit risk (if the
counterparty fails to meet its obligations). They are subject to the risk
that the Fund will not properly assess the cost of the instrument. If the
Fund is selling credit protection, there is a risk that a credit event
will occur and that the Fund will have to pay par value on defaulted
bonds. If the Fund is buying credit protection, there is a risk that no
credit event will occur and the Fund will receive no benefit for the
premium 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 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 Fund's performance for Non-Service shares
from year to year for the last ten calendar years and by showing how the
average annual total returns of the Fund's shares compared to those of
broad-based market indices. Because the Fund's Service shares are subject to
a service fee, their performance is expected to be lower for any given
period. The Fund's past investment performance is not necessarily an
indication of how the Fund will perform in the future.

Annual Total Returns (as of 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 for a calendar
quarter was 4.04% (1st Q '01) and the lowest return 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
31, 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Oppenheimer Core Bond Fund/VA
Non-Service Shares (inception 5.28% 5.81% 5.71%
4/3/85)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Oppenheimer Core Bond Fund/VA
Service Shares (inception 4.93% 5.80%(1) N/A
5/1/02)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Citigroup Broad Investment 4.34% 5.11%(2) 6.26%
Grade Index 5.04%(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond 4.33% 5.06%(2) 6.24%
Index 4.98%(3)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Lehman Brothers Credit Index 4.26% 5.90%(2) 6.56%
6.07%(3)
- --------------------------------------------------------------------------------
1. Since Class inception (5/1/02)
2. Since Class inception (12/31/96)
3. Since Class inception (4/30/02)

The Fund's average annual total 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 Aggregate Bond Index, a
broad-based index of government agencies and corporate debt, the Citigroup
Broad Investment Grade Index, an index of investment grade corporate and U.S.
government bonds; and the Lehman Brothers Credit Index, an index of
non-convertible U.S. investment grade corporate bonds. The indices'
performance includes reinvestment of income but does not reflect transaction
costs, fees or expenses. The Fund's investments vary from those in 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

Shareholder Fees. The Fund does not charge an initial sales charge to buy
shares or to reinvest dividends. 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 0.60% 0.60%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution and Service None 0.25%
(12b-1) Fees
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other Expenses 0.04% 0.08%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.64% 0.93%
- --------------------------------------------------------------------------------
Effective May 1, 2007, the Fund's management fee schedule was revised as
described below in "How the Fund is Managed - The Manager- Advisory Fees."
"Management Fees" in the table above assume that the revised management fee
schedule was in effect for the Fund's entire fiscal year ended December 31,
2006. During the fiscal year ended December 31, 2006, the actual management
fee rate was 0.73% of average annual net assets for each class of shares.

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.

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
"split-rated" (rated as investment grade by one rating organization but below
investment grade by another) or unrated, 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") and
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 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 total 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.

|X| Portfolio Turnover. The Fund may engage in active and frequent trading
to try to achieve its objective. It might have a turnover rate in excess of
100% annually. 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. The Financial Highlights
table at the end of this prospectus shows the Fund's turnover rates during
prior fiscal years.

Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Fund might not
always use all of 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.

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 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 certain futures contracts, put and
call options, including options on futures and broadly-based securities
indices and forward contracts. These investments are all referred to as
"hedging instruments." The Fund does not currently use hedging extensively
and is not required to use hedging instruments to seek its objective.

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. Forward contracts can be used to try to
manage foreign currency risks on the Fund's foreign investments. Foreign
currency options can be used to try to protect against declines in the dollar
value of foreign securities the Fund owns, or to protect against an increase
in the dollar cost of buying foreign securities.

Investments in Oppenheimer Institutional Money Market
Fund. The Fund can invest its free cash balances in the Class E shares
of Oppenheimer Institutional Money Market Fund, to seek current income
while preserving liquidity. The Oppenheimer Institutional Money Market
Fund is a registered open-end management investment company, regulated
as a money market fund under the Investment Company Act of 1940, as
amended. It invests in a variety of short-term, high-quality,
dollar-denominated money market instruments issued by the U.S.
government, domestic and foreign corporations and financial
institutions, and other entities. As a shareholder, the Fund will be
subject to its proportional share of the Oppenheimer Institutional
Money Market Fund's Class E expenses, including its advisory fee.
However, the Manager will waive a portion of the Fund's advisory fee to
the extent of the Fund's share of the advisory fee it receives from the
Oppenheimer Institutional Money Market Fund.

|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 may make loans of its portfolio
securities, with a value not to exceed 25% of its net assets, in accordance
with policies approved by the Fund's Board. The Fund has entered into a
securities lending agreement with JPMorgan Chase Bank, N.A. ("JPMorgan
Chase") for that purpose. Under the agreement, the Fund's portfolio
securities may be loaned to brokers, dealers and financial institutions,
provided that such loans comply with the collateralization and other
requirements of the securities lending agreement, the Fund's policies and
applicable government regulations. JPMorgan Chase has agreed, in general, to
bear the risk that a borrower may default on its obligation to return loaned
securities. However, the Fund will be responsible for risks associated with
the investment of cash collateral, including the risk of a default by the
issuer of a security in which cash collateral has been invested. If that
occurs, the Fund may incur additional costs in seeking to obtain the
collateral or may lose the amount of the collateral investment. The Fund may
also lose money if the value of the investments purchased with cash
collateral decreases.

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 discloses its portfolio holdings in its Statements of Investments
on Form N-Q, which are filed with the Securities and Exchange Commission no
later than 60 days after the close of its first and third fiscal quarters.
These required filings are publicly available at the Securities and Exchange
Commission. Therefore, portfolio holdings of the Fund are made publicly
available no later than 60 days after the close of each of the Fund's fiscal
quarters.

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

|X| Advisory Fees. Effective May 1, 2007, under the investment advisory
agreement, the Fund pays the Manager an advisory fee at an annual rate of
0.60% on the first $1 billion of the Fund's daily net assets, and 0.50% of
daily net assets over $1 billion. From January 1, 2006 through December 31,
2006, the Fund's annual advisory fee rate was: 0.75% of the first $200
million of net assets; 0.72% of the next $200 million; 0.69% of the next $200
million; 0.66% of the next $200 million; 0.60% of the next $200 million; and
0.50% of net assets over $1 billion. The Fund's advisory fee rate for its
fiscal year ended December 31, 2006 was 0.73% of 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, Thomas Swaney and Antulio Bomfim who are primarily responsible
for the day-to-day management of the Fund's investments.

Mr. Manioudakis has been a Vice President and 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 Vice President and 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 Vice President and 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. Swaney has been a portfolio manager of the Fund and a Vice
President of the Manager since April 2006 and a Vice President of the Fund
since April 2006. He is also a portfolio manager of other portfolios in the
OppenheimerFunds complex. Mr. Swaney was a senior analyst of the Manager's
High Grade Investment Team from June 2002 to March 2006. Prior to joining
the Manager in June 2002, Mr. Swaney was a senior fixed income analyst at
Miller, Anderson & Sherrerd, a division of Morgan Stanley Investment
Management from May 1998 through May 2002.

Mr. Bomfim has been a Vice President and 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.

INVESTING IN THE FUND

How to Buy and Sell Shares

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, may increase the Fund's transaction and
administrative costs and/or may affect the performance. For example, if large
dollar amounts were involved in redemption transactions, the might be
required to sell portfolio securitie's transaction or administrative expenses
might be increased. The extent to which the might be affected by such trading
activity would depend on various factors, such as the current asset size of
the Fund, the nature of its investments, the amount of Fund assets the
portfolio managers maintain in cash or cash equivalents, and the aggregate
dollar amount, number and frequency of the share trades.

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.

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.

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.
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 currently offers only two classes of shares. The classes 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 classes 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, generally 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 NYSE (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.

Dividends, Capital Gains and Taxes

Financial Highlights

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

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.19 $ 11.50 $ 11.42 $ 11.31 $ 11.21
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53 1 .51 1 .43 1 .51 .65
Net realized and unrealized gain (loss) .03 (.23) .18 .23 .27
Payment from affiliate -- -- -- -- .01
-----------------------------------------------------------------------
Total from investment operations .56 .28 .61 .74 .93
- -----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.59) (.59) (.53) (.63) (.83)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.16 $ 11.19 $ 11.50 $ 11.42 $ 11.31
=======================================================================

- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
- -----------------------------------------------------------------------------------------------------------------------------
Total return at net asset value 2 5.28% 2.59% 5.49% 6.78% 9.02%
Total return before payment from affiliate 3 N/A N/A N/A N/A 8.93%

- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 367,106 $ 430,642 $ 504,244 $ 618,234 $ 724,787
- -----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 391,750 $ 466,033 $ 552,293 $ 691,931 $ 686,932
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income before payment from affiliate 4.83% 4.56% 3.82% 4.03% 5.91% 3
Net investment income after payment from affiliate N/A N/A N/A N/A 6.07%
Total expenses 0.77% 5,6 0.76% 7 0.75% 7 0.73% 7 0.73% 7
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 114% 8 111% 8 95% 8 101% 157%

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.77%

6. Voluntary waiver of affiliated funds management fees less than 0.01%.

7. Reduction to custodian expenses less than 0.01%.

8. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

PURCHASE TRANSACTIONS SALE TRANSACTIONS
--------------------------------------------------------------------------
Year Ended December 31, 2006 $1,168,229,255 $1,270,329,129
Year Ended December 31, 2005 2,420,041,493 2,423,498,913
Year Ended December 31, 2004 2,841,348,053 2,925,500,296

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002 1
- -------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.15 $ 11.47 $ 11.39 $ 11.30 $ 10.46
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .49 2 .47 2 .40 2 .43 .11
Net realized and unrealized gain (loss) .03 (.22) .18 .28 .72
Payment from affiliate -- -- -- -- .01
-------------------------------------------------------------------------
Total from investment operations .52 .25 .58 .71 .84
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.57) (.57) (.50) (.62) --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.10 $ 11.15 $ 11.47 $ 11.39 $ 11.30
=========================================================================

- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN:
- -------------------------------------------------------------------------------------------------------------------------------
Total return at net asset value 3 4.93% 2.33% 5.22% 6.56% 8.03%
Total return before payment from affiliate 4 N/A N/A N/A N/A 7.94%

- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 41,191 $ 11,110 $ 3,505 $ 3,835 $ 2,435
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 21,265 $ 7,213 $ 3,002 $ 3,903 $ 834
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 5
Net investment income before payment from affiliate 4.56% 4.29% 3.55% 3.73% 4.37% 4
Net investment income after payment from affiliate N/A N/A N/A N/A 5.04%
Total expenses 1.06% 6,7 1.03% 8 0.99% 8 0.98% 8 0.98% 8,9
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 114% 10 111% 10 95% 10 101% 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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 1.06%

7. Voluntary waiver of affiliated funds management fees less than 0.01%.

8. Reduction to custodian expenses less than 0.01%.

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

10. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

PURCHASE TRANSACTIONS SALE TRANSACTIONS
--------------------------------------------------------------------------
Year Ended December 31, 2006 $ 1,168,229,255 $ 1,270,329,129
Year Ended December 31, 2005 2,420,041,493 2,423,498,913
Year Ended December 31, 2004 2,841,348,053 2,925,500,296

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
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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 Securities and Exchange Commission's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling the Securities and Exchange
Commission at 1.202.551.8090. Reports and other information about the Fund
are available on the EDGAR database on the Securities and Exchange
Commission's Internet website at www.sec.gov. Copies may be obtained after
payment of a duplicating fee by electronic request at the Securities and
Exchange Commission's e-mail address: publicinfo@sec.gov or by writing to the
Securities and Exchange Commission's Public Reference Section, Washington,
D.C. 20549-0102.

The Fund's SEC File No. 811-4108
PR0630.001.0407 [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 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
- -----------------------------------------------------
- -----------------------------------------------------
12/31/97 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%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/05 2.59%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/06 5.28%
- -----------------------------------------------------

Oppenheimer
Global Securities Fund/VA
A series of Oppenheimer Variable Account Funds

Prospectus dated April 30, 2007
Oppenheimer Global Securities Fund/VA
is a mutual fund that 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. 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 eligible to purchase
Service shares, Class 3 or Class 4
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.

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
of U.S. and foreign companies. 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., (the "Manager") 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. 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 looks
primarily for foreign and U.S. companies with high growth potential. He uses
fundamental analysis of a company's financial statements, management
structure, operations and product development, and considers factors
affecting the industry of which the issuer is part.

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

o Stocks of small-, medium- and large-cap growth-oriented companies
worldwide.
o Companies that stand to benefit from global growth trends at attractive
valuations.
o Businesses with strong competitive positions and high demand for their
products or services.
o Cyclical opportunities in the business cycle and sectors or industries
that may benefit from those opportunities.

In applying these and other selection criteria, the portfolio manager
considers the effect of worldwide trends on the growth of various business
sectors. The trends, or global "themes," currently considered include growing
affluence worldwide, new technologies, the aging population and corporate
restructuring. 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 Manager will cause
the Fund to underperform relative to other funds having a similar objective.

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, 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.

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 can invest in securities of large and medium-size
companies, it also buys stocks of smaller-size companies, which may have more
volatile stock prices than larger companies.

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.

Risks of Growth Investing. 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.

Investing in Small-Cap Stocks. Although the Fund focuses its investments in
mid- and large-cap companies, it may invest in stocks of small-cap
companies. Small-cap growth companies can include both established and
newer companies. While newer growth companies might offer greater
opportunities for capital appreciation than larger, more established
companies, they involve substantially greater risks of loss and price
fluctuations than larger issuers.

Newer 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.

Investing in Special Situations. Periodically, the Fund might use aggressive
investment techniques. These might include seeking to benefit from
what the portfolio manager perceives to be "special situations," such
as mergers, reorganizations, restructurings or other unusual events
expected to affect a particular issuer. However, there is a risk that
the change or event might not occur, which could have a negative
impact on the price of the issuer's securities. The Fund's investment
might not produce the expected gains or could incur a loss for the
portfolio.

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. The
Fund might sometimes seek to take tactical advantage of short-term
market movements or events affecting particular issuers or industries.
There is a risk that if the event does not occur as expected, the
value of the stock could fall, which in turn could depress the Fund's
share prices.

|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 to which U.S. companies are subject. 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 stocks to fall and could therefore
decrease the Fund's share prices.

Additionally, if the Fund invests a significant amount of its assets in
foreign securities, it may be exposed 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 before
the close of the New York Stock Exchange (the "NYSE") 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 of Trustees believe to be their fair value, and the imposition
of redemption fees, may help deter those activities.

Special Risks of Emerging Markets. While the Fund currently focuses on
investing in developed markets such as the U.S., Canada, Western
Europe, Japan, Australia and New Zealand, it can also invest in
emerging or 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.

|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 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 Fund's performance for Non-Service shares
from year to year for the last ten calendar years and by showing how the
average annual total returns of the Fund's shares compared to those of a
broad-based market index. Because the Fund's Service shares are subject to a
service fee, their performance is expected to be lower for any given period.
The Fund's past investment performance is not necessarily an indication of
how the Fund will perform in the future.

Annual Total Returns (as of 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 36.93% (4 Qtr 99) and the lowest return (not
annualized) for a calendar quarter was -18.34% (3 Qtr 02).

- ------------------------------------------------------------------------------------
Average Annual Total Returns
- ------------------------------ 5 Years 10 Years
for the periods ended (or life of (or life of class,
December 31, 2006 1 Year class, if less) if less)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Oppenheimer Global Securities 17.69% 12.29% 13.83%
Fund/VA
Non-Service Shares (inception
November 12, 1990)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Oppenheimer Global Securities 17.36% 12.03% 5.78%
Fund/VA
Service Shares (inception
July 13, 2000)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Oppenheimer Global Securities 17.69% 25.53% n/a
Fund/VA
Class 3 (inception May 1,
2003)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Oppenheimer Global Securities 17.40% 18.15% n/a
Fund/VA
Class 4 (inception May 3,
2004)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Morgan Stanley Capital 20.65% 10.49% 8.08%
International World Index 20.42%(1) 3.19%(3)
16.99%(2)
- ------------------------------------------------------------------------------------
(1) From 4/30/03.
(2) From 4/30/04.
(3) From 6/30/00.

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

Shareholder Fees. The Fund does not charge an initial sales charge to buy
shares or to reinvest dividends. There are no exchange 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.

- ---------------------------------------------------------------------------------
Shareholder Fees (fees paid directly from your investment)
(% of average daily net assets)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Non-Service Service Shares Class 3 Shares Class 4 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 Class 3 Class 4
Shares Shares Shares Shares
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Management Fees 0.62% 0.62% 0.62% 0.62%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees N/A 0.25% N/A 0.25%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Other Expenses 0.04% 0.04% 0.04% 0.04%
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Total Annual Operating
Expenses 0.66% 0.91% 0.66% 0.91%
- ----------------------------------------------------------------------------

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 all four
classes. That undertaking may be amended or withdrawn at any time. For the
Fund's fiscal year ended December 31, 2006, 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 $93 $291 $506 $1,125
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class 3 Shares $68 $212 $369 $825
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class 4 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.

However, changes in the overall market prices of securities and any
income they might 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.

|X| Stock Investments. The Fund invests primarily in a diversified
portfolio of common stocks (and may buy other equity securities) of issuers
that may be of large, medium or small 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.

Growth Stock Investments. The Fund's investments include common stocks of
foreign and domestic 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, computer software and new consumer products.

Growth companies may be applying new technology, new or improved
distribution techniques or developing new services that might 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
competitors.

Growth companies tend to retain a large part of their earnings for
research, development or investment in capital assets. Therefore, they
do not tend to emphasize paying dividends, and may not pay any
dividends for some time. They are selected for the Fund's portfolio
because the Manager believes the price of their stock will increase
over the long term. However, growth stocks may be more volatile than
other stock investments. They may lose favor with investors if the
issuer's business plans do not produce the expected results, or if
growth investing falls out of favor with investors. Growth stocks may
be subject to more volatility because of investor speculation about the
issuer's prospects.

Foreign Securities. The foreign securities the Fund can buy include stocks
and other equity securities of companies organized under the laws of a
foreign country or companies that have a substantial portion of their
operations or assets abroad, or derive a substantial portion of their
revenue or profits from businesses, investments or sales outside the
U.S. Foreign securities include securities traded primarily on foreign
securities exchanges or in foreign over-the-counter markets. Though not
a principal investment strategy, the Fund can also buy debt securities
issued by foreign companies and governments, as described in the Fund's
Statement of Additional Information.

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| 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, 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.

Derivatives have risks. 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. 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 a derivative is based, and the derivative
itself, may not perform the way the Manager expected it to perform. As a
result of these risks the Fund could realize less principal or income from
the investment than expected. If that happens, the Fund's share prices could
decline. 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 as well as other derivative instruments.
These are all referred to as "hedging instruments." The Fund does not use
them for speculative purposes and is not required to hedge to seek its
objective. The Fund has limits on its use of hedging instruments and
currently does not use them to a significant degree.

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

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

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

|X| Investments in Oppenheimer Institutional Money Market Fund. The
Fund can invest its free cash balances in the Class E shares of Oppenheimer
Institutional Money Market Fund, to seek current income while preserving
liquidity. The Oppenheimer Institutional Money Market Fund is a registered
open-end management investment company, regulated as a money market fund
under the Investment Company Act of 1940, as amended. It invests in a variety
of short-term, high-quality, dollar-denominated money market instruments
issued by the U.S. government, domestic and foreign corporations and
financial institutions, and other entities. As a shareholder, the Fund will
be subject to its proportional share of the Oppenheimer Institutional Money
Market Fund's Class E expenses, including its advisory fee. However, the
Manager will waive a portion of the Fund's advisory fee to the extent of the
Fund's share of the advisory fee paid by the Oppenheimer Institutional Money
Market Fund.

|X| Loans of Portfolio Securities. The Fund may make loans of its portfolio
securities, with a value not to exceed 25% of its net assets, in accordance
with policies approved by the Fund's Board. The Fund has entered into a
securities lending agreement with JPMorgan Chase Bank, N.A. ("JPMorgan
Chase") for that purpose. Under the agreement, the Fund's portfolio
securities may be loaned to brokers, dealers and financial institutions,
provided that such loans comply with the collateralization and other
requirements of the securities lending agreement, the Fund's policies and
applicable government regulations. JPMorgan Chase has agreed, in general, to
bear the risk that a borrower may default on its obligation to return loaned
securities. However, the Fund will be responsible for risks associated with
the investment of cash collateral, including the risk of a default by the
issuer of a security in which cash collateral has been invested. If that
occurs, the Fund may incur additional costs in seeking to obtain the
collateral or may lose the amount of the collateral investment. The Fund may
also lose money if the value of the investments purchased with cash
collateral decreases.

|X| Portfolio Turnover. The Fund may engage in active and frequent trading
to try to achieve its objective. It might have a turnover rate in excess of
100% annually. 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. The Financial Highlights
table at the end of this prospectus shows the Fund's portfolio turnover rates
during prior fiscal years.

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 discloses its portfolio holdings in its Statements of Investments
on Form N-Q, which are filed with the Securities and Exchange Commission no
later than 60 days after the close of its first and third fiscal quarters.
These required filings are publicly available at the Securities and Exchange
Commission. Therefore, portfolio holdings of the Fund are made publicly
available no later than 60 days after the close of each of the Fund's fiscal
quarters.

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

|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 fiscal year ended
December 31, 2006, was 0.62% of the Fund's average annual net assets for each
class of shares.

|X| Portfolio Manager. The portfolio manager of the Fund is Rajeev Bhaman.
He is the person principally responsible for the day-to-day management of the
Fund's portfolio.

Mr. Bhaman, CFA, is a Vice President of the Fund and has been a
portfolio manager of the Fund since August 2004. He has been a Vice
President of the Manager since January 1997 and is an officer 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.

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

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 which
share class you may be eligible to purchase. 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. Please refer to the accompanying prospectus of the
participating insurance company for more details.

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, may increase the Fund's transaction and
administrative costs and/or may affect the Fund's performance. For example,
if large dollar amounts were involved in redemption transactions, the Fund
might be required to sell portfolio securities at unfavorable times to meet
such redemption requests, and the Fund's transaction or administrative
expenses might be increased. The extent to which the Fund might be affected
by such trading activity would depend on various factors, such as the current
asset size of the Fund, the nature of its investments, the amount of Fund
assets the portfolio manager maintains in cash or cash equivalents, and the
aggregate dollar amount, number and frequency of the share trades.

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.

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.

There can be no assurance that the Fund could obtain the fair value assigned
to a security if it were to sell the security at the same time at which the
Fund determines its net asset value per share.

|X| Classes of Shares. The Fund currently offers four different classes of
shares. The classes of shares designated as Service 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 and Class 4 shares is described below. The
classes of shares that are not subject to a plan are designated as
Non-Service shares and Class 3 shares. The 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 and Class 4 Shares. The Fund
has adopted a Distribution and Service Plan for Service Share and Class 4
Shares to pay the Distributor for distribution related services, personal
services and account maintenance for the Fund's Service shares 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.

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.

The Fund assesses a 1% redemption fee on the proceeds of Class 3 and Class 4
shares that are redeemed within 60 days of their purchase. The redemption fee
is collected by the participating insurance company and paid to the Fund. It
is intended to help offset the trading, market impact, and administrative
costs associated with short-term money movements into and out of the Fund,
and to help deter excessive short term trading. The redemption fee will only
be imposed if the number of Class 3 or Class 4 shares you redeem is more than
the number of Class 3 or Class 4 shares that you have held for more than 60
days. Shares held the longest will be redeemed first.

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.

Financial Highlights

The Financial Highlights Table is presented to help you understand the Fund's
financial performance for its Non-Service and Service shares for the past
five fiscal years and since inception for its Class 3 and Class 4 shares.
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 $ 33.38 $ 29.51 $ 25.08 $ 17.70 $ 22.84
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .43 1 .32 1 .26 1 .19 .16
Net realized and unrealized gain (loss) 5.20 3.85 4.49 7.34 (5.19)
----------------------------------------------------------------------------------
Total from investment operations 5.63 4.17 4.75 7.53 (5.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.36) (.30) (.32) (.15) (.11)
Distributions from net realized gain (1.86) -- -- -- --
----------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (2.22) (.30) (.32) (.15) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 36.79 $ 33.38 $ 29.51 $ 25.08 $ 17.70
==================================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 17.69% 14.31% 19.16% 43.02% (22.13)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 2,297,315 $ 2,124,413 $ 2,518,867 $ 2,280,752 $ 1,549,993
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 2,189,511 $ 2,123,523 $ 2,451,188 $ 1,751,226 $ 1,776,289
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.27% 1.08% 1.01% 0.99% 0.80%
Total expenses 0.66% 4,5,6 0.67% 4 0.66% 4 0.67% 4 0.67% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 35% 30% 34% 34%

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.66%

6. Voluntary waiver of affiliated funds management fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 33.16 $ 29.33 $ 24.96 $ 17.61 $ 22.78
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .33 1 .24 1 .20 1 .12 .12
Net realized and unrealized gain (loss) 5.16 3.84 4.46 7.36 (5.19)
----------------------------------------------------------------------------------
Total from investment operations 5.49 4.08 4.66 7.48 (5.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.30) (.25) (.29) (.13) (.10)
Distributions from net realized gain (1.86) -- -- -- --
----------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (2.16) (.25) (.29) (.13) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 36.49 $ 33.16 $ 29.33 $ 24.96 $ 17.61
==================================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 17.36% 14.06% 18.88% 42.86% (22.37)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 983,558 $ 557,284 $ 346,403 $ 168,739 $ 52,830
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 750,499 $ 413,849 $ 247,490 $ 91,800 $ 34,847
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 0.98% 0.79% 0.77% 0.68% 0.51%
Total expenses 0.91% 4,5,6 0.92% 4 0.91% 4 0.93% 4 0.90% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 35% 30% 34% 34%

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.91%

6. Voluntary waiver of affiliated funds management fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

CLASS 3 SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 1
- ----------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 33.55 $ 29.65 $ 25.19 $ 17.55
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .43 2 .32 2 .26 2 .07
Net realized and unrealized gain 5.23 3.88 4.52 7.57
------------------------------------------------------------------
Total from investment operations 5.66 4.20 4.78 7.64
- ----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.36) (.30) (.32) --
Distributions from net realized gain (1.86) -- -- --
------------------------------------------------------------------
Total dividends and/or distributions to shareholders (2.22) (.30) (.32) --
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 36.99 $ 33.55 $ 29.65 $ 25.19
==================================================================

- ----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 17.69% 14.34% 19.19% 43.53%
- ----------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 395,901 $ 346,064 $ 265,044 $ 147,576
- ----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 369,406 $ 296,252 $ 199,388 $ 80,579
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 1.26% 1.06% 1.00% 0.73%
Total expenses 0.66% 5,6,7 0.67% 5 0.66% 5 0.68% 5
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 35% 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%.

6. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.66%

7. Voluntary waiver of affiliated funds management fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

CLASS 4 SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 1
- -----------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 33.15 $ 29.35 $ 25.21
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2 .34 .24 .09
Net realized and unrealized gain 5.16 3.84 4.05
--------------------------------------------------
Total from investment operations 5.50 4.08 4.14
- -----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.30) (.28) --
Distributions from net realized gain (1.86) -- --
--------------------------------------------------
Total dividends and/or distributions to shareholders (2.16) (.28) --
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 36.49 $ 33.15 $ 29.35
==================================================

- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 17.40% 14.05% 16.42%
- -----------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 114,232 $ 90,604 $ 37,384
- -----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 100,973 $ 61,380 $ 19,774
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 1.00% 0.79% 0.53%
Total expenses 0.91% 5,6,7 0.93% 5 0.94% 5
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 35% 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%.

6. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.91%

7. Voluntary waiver of affiliated funds management fees less than 0.01%.

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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:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
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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

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 Securities and Exchange Commission's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained by calling the Securities and Exchange
Commission at 1.202.551.8090. Reports and other information about the Fund
are available on the EDGAR database on the Securities and Exchange
Commission's Internet website at www.sec.gov. Copies may be obtained after
payment of a duplicating fee by electronic request at the Securities and
Exchange Commission's e-mail address: publicinfo@sec.gov or by writing to the
Securities and Exchange Commission's Public Reference Section, Washington,
D.C. 20549-0102.
- ------------------------------------------------------------------------------

The Fund's SEC File No.: 811-4108 [logo]
OppenheimerFunds
PR0485.001.0407 Distributor, Inc.
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)":

Calendar Year Ended Annual Total Returns
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%
12/31/05 14.31%
12/31/06 17.69%

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

Prospectus dated April 30, 2007 Oppenheimer High Income Fund/VA is a
mutual fund that seeks high current
income by investing mainly in
high-yield, lower-rated fixed-income
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, 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.

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's objective is to seek a
high level of current income by investing mainly in a diversified portfolio
of high-yield, lower-grade, fixed-income securities that the Fund's
investment manager, OppenheimerFunds, Inc. (the "Manager"), believes does not
involve undue risk.

What Does the Fund Mainly Invest In? The Fund invests in a variety of
high-yield, fixed-income securities and related instruments. These
investments primarily include:
o Lower-grade corporate bonds.
o Foreign corporate and government bonds.
o Swaps, including single name and index-linked credit default swaps.

Under normal market conditions, the Fund invests at least 65% of its
total assets in high-yield, lower-grade, fixed-income securities, commonly
called "junk" bonds. Lower-grade debt securities are those rated below "Baa"
by Moody's Investors Service ("Moody's") or "BBB" by Standard & Poor's
Ratings Services ("S&P") or comparable ratings by other nationally-recognized
rating organizations (or, if unrated, debt securities determined by the
Manager to be comparable to securities rated below investment grade). See
Appendix A to the Statement of Additional Information for a description of
bond ratings. Investments in high-yield securities may provide opportunities
for capital growth while also providing income to the Fund.

The remainder of the Fund's assets may be invested in other debt
securities, common stocks (and other equity securities), or cash or cash
equivalents when the Manager believes these investments are consistent with
the Fund's objectives.

The Fund may invest in securities of foreign issuers. The Fund
currently focuses on debt securities of foreign issuers in developed markets.
The Fund also uses certain derivative investments 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 Do the Portfolio Managers Decide What Securities to Buy or Sell? In
selecting securities for the Fund, the overall strategy is to build a broadly
diversified portfolio to help moderate the special risks of investing in
high-yield debt instruments. The portfolio managers currently use a "bottom
up" approach, focusing on the performance of individual securities before
considering industry trends. They evaluate an issuer's liquidity, financial
strength and earnings power. The Fund's portfolio managers also analyze the
overall investment opportunities and risks in different market sectors,
industries and countries. The Fund's portfolio managers consider some or all
of the factors below (which may change over time):
o Issuers with earnings growth rates that are faster than the growth rate
of the overall economy,
o Issuers with improvements in relative cash flows and liquidity to help
them meet their obligations,
o Corporate sectors that in the portfolio managers' views are currently
undervalued in the marketplace,
o Changes in the business cycle that might affect corporate profits, and
o Securities or sectors that will help the overall diversification of the
portfolio.

The portfolio managers monitor changes in the factors listed above. Any
changes may trigger a decision to sell a security.

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 that invests mainly in lower-grade
domestic and foreign fixed-income securities. Those investors should be
willing to assume the greater risks of short-term share price fluctuations
and the special credit risks that are typical for a fund that invests mainly
in lower-grade domestic and foreign fixed-income 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 intended to be a long-term
investment. However, the Fund is not a complete investment program.

Main Risks of Investing in the Fund

|_| Special Risks of Lower-Grade Securities. Because the Fund can invest
without limit in securities below investment grade, 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. 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. These risks can
reduce the Fund's share prices and the income it earns.

To the extent that a fund invests significantly in high yield bonds,
because those 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"). The Fund imposes a 1% redemption fee in certain circumstances to
attempt to deter such 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 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. At times the Fund's average portfolio maturity
may be relatively long-term. 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 new securities at lower yields will reduce the Fund's
income.

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 or of derivative instruments linked to that foreign
currency. Currency rate changes can also affect the distributions the Fund
makes from the income it receives from foreign securities. 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.

Additionally, if the Fund invests a significant amount of its assets in
foreign securities, it may be exposed to "time-zone arbitrage." Time-zone
arbitrage is an attempt by investors 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 before the close of the New York Stock Exchange (the "NYSE") 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, and
the imposition of redemption fees, may help deter those activities.

|X| 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's value depends on (or is derived from) the value of
an underlying asset, interest rate or index. Options, futures, swaps,
structured notes and certain mortgage-related securities 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 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 and the Fund could receive less income than expected. Some
derivatives may be illiquid, making it difficult to value them or sell them
at an acceptable price. Using derivatives can increase the volatility of the
Fund's 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. Debt
securities are subject to credit and interest rate risks that can affect
their values and the share prices of the Fund. In the short term, the values
of high-yield debt securities can fluctuate substantially because of interest
rate changes and perceptions about the high-yield market among investors.
Defaults by issuers of lower-grade securities could reduce the Fund's income
and share prices. Foreign debt 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. The Fund is likely to be more volatile
and has more risks than funds that focus on investing in U.S. government
securities and investment-grade bonds.

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

The Fund's Past Performance

The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the Fund's performance for Non-Service shares
from year to year for the last ten calendar years and by showing how the
average annual total returns of the Fund's shares compared to those of a
broad-based market index. Because the Fund's Service shares and Class 4
shares are subject to a service fee, their performance is expected to be
lower for any given period. Because Class 3 and Class 4 will first be offered
May 1, 2007, prior performance information is not yet available. 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).

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Average Annual Total Returns 1 Year 5 Years 10 Years
for the periods ended December (or life of
31, 2006(1) class, if less)
- ---------------------------------------------------------------------------------
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Oppenheimer High Income Fund/VA
Non-Service Shares (inception 9.42% 8.10% 5.45%
4/30/86)
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Oppenheimer High Income Fund/VA
Service Shares (inception 9.23% 7.86% 7.75%
9/18/01)
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Merrill Lynch High Yield Master 11.64% 9.85% 6.86%
Index 10.49%(2)
- ---------------------------------------------------------------------------------
1. Class 3 and Class 4 shares will first be offered May 1, 2007.
2. From 9/30/01.

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

- -------------------------------------------------------------------------------
Shareholder Fees (fees paid directly from your investment)
(% of average daily net assets)
- -------------------------------------------------------------------------------
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Non-Service Service Shares Class 3 Shares Class 4 Shares
Shares
- -------------------------------------------------------------------------------
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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. See "How Are
Shares Redeemed?" below.

- ----------------------------------------------------------------------------
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Non-Service Service Class 3 Class 4
Shares Shares Shares Shares
- ----------------------------------------------------------------------------
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Management Fees 0.72% 0.72% 0.72% 0.72%
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Distribution and Service None 0.25% None 0.25%
(12b-1) Fees
- ----------------------------------------------------------------------------
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Other Expenses 0.02% 0.03% 0.02% 0.02%
- ----------------------------------------------------------------------------
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Total Annual Operating 0.74% 1.00% 0.74% 0.99%
Expenses
- ----------------------------------------------------------------------------

Expenses may vary in future years. "Other Expenses" include transfer agent
fees, custodial fees, and accounting and legal expenses the Fund pays. For
Class 3 and Class 4, "Other Expenses" are estimated based on the Manager's
projections of what those expenses will be for the first fiscal year. The
Fund's transfer agent has voluntarily agreed to limit transfer and
shareholder servicing agent fees to 0.35% per fiscal year, for all four
classes. That undertaking may be amended or withdrawn at any time. For the
Fund's fiscal year ended December 31, 2006, 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 $ 76 $237 $413 $922
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Service Shares $103 $320 $555 $1,231
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class 3 Shares $ 76 $237 $413 $922
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Class 4 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. However,
under normal market conditions, the Fund emphasizes investments in
high-yield, lower-grade, fixed-income securities. A fixed-income or 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 has no requirements as to the
range of maturities of the debt securities it can buy or as to the market
capitalization of the issuers of those securities.

The Fund can invest in other debt securities, as well as common stocks
(and other equity securities), or cash or cash equivalents when consistent
with the Fund's goals. 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
amount of 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 total assets in the securities of issuers in
any one industry or the securities of any one foreign government. However,
changes in the overall market prices of securities and the income they pay
can occur at any time. The share prices 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.

|X| High-Yield, Lower-Grade Fixed-Income Securities. Under normal market
conditions the Fund invests at least 65% of its total assets in high-yield,
lower-grade, fixed-income securities of U.S. and foreign issuers, including
bonds, debentures, notes, preferred stock, loan participation interests,
"structured" notes, commercial mortgage-backed securities, and asset-backed
securities, among others, to seek high current income. 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.

|X| Foreign Debt Securities. The Fund can buy a variety of securities
issued by foreign governments and companies, as well as "supra-national"
entities, such as the World Bank. The Fund's foreign investments primarily
include bonds, debentures and notes. The Fund's foreign investments can be
denominated in U.S. dollars or in foreign currencies.

|_| Special Risks of Emerging Markets. The Fund can buy securities in
emerging and developing markets. Investments in these markets present risks
not found in more mature markets. These securities might be more difficult to
sell at an acceptable price and their prices may be more volatile than
securities of developed market issuers. 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| Derivative Investments. The Fund can invest in a number of different
kinds of "derivative" investments. Options, futures, swaps, "structured"
notes, and certain mortgage-related securities are examples of "derivative"
investments the Fund can use. In addition to using some derivatives to hedge
investment risks, the Fund can use derivative investments because they offer
the potential for increased income and principal value. Some derivative
investments held by the Fund may be illiquid.

|_| Credit Default Swaps. The Fund may enter into credit default swaps. A
credit default swap enables an investor to buy or sell protection against a
credit event, such as an issuer's failure to make timely payments of interest
or principal, bankruptcy or restructuring. The terms of the instrument are
generally negotiated by the Fund and the swap counterparty.

If the Fund buys credit protection using a credit default swap, the
Fund will make fixed payments to the counterparty. If a credit event occurs,
the Fund will deliver the defaulted bonds underlying the swap and the swap
counterparty will pay the par amount of the bonds. If the Fund sells credit
protection using a credit default swap, the Fund will receive fixed payments
from the counterparty. If a credit event occurs, the Fund will pay the par
amount of the defaulted bonds underlying the swap 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
bonds, and the fixed payments are then made on the reduced notional amount.

Credit default swaps are subject to counterparty credit risk (if the
counterparty fails to meet its obligations). They are subject to the risk
that the Fund will not properly assess the cost of the instrument. If the
Fund is selling credit protection, there is a risk that a credit event will
occur and that the Fund will have to pay par value on defaulted bonds. If
the Fund is buying credit protection, there is a risk that no credit event
will occur and the Fund will receive no benefit for the premium paid.

|_| "Structured" Notes. The Fund can buy "structured" notes, which are
specially-designed debt investments with principal payments or interest
payments that are linked to the value of an underlying asset, such as an
equity or debt security, currency, or commodity, or non-asset reference, such
as an interest rate or index. The terms of the instrument may be "structured"
by the purchaser (the Fund) and the borrower issuing the note.

The values of these notes will fall or rise in response to changes in
the values of the underlying asset or reference. 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. Their values may be
very volatile and they may have a limited trading market, making it difficult
for the Fund to value them or sell them at an acceptable price.

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 may engage in active and frequent trading
to try to achieve its objective. It might have a turnover rate in excess of
100% annually. 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. The Financial Highlights
table at the end of this prospectus shows the Fund's portfolio turnover rates
during prior fiscal years.

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

|X| Common Stocks and Other Equity Securities. The Fund can invest in
common stocks and other equity securities, including warrants and rights,
preferred stock and convertible securities, when consistent with the Fund's
objective. Preferred stock is considered a debt security for purposes of the
Fund's policy of investing 65% or more of its assets in lower-grade debt
securities. Unlike common stock, preferred stock typically has a stated
dividend rate. When interest rates rise, the value of preferred stock having
a fixed dividend rate tends to fall. The rights to payment of dividends on
preferred stock generally is subordinate to the rights to payment on a
company's debt securities. Preferred stock dividends may be cumulative (they
remain a liability of the company until paid) or non-cumulative.

|_| Special Risks of Investing in Equity Securities. Equity securities
fluctuate in price and their short-term volatility at times may be great. To
the extent that the Fund invests in equity securities, the value of the
Fund's portfolio will be affected by changes in the stock markets. The value
of the Fund's shares will fluctuate as the values of the Fund's portfolio
securities change. The prices of individual stocks do not all move in the
same direction uniformly or at the same time. Different stock markets may
behave differently from each other. In addition to market risk, 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| 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 more than 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").

|X| Mortgage-Related 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. They may
be issued or guaranteed by the U.S. government or its agencies and
instrumentalities or by private issuers. 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. government agency or
instrumentality or mortgage loans insured by a U.S. government agency.

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 might have to reinvest the prepayment
proceeds in other securities paying interest at lower rates, which could
reduce the Fund's yield. The impact of prepayments on the price of a security
may be difficult to predict and may increase the volatility of the price.
Additionally, the Fund may buy mortgage-related securities at a premium.
Accelerated prepayments on those securities could cause the Fund to lose a
portion of its principal investment represented by the premium the Fund paid.

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.

|_| Special Risks of Private-Issuer Mortgage-Backed Securities. CMOs and
other mortgage-related securities issued by private issuers are not U.S.
government securities, and are subject to greater credit risks than
mortgage-related securities that are U.S. government securities. The Fund can
invest in mortgage-backed securities issued by private issuers. 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
interest rate risks and prepayment risks), although in some cases they may be
supported by insurance or guarantees.

|X| Zero-Coupon and "Stripped" Securities. The Fund can buy government and
corporate zero-coupon bonds that pay no interest. They are issued at a
substantial discount from their face value. The Fund can also buy "stripped"
securities that 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 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.

The values of interest-only and principal-only mortgage-related
securities are also very sensitive to prepayments 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. 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 as well as credit risks of the servicing agent of the participation
interest, which can cause the Fund to lose money on its investment. The Fund
can also buy interests in trusts and other entities that hold loan
obligations. In that case the Fund will be subject to the trust's credit
risks.

|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed-delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There might be a risk of loss to the Fund
if the value of the security declines prior to the settlement date.

|X| 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 seven days or less.

|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 contractual 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| Hedging. The Fund can hedge using various strategies, including buying
and selling futures contracts, put and call options and forward contracts.
The Fund is not required to hedge to seek its objective. The Statement of
Additional Information contains more detailed information about these
instruments and limits on their use by the Fund.

The Fund could hedge 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 and currency options 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| Investments in Oppenheimer Institutional Money Market Fund. The Fund
can invest its free cash balances in the Class E shares of Oppenheimer
Institutional Money Market Fund, to seek current income while preserving
liquidity. The Oppenheimer Institutional Money Market Fund is a registered
open-end management investment company, regulated as a money market fund
under the Investment Company Act of 1940, as amended. It invests in a variety
of short-term, high-quality, dollar-denominated money market instruments
issued by the U.S. government, domestic and foreign corporations and
financial institutions, and other entities. As a shareholder, the Fund will
be subject to its proportional share of the Oppenheimer Institutional Money
Market Fund's Class E expenses, including its advisory fee. However, the
Manager will waive a portion of the Fund's advisory fee to the extent of the
Fund's share of the advisory fee it receives from the Oppenheimer
Institutional Money Market Fund.

|X| Loans of Portfolio Securities. The Fund may make loans of its portfolio
securities, with a value not to exceed 25% of its net assets, in accordance
with policies approved by the Fund's Board. The Fund has entered into a
securities lending agreement with JPMorgan Chase Bank, N.A. ("JPMorgan
Chase") for that purpose. Under the agreement, the Fund's portfolio
securities may be loaned to brokers, dealers and financial institutions,
provided that such loans comply with the collateralization and other
requirements of the securities lending agreement, the Fund's policies and
applicable government regulations. JPMorgan Chase has agreed, in general, to
bear the risk that a borrower may default on its obligation to return loaned
securities. However, the Fund will be responsible for risks associated with
the investment of cash collateral, including the risk of a default by the
issuer of a security in which cash collateral has been invested. If that
occurs, the Fund may incur additional costs in seeking to obtain the
collateral or may lose the amount of the collateral investment. The Fund may
also lose money if the value of the investments purchased with cash
collateral decreases.

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 discloses its portfolio holdings in its Statements of Investments
on Form N-Q, which are filed with the Securities and Exchange Commission no
later than 60 days after the close of its first and third fiscal quarters.
These required filings are publicly available at the Securities and Exchange
Commission. Therefore, portfolio holdings of the Fund are made publicly
available no later than 60 days after the close of each of the Fund's fiscal
quarters.

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 adviser since 1960. The Manager and its
subsidiaries and controlled affiliates managed more than $245 billion in
assets as of March 31, 2007, including other Oppenheimer funds with more than
6 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% 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, 2006, 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 Thomas Swaney, Angelo Manioudakis,
Benjamin J. Gord, Geoffrey Caan, and Antulio N. Bomfim who are primarily
responsible for the day-to-day management of the Fund's investments.

Mr. Swaney has been a portfolio manager of the Fund since November 2006,
Vice President of the Fund since December 2006 and a Vice President of
the Manager since April 2006. He is also a portfolio manager of other
portfolios in the OppenheimerFunds complex. Mr. Swaney was a senior
analyst of the Manager's High Grade Investment Team from June 2002 to
March 2006. Prior to joining the Manager in June 2002, Mr. Swaney was a
senior fixed income analyst at Miller, Anderson & Sherrerd, a division
of Morgan Stanley Investment Management, from May 1998 through May 2002.

Mr. Manioudakis has been a portfolio manager of the Fund since November
2006, Vice President of the Fund since December 2006 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 at Miller, Anderson & Sherrerd from August 1993
through April 2002.

Mr. Gord has been a portfolio manager of the Fund since November 2006
and Vice President of the Fund since December 2006. He has been a Vice
President of the Manager and of HarbourView Asset Management Corporation
since April 2002 and of OFI Institutional Asset Management, Inc. since
June 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 from April
1992 through March 2002.

Mr. Caan has been a portfolio manager of the Fund since November 2006,
Vice President of the Fund since December 2006 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. Bomfim has been a portfolio manager of the Fund since November 2006,
Vice President of the Fund since December 2006 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 for the Board of Governors at 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.

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 which
share class you may be eligible to purchase. 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?

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.

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.

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 the Fund's portfolio securities, although it may not
always be able to accurately determine such values. There can be no assurance
that the Fund could obtain the fair value assigned to a security if it were
to sell the security at the same time at which the Fund determines its net
asset value per share. In addition, the discussion of "time-zone arbitrage"
describes effects that the Fund's fair value pricing policy is intended to
counteract.

|X| Classes of Shares. The Fund currently offers four different classes of
shares. The classes 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 and Class 4 shares is described
below. The classes of shares that are not subject to a plan are designated as
Non-Service shares and Class 3 shares. The 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 and Class 4 Shares. The Fund
has adopted a Distribution and Service Plan for Service 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 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 Fund assesses a 1% redemption fee on the proceeds of Class 3 and
Class 4 shares that are redeemed within 60 days of their purchase. The
redemption fee is collected by the participating insurance company and paid
to the Fund. It is intended to help offset the trading, market impact, and
administrative costs associated with short-term money movements into and out
of the Fund, and to help deter excessive short term trading. The redemption
fee will only be imposed if the number of Class 3 or Class 4 shares you
redeem is more than the number of Class 3 or Class 4 shares that you have
held for more than 60 days. Shares held the longest will be redeemed first.

Dividends, Capital Gains and Taxes

Financial Highlights

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

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.44 $ 8.80 $ 8.61 $ 7.51 $ 8.54
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58 1 .57 1 .58 1 .60 .58
Net realized and unrealized gain (loss) .17 (.37) .15 1.09 (.76)
--------------------------------------------------------------------------------
Total from investment operations .75 .20 .73 1.69 (.18)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.64) (.56) (.54) (.59) (.85)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.55 $ 8.44 $ 8.80 $ 8.61 $ 7.51
================================================================================

- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 9.42% 2.31% 8.97% 23.96% (2.40)%
- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 361,445 $ 384,726 $ 479,405 $ 480,112 $ 345,670
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 365,154 $ 444,477 $ 460,877 $ 396,858 $ 335,894
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 7.05% 6.79% 6.91% 8.31% 8.29%
Total expenses 0.74% 4,5,6 0.75% 4 0.75% 4 0.76% 4 0.77% 4
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 57% 64% 51% 48% 75%

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. Voluntary waiver of affiliated fund management fees less than 0.01%.

6. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.74%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.39 $ 8.76 $ 8.58 $ 7.49 $ 8.54
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .56 1 .55 1 .56 1 .61 .88
Net realized and unrealized gain (loss) .17 (.38) .15 1.06 (1.08)
----------------------------------------------------------------------------------
Total from investment operations .73 .17 .71 1.67 (.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.62) (.54) (.53) (.58) (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.50 $ 8.39 $ 8.76 $ 8.58 $ 7.49
==================================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 9.23% 2.01% 8.73% 23.79% (2.67)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 173,299 $ 155,617 $ 134,013 $ 76,354 $ 17,705
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 160,703 $ 141,287 $ 101,464 $ 41,246 $ 5,602
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 6.80% 6.54% 6.63% 7.84% 8.91%
Total expenses 1.00% 4,5,6 1.00% 4 1.01% 4 1.04% 4 1.02% 4,7
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 57% 64% 51% 48% 75%

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. Voluntary waiver of affiliated fund management fees less than 0.01%.

6. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 1.00%

7. 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:
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
By Telephone:
Call OppenheimerFunds Services toll-free: 1.800.981.2871

- ------------------------------------------------------------------------------
Information about the Fund including the Statement of Additional Information
can be reviewed and copied at the Securities and Exchange Commission's Public
Reference Room in Washington, D.C. Information on the operation of the Public
Reference Room may be obtained y calling the Securities and Exchange
Commission at 1.202.551.8090. Reports and other information about the Fund
are available on the EDGAR database on the Securities and Exchange
Commission's Internet website at www.sec.gov. Copies may be obtained after
payment of a duplicating fee by electronic request at the Securities and
Exchange Commission's e-mail address: publicinfo@sec.gov or by writing to the
Securities and Exchange Commission's Public Reference Section, Washington,
D.C. 20549-0102.

The Fund's SEC File No. 811-4108
PR0640.001.0407 [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 December
31 each year)":

- -----------------------------------------------------
Calendar Year Ended Annual Total Returns
- -----------------------------------------------------
- -----------------------------------------------------
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%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/05 2.31%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/06 9.42%
- -----------------------------------------------------

Oppenheimer Main Street Fund(R)/VA
A series of Oppenheimer Variable
Account Funds
Oppenheimer Main Street Fund/VA is a
Prospectus dated April 30, 2007 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 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.

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. (the "Manager") may 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
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.

At times, the Fund may increase the 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.

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, 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 Fund's performance for Non-Service shares
from year to year for the last ten calendar years and by showing how the
average annual total returns of the Fund's shares compared to those of a
broad-based market index. Because the Fund's Service shares are subject to a
service fee, their performance is expected to be lower for any given period.
The Fund's past investment performance is not necessarily an indication of
how the Fund will perform in the future.

Annual Total Returns (as of 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 19.28% (4 Qtr 98) and the lowest return (not
annualized) for a calendar quarter was -22.38% (3 Qtr 98).

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 0.64% 0.64%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees n/a 0.25%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other Expenses 0.02% 0.02%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.66% 0.91%
- --------------------------------------------------------------------------------

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, 2006 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.

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.

|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. 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| Loans of Portfolio Securities. The Fund may make loans of its portfolio
securities, with a value not to exceed 25% of its net assets, in accordance
with policies approved by the Fund's Board. The Fund has entered into a
securities lending agreement with JPMorgan Chase Bank, N.A. ("JPMorgan
Chase") for that purpose. Under the agreement, the Fund's portfolio
securities may be loaned to brokers, dealers and financial institutions,
provided that such loans comply with the collateralization and other
requirements of the securities lending agreement, the Fund's policies and
applicable government regulations. JPMorgan Chase has agreed, in general, to
bear the risk that a borrower may default on its obligation to return loaned
securities. However, the Fund will be responsible for risks associated with
the investment of cash collateral, including the risk of a default by the
issuer of a security in which cash collateral has been invested. If that
occurs, the Fund may incur additional costs in seeking to obtain the
collateral or may lose the amount of the collateral investment. The Fund may
also lose money if the value of the investments purchased with cash
collateral decreases.

|X| Portfolio Turnover. The Fund may engage in active and frequent trading
to try to achieve its objective. It might have a turnover rate in excess of
100% annually. 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. The Financial Highlights
table at the end of this prospectus shows the Fund's portfolio turnover rates
during prior fiscal years.

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 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
claim 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 mix of equities and debt securities in the
Fund's portfolio will vary over time depending on the Manager's judgment
about market and economic conditions. The Fund's investments in debt
securities can include securities issued or guaranteed by the U.S. government
or its agencies and instrumentalities, and foreign and domestic corporate
bonds, notes and debentures. They may be selected for their income
possibilities, for liquidity and to help cushion fluctuations in the Fund's
net asset values.

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. 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.

|X| Interest Rate Risks. The values of debt securities, including U.S.
Government securities, are subject to change when prevailing interest rates
change. When interest rates fall, the values of already-issued debt
securities generally rise. When interest rates rise, the values of
already-issued debt securities generally fall. 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| Credit Risk. Debt securities are subject to credit risk. Credit
risk is the risk that the issuer of a security might not 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.

|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.

Additionally, if a Fund invests a significant amount of its assets in
foreign securities, it may be exposed 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 "NYSE") 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 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 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.

|X| Hedging. The Fund can buy and sell certain futures contracts, put and
call options, including options on futures and broadly-based securities
indices, swaps, and forward contracts. These investments are referred to as
"hedging instruments." The Fund does not currently use hedging extensively
and is not required to use hedging instruments to seek its objective.
The Fund can buy and sell options, swaps, 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. Forward contracts can be
used to try to manage foreign currency risks on the Fund's foreign
investments. Foreign currency options can be used to try to protect against
declines in the dollar value of foreign securities the Fund owns, or to
protect against an increase in the dollar cost of buying foreign securities.

|X| Investments in Oppenheimer Institutional Money Market Fund. The
Fund can invest its free cash balances in the Class E shares of Oppenheimer
Institutional Money Market Fund, to seek current income while preserving
liquidity. The Oppenheimer Institutional Money Market Fund is a registered
open-end management investment company, regulated as a money market fund
under the Investment Company Act of 1940, as amended. It invests in a variety
of short-term, high-quality, dollar-denominated money market instruments
issued by the U.S. government, domestic and foreign corporations and
financial institutions, and other entities. As a shareholder, the Fund will
be subject to its proportional share of the Oppenheimer Institutional Money
Market Fund's Class E expenses, including its advisory fee. However, the
Manager will waive a portion of the Fund's advisory fee to the extent of the
Fund's share of the advisory fee paid by the Oppenheimer Institutional Money
Market Fund.

|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 such investments would
include money market instruments, short-term debt securities, U.S. government
securities, cash equivalents such as 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.

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 discloses its portfolio holdings in its Statements of Investments
on Form N-Q, which are filed with the Securities and Exchange Commission (the
"SEC") no later than 60 days after the close of its first and third fiscal
quarters. These required 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 each of the Fund's fiscal quarters.

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

|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 fiscal year ended
December 31, 2006, was 0.64% 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. He
is a Chartered 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.

Dr. 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.

INVESTING IN THE FUND

How to Buy and Sell Shares

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

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.

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.

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 the Fund's portfolio securities, although it may not
always be able to accurately determine such values. In addition, the
discussion of "time-zone arbitrage" describes effects that the Fund's fair
value pricing policy is intended to counteract.

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.

|X| Classes of Shares. The Fund has four classes of shares authorized. The
Fund currently offers only two classes of shares. The classes 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 classes of shares that are not subject to a Plan has no class "name"
designation, but is referred to herein as "Non-Service 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.

Dividends, Capital Gains and Taxes

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 upon request.

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

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.79 $ 20.84 $ 19.20 $ 15.32 $ 18.99
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .27 1 .26 1 .27 1 .18 .16
Net realized and unrealized gain (loss) 2.98 .97 1.53 3.86 (3.70)
----------------------------------------------------------------------------
Total from investment operations 3.25 1.23 1.80 4.04 (3.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.26) (.28) (.16) (.16) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.78 $ 21.79 $ 20.84 $ 19.20 $ 15.32
============================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 15.03% 5.98% 9.46% 26.72% (18.80)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,046,146 $1,121,476 $1,238,948 $1,214,960 $890,740
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,054,522 $1,156,299 $1,216,081 $1,003,396 $999,275
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.19% 1.26% 1.39% 1.10% 0.94%
Total expenses 0.66% 4,5 0.67% 6 0.67% 6 0.70% 6 0.69% 6
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 100% 88% 82% 85% 98%

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. Voluntary waiver of affiliated funds management fees less than 0.01%.

5. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.66%

6. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.63 $ 20.70 $ 19.10 $ 15.26 $ 18.95
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .22 1 .21 1 .25 1 .14 .13
Net realized and unrealized gain (loss) 2.95 .96 1.49 3.85 (3.70)
----------------------------------------------------------------------------
Total from investment operations 3.17 1.17 1.74 3.99 (3.57)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.22) (.24) (.14) (.15) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.58 $ 21.63 $ 20.70 $ 19.10 $ 15.26
============================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 14.76% 5.74% 9.15% 26.44% (18.99)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,099,293 $ 598,348 $ 372,845 $ 166,717 $ 51,929
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 810,181 $ 462,272 $ 262,660 $ 98,210 $ 34,604
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 0.95% 1.02% 1.30% 0.83% 0.87%
Total expenses 0.91% 4,5 0.91% 6 0.92% 6 0.96% 6 0.84% 6
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 100% 88% 82% 85% 98%

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. Voluntary waiver of affiliated funds management fees less than 0.01%.

5. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.91%

6. 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:
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
By Telephone:
Call OppenheimerFunds Services toll-free: 1.800.551.2871

The Fund's SEC File No. 811-4108
PR0650.001.0407 [logo] OppenheimerFunds
Distributor, Inc.
Printed on recycled paper

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)":

Calendar Year Ended Annual Total Returns
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%
12/31/05 5.98%
12/31/06 15.03%

Oppenheimer
Main Street Small Cap Fund(R)/VA
A series of Oppenheimer Variable
Account Funds

Prospectus dated April 30, 2007

Oppenheimer Main Street Small Cap
Fund/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 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.

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. (the "Manager"), 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" 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 asset capitalizations 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 value of
a company determined by the total market value of its 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 financial characteristics attractive 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 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.

|X| Risks of Investing In Stocks. Stocks fluctuate in price, and their
short-term volatility at times may be great. 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 Fund's net asset values per share will fluctuate as the
values of the Fund's portfolio securities change.

The prices of individual stocks do not all move in the same direction
uniformly or at the same time. Different stock markets may behave differently
from each other. The Fund currently focuses its stock investments in U.S.
issuers and accordingly will be affected primarily by changes in U.S. stock
markets.

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 a negative change in the value of
a particular stock because of an event affecting a particular issuer. 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.

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| 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.

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.

|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.

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

The Fund's Past Performance

The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the Fund's performance for Non-Service shares
from year to year for the last eight calendar years and by showing how the
average annual total returns of the Fund's shares compared to those of a
broad-based market index. Because the Fund's Service shares are subject to a
service fee, their performance is expected to be lower for any given period.
The Fund's past investment performance is not necessarily an indication of
how the Fund will perform in the future.

Annual Total Returns (as of 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 Qtr 99) and the lowest return (not
annualized) for a calendar quarter was -18.40% (1st Qtr 01).

- ------------------------------------------------------------------------------------
Average Annual Total Returns 5 Years 10 Years
for the periods ended (or life of (or life of class,
December 31, 2006 1 Year class, if less) if less)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Oppenheimer Main Street Small 15.00% 12.92% 8.95%
Cap Fund/VA
Non-Service Shares
(inception 5/1/98)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Oppenheimer Main Street Small 14.66% 12.70% 12.41%
Cap Fund/VA
Service Shares
(inception 7/16/01)
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Russell 2000(R)Index 18.37% 11.39% 7.15%(1)
10.75%(2)
- ------------------------------------------------------------------------------------
1 From 4/30/98.
2 From 7/31/01.

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 0.72% 0.72%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution and Service
(12b-1) Fees n/a 0.25%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other Expenses 0.05% 0.03%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.77% 1.00%
- --------------------------------------------------------------------------------

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.

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.

In addition to quantitative research focusing on small cap stocks, 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.

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. They also may 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.

To the extent that a fund invests significantly in small-cap
securities, because those 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| Investing in 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 and frequent trading
to try to achieve its objective. It might have a turnover rate in excess of
100% annually. 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. The Financial Highlights
table at the end of this prospectus shows the Fund's portfolio turnover rates
during prior fiscal years.

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. Preferred stock has a set dividend rate and ranks after
bonds and before common stocks in its claims for dividends and on assets if
the issuer is liquidated or becomes bankrupt. 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 buy securities of companies or
governments in any country, developed or underdeveloped. While there is no
limit on the amount of the Fund's assets that may be invested in foreign
securities, the Manager does not currently plan to invest significant amounts
of the Fund's assets in foreign securities. While foreign securities offer
special investment opportunities, there are also special risks, such as the
effects of a change in value of a foreign currency against the U.S. dollar,
which will result in a change in the U.S. dollar value of securities
denominated in that foreign currency.

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.

|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.

|X| Hedging. The Fund can buy and sell certain futures contracts, put and
call options, including options on futures and broadly-based securities
indices, swaps, and forward contracts. These investments are referred to as
"hedging instruments." The Fund does not currently use hedging extensively
and is not required to use hedging instruments to seek its objective.
The Fund can buy and sell options, swaps, 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. Forward contracts can be used to try to
manage foreign currency risks on the Fund's foreign investments. Foreign
currency options can be used to try to protect against declines in the dollar
value of foreign securities the Fund owns, or to protect against an increase
in the dollar cost of buying foreign securities.

|X| Investments in Oppenheimer Institutional Money Market Fund. The
Fund can invest its free cash balances in the Class E shares of Oppenheimer
Institutional Money Market Fund, to seek current income while preserving
liquidity. The Oppenheimer Institutional Money Market Fund is a registered
open-end management investment company, regulated as a money market fund
under the Investment Company Act of 1940, as amended. It invests in a variety
of short-term, high-quality, dollar-denominated money market instruments
issued by the U.S. government, domestic and foreign corporations and
financial institutions, and other entities. As a shareholder, the Fund will
be subject to its proportional share of the Oppenheimer Institutional Money
Market Fund's Class E expenses, including its advisory fee. However, the
Manager will waive a portion of the Fund's advisory fee to the extent of the
Fund's share of the advisory fee paid by the Oppenheimer Institutional Money
Market Fund.

|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 such investments would
include cash or cash equivalents, such as U.S. Treasury Bills and other
short-term U.S. government obligations or high-grade commercial paper, money
market instruments and 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 discloses its portfolio holdings in its Statements of Investments
on Form N-Q, which are filed with the Securities and Exchange Commission no
later than 60 days after the close of its first and third fiscal quarters.
These required filings are publicly available at the Securities and Exchange
Commission. Therefore, portfolio holdings of the Fund are made publicly
available no later than 60 days after the close of each of the Fund's fiscal
quarters.

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

|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 fiscal year ended
December 31, 2006, 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 Nikolaos D.
Monoyios and Mark Zavanelli 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 October 2003.
He is a Chartered 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. He 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. 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. He 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.

INVESTING IN THE FUND

How to Buy and Sell Shares

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

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.

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.

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 the Fund's portfolio securities, although it may not
always be able to accurately determine such values. There can be no assurance
that the Fund could obtain the fair value assigned to a security if it were
to sell the security at the same time at which the Fund determines its net
asset value per share. In addition, the discussion of "time-zone arbitrage"
describes effects that the Fund's fair value pricing policy is intended to
counteract.

|X| Classes of Shares. The Fund has four classes of shares authorized. The
Fund currently offers only two classes of shares. The classes 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 classes of shares that are not subject to a Plan has no class "name"
designation, but is referred to herein as "Non-Service 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.

Dividends, Capital Gains and Taxes

Financial Highlights

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

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.18 $ 16.05 $ 13.44 $ 9.31 $ 11.05
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .08 1 .04 1 .01 1 (.03) (.01)
Net realized and unrealized gain (loss) 2.46 1.51 2.60 4.16 (1.73)
---------------------------------------------------------------
Total from investment operations 2.54 1.55 2.61 4.13 (1.74)
- ----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.03) -- -- -- --
Distributions from net realized gain (.54) (.42) -- -- --
---------------------------------------------------------------
Total dividends and/or distributions to shareholders (.57) (.42) -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.15 $ 17.18 $ 16.05 $ 13.44 $ 9.31
===============================================================

- ----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 15.00% 9.92% 19.42% 44.36% (15.75)%
- ----------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 81,405 $44,820 $38,636 $27,551 $19,577
- ----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 62,659 $39,708 $30,871 $20,271 $20,505
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income (loss) 0.46% 0.23% 0.06% (0.30)% (0.09)%
Total expenses 0.77% 4,5 0.81% 6 0.83% 6 1.01% 6 1.00% 6
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 110% 110% 147% 130% 121%

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. Voluntary waiver of affiliated funds management fees less than 0.01%.

5. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.77%

6. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.06 $ 15.97 $ 13.40 $ 9.29 $ 11.05
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .04 1 -- 1,2 (.02) 1 (.02) (.01)
Net realized and unrealized gain (loss) 2.42 1.51 2.59 4.13 (1.75)
-----------------------------------------------------------------
Total from investment operations 2.46 1.51 2.57 4.11 (1.76)
- ------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income -- 2 -- -- -- --
Distributions from net realized gain (.54) (.42) -- -- --
-----------------------------------------------------------------
Total dividends and/or distributions to shareholders (.54) (.42) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.98 $ 17.06 $ 15.97 $ 13.40 $ 9.29
=================================================================

- ------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 14.66% 9.71% 19.18% 44.24% (15.93)%
- ------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 636,430 $314,868 $173,612 $62,660 $ 6,111
- ------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 479,456 $221,324 $112,279 $25,018 $ 2,228
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income (loss) 0.23% 0.02% (0.14)% (0.43)% (0.26)%
Total expenses 1.00% 5 1.04% 1.06% 1.23% 1.21%
Expenses after payments and waivers and reduction to
custodian expenses 1.00% 1.04% 1.06% 1.23% 1.19%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 110% 110% 147% 130% 121%

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 1.00%

- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------

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

The Fund's SEC File No. 811-4108
PR0297.001.0407 [logo] OppenheimerFunds
Distributor, Inc.
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 shares of
the Fund for each of the seven 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
12/31/99 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%
12/31/05 9.92%
12/31/06 15.00%

Oppenheimer
Money Fund/VA
A series of Oppenheimer Variable Account Funds

Prospectus dated April 30, 2007 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.

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. (the "Manager"), 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. Credit risk is the risk that the issuer might not make timely payments
of interest on the security or repay principal when it is due. Interest rate
risk is the risk that prices of debt securities are subject to change when
prevailing interest rates change. For example, when interest rates rise, the
values of already-issued debt securities generally fall and they may sell at
a discount from their face amount. 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 one measure of the risks of investing in
the Fund, by showing changes in the Fund's performance from year to year for
the last ten calendar years and 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 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 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, 2006
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Oppenheimer Money Fund/VA
(inception 4/3/85) 4.71% 2.15% 3.63%
- -------------------------------------------------------------------------------

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, 2006.

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. That undertaking
may be amended or withdrawn at any time. For the Fund's fiscal year ended
December 31, 2006, 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
- ----------------------------------------------------
- ----------------------------------------------------
$50 $158 $275 $617
- ----------------------------------------------------

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 of 1940, as amended (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? 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.

These procedures 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 investors, 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 seven days or less. It
cannot invest more than 10% of its net assets in repurchase agreements
maturing in more than seven 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 discloses its portfolio holdings in its Statements of Investments
on Form N-Q, which are filed with the Securities and Exchange Commission no
later than 60 days after the close of the first and third fiscal quarters.
These required filings are publicly available at the Securities and Exchange
Commission. Therefore, portfolio holdings of the Fund are made publicly
available no later than 60 days after the close of each of the Fund's fiscal
quarters.

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 adviser since 1960. The Manager and
its subsidiaries and controlled affiliates managed more than $245 billion in
assets as of \March 31, 2007, including other Oppenheimer funds with more
than 6 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 0.450% 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,
2006, 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 Vice President of the Fund and a manager of the
Fund's portfolio since July 2001. Mr. Weiss has been a Vice President of
the Manager since July 2001 and of HarbourView Asset Management
Corporation since June 2003 and is an officer of other portfolios in the
OppenheimerFunds complex. He was formerly Assistant Vice President and
Senior Credit Analyst of the Manager from February 2000 through June
2001. Prior to joining the Manager in February 2000, he was Associate
Director, Structured Finance, at Fitch IBCA Inc. from April 1998 through
February 2000.

Ms. Wolf has been a Vice President of the Fund and a manager of the
Fund's portfolio since July 1998. Ms. Wolf has been a Senior Vice President
of the Manager since June 2000 and of HarbourView Asset Management
Corporation since June 2003 and is an officer of other portfolios in the
OppenheimerFunds complex. She was formerly Vice President of the Manager from
June 1990 through June 2000.

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

INVESTING IN THE FUND

How to Buy and Sell Shares

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

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
participating insurance companies will be successful in curbing short-term or
excessive trading.

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
are no guarantees 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 share as of the
close of the New York Stock Exchange (the "NYSE"), on each day the NYSE is
open for trading (referred to in this prospectus as a "regular business
day"). The NYSE 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 currently offers only one class of shares. This class of shares has no
class "name" designation, but is referred to in this prospectus as
"Non-Service" shares. 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 shares offered in this prospectus.

Payments may also be made by the Manager, the Distributor or the
Transfer Agent to financial intermediaries to compensate or reimburse them
for administrative or other client services provided such as sub-transfer
agency services for shareholders, omnibus accounting or sub-accounting,
participation in networking arrangements, account set-up, recordkeeping and
other shareholder services. Payments may also be made for administrative
services related to the distribution of Fund shares through the intermediary.
Firms that may receive servicing fees with respect to Oppenheimer funds
include insurance companies that offer variable annuity or variable life
insurance products, retirement plan administrators, qualified tuition program
sponsors, banks and trust companies, and others. These fees may be used by
the service provider to offset or reduce fees that would otherwise be paid
directly to them by certain account holders.

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 NYSE (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.

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 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.

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

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

YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------

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 .05 1 .03 1 .01 1 .01 .01
- -----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.05) (.03) (.01) (.01) (.01)
Distributions from net realized gain -- 2 -- -- -- -- 2
---------------------------------------------------------------------
Total dividends and/or distributions to shareholders (.05) (.03) (.01) (.01) (.01)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======================================================================

- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3 4.71% 2.86% 0.98% 0.79% 1.47%
- -----------------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $171,521 $173,162 $196,503 $237,613 $379,969
- -----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $171,118 $186,453 $218,243 $316,096 $386,457
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 4.61% 2.80% 0.97% 0.80% 1.46%
Total expenses 0.49% 0.48% 5 0.48% 5 0.47% 5 0.47% 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:

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:

The Fund's SEC File No. 811-4108
PR0660.001.0407 [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 December
31 each year)":

- -----------------------------------------------------
Calendar Year Ended Annual Total Returns
- -----------------------------------------------------
- -----------------------------------------------------
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%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/05 2.86%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/06 4.71%
- -----------------------------------------------------

Oppenheimer
MidCap Fund/VA
A series of Oppenheimer Variable Account Funds

Prospectus dated April 30, 2007

Oppenheimer MidCap Fund/VA is a mutual
fund that seeks capital appreciation
by investing in "growth type"
companies. It currently emphasizes
investments in common stocks of
companies having a market
capitalization between $2 billion and
$11.5 billion.
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 eligible to purchase
Service shares of the Fund.
This prospectus contains
important information about the Fund's
objective, investment policies,
strategies and risks. Please read this
prospectus (and your insurance product
prospectus) carefully before you
As with all mutual funds, the invest and keep them for future
Securities reference about your account.
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.

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 and preferred stocks and securities convertible
into common stock. It invests primarily in equity securities of U.S.
companies. Under normal market conditions, as a non-fundamental policy, the
Fund invests at least 80% of its net assets (plus borrowings for investment
purposes) in equity securities of companies that have a market capitalization
of between $2 billion and $11.5 billion (referred to as "mid-cap" stocks).
The Fund's non-fundamental policy of investing at least 80% of its net assets
in these investments will not be changed by the Fund's Board of Trustees
without first providing shareholders 60 days' written notice.

|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. 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 Market capitalization between $2 billion and $11.5 billion;
o What the portfolio manager believes to be an above-average rate of high
quality, sustainable growth;
o Experienced management teams with proven records;
o Industry leaders with competitive advantages;
o High quality companies with strong financials including low debt.

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, he will consider selling that stock if there
are other investment alternatives that offer what he believes 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 a growth fund focusing on mid-cap stock investments. The
Fund does not seek current income and the income from its investments will
likely be small. It is not designed for investors needing current income or
preservation of capital. 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 in stocks
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 adviser, OppenheimerFunds, Inc. (the "Manager"), will cause the
Fund to underperform other funds having similar objectives.

RISKS OF INVESTING IN STOCKS. Stocks fluctuate in price, and their short-term
volatility at times may be great. Because the Fund invests primarily in
common stocks, the value of the Fund's portfolio will be affected by changes
in the stock markets and special economic and other factors that might
primarily affect the prices of mid-cap stocks in the market. 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.

SPECIAL RISKS OF MID-CAP STOCKS. While stocks of mid-cap companies may offer
greater capital appreciation potential than investments in large
capitalization companies, they may also present greater risks. Mid-cap stocks
tend to be more sensitive to changes in an issuer's earnings expectations.
They tend to have lower trading volumes than large capitalization securities.
As a result, they may experience more abrupt and erratic price movements.

Since mid-cap companies typically reinvest a high proportion of
earnings in their own businesses, they may lack the dividend yield that can
help cushion their total return in a declining market. Many mid-cap stocks
are traded in over-the-counter markets and therefore may be less liquid than
stocks of larger exchange-traded issuers. That means the Fund could have
greater difficulty selling a security at an acceptable price, especially in
periods of market volatility, which increases the potential for losses to the
Fund.

RISKS OF GROWTH STOCKS. Stocks of growth companies, particularly newer
companies, may offer opportunities for greater long-term capital appreciation
but may be more volatile than stocks of larger, more established companies.
They have greater risks if the company's earnings growth or stock price fails
to increase as expected.

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.

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 Fund focuses its investments on mid-cap equity securities for
long-term growth, and in the short term, they can be volatile. The price 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. In the
OppenheimerFunds spectrum, 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 emphasize large
capitalization stocks, or funds that focus on 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 Fund's performance for Non-Service shares
from year to year for the last ten calendar years and by showing how the
average annual total returns compared to those of two broad-based market
indices. Because the Fund's Service shares are subject to a service fee,
their performance is expected to be lower for any given period. The Fund's
past investment performance is not necessarily an indication of how the Fund
will perform in the future.

Annual Total Returns (as of 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, 2006 1 Year (or life of class (or life of class
if less) if less)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Oppenheimer MidCap 2.96% 4.67% 5.85%
Fund/VA Non-Service
Shares (inception date:
8/15/86)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Oppenheimer MidCap 2.70% 4.39% -7.50%
Fund/VA Service Shares
(inception date:
10/16/00)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
S&P 500 Index 15.78% 6.18% 8.42%
1.58%(1)
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Russell Midcap(R)Growth 10.66% 8.22% 8.62%
Index -0.39%(1)
- ---------------------------------------------------------------------------------
1. From 10/31/2000.

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 and the Russell Midcap(R)Growth
Index. The indices' performance includes reinvestment of income but does not
reflect transaction costs, fees or expenses. The Fund's investments vary from
those in 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)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Non-Service Shares Service Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Management Fees 0.67% 0.67%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution and Service None 0.25%
(12b-1) Fees
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other Expenses 0.02% 0.05%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.69% 0.97%
- --------------------------------------------------------------------------------

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.

About the Fund's Investments

THE FUND'S PRINCIPAL INVESTMENT POLICIES AND RISKS. The allocation of the
Fund's portfolio among different 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
in this prospectus. 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 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 companies in any one industry. 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.

Mid-Cap Stock Investments. Mid-cap companies are those that have completed
their initial start-up cycle, and in many cases have established markets and
developed seasoned management teams. The portfolio manager searches for
stocks of mid-cap companies that have the financial stability approximating
that of larger companies and the high growth potential associated with
smaller companies. The portfolio manager will not normally invest in stocks
of companies in "turnaround" situations until the company's operating
characteristics have improved.

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

The Fund's investments are not limited only to mid-cap issuers, and
under normal market conditions the Fund can invest up to 20% of its net
assets (plus borrowings for investment purposes) in stocks of companies in
other market capitalizations, if the Manager believes they offer
opportunities for growth.

The Fund measures the market capitalization of an issuer at the time of
investment to determine if it fits within the Fund's mid-cap definition.
Because the relative sizes of companies change over time as the stock market
changes, the Fund's definition of what is a "mid-cap" company may change over
time as well. Also, as individual companies grow, they may no longer fit
within the Fund's definition of a "mid-cap" issuer after the Fund buys their
stock. While the Fund is not required to sell stocks of companies whose
market capitalizations grow beyond the Fund's mid-cap definition, the Manager
might sell some of those holdings to try to lower the median capitalization
of its portfolio (measured on a dollar weighted basis). This could cause the
Fund to realize capital gains on its investments, which could increase
taxable distributions to shareholders. Of course, there is no assurance that
mid-cap stocks will grow in value.

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 cyclicals and technology sectors may benefit and offer long-term
growth opportunities. The Fund focuses on seeking growth over the long term,
but may seek to take tactical advantage of short-term market movements or
events affecting particular issuers or industries.

CAN THE FUND'S INVESTMENT OBJECTIVE AND POLICIES CHANGE? The Fund's Board of
Trustees can change non-fundamental investment policies without shareholder
approval, although significant changes will be described in amendments to
this prospectus. Fundamental policies are those that cannot be changed
without the approval of a majority of the Fund's outstanding voting shares.
The Fund's objective is a fundamental policy. Other Investment restrictions
that are fundamental policies are listed in the Statement of Additional
Information. An investment policy or technique 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 have certain risks, although some are designed to
help reduce overall investment or market risks.

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 investment
decision than in the case of other debt securities.

The Fund will not invest more than 5% of its net assets in convertible
securities that are rated below investment grade by a nationally
recognized rating organization such as Moody's Investors Service or
that are assigned a comparable rating by the Manager. "Investment
grade" securities are debt securities in the four highest ratings
categories of ratings organizations or unrated securities assigned a
comparable rating by the Manager. Lower-grade securities may be subject
to greater market fluctuations and risks of loss of income and
principal and have less liquidity than investments in investment-grade
securities. Debt securities are subject to credit risk (the risk that
the issuer will not make timely payments of interest and principal) and
interest rate risk (the risk that the value of the security will fall
if interest rates rise).

Investing in Small, Unseasoned Companies. The Fund can invest 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
might not be able to sell them quickly at an acceptable price. Their
prices may be very volatile, especially in the short term.

Special Risks of Technology Stocks. The Fund may also invest in technology
companies. The types of companies the Manager considers to be technology
companies can be expected to change over time as developments in
technology occur. To the extent the Fund is invested in stocks of
technology companies, the value of the Fund's shares is particularly
vulnerable to risks affecting technology companies and/or companies
having investments in technology, including market and economic events
that affect those technology companies.

The stock prices of technology companies during the past few years have
been highly volatile, largely due to the rapid pace of product change
and development within this sector. This phenomenon may also result in
future stock price volatility. In addition, technologies that are
dependent on consumer demand may be more sensitive to changes in
consumer spending patterns. Technology companies focusing on the
information and telecommunications sectors may also be subject to
international, federal and state regulations and may be adversely
affected by changes in those regulations.

Foreign Investing. The Fund can buy securities in any country, including
developed countries and emerging markets. The Fund has no limits on the
amount of its assets that can be invested in foreign securities, but
has adopted an operating policy limiting its investments in foreign
securities to 25% of its total assets. It does not expect to invest
substantial amounts of its assets in foreign stocks.

Special Risks of Foreign Investing. While foreign securities may 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. These risks could cause the prices of foreign stocks to fall
and could therefore decrease the Fund's share prices.

Additionally, if the 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
the 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 before the close of the New York Stock
Exchange ("NYSE") 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 of Trustees believe to be their fair value, may help deter
those activities.

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.

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 special 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 the
derivative is based, and the derivative itself, may not perform the way
the Manager expected it to perform. 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 or its hedge
might be unsuccessful. If that happens, the Fund's share prices could
fall. Certain derivative investments held by the Fund may be illiquid.

o Hedging. The Fund can buy and sell certain futures contracts, put and
call options, including options on futures and broadly-based securities
indices, swaps, forward contracts and other derivative instruments.
These investments are referred to as "hedging instruments." The Fund
has limits on its use of hedging instruments, does not currently use
hedging extensively and is not required to use hedging instruments to
seek its objective. The Fund does not use hedging instruments for
speculative purposes.

The Fund can buy and sell hedging instruments 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. Forward contracts can be used to try
to manage foreign currency risks on the Fund's foreign investments.
Foreign currency options can be used to try to protect against declines
in the dollar value of foreign securities the Fund owns, or to protect
against an increase in the dollar cost of buying foreign securities.

There are special risks in particular hedging strategies. For example,
options trading involves the payment of premiums and can increase
portfolio turnover. If an investment that is subject to a covered call
written by the Fund increases in value above the call price, the Fund
may be required to sell the investment at the call price and may not be
able to realize any gain above that price. In writing a put, there is a
risk that the Fund may be required to buy the underlying security at a
disadvantageous price. 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. If the Manager uses a hedging instrument at the
wrong time or judges market conditions incorrectly, the hedge might
fail and the strategy could reduce the Fund's return.

Investments in Oppenheimer Institutional Money Market Fund. The Fund can
invest its free cash balances in the Class E shares of Oppenheimer
Institutional Money Market Fund, to seek current income while
preserving liquidity. The Oppenheimer Institutional Money Market Fund
is a registered open-end management investment company, regulated as a
money market fund under the Investment Company Act of 1940, as amended.
It invests in a variety of short-term, high-quality, dollar-denominated
money market instruments issued by the U.S. government, domestic and
foreign corporations and financial institutions, and other entities. As
a shareholder, the Fund will be subject to its proportional share of
the Oppenheimer Institutional Money Market Fund's Class E expenses,
including its advisory fee. However, the Manager will waive a portion
of the Fund's advisory fee to the extent of the Fund's share of the
advisory fee it receives from the Oppenheimer Institutional Money
Market Fund.

Temporary Defensive and Interim Investments. In times of adverse unstable
market, or economic 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 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 of capital appreciation.

Portfolio Turnover. The Fund can engage in active and frequent short-term
trading to try to achieve its objective. It might have a portfolio
turnover rate in excess of 100% annually. Increased portfolio turnover
creates higher brokerage and transaction costs for the Fund (and may
reduce performance). If the Fund realizes capital gains when it sells
its portfolio investments, generally it must pay those gains out to
shareholders, increasing their taxable distributions. The Financial
Highlights table at the end of this prospectus shows the Fund's
portfolio turnover rates during past fiscal years.

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 discloses its portfolio holdings in its Statements of Investments
on Form N-Q, which are filed with the Securities and Exchange Commission (the
"SEC") no later than 60 days after the close of its first and third fiscal
quarters. These required 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 each of the Fund's fiscal quarters.

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

|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 fiscal year ended December 31, 2006, was 0.67% of the Fund's average
annual net assets for each class of shares.

A discussion regarding the basis for the Board's approval of the Fund's
investment advisory contract is available in the Fund's Annual Report to
shareholders for the year ended December 31, 2006.

|X| Portfolio Manager. The portfolio manager of the Fund is John
O'Hare. Mr. O'Hare has been the person principally responsible for the
day-to-day management of the Fund's portfolio since October 2003.

Mr. O'Hare, CFA, has been a Vice President of the Manager and of the
Fund since September 2003. Prior to joining the Manager, Mr. O'Hare was an
Executive Vice President and Portfolio Manager at Geneva Capital Management,
Ltd. from June 2000 to August 2003. He is an officer and portfolio manager of
other funds 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 the Fund shares.

INVESTING IN THE FUND

How to Buy and Sell Shares

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, may increase the Fund's transaction and
administrative costs and/or may affect the Fund's performance. For example,
if large dollar amounts were involved in redemption transactions, the Fund
might be required to sell portfolio securities at unfavorable times to meet
such redemption requests, and the Fund's transaction or administrative
expenses might be increased. The extent to which the Fund might be affected
by such trading activity would depend on various factors, such as the current
asset size of the Fund, the nature of its investments, the amount of Fund
assets the portfolio manager maintains in cash or cash equivalents, and the
aggregate dollar amount, number and frequency of the share trades.

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.

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.

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 NYSE or market on which
the security is principally traded, that security may be valued by another
method that the Board 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 believes to be more
accurate values for the Fund's portfolio securities, although it may not
always be able to accurately determine such values. There can be no
assurance that the Fund could obtain the fair value assigned to a security if
it were to sell the security at the same time at which the Fund determines
its net asset value per share. In addition, the discussion of "time-zone
arbitrage" describes effects that the Fund's fair value pricing policy is
intended to counteract.

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.
Eastern time 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 currently offers only two classes of shares. The classes 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 classes of shares that are not subject to a Plan have no class "name"
designation, but is referred to herein as "Non-Service" 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.

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. Eastern time 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 NYSE (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 SEC,
payment may be delayed or suspended.

Dividends, Capital Gains and Taxes

Financial Highlights

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

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 49.39 $ 43.97 $ 36.71 $ 29.23 $ 40.72
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.02) 1 (.12) 1 (.15) 1 (.15) (.10)
Net realized and unrealized gain (loss) 1.48 5.54 7.41 7.63 (11.16)
--------------------------------------------------------------------------------
Total from investment operations 1.46 5.42 7.26 7.48 (11.26)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income -- -- -- -- (.23)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 50.85 $ 49.39 $ 43.97 $ 36.71 $ 29.23
================================================================================

- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 2.96% 12.33% 19.78% 25.59% (27.79)%
- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 1,054,809 $ 1,227,881 $ 1,209,459 $ 1,113,743 $ 979,919
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 1,135,831 $ 1,177,979 $ 1,124,874 $ 1,041,584 $ 1,240,435
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (0.04)% (0.26)% (0.39)% (0.43)% (0.29)%
Total expenses 0.69% 4,5 0.69% 6 0.69% 6 0.70% 6 0.68% 6
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 56% 32% 53% 154% 54%

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.69%

5. Voluntary waiver of management fees less than 0.01%.

6. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 48.87 $ 43.64 $ 36.54 $ 29.13 $ 40.70
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.16) 1 (.25) 1 (.27) 1 -- 2 .16
Net realized and unrealized gain (loss) 1.48 5.48 7.37 7.41 (11.53)
-------------------------------------------------------------------------------
Total from investment operations 1.32 5.23 7.10 7.41 (11.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income -- -- -- -- (.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 50.19 $ 48.87 $ 43.64 $ 36.54 $ 29.13
===============================================================================

- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 2.70% 11.99% 19.43% 25.44% (28.05)%
- ---------------------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 47,131 $ 36,551 $ 24,151 $ 11,698 $ 144
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 44,273 $ 28,798 $ 17,579 $ 3,858 $ 72
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment loss (0.33)% (0.54)% (0.68)% (0.72)% (0.56)%
Total expenses 0.97% 5 0.97% 0.99% 0.95% 1.55%
Expenses after payments and waivers and
reduction to custodian expenses 0.97% 0.97% 0.99% 0.95% 0.98%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 56% 32% 53% 154% 54%

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.97%

INFORMATION AND SERVICES

For More Information on Oppenheimer MidCap Fund/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:

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 1.202.551.8090. 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
PR0620.001.0407 [logo] OppenheimerFunds
Distributor, Inc.
Printed on recycled paper

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

Graphic material included in the prospectus of Oppenheimer MidCap
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 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
12/31/97 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%
12/31/05 12.33%
12/31/06 2.96%

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

Prospectus dated April 30, 2007 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.

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 lower-grade, high-yield domestic and foreign corporate debt obligations,
o collateralized mortgage obligations (CMOs),
o other mortgage-related securities and asset-backed securities,
o "structured" notes,
o "zero-coupon" or "stripped" securities, and
o participation interests in loans.

Under normal market conditions, the Fund invests in each of those three
market sectors. However, the Fund is not obligated to do so, and the amount
of its assets in each of the three sectors will vary over time. The Fund can
invest up to 100% of its assets in any one sector at any time, if the Fund's
investment manager, OppenheimerFunds, Inc. (the "Manager"), believes that in
doing so the Fund can achieve its objective without undue risk. The Fund can
invest in securities having short, medium, or long-term maturities and may
invest 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 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 manager analyzes the overall
investment opportunities and risks in individual national economies. 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 high-yield debt instruments and foreign securities. The Manager 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 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 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
price 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 harder to value them or to sell them
at an acceptable price. These risks can reduce the Fund's share prices and
the income it earns.

To the extent that a fund invests significantly in high yield bonds,
because those securities may be traded infrequently, investors may seek to
trade fund shares based on their knowledge or understanding of the value of
those securities (this is sometimes referred to as "price arbitrage"). Such
price arbitrage, if 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| 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.

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.

Additionally, if a fund invests a significant amount of its assets in
foreign securities, it may be exposed to "time-zone arbitrage." Time-zone
arbitrage is an attempt by investors 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 before the close of the New York Stock Exchange (the "NYSE") 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 may not receive
the proceeds of a sale of a security on a timely basis.

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

|X| Currency Risk. The Fund can invest in securities denominated in
foreign currencies and in derivative instruments linked to foreign
currencies. 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 or derivatives linked to 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.

|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, swaps, structured notes and certain
mortgage-related securities 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 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 receive less income than expected. The Fund
has limits on the amount of particular types of derivatives it can hold. Some
derivatives may be illiquid, making it difficult to value them or sell them
at an acceptable price. Using derivatives can increase the volatility of the
Fund's share prices.

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

Debt securities are subject to credit and interest rate risks that can
affect their values and the share prices of the Fund. In the short term, the
values of debt securities can fluctuate substantially because of interest
rate changes and perceptions about debt markets among investors. 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. The Fund generally has more risks than bond funds that focus on
U.S. government securities and investment-grade bonds but may be less
volatile than bond funds that focus solely on investments in a single foreign
sector, such as emerging markets.

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

The Fund's Past Performance

The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the Fund's performance for Non-Service shares
from year to year for the last ten calendar years and by showing how the
average annual total returns of the Fund's shares compared to those of two
broad-based market indices. Because the Fund's Service shares are subject to
a service fee, their performance is expected to be lower for any given
period. The Fund's past investment performance is not necessarily an
indication of how the Fund will perform in the future.

Annual Total Returns (as of 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% (2ndQtr '03) and the lowest return (not
annualized) for a calendar quarter was -2.14% (3rdQtr '98).

- -------------------------------------------------------------------------------
Average Annual Total Returns 1 Year 5 Years 10 Years
for the periods ended December (or life of
31, 2006 class, if less)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Oppenheimer Strategic Bond
Fund/VA 7.49% 8.75% 6.53%
Non-Service Shares (inception
5/3/93)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Oppenheimer Strategic Bond
Fund/VA 7.23% 8.36% 7.55%
Service Shares (inception
3/19/01)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond 4.33% 5.06% 6.24%
Index 5.32%(1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Citigroup World Government 6.12% 8.41% 5.24%
Bond Index 7.67%(1)
- -------------------------------------------------------------------------------
1. From 3/31/01.

The Fund's average annual total 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 Aggregate Bond Index, an
unmanaged index of U.S. corporate and government bonds, and to the Citigroup
World Government Bond Index, an unmanaged index of debt securities of major
foreign governments. The indices performance includes reinvestment of income
but does not reflect transaction costs, fees or expenses. The Fund's
investments vary from those in 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)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Non-Service Shares Service Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Management Fees 0.62% 0.62%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution and Service None 0.25%
(12b-1) Fees
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other Expenses 0.02% 0.02%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 0.64% 0.89%
- --------------------------------------------------------------------------------

The Manager will waive fees and/or reimburse Fund expenses in an amount equal
to the indirect management fees incurred through the Fund's investment in
Oppenheimer Institutional Money Market Fund. During the fiscal year ended
December 31, 2006, the Manager waived $74,462 for Oppenheimer Institutional
Money Market Fund management fees. The Fund also had a reduction to
custodian expenses of $5,883. After these waivers/reductions, the actual
"Other Expenses" and "Total Annual Operating Expenses" as percentages of
average daily net assets were 0.01% and 0.63% for the Non-Service shares and
0.01% and 0.88% for the Service shares.

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.

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. ("Moody's") or lower than "BBB" by Standard & Poor's
Ratings Services ("S&P") 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 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.

|_| Investments in Emerging Markets. The Fund can buy securities in
emerging and developing markets. Investments in these markets present risks
not found in more mature markets. These securities might be more difficult
to sell at an acceptable price and their prices may be more volatile than
securities of developed market issuers. 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. 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.

|X| Portfolio Turnover. The Fund may engage in active and frequent trading
to try to achieve its objective. It might have a turnover rate in excess of
100% annually. 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. The Financial Highlights
table at the end of this prospectus shows the Fund's turnover rates during
prior fiscal years.

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

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.
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 Fund may also buy
"stripped" securities that 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.

The values of interest-only and principal only mortgage-related
securities are also very sensitive to prepayments of underlying mortgages.
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| 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 investment
decision than in the case of debt securities.

|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 contractual 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, swaps, structured notes, and certain
mortgage-related securities are examples of "derivative" investments the Fund
can use. In addition to using derivatives for hedging, the Fund might use
derivative investments because they offer the potential for increased income
and principal value. The Fund 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.

Credit Derivatives Swaps. The Fund may enter into credit default swaps. A
credit default swap enables an investor to buy or sell protection against a
credit event, such as an issuer's failure to make timely payments of interest
or principal, bankruptcy or restructuring. The terms of the instrument are
generally negotiated by the Fund and the swap counterparty.

If the Fund buys credit protection using a credit default swap, the Fund will
make fixed payments to the counterparty. If a credit event occurs, the Fund
will deliver the defaulted bonds underlying the swap and the swap
counterparty will pay the par amount of the bonds. If the Fund sells credit
protection using a credit default swap, the Fund will receive fixed payments
from the counterparty. If a credit event occurs, the Fund will pay the par
amount of the defaulted bonds underlying the swap 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
bonds, and the fixed payments are then made on the reduced notional amount.

Credit default swaps are subject to counterparty credit risk (if the
counterparty fails to meet its obligations). They are subject to the risk
that the Fund will not properly assess the cost of the instrument. If the
Fund is selling credit protection, there is a risk that a credit event will
occur and that the Fund will have to pay par value on defaulted bonds. If
the Fund is buying credit protection, there is a risk that no credit event
will occur and the Fund will receive no benefit for the premium paid.

|_| "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 underlying asset, such as an
equity or debt security, currency, or commodity, or non-asset reference,
such as an interest rate or index. The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the note.

The value of these notes will fall or rise in response to the
changes in the values of the underlying asset or reference. 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. 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 hedge using various strategies, including buying
and selling futures contracts, put and call options and forward contracts.
The Fund is not required to hedge to seek its objectives. The Statement of
Additional Information contains more detailed information about these
instruments and limits on their use by the Fund.

The Fund could hedge 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 and currency options to try to manage foreign currency
risks on the Fund's foreign investments.

Options trading involves the payment of premiums and has special tax
effects on the Fund. There are also special risks in particular hedging
strategies. For example, in writing a put, there is a risk that the Fund may
be required to buy the underlying security at a disadvantageous price. 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 may not be able to realize any profit. 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| "When-Issued" and "Delayed Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis and may purchase or sell
securities on a "delayed-delivery" basis. These terms refer to securities
that have been created and for which a market exists, but which are not
available for immediate delivery. There might be a risk of loss to the Fund
if the value of the security declines prior to the settlement date.

|X| Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements for liquidity purposes, including, among others, for
temporary defensive purposes, as described below. Repurchase agreements
having a maturity beyond seven days are subject to each Fund's limit on
holding illiquid investments. 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. The Manager will monitor the
vendor's creditworthiness to confirm that the vendor is financially sound and
will continuously monitor the collateral's value.

|X| Investments in Oppenheimer Institutional Money Market Fund. The Fund
can invest its free cash balances in the Class E shares of Oppenheimer
Institutional Money Market Fund, to seek current income while preserving
liquidity. The Oppenheimer Institutional Money Market Fund is a registered
open-end management investment company, regulated as a money market fund
under the Investment Company Act. It invests in a variety of short-term,
high-quality, dollar-denominated money market instruments issued by the U.S.
government, domestic and foreign corporations and financial institutions and
other entities. As a shareholder, the Fund will be subject to its
proportional share of the Oppenheimer Institutional Money Market Fund's Class
E expenses, including its advisory fee. However, the Manager will waive a
portion of the Fund's share of the advisory fee it receives from the
Oppenheimer Institutional Money Market Fund.

|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, including 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
objectives.

|X| Loans of Portfolio Securities. The Fund may make loans of its portfolio
securities, with a value not to exceed 25% of its net assets, in accordance
with policies approved by the Fund's Board. The Fund has entered into a
securities lending agreement with JPMorgan Chase Bank, N.A. ("JPMorgan
Chase") for that purpose. Under the agreement, the Fund's portfolio
securities may be loaned to brokers, dealers and financial institutions,
provide that such loans comply with the collateralization and other
requirements of the securities lending agreement, the Fund's policies and
applicable government regulations. JPMorgan Chase has agreed, in general, to
bear the risk that a borrower may default on its obligation to return loaned
securities. However, the Fund will be responsible for risks associated with
the investment of cash collateral, including the risk of a default by the
issuer of a security in which cash collateral has been invested. If that
occurs, the Fund may incur additional costs in seeking to obtain the
collateral or may lose the amount of the collateral investment. The Fund may
also lose money if the value of the investments purchased with cash
collateral decreases.

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 discloses its portfolio holdings in its Statements of Investments
on Form N-Q, which are filed with the Securities and Exchange Commission no
later than 60 days after the close of its first and third fiscal quarters.
These required filings are publicly available at the Securities and Exchange
Commission. Therefore, portfolio holdings of the Fund are made publicly
available no later than 60 days after the close of each of the Fund's fiscal
quarters.

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

|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, 2006, was 0.62% 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
has been a 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 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.

INVESTING IN THE FUND

How to Buy and Sell Shares

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, may increase the Fund's transaction and
administrative costs and/or may affect the Fund's performance. For example,
if large dollar amounts were involved in redemption transactions, the Fund
might be required to sell portfolio securities at unfavorable times to meet
such redemption requests, and the Fund's transaction or administrative
expenses might be increased. The extent to which the Fund might be affected
by such trading activity would depend on various factors, such as the current
asset size of the Fund, the nature of its investments, the amount of Fund
assets the portfolio manager maintains in cash or cash equivalents, and the
aggregate dollar amount, number and frequency of the share trades.

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
participating insurance companies will be successful in curbing short-term or
excessive trading.

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.

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 NYSE 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 the Fund's portfolio securities,
although it may not always be able to accurately determine such values. There
can be no assurance that the fund could obtain the fair value assigned to a
security if it were to sell the security at the same time at which the Fund
determines its net asset value per share. In addition, the discussion of
"time-zone arbitrage" describes effects that the Fund's fair value pricing
policy is intended to counteract.

|X| Classes of Shares. The Fund has four classes of shares authorized. The
Fund currently offers only two 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, but is referred to herein as "Non-Service 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.

"Financial intermediaries" are firms that offer and sell Fund shares to
their clients, or provide shareholder services to the Fund, or both, and
receive compensation for doing so. Your securities dealer or insurance agent,
for example, is a financial intermediary, and there are other types of
financial intermediaries that receive payments relating to the sale or
servicing of the Fund's shares. In addition to dealers and insurance agents,
the financial intermediaries that may receive payments include the insurance
companies that offer variable annuity or variable life insurance products.

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 Colorado.
The participating insurance company must receive that order before the close
of the NYSE (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).

Dividends, Capital Gains and Taxes

Financial Highlights

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

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.11 $ 5.21 $ 5.05 $ 4.57 $ 4.62
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .26 1 .25 1 .22 1 .22 .29
Net realized and unrealized gain (loss) .11 (.12) .20 .56 .03
------------------------------------------------------------------------
Total from investment operations .37 .13 .42 .78 .32
- --------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.22) (.23) (.26) (.30) (.37)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.26 $ 5.11 $ 5.21 $5.05 $ 4.57
========================================================================

- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 7.49% 2.67% 8.67% 18.07% 7.44%
- --------------------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 606,632 $ 538,141 $ 614,915 $ 571,445 $ 406,126
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 564,248 $ 550,201 $ 584,878 $ 472,213 $ 374,519
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 5.05% 4.91% 4.50% 5.61% 6.89%
Total expenses 0.64% 4 0.71% 0.74% 0.75% 0.79%
Expenses after payments and waivers and
reduction to custodian expenses 0.63% 0.71% 0.74% 0.75% 0.78%
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 93% 5 98% 5 88% 5 117% 65%

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.64%

5. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

PURCHASE TRANSACTIONS SALE TRANSACTIONS
-------------------------------------------------------------------------
Year Ended December 31, 2006 $ 742,785,501 $ 749,719,239
Year Ended December 31, 2005 890,029,144 873,786,459
Year Ended December 31, 2004 959,649,113 973,488,511

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.19 $ 5.29 $ 5.13 $ 4.67 $ 4.73
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .25 1 .21 1 .19 1 .27 .03
Net realized and unrealized gain (loss) .11 (.08) .22 .49 .28
-----------------------------------------------------------------------
Total from investment operations .36 .13 .41 .76 .31
- -------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.21) (.23) (.25) (.30) (.37)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.34 $ 5.19 $ 5.29 $ 5.13 $ 4.67
=======================================================================

TOTAL RETURN, AT NET ASSET VALUE 2 7.23% 2.48% 8.43% 17.16% 7.03%
- -------------------------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 1,396,188 $ 658,107 $ 242,705 $ 79,782 $ 8,138
- -------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 1,016,582 $ 408,515 $ 150,040 $ 34,744 $ 2,307
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 4.83% 4.20% 3.82% 4.57% 5.40%
Total expenses 0.89% 4 0.96% 0.99% 1.02% 1.06%
Expenses after payments and waivers and
reduction to custodian expenses 0.88% 0.96% 0.99% 1.02% 1.03%
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 93% 5 98% 5 88% 5 117% 65%

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.89%

5. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

PURCHASE TRANSACTIONS SALE TRANSACTIONS
------------------------------------------------------------------------
Year Ended December 31, 2006 $ 742,785,501 $ 749,719,239
Year Ended December 31, 2005 890,029,144 873,786,459
Year Ended December 31, 2004 959,649,113 973,488,511

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:

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

The Fund's SEC File No. 811-4108
PR0265.001.0407 [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
December 31 each year)":

- -----------------------------------------------------
Calendar Year Ended Annual Total Returns
- -----------------------------------------------------
- -----------------------------------------------------
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%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/05 2.67%
- -----------------------------------------------------
- -----------------------------------------------------
12/31/06 7.49%
- -----------------------------------------------------

Oppenheimer
Value Fund/VA
A series of Oppenheimer Variable Account Funds

- -------------------------------------------------------------------------------
Prospectus dated April 30, 2007
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.
- -------------------------------------------------------------------------------

ONTENTS

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. 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 currently 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 Small-Cap and Mid-Cap Stocks. The Fund may invest in stocks of
small- or medium-size companies ("small-cap" or "mid-cap" stocks). Small-cap
companies are often newer companies that 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. 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.

Mid-cap stocks tend to be more sensitive to changes in an issuer's
earnings expectations than the stocks of larger companies. While small- and
mid-cap stocks may offer greater opportunities for long-term capital
appreciation than the stocks of larger, more established companies, they also
involve greater risk of loss and price fluctuation. Since small- and mid-cap
companies typically reinvest a high proportion of earnings in their own
businesses, they may lack the dividend-yield that could help cushion their
total return in a declining market. Many small- and mid-cap stocks are traded
in over-the-counter markets and tend to have lower trading volumes than large
capitalization securities. Therefore, they may be less liquid than stocks of
larger exchange-traded issuers and the Fund could have greater difficulty
selling such a security at an acceptable price, especially in periods of
market volatility.

|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 may 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 changes in the Fund's performance for Non-Service shares
from year to year for the last four calendar years and by showing how the
average annual total returns of the Fund's shares compared to those of a
broad-based market index. Because the Fund's Service shares are subject to a
service fee, their performance is expected to be lower for any given period.
The Fund's past investment performance is not necessarily an indication of
how the Fund will perform in the future.

Annual Total Returns (as of 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 17.01% (2nd Qtr '03) and the lowest return (not
annualized) for a calendar quarter was -1.04% (2nd Qtr '06).

- ------------------------------------------------------------------
Average Annual Total 1 Year 5 Years 10 Years
Returns for the (or life of (or life of
periods ended December class, if class, if
31, 2006(1) less) less)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Oppenheimer Value 14.03% 15.57% N/A
Fund/VA
Non-Service Shares
(inception 01/02/03)
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Russell 1000 Value 22.25% 18.66%(2) N/A
Index
- ------------------------------------------------------------------
1 Prior performance information for a full calendar year is not available
for the Service Shares because it commenced operations on September 15,
2006.
2 From 12/31/02.

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 0.24%
(12b-1) Fees
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other Expenses 1.39% 1.90%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Annual Operating Expenses 2.14% 2.89%
- --------------------------------------------------------------------------------

The Manager will waive fees and/or reimburse Fund expenses in an amount equal
to the indirect management fees incurred through the fund's investment in
Oppenheimer Institutional Money Market Fund. During the year ended December
31, 2006, the Manager waived $37 for Oppenheimer Institutional Money Market
Fund management fees. After this waiver the actual "Other Expenses" and
"Total Annual Operating Expenses" as percentages of average daily was 1.89%
and 2.88% for the Service shares, the Non-Service shares were as shown above.

Effective January 1, 2007, the Manager voluntarily agreed to an expense
waiver of any total expenses over 1.25% on an annual basis. The expense
waiver is a voluntary undertaking and may be terminated by the Manager at any
time.

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.

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.

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

However, changes in the overall market prices of securities and any
income they may pay can occur at any time. The price 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.

|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.

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 non-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 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| 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.

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 certain futures contracts, put and
call options, swaps, and forward contracts. These investments are referred to
as "hedging instruments." The Fund has limits on its use of hedging
instruments and is not required to use hedging instruments to seek its
objective. The Fund does not use hedging instruments for speculative purposes.

There are special risks in particular hedging strategies. For example,
options trading involves the payment of premiums and can increase portfolio
turnover. If an investment that is subject to a covered call written by the
Fund increases in value above the call price, the Fund may be required to
sell the investment at the call price and may not be able to realize any gain
above that price. If the Manager uses a hedging instrument at the wrong time
or judges market conditions incorrectly, the hedge might fail 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| Investments in Oppenheimer Institutional Money Market Fund. The Fund
can invest its free cash balances in the Class E shares of Oppenheimer
Institutional Money Market Fund, to seek current income while preserving
liquidity. The Oppenheimer Institutional Money Market Fund is a registered
open-end management investment company, regulated as a money market fund
under the Investment Company Act of 1940, as amended. It invests in a variety
of short-term, high-quality, dollar-denominated money market instruments
issued by the U.S. government, domestic and foreign corporations and
financial institutions, and other entities. As a shareholder, the Fund will
be subject to its proportional share of the Oppenheimer Institutional Money
Market Fund's Class E expenses, including its advisory fee. However, the
Manager will waive a portion of the Fund's advisory fee to the extent of the
Fund's share of the advisory fee it receives from the Oppenheimer
Institutional Money Market Fund

|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.

|X| Portfolio Turnover. The Fund may engage in active and frequent trading
to try to achieve its objective. It might have a turnover rate in excess of
100% annually. 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. The Financial Highlights
table at the end of this prospectus shows the Fund's portfolio turnover rates
during prior fiscal years..

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 discloses its portfolio holdings in its Statements of Investments
on Form N-Q, which are filed with the Securities and Exchange Commission no
later than 60 days after the close of its first and third fiscal quarters.
These required filings are publicly available at the Securities and Exchange
Commission. Therefore, portfolio holdings of the Fund are made publicly
available no later than 60 days after the close of each of the Fund's fiscal
quarters.

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

|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 the average annual net assets
over $800 million. Effective January 1, 2007, the Manager voluntarily agreed
to an expense waiver of any total expenses over 1.25% on an annual basis. The
expense waiver is a voluntary undertaking and may be terminated by the
Manager at any time. The Fund's management fee for its fiscal year ended
December 31, 2006 was 0.75% of the Fund's average annual net assets.

|X| Portfolio Manager. The Fund's portfolio is managed by Christopher Leavy
who is primarily responsible for the day-to-day management of the Fund's
investments. Mr. Leavy has been Director of Equities since January 2007. He
has been a Senior Vice President of the Manager since September 2000 and a
Vice President of the Fund since December 2002. He was Head of the Value
Equity Investment Team of the Manager until February 2007. Before joining the
Manager, Mr. Leavy was a vice president and portfolio manager at Miller
Anderson Sherrard and served as portfolio manager and equity analyst at
Crestar Asset Management. Mr. Leavy is a portfolio manager and officer of
other portfolios 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.

INVESTING IN THE FUND

How to Buy and Sell Shares

ARE THERE LIMITATIONS ON FREQUENT PURCHASES AND REDEMPTIONS?

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.

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.

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 Colorado.
The participating insurance company must receive that order before the close
of the NYSE (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.

Dividends, Capital Gains and Taxes

Financial Highlights

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

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 1
- ----------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.16 $ 12.26 $ 12.90 $ 10.00
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.03) 2 .02 2 (.01) 2 .03
Net realized and unrealized gain 1.61 .71 1.82 2.87
---------------------------------------------------
Total from investment operations 1.58 .73 1.81 2.90
- ----------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.01) (.02) (.03) --
Distributions from net realized gain (1.15) (1.81) (2.42) --
---------------------------------------------------
Total dividends and/or distributions to shareholders (1.16) (1.83) (2.45) --
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.58 $ 11.16 $ 12.26 $ 12.90
===================================================

- ----------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 14.03% 5.88% 14.50% 29.00%
- ----------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 2,657 $ 2,562 $ 2,815 $ 3,871
- ----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 2,695 $ 2,878 $ 3,370 $ 3,205
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income (loss) (0.29)% 0.15% (0.08)% 0.27%
Total expenses 2.14% 5,6 1.78% 7 1.82% 7 1.39% 7
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 124% 86% 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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 2.14%

6. Voluntary waiver of management fees less than 0.01%.

7. Reduction to custodian expenses less than 0.01%.

SERVICE SHARES PERIOD ENDED DECEMBER 31, 2006 1
- -----------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------
Net asset value, beginning of period $ 11.89
- -----------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss 2 (.05)
Net realized and unrealized gain .88
----------
Total from investment operations .83
- -----------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income --
Distributions from net realized gain (1.15)
----------
Total dividends and/or distributions to shareholders (1.15)
- -----------------------------------------------------------------------------
Net asset value, end of period $ 11.57
==========

- -----------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 6.81%
- -----------------------------------------------------------------------------

- -----------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 455
- -----------------------------------------------------------------------------
Average net assets (in thousands) $ 268
- -----------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment loss (1.30)%
Total expenses 2.89% 5
Expenses after payments and waivers and
reduction to custodian expenses 2.88%
- -----------------------------------------------------------------------------
Portfolio turnover rate 124%

1. For the period from September 18, 2006 (inception of offering) to December
31, 2006.

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 2.89%

- ------------------------------------------------------------------------------
INFORMATION AND SERVICES
For More Information on Oppenheimer Value Fund/VA
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------

- ------------------------------------------------------------------------------
By Telephone:
Call OppenheimerFunds Services toll-free: 1.800.981.2871

The Fund's SEC File No. 811-4108
PR0642.001.0407 [logo] OppenheimerFunds
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 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 shares of
the Fund for each of the four 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%
12/31/05 5.88%
12/31/06 14.03%

STATEMENT OF ADDITIONAL INFORMATION

Oppenheimer Variable Account Funds

6803 S. Tucson Way, Centennial, Colorado 80112
1.800.981.2871

Statement of Additional Information dated April 30, 2007

OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is an investment company
consisting of 11 separate Series (the "Funds"):

Oppenheimer Balanced Fund/VA
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Core Bond Fund/VA
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 MidCap Fund/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 30, 2007. 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...
The Funds' Investment Policies......................................
Other Investment Techniques and Strategies..........................
Other Investment Restrictions.......................................
Disclosure of Portfolio Holdings....................................
How the Funds are Managed ..............................................
Organization and History............................................
Board of Trustees and Oversight Committees..........................
Trustees and Officers of the Funds..................................
The Manager.........................................................
Brokerage Policies of the Funds.........................................
Distribution and Service Plans (Service Shares and Class 4 Shares) .....
Payments to Fund Intermediaries.........................................
Performance of the Funds................................................

About Your Account
How To Buy and Sell Shares..............................................
Dividends, Capital Gains and Taxes......................................
Additional Information About the Funds..................................

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

Financial Information About the Funds *
Report of Independent Registered Public Accounting Firm and Financial
Statements.............................................................. F-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. Call 1.888.981.2871
if you want the domain name of an insurance sponsor's website that displays
both documents comprising this Statement of Additional Information online, or
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 ("SAI") 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. Capital
Appreciation Fund/VA, Global Securities Fund/VA, Main Street Small Cap
Fund(R)/VA, MidCap Fund/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 respective portfolio
managers. However, if a Fund is referred to in general, the discussion below
of particular investments and strategies indicates which Funds can use that
investment or technique as part of their investment program. For example,
some investments can be held by only some of the Funds and some can be held
by all. Please refer to the prospectus of a particular Fund for an
explanation of its principal investment policies and risks. 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. Convertible securities are debt securities that
are convertible into an issuer's common stock. Convertible securities rank
senior to common stock in a corporation's capital structure and therefore are
subject to less risk than common stock in case of the issuer's bankruptcy or
liquidation.

The value of a convertible security is a function of its "investment
value" and its "conversion value." If the investment value exceeds the
conversion value, the security will behave more like a debt security, and the
security's price will likely increase when interest rates fall and decrease
when interest rates rise. If the conversion value exceeds the investment
value, the security will behave more like an equity security: it will likely
sell at a premium over its conversion value, and its price will tend to
fluctuate directly with the price of the underlying security.

While many convertible securities are a form of debt security, in some
cases their conversion feature (allowing conversion into equity securities)
causes the Manager to regard them more as "equity equivalents." In those
cases, the credit rating assigned to the security has less impact on the
Manager's investment decision 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 "Investments in Bonds and other Debt
Securities."

To determine whether convertible securities should be regarded as
"equity equivalents," the Manager may examine 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 that the Funds buy. 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 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 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).
High-yield convertible debt securities might be selected as "equity
substitutes," as described above but are subject to a Fund's limitation on
its investment in debt securities as stated in the Prospectus.

As mentioned above, "lower-grade" debt securities are those rated below
"investment grade," which means they have a rating lower than "Baa" by
Moody's or lower than "BBB" by S&P or Fitch, Inc. or similar ratings by other
nationally recognized rating organizations. If they are unrated, and are
determined by the Manager to be of comparable quality to debt securities
rated below investment grade, they are included in the limitation on the
percentage of a Fund's assets that can be invested in lower-grade securities.

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 SAI.

o Credit Risk. Credit risk relates to the ability of the issuer of a debt
security to meet interest and principal payment obligations as they become
due. 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 risks of foreign investing discussed in the
Prospectus and in this SAI.

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| Event-Linked Bonds. The Funds may invest in "event-linked" bonds.
Event-linked bonds, which are sometimes referred to as "catastrophe" bonds,
are fixed income securities for which the return of principal and payment of
interest is contingent on the non-occurrence of a specific trigger event,
such as a hurricane, earthquake, or other occurrence that leads to physical
or economic loss. In some cases, the trigger event will not be deemed to
have occurred unless the event is of a certain magnitude (based on scientific
readings) or causes a certain measurable amount of loss to the issuer, a
particular industry group or a reference index. If the trigger event occurs
prior to maturity, a Fund may lose all or a portion of its principal and
additional interest. The Funds may also invest in similar bonds where a Fund
may lose all or a portion of its principal and additional interest if the
mortality rate in a geographic area exceeds a stated threshold prior to
maturity whether or not a particular catastrophic event has occurred.

Event-linked bonds may be issued by government agencies, insurance companies,
reinsurers, and financial institutions, among other issuers, or special
purpose vehicles associated with the foregoing. Often event-linked bonds
provide for extensions of maturity in order to process and audit loss claims
in those cases when a trigger event has occurred or is likely to have
occurred. An extension of maturity may increase a bond's volatility.

Event-linked bonds may expose the Funds to certain other risks, including
issuer default, adverse regulatory or jurisdictional interpretations,
liquidity risk and adverse tax consequences. Lack of a liquid market may
result in higher transaction costs and the possibility that a Fund may be
forced to liquidate positions when it would not be advantageous to do so.
Event-linked bonds are typically rated by one or more nationally recognized
statistical rating organization and a Fund will only invest in event-linked
bonds that meet the credit quality requirements for the Fund.

|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| 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 (FHLMC) 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.

|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.

|X| 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| 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.

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.

|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.

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. 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 Fund from the investment until it receives the
security at settlement. There is a risk of loss to a Fund if the value of the
security changes prior to the settlement date, and there is the risk that the
other party may not perform.

The Funds 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, a Fund buys a security from, and
simultaneously resells it to, an approved vendor for delivery on an
agreed-upon future date. The resale price exceeds the purchase price by an
amount that reflects an agreed-upon interest rate effective for the period
during which the repurchase agreement is in effect. Approved vendors include
U.S. commercial banks, U.S. branches of foreign banks, or broker-dealers that
have been designated as primary dealers in government securities. They must
meet credit requirements set by the 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 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.

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
applicable securities laws, 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. The Funds may lend portfolio securities
pursuant to policies approved by the Funds' Board. They may do so to try to
provide income or to raise cash for liquidity purposes. These loans are
limited to not more than 25% of the value of each Fund's net assets.

The Funds have entered into a securities lending agreement with
JPMorgan Chase Bank, N.A. ("JPMorgan Chase") for that purpose. Under the
agreement, the Funds' portfolio securities may be loaned to brokers, dealers
and financial institutions, provided that such loans comply with the
collateralization and other requirements of the securities lending agreement,
the Funds' policies and applicable government regulations. JPMorgan Chase has
agreed, in general, to bear the risk that a borrower may default on its
obligation to return loaned securities. However, the Funds will be
responsible for risks associated with the investment of cash collateral,
including the risk of a default by the issuer of a security in which cash
collateral has been invested. If that occurs, the Funds may incur additional
costs in seeking to obtain the collateral or may lose the amount of the
collateral investment. The Funds may also lose money if the value of the
investments purchased with cash collateral decreases.

Pursuant to the Securities Lending Agreement, a Fund will receive a
percentage of all annual net income (i.e., net of rebates to the borrower and
certain other approved expenses) from securities lending transactions. Such
net income includes earnings from the investment of any cash collateral
received from a borrower and loan fees paid or payable by a borrower in
connection with loans secured by collateral other than cash.

There are some risks in connection with securities lending, including
possible delays in receiving additional collateral from the borrower to
secure a loan or delays in recovering the loaned securities if the borrower
defaults. JPMorgan Chase has agreed, in general, to guarantee the obligations
of borrowers to return loaned securities to a Fund and to be responsible for
expenses relating to securities lending. Each Fund, however, will be
responsible for risks associated with the investment of cash collateral,
including the risk of a default by the issuer of a security in which cash
collateral has been invested. If that occurs, a Fund may incur additional
costs in seeking to obtain the collateral or may lose the amount of the
collateral investment. A Fund may also lose money if the value of the
investments purchased with cash collateral decreases.

|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 Funds (except Money Fund/VA) do not intend
that their investments in variable amount master demand notes will exceed 5%
of their total assets. A description of the investment policies for Money
Fund/VA is located below under the heading "Money Fund/VA Investment
Policies."

|X| |X| Derivatives. The Funds can invest in a variety of derivative
investments, including swaps, "structured" notes, convertible notes, options,
forward contracts and futures contracts, to seek income or for hedging
purposes. The use of derivatives requires special skills and knowledge of
investment techniques that are different than what is required for normal
portfolio management. If the Manager uses a derivative instrument at the
wrong time or judges market conditions incorrectly, the use of derivatives
may reduce a Fund's return.

Although it is not obligated to do so, the Funds can use derivatives to
hedge. To attempt to protect against declines in the market value of a
Fund's portfolio, to permit a Fund to retain unrealized gains in the value of
portfolio securities which have appreciated, or to facilitate selling
securities for investment reasons, a Fund 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 a Fund's 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 a Fund would normally seek to purchase the securities and then
terminate that hedging position. A Fund 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
Fund could:
o buy futures, or
o buy calls on such futures or on securities.

A Fund's 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 strategies a Fund can use are described below. A Fund may
employ new hedging strategies when they are developed, if those investment
methods are consistent with the Fund's investment objectives and are
permissible under applicable regulations governing the Fund.

o "Structured" Notes. The Funds can invest in "structured" notes, which
are specially-designed derivative debt investments whose principal payments
or interest payments are linked to the value of an underlying asset, such as
an equity or debt security, currency, or commodity, or non-asset reference,
such as an interest rate or index. The terms of the instrument may be
"structured" by the purchaser (the Fund) and the borrower issuing the note.

The values of these notes will fall or rise in response to changes
in the values of the underlying asset or reference and the Fund might receive
less principal or interest if the underlying asset or reference does not
perform as anticipated. In some cases, these notes may pay an amount based
on a multiple of the relative change in value of the asset or reference.
This type of note 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.

The values of these notes are also subject to both credit risk (if
the counterparty fails to meet its obligations) and interest rate risk and
therefore the Fund could receive more or less than it originally invested
when a note matures. The prices of these notes may be very volatile and they
may have a limited trading market, making it difficult for the Fund to value
them or sell them at an acceptable price.

o Swaps. The Funds may enter into swap agreements, including interest
rate, total return, credit default and volatility swaps. Swap agreements are
two-party contracts entered into primarily by institutional investors for a
specified period of time typically ranging from a few weeks to more than one
year. In a standard swap transaction, two parties agree to exchange the
returns (or the difference between the returns) earned or realized on a
particular asset, such as an equity or debt security, commodity or currency,
or non-asset reference, such as an interest rate or index. The swapped
returns are generally calculated with respect to a notional amount, that is,
the return on a particular dollar amount invested in the underlying asset or
reference. A Fund may enter into a swap agreement to, among other reasons,
gain exposure to certain markets in the most economical way possible, protect
against currency fluctuations, or reduce risk arising from ownership of a
particular security or instrument. A Fund will identify liquid assets on the
Fund's books (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.

The Funds may enter into swap transactions with certain counterparties
pursuant to master netting agreements. A master netting agreement provides
that all swaps done between a 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 more than one swap transaction, the amount
payable shall be the net amount. In addition, the master netting agreement
may provide that if one party defaults generally or on any swap, the
counterparty can terminate all outstanding swaps with that party.

The use of swap agreements by the Funds entails certain risks. The
swaps market is generally unregulated. There is no central exchange or
market for swap transactions and therefore they are less liquid investments
than exchange-traded instruments and may be considered illiquid by a Fund.
Swap agreements entail credit risk arising from the possibility that the
counterparty will default. If the counterparty defaults, a Fund's loss will
consist of the net amount of contractual payments that the Fund has not yet
received. The Manager will monitor the creditworthiness of counterparties to
a Fund's swap transactions on an ongoing basis. The Fund's successful use of
swap agreements is dependent upon the Manager's ability to predict correctly
whether certain types of investments are likely to produce greater returns
than other investments. Swap agreements may effectively add leverage to a
Fund's portfolio because the Fund would be subject to investment exposure on
the notional amount of the swap.

o Interest Rate Swaps. The Funds, especially Core Bond Fund/VA, High
Income Fund/VA, Strategic Bond Fund/ VA and Value Fund/VA, may enter into
interest rate swaps. In an interest rate swap, a Fund and another party
exchange their right to receive or their obligation to pay interest on a
security. For example, they might swap the right to receive floating rate
payments for fixed rate payments. There is a risk that, based on movements
of interest rates, the payments made by the Fund under a swap agreement will
be greater than the payments it receives. The Fund can enter into interest
rate swaps only in connection with securities that it owns.

o Total Return Swaps. The Funds may enter into total return swaps, under
which one party agrees to pay the other the total return of a defined
underlying asset, such as a security or basket of securities, or non-asset
reference, such as a securities index, during the specified period in return
for periodic payments based on a fixed or variable interest rate or the total
return from different underlying assets or references. Total return swaps
could result in losses if the underlying asset or reference does not perform
as anticipated by the Manager.

o Credit Default Swaps. The Fixed Income Funds and Balanced Fund/ VA may
enter into credit default swaps. A credit default swap enables an investor
to buy or sell protection against a credit event, such as an issuer's failure
to make timely payments of interest or principal, bankruptcy or
restructuring. The Funds may seek to enhance returns by selling protection
or attempt to mitigate credit risk by buying protection against the
occurrence of a credit event by a specified issuer. The Funds may enter into
credit default swaps, both directly ("unfunded swaps") and indirectly
("funded swaps") in the form of a swap embedded within a structured security.
Unfunded and funded credit default swaps may refer to a single security or on
a basket of securities. 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 their total assets.

If a Fund buys credit protection using a credit default swap and a
credit event occurs, the Fund will deliver the defaulted bonds underlying the
swap and the swap counterparty will pay the par amount of the bonds. If a
Fund sells credit protection using a credit default swap and a credit event
occurs, the Fund will pay the par amount of the defaulted bonds underlying
the swap 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 bonds, and the fixed payments are then made on the
reduced notional amount. If a Fund buys protection on a corporate issue, the
Fund must own that corporate issue. However, if a Fund buys protection on
sovereign debt, the Fund 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.

Risks of credit default swaps include counterparty credit risk (if the
counterparty fails to meet its obligations) and the risk that a Fund will not
properly assess the cost of the instrument based on the lack of transparency
in the market. If a Fund is selling credit protection, there is a risk that
a credit event will occur and that the Fund will have to pay par value on
defaulted bonds. If the Fund is buying credit protection, there is a risk
that no credit event will occur and the Fund will receive no benefit for the
premium paid. In addition, if a Fund is buying credit protection and a
credit event does occur, there is a risk when the Fund does not own the
underlying security, that the Fund will have difficulty acquiring the bond on
the open market and may receive adverse pricing.

o Volatility Swap Contracts. The Funds may enter into volatility swaps
to hedge the direction of volatility in a particular asset or non-asset
reference, or for other non-speculative purposes. For volatility swaps,
counterparties agree to buy or sell volatility at a specific level over a
fixed period. Volatility swaps are subject to credit risks (if the
counterparty fails to meet its obligations), and the risk that the Manager is
incorrect in forecasts of volatility of the underlying asset or reference.

o Swap Options and Swap Forwards. The Funds also may enter into options
on swaps as well as forwards on swaps. A swap option is a contract that
gives a counterparty the right (but not the obligation) to enter into a new
swap agreement or to shorten, extend, cancel, or otherwise modify an existing
swap agreement on pre-designated terms. The Funds may write (sell) and
purchase put and call swap options. A swap forward is an agreement to enter
into a swap agreement at some point in the future, usually three to six
months from the date 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 swap. The Funds
generally will incur a greater risk when it writes a swap option than when it
purchases a swap option. When a Fund purchases a swap option it risks losing
only the amount of the premium they have paid if the Fund lets the option
expire unexercised. When a Fund writes a swap option it will become
obligated, upon exercise of the option by the counterparty, according to the
terms of the underlying agreement.

o Futures. The Funds can buy and sell futures contracts that relate to
debt securities (these are referred to as "interest rate futures"),
broadly-based securities indices ("stock index futures" and "bond index
futures"), foreign currencies, commodities and an individual stock ("single
stock futures").

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 securities included in the index and its value fluctuates in
response to the changes in value of the underlying securities. 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.

The Funds can invest a portion of its assets in commodity futures
contracts. Commodity futures may be based upon commodities within five main
commodity groups: (1) energy, which includes crude oil, natural gas, gasoline
and heating oil; (2) livestock, which includes cattle and hogs; (3)
agriculture, which includes wheat, corn, soybeans, cotton, coffee, sugar and
cocoa; (4) industrial metals, which includes aluminum, copper, lead, nickel,
tin and zinc; and (5) precious metals, which includes gold, platinum and
silver. The Funds may purchase and sell commodity futures contracts, options
on futures contracts and options and futures on commodity indices with
respect to these five main commodity groups and the individual commodities
within each group, as well as other types of commodities.

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 its 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 (except
forward contracts) 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 exchange-traded and
over-the-counter put options ("puts") and call options ("calls"), including
index options, securities options, currency options, commodities options and
options on futures.

o Writing Call Options. The Funds may write (that is, sell)
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 must be covered by segregating
liquid assets to enable the Fund to satisfy its obligations if the call is
exercised. There is no limit on the amount of the Fund's total assets that
may be subject to covered calls the Fund writes.

When a Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying security to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may
differ from the market price of the underlying security. The Fund has 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 specific 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.

A Fund's custodian bank, or a securities depository acting for the
custodian, will act as the Fund's escrow agent, through the facilities of the
Options Clearing Corporation ("OCC"), as to the investments on which the Fund
has 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
Fund enters into a closing transaction.

When a Fund writes an over-the-counter ("OTC") option, it 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
(i.e., the option is "in the money"). When the Fund writes an OTC option, it
will treat as illiquid (for purposes of its restriction on holding illiquid
securities) the market-to-market value of the underlying security, unless the
option is subject to a buy-back agreement with the executing broker.

To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The 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. The Fund may realize a profit if the call
expires unexercised, because the Fund will retain the underlying security and
the premium it received when it wrote the call. If the 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, the Fund must cover the call by segregating an
equivalent dollar amount of liquid assets as identified in the Fund's books.
The Fund will segregate additional liquid assets if the value of the
segregated assets drops below 100% of the current value of the future.
Because of this segregation requirement, in no circumstances would the Fund's
receipt of an exercise notice as to that future require the Fund to deliver a
futures contract. It would simply put the Fund in a short futures position,
which is permitted by the Fund's hedging policies.

o Writing Put Options. The Funds may write (that is, 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. A put must be covered by segregated liquid assets
and the Fund cannot write puts if, as a result, more than 50% of the Fund's
net assets would be required to be segregated to cover such put options.

If the Fund writes a put, the put must be covered by liquid assets
identified in the Fund's books. The premium the Fund receives from writing a
put represents a profit, as long as the price of the underlying investment
remains equal to or above the exercise price. However, the 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 the Fund has written expires unexercised, the Fund realizes a
gain in the amount of the premium less the transaction costs incurred. If the
put is exercised, the 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, the 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 the Fund will deposit in escrow liquid assets
with a value equal to or greater than the exercise price of the underlying
securities. The Fund therefore forgoes the opportunity of investing the
segregated assets or writing calls against those assets.

As long as the 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 the Fund to take delivery of the underlying
security and pay the exercise price. The Fund has no 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, the Fund
effects a closing purchase transaction by purchasing a put of the same series
as it sold. Once the Fund has been assigned an exercise notice, it cannot
effect a closing purchase transaction.

The 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 the Fund to write another put option on the security, or to
sell the security and use the proceeds from the sale for other investments.
The 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.

o Purchasing Puts and Calls. The Funds may purchase call
options. When a Fund buys a call (other than in a closing purchase
transaction), it pays a premium. The 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 the 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 owns the underlying investment.
When the 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 an investment the Fund does not own (such as an index
or a future) permits the Fund either 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.

Buying a put on securities or futures the Fund owns enables the 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.

When the 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. 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. The Funds can buy
and sell exchange-traded and over-the-counter put options and call options on
foreign currencies. 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 the Fund's position.
The 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 held in a
segregated account by its custodian bank) upon conversion or exchange of
other foreign currency held in its portfolio.

The 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 maintaining cash, U.S. government securities or other liquid, high grade
debt securities in an amount equal to the exercise price of the option, in a
segregated account with the Fund's custodian bank.

o Risks of Hedging with Options and Futures. The use of hedging
strategies 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 strategy at the wrong time or judges market
conditions incorrectly, hedging strategies may reduce a 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.

The Fund's option activities could affect its portfolio turnover rate
and brokerage commissions. The exercise of calls written by the Fund might
cause the Fund to sell related portfolio securities, thus increasing its
turnover rate. The exercise by the 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 the Fund's control,
holding a put might cause the Fund to sell the related investments for
reasons that would not exist in the absence of the put.

The Fund could pay a brokerage commission each time it buys a call or
put, sells a call or put, or buys or sells an underlying investment in
connection with the exercise of a call or put. Those commissions could be
higher on a relative basis than the commissions for direct purchases or sales
of the underlying investments. Premiums paid for options are small in
relation to the market value of the underlying investments. Consequently, put
and call options offer large amounts of leverage. The leverage offered by
trading in options could result in the Fund's net asset value being more
sensitive to changes in the value of the underlying investment.

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. It will not be able to realize any profit if the
investment has increased in value above the call price.

An option position may be closed out only on a market that provides
secondary trading for options of the same series, and there is no assurance
that a liquid secondary market will exist for any particular option. The 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 the Fund's portfolio securities. The risk is that
the prices of the futures or the applicable index will correlate imperfectly
with the behavior of the cash prices of the Fund's securities. For example,
it is possible that while the Fund has used derivative instruments in a short
hedge, the market may 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 derivative instruments and also experience a decline in the value of
its portfolio securities. However, while this could occur for a very brief
period or to a very small degree, over time the value of a diversified
portfolio of securities will tend to move in the same direction as the
indices upon which the derivative instruments are based.

The risk of imperfect correlation increases as the composition of the
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, the Fund might use derivative instruments in a greater
dollar amount than the dollar amount of portfolio securities being hedged. It
might do so if the historical volatility of the prices of the portfolio
securities being hedged is more than the historical volatility of the
applicable index.

The ordinary spreads between prices in the cash and futures markets are
subject to distortions, due to differences in the nature of those markets.
First, all participants in the futures market are subject to margin deposit
and maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
markets. Therefore, increased participation by speculators in the futures
market may cause temporary price distortions.

The Fund can use derivative instruments to establish a position in the
securities markets as a temporary substitute for the purchase of individual
securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund
does so the market might decline. If the 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 hedge position 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. The Funds can use 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. The 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. The Fund can also use "cross-hedging" where the
Fund 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 Fund may use forward contracts to protect against uncertainty in
the level of future exchange rates. The use of forward contracts does not
eliminate the risk of fluctuations in the prices of the underlying securities
the 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 the 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, the Fund could enter into a forward contract for
the purchase or sale of the amount of foreign currency involved in the
underlying transaction, in a fixed amount of U.S. dollars per unit of the
foreign currency. This is called a "transaction hedge." The transaction hedge
will protect the Fund against a loss from an adverse change in the currency
exchange rates during the period between the date on which the security is
purchased or sold or on which the payment is declared, and the date on which
the payments are made or received.

The Fund could also use forward contracts to lock in the U.S. dollar
value of portfolio positions. This is called a "position hedge." When the
Fund believes that a 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 the
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, the 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 assets having a value equal to the aggregate amount of the
Fund's commitment under forward contracts. The Fund will not enter into
forward contracts or maintain a net exposure to such contracts if the
consummation of the contracts would obligate the Fund to deliver an amount of
foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency or another currency that is the
subject of the hedge.

However, to avoid excess transactions and transaction costs, the Fund
may maintain a net exposure to forward contracts in excess of the value of
the Fund's portfolio securities or other assets denominated in foreign
currencies if the excess amount is "covered" by liquid securities denominated
in any currency. The cover must be at least equal at all times to the amount
of that excess. As one alternative, the Fund may purchase a call option
permitting the Fund to purchase the amount of foreign currency being hedged
by a forward sale contract at a price no higher than the forward contract
price. As another alternative, the Fund may purchase a put option permitting
the Fund to sell the amount of foreign currency subject to a forward purchase
contract at a price as high or higher than the forward contact price.

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 the Fund to
sustain losses on these contracts and to pay additional transactions costs.
The use of forward contracts in this manner might reduce the Fund's
performance if there are unanticipated changes in currency prices to a
greater degree than if the Fund had not entered into such contracts.

At or before the maturity of a forward contract requiring the 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 the Fund might
retain the security and offset its contractual obligation to deliver the
currency by purchasing a second contract. Under that contract the Fund will
obtain, on the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the 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 the 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, the Fund
must evaluate the credit and performance risk of the counterparty under each
forward contract.

Although the 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. The Fund may convert foreign currency from time to
time, and will incur costs in doing so. Foreign exchange dealers do not
charge a fee for conversion, but they do seek to realize a profit based on
the difference between the prices at which they buy and sell various
currencies. Thus, a dealer might offer to sell a foreign currency to the Fund
at one rate, while offering a lesser rate of exchange if the Fund desires to
resell that currency to the dealer.

o Regulatory Aspects of Certain Derivative Instruments. The Commodities
Futures Trading Commission (the "CFTC") recently eliminated limitations on
futures trading by certain regulated entities including registered investment
companies and consequently registered investment companies may engage in
unlimited futures transactions and options thereon provided that the Fund
claims an exclusion from regulation as a commodity pool operator. The Fund
has claimed such an exclusion from registration as a commodity pool operator
under the Commodity Exchange Act ("CEA"). The Fund may use futures and
options for hedging and non-hedging purposes to the extent consistent with
its investment objective, internal risk management guidelines adopted by the
Fund's investment advisor (as they may be amended from time to time), and as
otherwise set forth in the Fund's prospectus or this SAI.

Transactions in options by the 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 the 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 the Fund (or
an advisor that is an affiliate of the Fund's 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 the Fund purchases a future, it
must maintain cash or readily marketable short-term debt instruments in an
amount equal to the market value of the securities underlying the future,
less the margin deposit applicable to it.

|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 SAI 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
SAI 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 SAI, 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 (except Value
Fund/VA).

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 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.

The following investment restrictions are fundamental policies of 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.

|X| Do the Funds Have Any Restrictions That Are Not Fundamental? Main
Street Small Cap Fund(R)/VA, MidCap Fund/VA and Value Fund/VA have other
investment restrictions that are not fundamental policies, which means that
they can be changed by the Board of Trustees without shareholder approval.

o 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.

o MidCap Fund/VA has also adopted the following non-fundamental policy,
effective April 30, 2006: Under normal market conditions, as a
non-fundamental policy, the Fund invests at least 80% of its net assets (plus
borrowings for investment purposes) in equity securities of growth companies
that have a market capitalization of between $2 billion and $11.5 billion
(referred to as "mid-cap"stocks). The Fund's non-fundamental policy of
investing at least 80% of its net assets in these investments will not be
changed by the Fund's Board of Trustees without first providing shareholders
60 days' written notice.

o 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.

Unless the Prospectus or this SAI 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
SAI. This is not a fundamental policy.

Disclosure of Portfolio Holdings. The Funds have adopted policies and
procedures concerning the dissemination of information about their portfolio
holdings by employees, officers and/or directors of the Manager, Distributor
and Transfer 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
of the Fund's fiscal quarters in its semi-annual and annual
reports to shareholders, and in their Statements of Investments
on Form N-Q. Those documents are publicly available at the SEC.
In addition, the top 20 month-end holdings may be posted on the
OppenheimerFunds' website at www.oppenheimerfunds.com (select the
Fund's name under the "View Fund Information for:" menu) with a
15-day lag. The Fund may release a more restrictive list of
holdings (e.g., the top five or top 10 portfolio holdings) or may
release no holdings if that is in the best interests of the Fund
and its shareholders. 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.

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, the 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 securities that portfolio managers are trading 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 20 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 the Funds' complete portfolio holdings 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.
The Funds' complete 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' 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/or dealers 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-advisers of portfolios (pursuant to confidentiality
agreements),
o To consultants for retirement plans for plan sponsors/discussions at
due diligence meetings (pursuant to confidentiality agreements),
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 Funds'
portfolio holdings may be made to such shareholders.

Any permitted release of otherwise non-public portfolio holdings
information must be in accordance with the Funds' then-current policies on
approved methods for communicating confidential information, including but
not limited to the Funds' policies as to use of secure e-mail technology.

The Chief Compliance Officer (the "CCO") of the Funds and the Manager,
Distributor, and Transfer Agent 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 Board 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:

ABG Securities Fortis Securities Pacific Crest Securities
ABN AMRO Fox-Pitt, Kelton Pacific Growth Equities
AG Edwards Friedman, Billing, Ramsey Petrie Parkman
American Technology ResearchFulcrum Global Partners Pictet
Auerbach Grayson Garp Research Piper Jaffray Inc.
Banc of America Securities George K Baum & Co. Prager Sealy & Co.
Barclays Goldman Sachs Prudential Securities
Bear Stearns HSBC Ramirez & Co.
Belle Haven ING Barings Raymond James
Bloomberg ISI Group RBC Capital Markets
BNP Paribas ITG RBC Dain Rauscher
BS Financial Services Janney Montgomery Research Direct
Buckingham Research Group Jefferies Reuters
Caris & Co. JP Morgan Securities Robert W. Baird
CIBC World Markets JPP Eurosecurities Roosevelt & Cross
Citigroup Global Markets Keefe, Bruyette & Woods Russell
Collins Stewart Keijser Securities Ryan Beck & Co.
Craig-Hallum Capital Group Kempen & Co. USA Inc. Sanford C. Bernstein
LLC
Credit Agricole Cheuvreux Kepler Equities/Julius Scotia Capital Markets
N.A. Inc. Baer Sec
Credit Suisse KeyBanc Capital Markets Societe Generale
Cowen & Company Leerink Swan Soleil Securities Group
Daiwa Securities Lehman Brothers Standard & Poors
Davy Loop Capital Markets Stifel Nicolaus
Deutsche Bank Securities MainFirst Bank AG Stone & Youngberg
Dresdner Kleinwort Makinson Cowell US Ltd SWS Group
Wasserstein
Emmet & Co Maxcor Financial Taylor Rafferty
Empirical Research Merrill Lynch Think Equity Partners
Enskilda Securities Midwest Research Thomson Financial
Essex Capital Markets Mizuho Securities Thomas Weisel Partners
Exane BNP Paribas Morgan Stanley UBS
Factset Morningstar Wachovia Securities
Fidelity Capital Markets Natexis Bleichroeder Wescott Financial
Fimat USA Inc. Ned Davis Research Group William Blair
First Albany Nomura Securities Yieldbook
Fixed Income Securities

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, MidCap 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. 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." Prior to April 30, 2006, Oppenheimer MidCap
Fund/VA was named "Oppenheimer Aggressive Growth Fund/VA", and prior to May
1, 1998 that Fund was named "Oppenheimer Capital Appreciation Fund." All
references to the Funds' Board of Trustees and Officers refer to the Trustees
and Officers, respectively, of Oppenheimer Variable Account Funds.

|X| Shareholders. Insurance companies that hold shares of the Funds in
their separate accounts for the benefit of their customers' variable
annuities, variable life insurance policies and other investment products are
the record holders and the owners of shares of beneficial interest in the
Funds. The right of those customers of the insurance companies to give
directions to the insurance company for the purchase or redemption of shares
is determined under the contract between the customer and the insurance
company. The insurance companies, and not their customers, are
"shareholders" of the Funds. The rights of those insurance companies as
record holders and owners of shares of a Fund are different from the rights
of their customers. These customers are indirect owners for all purposes
except for those rights reserved by insurance companies in the insurance
contract, or as permitted by the SEC. The term "shareholder" in this SAI
refers to the indirect or underlying owner of shares held in the account, and
not to the insurance companies.

|X| Classes of Shares. The Trustees are authorized, without shareholder
approval, to create new series and classes of shares, to reclassify unissued
shares into additional series or classes and to 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, preemptive rights 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 SAI and
the Prospectus as "non-service shares." As of September 15, 2006 all Funds
except Money Fund/VA also offer a service share class, subject to a
Distribution and Service Plan. Money Fund/VA currently only offers the class
of non-service shares. Global Securities Fund/VA and High Income Fund/VA
offer two additional share classes, referred to in this SAI "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 will generally have a different net asset value,
o will generally 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.

Each share of each class has one vote at shareholder meetings, with
fractional shares voting proportionally, on matters submitted to a vote of
shareholders. Each share of a Fund represents an interest in each Fund
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 hold shareholder meetings 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 vote or
declaration in writing of two-thirds of the outstanding shares of the Fund,
to remove a Trustee or to take other action described in the Trust's
Declaration of Trust.

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 Fund 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 or Trustee liability for the
Trust's obligations. It also provides for indemnification and reimbursement
of expenses out of the Trust's property for any shareholder held personally
liable for its obligations. The Declaration of Trust also states that upon
request, the Trust shall assume the defense of any claim made against a
shareholder for any act or obligation of the Trust and shall satisfy any
judgment on that claim. Massachusetts law permits a shareholder of a business
trust (such as the Trust) to be held personally liable as a "partner" under
certain circumstances. However, the risk that a Fund shareholder will incur
financial loss from being held liable as a "partner" of the Trust is limited
to the relatively remote circumstances in which the Trust 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 Fund 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.

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. Each committee is comprised solely of Trustees who are
not "interested persons" under the Investment Company Act (the "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 6 meetings during the Funds' fiscal year ended
December 31, 2006. The Audit Committee furnishes the Board with
recommendations regarding the selection of the Fund's independent registered
public accounting firm (also referred to as the "independent Auditors").
Other main functions of the Audit Committee, outlined in the Audit Committee
Charter, 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 Auditors regarding the Funds' internal
accounting procedures and controls; (iii) reviewing reports from the
Manager's Internal Audit Department; (iv) reviewing certain reports from and
meet periodically with the Funds' Chief Compliance Officer; (v) maintaining a
separate line of communication between the Funds' independent Auditors and
the Independent Trustees; (vi) reviewing the independence of the Funds'
independent Auditors; and (vii) pre-approving the provision of any audit or
non-audit services by the Funds' independent Auditors, including tax
services, that are not prohibited by the Sarbanes-Oxley Act, to the Funds,
the Manager and certain affiliates of the Manager.

The Review Committee is comprised solely of Independent Trustees. The members
of the Review Committee are Jon S. Fossel (Chairman), Robert G. Avis, Sam
Freedman and Beverly L. Hamilton. The Review Committee held 6 meetings during
the Funds' fiscal year ended December 31, 2006. Among other duties, as set
forth in the Review Committee's Charter, the Review Committee 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 as well as the policies and procedures adopted by the
Funds to comply with the Investment Company Act and other applicable law.

The Governance Committee is comprised solely of Independent Trustees.
The members of the Governance Committee are Robert J. Malone (Chairman),
William Armstrong, Beverly L. Hamilton and F. William Marshall, Jr. The
Governance Committee held 6 meetings during the Funds' fiscal year ended
December 31, 2006. The Governance Committee has adopted a charter setting
forth its duties and responsibilities. Among other duties, the Governance
Committee reviews and oversees the Funds' governance guidelines, the adequacy
of the Funds' Codes of Ethics and the nomination of Trustees, including
Independent Trustees. The Governance 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 Governance Committee in care of the Funds. The Governance
Committee may consider such persons at such time as it meets to consider
possible nominees. The Governance 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
Governance 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 electronically at www.oppenheimerfunds.com under the
caption "contact us" or by mail to the Funds at the address below.

Trustees and Officers of the Funds. Except for Mr. Murphy, each of the
Trustees is an Independent Trustee. All of the Trustees are also trustees or
directors of the following Oppenheimer/Centennial funds (referred to as
"Board II Funds"):
Oppenheimer Principal Protected
Oppenheimer Cash Reserves Trust III
Oppenheimer Commodity Strategy
Oppenheimer Capital Income Fund Total Return Fund
Oppenheimer Senior Floating Rate
Oppenheimer Champion Income Fund Fund
Oppenheimer Equity Fund, Inc. Oppenheimer Strategic Income Fund
Oppenheimer Integrity Funds Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street Funds, Inc.
Centennial California Tax Exempt
Oppenheimer Main Street Opportunity Fund Trust
Oppenheimer Main Street Small Cap Fund Centennial Government Trust
Oppenheimer Municipal Fund Centennial Money Market Trust
Centennial New York Tax Exempt
Oppenheimer Principal Protected Trust Trust
Oppenheimer Principal Protected Trust II Centennial Tax Exempt Trust

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 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 reduced sales efforts realized by the Distributor.

Messrs. Baylin, Bhaman, Bomfim, Caan, Ferreira, Gillespie, Gord, Leavy,
Manioudakis, Monoyios, Murphy, O'Hare, Petersen, Reinganum, Steinmetz,
Swaney, Szilagyi, Vandehey, Weiss, Wilby, 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 30, 2007
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 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 Board II Funds. In addition,
none of the Independent Trustees (nor any of their immediate family members)
owns securities of either the Manager or the Distributor of any entity
directly or indirectly controlling, controlled by or under common control
with the Manager or the Distributor of the Board II Funds.

Biographical Information. The Trustees and officers, their positions
with the Funds, length of service in such position(s), and principal
occupations and business affiliations during at least the past five years are
listed in the charts below. The charts also include information about each
Trustee's beneficial share ownership in the Funds and in all of the
registered investment companies that the 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, Colorado 80112-3924. Each
Trustee serves for an indefinite term, or until his or her resignation,
retirement, death or removal.

- ---------------------------------------------------------------------------------------------
Independent Trustees
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Name, Position(s) Principal Occupation(s) During the Past 5 Dollar Aggregate
Dollar
Range of
Shares
Range of Beneficially
Shares Owned in
with the Trust, Years; Other Trusteeships/Directorships Held; Beneficially All
Length of Service, Number of Portfolios in the Fund Complex Owned in Supervised
Age Currently Overseen the Trust Funds
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
As of December 31, 2006
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
William L. President, Colorado Christian University None Over
Armstrong, (since 2006); Chairman, Cherry Creek Mortgage $100,000
Chairman of the Company (since 1991), Chairman, Centennial
Board of Trustees State Mortgage Company (since 1994),
since 2003, Trustee Chairman,The El Paso Mortgage Company (since
since 1999 1993); Chairman, Ambassador Media Corporation
Age: 70 (since 1984); Chairman, Broadway Ventures
(since 1984); Director of Helmerich & Payne,
Inc. (oil and gas drilling/production
company) (since 1992), Campus Crusade for
Christ (non-profit) (since 1991); Former
Director, The Lynde and Harry Bradley
Foundation, Inc. (non-profit organization)
(since 2002); former Chairman of: Transland
Financial Services, Inc. (private mortgage
banking company) (1997-2003), Great Frontier
Insurance (1995-2000), Frontier Real Estate,
Inc. (residential real estate brokerage)
(1994-2000) and Frontier Title (title
insurance agency) (1995-2000); former
Director of the following: UNUMProvident
(insurance company) (1991-2004), Storage
Technology Corporation (computer equipment
company) (1991-2003) and International Family
Entertainment (television channel)
(1992-1997); U.S. Senator (January
1979-January 1991). Oversees 37 portfolios in
the OppenheimerFunds complex.
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Robert G. Avis, Director and President of A.G. Edwards None Over
Trustee since 1993 Capital, Inc. (General Partner of private $100,000
Age: 75 equity funds) (until February 2001);
Chairman, President and Chief Executive
Officer of A.G. Edwards Capital, Inc. (until
March 2000); Director of A.G. Edwards & Sons,
Inc. (brokerage company) (until 2000) and
A.G. Edwards Trust Company (investment
adviser) (until 2000); Vice Chairman and
Director of A.G. Edwards, Inc. (until March
1999); Vice Chairman of A.G. Edwards & Sons,
Inc. (until March 1999); Chairman of A.G.
Edwards Trust Company (until March 1999) and
A.G.E. Asset Management (investment adviser)
(until March 1999). Oversees 37 portfolios in
the OppenheimerFunds complex.
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
George C. Bowen, Assistant Secretary and Director of None Over
Trustee since 1999 Centennial Asset Management Corporation $100,000
Age: 70 (December 1991-April 1999); President,
Treasurer and Director of Centennial Capital
Corporation (June 1989-April 1999); Chief
Executive Officer and Director of MultiSource
Services, Inc. (March 1996-April 1999); Mr.
Bowen held several positions with the Manager
and with subsidiary or affiliated companies
of the Manager (September 1987-April 1999).
Oversees 38 portfolios in the
OppenheimerFunds complex.
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Edward L. Cameron, Member of The Life Guard of Mount Vernon None Over
Trustee since 1999 (George Washington historical site) (June $100,000
Age: 68 2000 - May 2006); Director of Genetic ID,
Inc. (biotech company) (March 2001-May 2002);
Partner at PricewaterhouseCoopers LLP
(accounting firm) (July 1974-June 1999);
Chairman of Price Waterhouse LLP Global
Investment Management Industry Services Group
(financial services firm) (July 1994-June
1998). Oversees 37 portfolios in the
OppenheimerFunds complex.
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Jon S. Fossel, Director of UNUMProvident (insurance company) None Over
Trustee since 1990 (since June 2002); Director of Northwestern $100,000
Age: 65 Energy Corp. (public utility corporation)
(since November 2004); Director of P.R.
Pharmaceuticals (October 1999-October 2003);
Director of Rocky Mountain Elk Foundation
(non-profit organization) (February
1998-February 2003 and since February 2005);
Chairman and Director (until October 1996)
and President and Chief Executive Officer
(until October 1995) of the Manager;
President, Chief Executive Officer and
Director of the following: Oppenheimer
Acquisition Corp. ("OAC") (parent holding
company of the Manager), Shareholders
Services, Inc. and Shareholder Financial
Services, Inc. (until October 1995). Oversees
37 portfolios in the OppenheimerFunds complex.
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Sam Freedman, Director of Colorado Uplift (charitable None Over
Trustee since 1996 organization) (since September 1984). Mr. $100,000
Age: 66 Freedman held several positions with
OppenheimerFunds, Inc. and with subsidiary or
affiliated companies of OppenheimerFunds,
Inc. (until October 1994). Oversees 37
portfolios in the OppenheimerFunds complex.

- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Beverly L. Hamilton, Trustee of Monterey Institute for None None
Trustee since 2002 International Studies (educational
Age: 60 organization) (since February 2000); Board
Member of Middlebury College (educational
organization) (since December 2005); Director
of The California Endowment (philanthropic
organization) (since April 2002); Director
(February 2002-2005) and Chairman of Trustees
(since 2006) of the Community Hospital of
Monterey Peninsula; Director (October
1991-2005) and Vice Chairman (since 2006) of
American Funds' Emerging Markets Growth Fund,
Inc. (mutual fund); President of ARCO
Investment Management Company (February
1991-April 2000); Member of the investment
committees of The Rockefeller Foundation
(since 2001) and The University of Michigan
(since 2000); Advisor at Credit Suisse First
Boston's Sprout venture capital unit (venture
capital fund) (1994-January 2005); Trustee of
MassMutual Institutional Funds (investment
company) (1996-June 2004); Trustee of MML
Series Investment Fund (investment company)
(April 1989-June 2004); Member of the
investment committee of Hartford Hospital
(2000-2003); and Advisor to Unilever
(Holland) pension fund (2000-2003). Oversees
37 portfolios in the OppenheimerFunds complex.
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Robert J. Malone, Director of Jones International University None Over
Trustee since 2002 (educational organization) (since August $100,000
Age: 62 2005); Chairman, Chief Executive Officer and
Director of Steele Street State Bank
(commercial banking) (since August 2003);
Director of Colorado UpLIFT (charitable
organization) (since 1986); Trustee of the
Gallagher Family Foundation (non-profit
organization) (since 2000); Former Chairman
of U.S. Bank-Colorado (subsidiary of U.S.
Bancorp and formerly Colorado National Bank)
(July 1996-April 1999); Director of
Commercial Assets, Inc. (real estate
investment trust) (1993-2000); Director of
Jones Knowledge, Inc. (2001-July 2004); and
Director of U.S. Exploration, Inc. (oil and
gas exploration) (1997-February 2004).
Oversees 37 portfolios in the
OppenheimerFunds complex.
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
F. William Trustee of MassMutual Select Funds (formerly None Over
Marshall, Jr., MassMutual Institutional Funds) (investment $100,000
Trustee since 2000 company) (since 1996) and MML Series
Age: 64 Investment Fund (investment company) (since
1996); Trustee (since 1987) and Chairman
(1994-2005) of the Investment Committee of
the Worcester Polytech Institute (private
university); President and Treasurer of the
SIS Funds (private charitable fund) (since
January 1999); Chairman of SIS & Family Bank,
F.S.B. (formerly SIS Bank) (commercial bank)
(January 1999-July 1999); and Executive Vice
President of Peoples Heritage Financial
Group, Inc. (commercial bank) (January
1999-July 1999). Oversees 39 portfolios in
the OppenheimerFunds complex.*
- ---------------------------------------------------------------------------------------------
o Includes two open-end investment companies: MassMutual Select Funds and
MML Series Investment Fund. In accordance with the instructions for SEC
Form N-1A, for purposes of this section only, MassMutual Select Funds and
MML Series Investment Fund are included in the "Fund Complex." 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.

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. The address of Mr. Murphy is Two
World Financial Center, 225 Liberty Street, 11th Floor, New York, New York
10281-1008. Mr. Murphy serves as a Trustee for an indefinite term, or until
his resignation, retirement, death or removal and as an officer for an
indefinite term, or until his resignation, retirement, death or removal. 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 director or trustee.
- -------------------------------------------------------------------------------------
Interested Trustee and Officer
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Name, Position(s) Principal Occupation(s) During the Past Dollar Aggregate
Dollar
Range Of
Shares
Range of Beneficially
5 Years; Shares Owned in
Held with the Other Trusteeships/Directorships Held; BeneficiallAll
Trust, Length of Number of Portfolios in the Fund Owned in supervised
Service, Age Complex Currently Overseen the Trust Funds
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
As of December 31,
2006
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
John V. Murphy, Chairman, Chief Executive Officer and None Over
Trustee, President Director (since June 2001) and $100,000
and Principal President (since September 2000) of the
Executive Officer Manager; President and director or
since 2001 trustee of other Oppenheimer funds;
Age: 57 President and Director of OAC and of
Oppenheimer Partnership Holdings, Inc.
(holding company subsidiary of the
Manager) (since July 2001); Director of
OppenheimerFunds Distributor, Inc.
(subsidiary of the Manager) (since
November 2001); Chairman and Director
of Shareholder Services, Inc. and of
Shareholder Financial Services, Inc.
(transfer agent subsidiaries of the
Manager) (since July 2001); President
and Director of OppenheimerFunds Legacy
Program (charitable trust program
established by the Manager) (since July
2001); 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 2001) and
Director (since July 2001) of
Oppenheimer Real Asset Management,
Inc.; Executive Vice President of
Massachusetts Mutual Life Insurance
Company (OAC's parent company) (since
February 1997); Director of DLB
Acquisition Corporation (holding
company parent of Babson Capital
Management LLC) (since June 1995);
Member of the Investment Company
Institute's Board of Governors (since
October 3, 2003); Chief Operating
Officer of the Manager (September
2000-June 2001); President and Trustee
of MML Series Investment Fund and
MassMutual Select Funds (open-end
investment companies) (November
1999-November 2001); Director of C.M.
Life Insurance Company (September
1999-August 2000); President, Chief
Executive Officer and Director of MML
Bay State Life Insurance Company
(September 1999-August 2000); Director
of Emerald Isle Bancorp and Hibernia
Savings Bank (wholly-owned subsidiary
of Emerald Isle Bancorp) (June
1989-June 1998). Oversees 99 portfolios
in the OppenheimerFunds complex.
- -------------------------------------------------------------------------------------

The addresses of the officers in the chart below are as follows: for
Messrs. Baylin, Bhaman, Bomfim, Caan, Ferreira, Gillespie, Gord, Leavy,
Manioudakis, Monoyios, O'Hare, Reinganum, Steinmetz, Swaney, Wilby, Zack and
Zavanelli and Ms. Bloomberg, Two World Financial Center, 225 Liberty Street,
New York, New York 10281-1008, for Messrs. Petersen, Szilagyi, Vandehey,
Weiss and Wixted and Mss. Ives and Wolf, 6803 S. Tucson Way, Centennial,
Colorado 80112-3924. Each officer serves for an indefinite term or until his
or her resignation, retirement death or removal.
- -----------------------------------------------------------------------------------------
Other Officers of the Trust
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Name, Position(s) Principal Occupation(s) During Past 5 Years
Held with the Trust,
Length of Service,
Age
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Marc L. Baylin, Vice President of the Fund and the Manager and has been a member
Vice President and of the Manager's Growth Equity Investment Team since September
Portfolio Manager 2005. He was Managing Director and Lead Portfolio Manager at JP
since 2005 Morgan Fleming Investment Management from June 2002 to August
Age: 39 2005 and was a Vice President of T. Rowe Price, where he was an
analyst from June 1993 and a portfolio manager from March 1999 to
June 2002.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Rajeev Bhaman, Senior Vice President of the Manager since May 2006; Vice
Senior Vice President of the Manager from January 1997 to May 2006; Assistant
President since 2006 Vice President of the Manager (March 1996-January 1997). An
and Portfolio officer of 2 portfolios in the OppenheimerFunds complex.
Manager since 2004
Age: 43
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Antulio Bomfim, Vice President of the Manager since October 2003; Senior
Vice President and Economist at the Board of Governors of the Federal Reserve System
Portfolio Manager from June 1992 to October 2003. A portfolio manager of 12
since 2003 portfolios in the OppenheimerFunds complex.
Age: 40
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Geoffrey Caan, Vice President and Portfolio Manager of the Manager since August
Vice President and 2003; Vice President of ABN AMRO NA, Inc. (June 2002-August
Portfolio Manager 2003); Vice President of Zurich Scudder Investments (January
since 2003 1999-June 2002). A portfolio manager of 12 portfolios in the
Age: 38 OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Emmanuel Ferreira, Vice President of the Manager since January 2003; Portfolio
Vice President and Manager at Lashire Investments (July 1999-December 2002). An
Portfolio Manager officer of 3 portfolios in the OppenheimerFunds complex.
since 2003
Age: 39
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Benjamin J. Gord, Vice President of the Manager (since April 2002), of HarbourView
Vice President and Asset Management Corporation (since April 2002) and of OFI
Portfolio Manager Institutional Asset Management, Inc. (as of June 2002); Executive
since 2003 Director and senior fixed income analyst at Miller Anderson &
Age: 44 Sherrerd, a division of Morgan Stanley Investment Management
(April 1992-March 2002). A portfolio manager of 12 portfolios in
the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Christopher Leavy, Director of Equities (since January 2007) and Senior Vice
Vice President and President of the Manager (since September 2000); portfolio
Portfolio Manager manager of Morgan Stanley Dean Witter Investment Management
since 2002 (1997-September 2000). An officer of 7 portfolios in the
Age: 36 OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Angelo Manioudakis, Senior Vice President of the Manager (since April 2002), of
Vice President and HarbourView Asset Management Corporation (since April, 2002) and
Portfolio Manager of OFI Institutional Asset Management, Inc. (since June 2002);
since 2002 Vice President of Oppenheimer Real Asset Management, Inc. (since
Age: 40 November 2006); Executive Director and portfolio manager for
Miller, Anderson & Sherrerd, a division of Morgan Stanley
Investment Management (August 1993-April 2002). An officer of 15
portfolios in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Nikolaos D. Monoyios, Senior Vice President of the Manager since October 2003; a
Vice President and Chartered Financial Analyst. Formerly Vice President of the
Portfolio Manager Manager (April 1998-September 2003). An officer of 6 portfolios
since 1999 in the OppenheimerFunds complex.
Age: 57
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
John O'Hare, Vice President of the Manager since September 2003; Executive
Vice President and Vice President and Portfolio Manager (June 2000-August 2003) and
Portfolio Manager Portfolio Manager and Senior Vice President (August 1997-June
since 2003 2000) at Geneva Capital Management, Ltd. (an investment advisor).
Age: 48 Mr. O'Hare holds a BBA in Finance and Economics from the
University of Wisconsin and is a Chartered Financial Analyst. An
officer of 2 portfolios in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Dr. Marc Reinganum, Vice President of the Manager since September 2002; a Director of
Vice President and Quantitative Research and Portfolio Strategist for Equities; the
Portfolio Manager Mary Jo Vaughn Rauscher Chair in Financial Investments at
since 2003 Southern Methodist University since 1995. At Southern Methodist
Age: 53 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. An officer of 3 portfolios in the
OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Arthur P. Steinmetz, Senior Vice President of the Manager (since March 1993) and of
Vice President and HarbourView Asset Management Corporation (since March 2000). An
Portfolio Manager officer of 3 portfolios in the OppenheimerFunds complex.
since 1993
Age: 48
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Thomas Swaney Vice President of the Manager (since April 2006); senior analyst,
Vice President and high grade investment team (June 2002-March 2006); senior fixed
Portfolio Manager income analyst at Miller Anderson & Sherrerd, a division of
since 2003 Morgan Stanley Investment Management (May 1998-May 2002). A
Age: 34 portfolio manager of 12 portfolios in the OppenheimerFunds
complex.

- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Barry D. Weiss, Vice President of the Manager (since July 2001) and of
Vice President and HarbourView Asset Management Corporation (since June 2003); an
Portfolio Manager officer of 5 portfolios in the OppenheimerFunds complex. Formerly
since 2001 Assistant Vice President and Senior Credit Analyst of the Manager
Age: 42 (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 Investment
Vice President and Officer, Director of Equities (since July 2004) of the Manager.
Portfolio Manager Formerly, Senior Investment Officer, Director of International
since 2005 Equities of the Manager (May 2000-July 2004) and Senior Vice
Age: 62 President of HarbourView Asset Management Corporation (May
1999-November 2001). An officer of 6 portfolios in the
OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Carol E. Wolf, Senior Vice President of the Manager (since June 2000) and of
Vice President and HarbourView Asset Management Corporation (since June 2003); an
Portfolio Manager officer of 6 portfolios in the OppenheimerFunds complex. Formerly
since 1998 Vice President of the Manager (June 1990-June 2000).
Age: 55
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Mark Zavanelli, Vice President of the Manager since November 2000; a Chartered
Vice President and Financial Analyst; an officer of 3 portfolios in the
Portfolio Manager OppenheimerFunds complex. Prior to joining the Manager in May
since 2001 1998 he was President of Waterside Capital Management, a
Age: 36 registered investment advisor (August 1995-April 1998).
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Mark S. Vandehey, Senior Vice President and Chief Compliance Officer of the Manager
Vice President and (since March 2004); Vice President of OppenheimerFunds
Chief Compliance Distributor, Inc., Centennial Asset Management Corporation and
Officer since 2004 Shareholder Services, Inc. (since June 1983); Vice President and
Age: 56 Director of Internal Audit of the Manager (1997-February 2004).
An officer of 99 portfolios in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Brian W. Wixted, Senior Vice President and Treasurer of the Manager (since March
Treasurer and 1999); Treasurer of the following: HarbourView Asset Management
Principal Financial Corporation, Shareholder Financial Services, Inc., Shareholder
& Accounting Officer Services, Inc., Oppenheimer Real Asset Management Corporation,
since 1999 and Oppenheimer Partnership Holdings, Inc. (since March 1999),
Age: 47 OFI Private Investments, Inc. (since March 2000),
OppenheimerFunds International Ltd. and OppenheimerFunds plc
(since May 2000), OFI Institutional Asset Management, Inc. (since
November 2000), and OppenheimerFunds Legacy Program (since June
2003); Treasurer and Chief Financial Officer of OFI Trust Company
(trust company subsidiary of the Manager) (since May 2000);
Assistant Treasurer of the following: OAC (since March 1999),
Centennial Asset Management Corporation (March 1999-October 2003)
and OppenheimerFunds Legacy Program (April 2000-June 2003);
Principal and Chief Operating Officer of Bankers Trust
Company-Mutual Fund Services Division (March 1995-March 1999). An
officer of 99 portfolios in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Brian Petersen, Vice President of the Manager (since February 2007); Assistant
Assistant Treasurer Vice President of the Manager (August 2002-February 2007);
since 2004 Manager/Financial Product Accounting of the Manager (November
Age: 36 1998-July 2002). An officer of 99 portfolios in the
OppenheimerFunds complex
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Brian C. Szilagyi, Assistant Vice President of the Manager (since July 2004);
Assistant Treasurer Director of Financial Reporting and Compliance of First Data
since 2005 Corporation (April 2003-July 2004); Manager of Compliance of
Age: 37 Berger Financial Group LLC (May 2001-March 2003); Director of
Mutual Fund Operations at American Data Services, Inc. (September
2000-May 2001). An officer of 99 portfolios in the
OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Robert G. Zack, Executive Vice President (since January 2004) and General Counsel
Vice President and (since March 2002) of the Manager; General Counsel and Director
Secretary of the Distributor (since December 2001); General Counsel of
since 2001 Centennial Asset Management Corporation (since December 2001);
Age: 58 Senior Vice President and General Counsel of HarbourView Asset
Management Corporation (since December 2001); Secretary and
General Counsel of OAC (since November 2001); Assistant Secretary
(since September 1997) and Director (since November 2001) of
OppenheimerFunds International Ltd. and OppenheimerFunds plc;
Vice President and Director of Oppenheimer Partnership Holdings,
Inc. (since December 2002); Director of Oppenheimer Real Asset
Management, Inc. (since November 2001); Senior Vice President,
General Counsel and Director of Shareholder Financial Services,
Inc. and Shareholder Services, Inc. (since December 2001); Senior
Vice President, General Counsel and Director of OFI Private
Investments, Inc. and OFI Trust Company (since November 2001);
Vice President of OppenheimerFunds Legacy Program (since June
2003); Senior Vice President and General Counsel of OFI
Institutional Asset Management, Inc. (since November 2001);
Director of OppenheimerFunds (Asia) Limited (since December
2003); 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 the following: Shareholder Services, Inc. (May
1985-November 2001), Shareholder Financial Services, Inc.
(November 1989-November 2001), and OppenheimerFunds International
Ltd. (September 1997-November 2001). An officer of 99 portfolios
in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Lisa I. Bloomberg, Vice President and Associate Counsel of the Manager (since May
Assistant Secretary 2004); First Vice President (April 2001-April 2004), Associate
since 2004 General Counsel (December 2000-April 2004), Corporate Vice
Age: 39 President (May 1999-April 2001) and Assistant General Counsel
(May 1999-December 2000) of UBS Financial Services Inc.
(formerly, PaineWebber Incorporated). An officer of 99 portfolios
in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Kathleen T. Ives, Vice President (since June 1998) and Senior Counsel and Assistant
Assistant Secretary Secretary (since October 2003) of the Manager; Vice President
since 2001 (since 1999) and Assistant Secretary (since October 2003) of the
Age: 41 Distributor; Assistant Secretary of Centennial Asset Management
Corporation (since October 2003); Vice President and Assistant
Secretary of Shareholder Services, Inc. (since 1999); Assistant
Secretary of OppenheimerFunds Legacy Program and Shareholder
Financial Services, Inc. (since December 2001); Assistant Counsel
of the Manager (August 1994-October 2003). An officer of 99
portfolios in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Phillip S. Gillespie, Senior Vice President and Deputy General Counsel of the Manager
Assistant Secretary (since September 2004); First Vice President (2000-September
since 2004 2004), Director (2000-September 2004) and Vice President
Age: 43 (1998-2000) of Merrill Lynch Investment Management. An officer of
99 portfolios in the OppenheimerFunds complex.
- -----------------------------------------------------------------------------------------

|X| Remuneration of the Officers and Trustees. The officers and the
interested Trustee of the Funds, who are affiliated with the Manager, receive
no salary or fee from the Funds. The Independent Trustees received the
compensation shown below from the Funds for serving as a Trustee and member
of a committee (if applicable), with respect to the Funds' fiscal year ended
December 31, 2006. The total compensation, including accrued retirement
benefits, from the Funds and fund complex represents compensation received
for serving as a Trustee and member of a committee (if applicable) of the
Boards of the Funds and other funds in the OppenheimerFunds complex during
the calendar year ended December 31, 2006.

- ----------------------------------------------------------------------------------
Name of Trustee and Other Fund Aggregate Compensation Total Compensation
From the Funds and
From the Funds(1) Fiscal Fund Complex(2)
year ended December 31, Year ended
Position(s) (as applicable) 2006 December 31, 2006
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
William L. Armstrong $40,997 $214,504
Chairman of the Board and
Governance Committee Member
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Robert G. Avis $27,332 $143,000
Review Committee Member
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
George C. Bowen $27,332 $143,000
Audit Committee Member
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Edward L. Cameron $32,795 $171,600
Audit Committee Chairman
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Jon S. Fossel $29,469 $154,174
Review Committee Chairman
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Sam Freedman $27,332 $143,000
Review Committee Member
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Beverly Hamilton $27,332(3) $143,000
Review Committee Member and
Governance Committee Member
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Robert J. Malone $31,431(4) $164,452
Governance Committee Chairman
and
Audit Committee Member
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
F. William Marshall, Jr.
Audit Committee Member and $27,332 $205,500(5)
Governance Committee Member
- ----------------------------------------------------------------------------------
1. "Aggregate Compensation From the Funds" includes fees and deferred
compensation, if any.
2. In accordance with SEC regulations, for purposes of this section only,
"Fund Complex" includes the Oppenheimer funds, the MassMutual
Institutional Funds, the MassMutual Select Funds and the MML Series
Investment Fund, the investment adviser for which is the indirect parent
company of the Funds' Manager. The Manager also serves as the Sub-Advisor
to the following: MassMutual Premier International Equity Fund, MassMutual
Premier Main Street Fund, MassMutual Premier Strategic Income Fund,
MassMutual Premier Capital Appreciation Fund, and MassMutual Premier
Global Fund. The Manager does not consider MassMutual Institutional Funds,
MassMutual Select Funds and MML Series Investment Fund to be part of the
OppenheimerFunds' "Fund Complex" as that term may be otherwise interpreted.
3. Includes $27,332 deferred by Ms. Hamilton under the "Deferred
Compensation Plan" described below.
4. Mr. Malone has elected not to participate in the "Deferred Compensation
Plan" effective 1/01/06.
5. Includes $62,500 compensation paid to Mr. Marshall for serving as a
Trustee for MassMutual Select Funds and MML Series Investment Fund.

|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 amount of compensation deferred and the performance of the
selected funds.

Deferral of Trustees' fees under the plan will not materially affect
the Funds' assets, liabilities or 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 Trustees under
the plan without shareholder approval for the limited purpose of determining
the value of the Trustees' deferred compensation account.

|X| Major Shareholders. As of March 15, 2007, the only persons or entities
who owned of record or were known by the Funds to own beneficially 5% or more
of any class of the Funds' outstanding shares 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
Financial"), Worcester, MA;
(iii) Allstate Financial Advisors ("Allstate Financial"), Lincoln, NE;
(iv) Allstate Life Insurance Company of New York ("Allstate Life of NY"),
Vernon Hills, IL;
(v) Allstate Life Insurance Company ("Allstate Life Ins. Co."), Vernon
Hills, IL;
(vi) American Enterprise Life Insurance Company ("American Express"),
Minneapolis, MN;
(vii) Cuna Mutual Life Insurance Company ("Cuna"), Waverly, IA;
(viii)......GE Life and Annuity Assurance Company ("GE"), Richmond, VA;
(ix) Hartford Life Annuity Insurance Company ("Hartford Life Annuity"),
Simsbury, CT;
(x) Hartford Life Insurance Company ("Hartford Life Ins. Co"), Simsbury, CT;
(xi) IDS Life Insurance Company ("IDS Life"), Minneapolis, MN;
(xii) IDS Life Insurance Company of New York ("IDS Life of NY")
(xiii)......ING Life Insurance and Annuity Company ("ING"), Hartford, CT;
(xiv) Lincoln Benefit Life Company ("Lincoln Benefit"), Lincoln, NE;
(xv) Mass Mutual Life Insurance Company ("Mass Mutual"), Springfield, MA;
(xvi) Merrill Lynch, Pierce, Fenner, & Smith, Inc. ("Merrill Lynch"),
Jacksonville, FL;
(xvii)......Minnesota Life Insurance Company ("Minnesota Life"), St. Paul, MN;
(xviii).....Nationwide Life Insurance Company ("Nationwide"), Columbus, OH;
(xix) Protective Life Insurance Company ("Protective"), Birmingham, AL;
(xx) Pruco Life Insurance Company of Arizona ("Prudential"), AZ
(xxi) Sun Life Assurance Company of Canada (U.S.) ("Sun Life Financial"),
Wellesley Hills, MA and

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), 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
Fund's portfolio transactions. Covered persons include persons with
knowledge of the investments and investment intentions of the Fund
and other funds advised by the [Manager / Adviser / Investment
Adviser]. 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 Fund, subject to a number of restrictions
and controls. Compliance with the Code of Ethics is carefully
monitored and enforced by the [Manager / Adviser / Investment
Adviser].

The Code of Ethics is an exhibit to the Fund's 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 1.202.551.8090. The Code of
Ethics can also be viewed as part of the Fund's 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, which include Proxy Voting
Guidelines, 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
Portfolio Proxy Voting Policies and Procedures include provisions to address
conflicts of interest that may arise between the Funds and the Manager or the
Manager's affiliates or business relationships. Such a conflict of interest
may arise, for example, where the Manager or an affiliate of the Manager
manages or administers the assets of a pension plan or other investment
account of the portfolio company soliciting the proxy or seeks to serve in
that capacity. The Manager and its affiliates generally seek to avoid such
conflicts by maintaining separate investment decision making processes to
prevent the sharing of business objectives with respect to proposed or actual
actions regarding portfolio proxy voting decisions. Additionally, the Manager
employs the following two procedures: (1) if the proposal that gives rise to
the conflict is specifically addressed in the Proxy Voting Guidelines, the
Manager will vote the portfolio proxy in accordance with the Proxy Voting
Guidelines, provided that they do not provide discretion to the Manager on
how to vote on the matter; and (2) if such proposal is not specifically
addressed in the Proxy Voting Guidelines or the Proxy Voting Guidelines
provide discretion to the Manager on how to vote, the Manager will vote in
accordance with the third-party proxy voting agent's general recommended
guidelines on the proposal provided that the Manager has reasonably
determined that there is no conflict of interest on the part of the proxy
voting agent. If neither of the previous two procedures provides an
appropriate voting recommendation, the Manager may retain an independent
fiduciary to advise the Manager on how to vote the proposal or may abstain
from voting. The Proxy Voting Guidelines' provisions with respect to certain
routine and non-routine proxy proposals are summarized below:
o The Funds generally vote with the recommendation of the issuer's
management on routine matters, including ratification of the
independent registered public accounting firm, unless circumstances
indicate otherwise.
o The Funds evaluate nominees for director nominated by management on a
case-by-case basis, examining the following factors, among others:
Composition of the board and key board committees, attendance at board
meetings, corporate governance provisions and takeover activity,
long-term company performance and the nominee's investment in the
company.
o In general, the Funds oppose anti-takeover proposals and supports the
elimination, or the ability of shareholders to vote on the preservation
or 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 without shareholder
approval.
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 Funds oppose plans it considers to be excessive.

The Funds are required to file 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 are available (i) without charge, upon
request, by calling the Fund 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 investment teams
provide the portfolio managers with counsel and support in managing the
Funds' portfolios as appropriate.

The agreements require the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective administration for the
Funds. Those responsibilities include the compilation and maintenance of
records with respect to its operations, the preparation and filing of
specified reports, and composition of proxy materials and registration
statements for continuous public sale of shares of the Funds.

The Funds pay expenses not expressly assumed by the Manager under the
advisory agreements. 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. 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.

- ------------------------------------------------------------------------------
Management Fees for the Fiscal Year Ended December 31
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Fund 2004 2005 2006
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Balanced Fund/VA $4,101,747 $4,290,435 $4,020,826
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Capital Appreciation $12,193,670 $12,603,901 $13,090,904
Fund/VA
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Core Bond Fund/VA $4,013,043 $3,446,635 $3,030,438
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Global Securities Fund/VA $18,297,753 $18,210,907 $21,291,245
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
High Income Fund/VA $4,058,869 $4,222,535 $3,808,520
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Main Street Fund(R)/VA $9,708,725 $10,549,666 $12,021,246
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Main Street Small Cap $1,070,988 $1,936,534 $3,908,014
Fund(R)/VA
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
MidCap Fund/VA $7,692,943 $8,080,149 $7,923,282
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Money Fund/VA $982,603 $839,327 $770,054
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Strategic Bond Fund/VA $5,203,309 $6,559,031 $9,733,081
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Value Fund/VA $25,294 $21,587 $20,780
- ------------------------------------------------------------------------------

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 the Funds sustain
in connection with matters to which the agreement relates.

The agreements permit the Manager to act as investment adviser for any
other person, firm or corporation and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as investment
adviser or general distributor. If the Manager shall no longer act as
investment adviser to a Fund, the Manager may withdraw the right of that Fund
to use the name "Oppenheimer" as part of its name.

Portfolio Managers. Each Fund's portfolio is managed by the following:

Fund Name Portfolio Manager(s)
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Balanced Fund/VA Emmanuel Ferreira, Angelo Manioudakis, Antulio
Bomfim, Geoffrey Caan, Benjamin J. Gord and Thomas
Swaney
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Capital Appreciation Marc L. Baylin and William L. Wilby
Fund/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Core Bond Fund/VA Angelo Manioudakis, Antulio Bomfim, Geoffrey Caan,
Benjamin J. Gord and Thomas Swaney
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Global Securities Fund/VA Rajeev Bhaman
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
High Income Fund/VA Angelo Manioudakis, Antulio Bomfim, Geoffrey Caan,
Benjamin J. Gord and Thomas Swaney
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Main Street Fund(R)/VA Nikolaos D. Monoyios and Marc Reinganum
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Main Street Small Cap Nikolaos D. Monoyios and Mark Zavanelli
Fund(R)/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
MidCap Fund/VA John O'Hare
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
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,
Swaney, Baylin, Bhaman, Monoyios, Reinganum, Zavanelli, Weiss, Wilby and
Steinmetz and Ms. Wolf also manage other investment portfolios or accounts on
behalf of the Manager or its affiliates. The following tables provide
information regarding those portfolios and accounts as of December 31, 2006.
Except for one registered investment company managed by Mr. Bhaman no
portfolio or account has a performance-base advisory fee:

- ----------------------------------------------------------------------------------
Fund Name and RegistereTotal Other Total Other Total
Assets Assets in
in Other
RegisteredPooled Pooled Assets
InvestmenInvestmentInvestmenInvestment in Other 2)
CompaniesCompanies Vehicles Vehicles AccountsAccounts
Portfolio Managers Managed Managed(1)Managed Managed(1) Managed Managed(1,
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Balanced Fund/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Emmanuel Ferreira 3 $3,076.1 None None None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Angelo Manioudakis 18 $15,431.2 6 $197.6 2 $157.1
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Antulio Bomfim 15 $14,983.4 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Geoffrey Caan 15 $14,983.4 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Benjamin J. Gord 15 $14,983.4 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Thomas Swaney 15 $14,983.4 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Capital Appreciation
Fund/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Marc L. Baylin 6 $11,706.5 1 $7.6 None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
William L. Wilby 6 $11,706.5 1 $7.6 None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Core Bond Fund/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Angelo Manioudakis 18 $15,571.1 6 $197.6 2 $157.1
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Antulio Bomfim 15 $15,123.3 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Geoffrey Caan 15 $15,123.3 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Benjamin J. Gord 15 $15,123.3 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Thomas Swaney 15 $15,123.3 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Global Securities
Fund/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Rajeev Bhaman 15 $24,815.7 4 $686.9 None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
High Income Fund/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Angelo Manioudakis 18 $15,444.2 6 $197.6 2 $157.1
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Antulio Bomfim 15 $14,996.3 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Geoffrey Caan 15 $14,996.3 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Benjamin J. Gord 15 $14,996.3 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Thomas Swaney 15 $14,996.3 6 $197.6 1 $41.3
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Main Street Fund(R)/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Nikolaos D. Monoyios 17 $26,343.1 1 $33.2 None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Marc Reinganum 8 $15,325.6 None None None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Main Street Small Cap Fund(R)/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Nikolaos D. Monoyios 17 $27,769.7 1 $33.2 None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Mark Zavanelli 8 $10,313.5 None None None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
MidCap Fund/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
John O'Hare 1 $1,115.5 None None None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Money Fund/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Barry D. Weiss 5 $32,380.3 2 $305.5 None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Carol E. Wolf 5 $32,380.3 2 $305.5 None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Strategic Bond Fund/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Arthur P. Steinmetz 6 $14,347.9 3 $74.4 None None
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Value Fund/VA
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Christopher Leavy 11 $11,667.8 4 $1,018.02 None None
- ----------------------------------------------------------------------------------
1. In millions.
2. Does not include personal accounts of portfolio managers and their
families, which are subject to the Code of Ethics.

The following table provides information regarding the account managed
by Mr. Bhaman that has an advisory fee based on performance:

----------------------------------------------------------------
Portfolio Manager Registered Total Assets in
Investment Registered Investment
Companies Managed Companies Managed(1)
----------------------------------------------------------------
----------------------------------------------------------------
Rajeev Bhaman 1 $74.9
----------------------------------------------------------------
1. 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 Funds. 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, 2006,
each Portfolio Managers' compensation consisted principally 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 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 a Fund's portfolio assets or
its investment performance. However, each portfolio managers' compensation is
based on the performance of a tracking portfolio that is substantially
similar to the Fund or Funds that he or she manages, measured against an
appropriate Lipper benchmark selected by management. The Manager has a number
of procedures in place to ensure that portfolio managers do not allocate
securities to those portfolios in an inequitable manner, including monitoring
and dispersion analysis. The compensation structure of certain other funds
and accounts managed by the Portfolio Managers differs from the compensation
structure of the Funds, described above. A portion of the Portfolio Managers'
compensation with regard to other portfolios may be based on the performance
of those portfolios compared to a particular benchmark and, with respect to
one portfolio managed by Messrs. Manioudakis, Bomfim, Caan, Gord, Swaney and
Bhaman, may, under certain circumstances, include an amount based in part on
the amount of that portfolio's management fee.

|X| Ownership of Fund Shares. As of December 31, 2006, 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, that the Manager thinks, in its best
judgment based on all relevant factors, will implement the policy of the
Funds to obtain, at reasonable expense, the "best execution" of the Funds'
portfolio transactions. "Best execution" means prompt and reliable execution
at the most favorable price obtainable for the services provided. 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 both brokerage and research services to
the Funds. 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.

Brokerage Practices Followed by the Manager. The Manager allocates brokerage
for the Funds subject to the provisions of the investment advisory agreements
and other applicable rules and procedures described below.

The Manager's portfolio traders allocate brokerage based upon
recommendations from the Manager's portfolio managers, together with the
portfolio traders' judgment as to the execution capability of the broker or
dealer. 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.

For the Equity Funds, 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, a Fund may be required
to pay fixed brokerage commissions and therefore would not have the benefit
of negotiated commissions that are available in U.S. markets. Brokerage
commissions are paid primarily for transactions in listed securities or for
certain fixed-income agency transactions executed 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, a Fund ordinarily uses the same broker for the purchase or sale
of the option and any transaction in the securities to which the option
relates.

For the Fixed-Income Funds, most securities purchases made by a Fund
are in principal transactions at net prices. A Fund usually deals directly
with the selling or purchasing principal or market maker without incurring
charges for the services of a broker on its behalf unless the Manager
determines that a better price or execution may be obtained by using the
services of a broker. Therefore, a Fund does not incur substantial brokerage
costs. Portfolio securities purchased from underwriters include a commission
or concession paid by the issuer to the underwriter in the price of the
security. Portfolio securities purchased from dealers include a spread
between the bid and asked price. In an option transaction, the Fund
ordinarily uses the same broker for the purchase or sale of the option and
any transaction in the investment to which the option relates.

Other accounts advised by the Manager have investment policies similar
to those of the Funds. Those other accounts may purchase or sell the same
securities as a Fund at the same time as a Fund, which could affect the
supply and price of the securities. If two or more accounts 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. When possible, the Manager tries to combine concurrent orders
to purchase or sell the same security by more than one of the accounts
managed by the Manager or its affiliates.

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 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.

The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a
particular broker may be useful both to the Funds and to one or more of the
other accounts advised by the Manager or its affiliates. Investment research
may be supplied to the Manager by the broker or 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, analytical
software 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.

Although the Manager currently does not do so, the Board of Trustees
may permit 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 may also permit the Manager to use commissions 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.

During the fiscal years ended December 31, 2004, 2005 and 2006, the
Fund paid the total brokerage commissions indicated in the chart below:

- -------------------------------------------------------------------------------
Fund Total Brokerage Commissions Paid by the Funds*
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2004 2005 2006
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Balanced Fund/VA $469,058 $259,679 $340,353
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Capital Appreciation $2,011,561 $2,658,662 $1,864,243
Fund/VA
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Core Bond Fund/VA $87,671 $0 $0
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Global Securities Fund/VA $2,189,386 $2,386,971 $1,620,456
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
High Income Fund/VA $1,548 $11,177 $15,001
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Main Street Fund(R)/VA $2,947,503 $3,270,106 $2,615,212
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Main Street Small Cap $838,394 $909,907 $2,269,615
Fund(R)/VA
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MidCap Fund/VA $1,221,917 $748,400 $1,193,806
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Strategic Bond Fund/VA $70,285 $66,483 $106,356
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Value Fund/VA $8,813 $5,335 $5,456
- -------------------------------------------------------------------------------
* Amounts do not include spreads or commissions on principal transactions
on a net trade basis.

During the fiscal year ended December 31, 2006, the Fund paid the
following amounts in commissions to firms that provide brokerage and research
services to the Fund with respect to the aggregate portfolio transactions
indicated. All such transactions were on a "best execution" basis, as
described above. The provision of research services was not necessarily a
factor in the placement of all such transactions.

- -------------------------------------------------------------------------------
Fund Commissions Paid to Aggregate Transactions
Firms that Provide by Firms that Provide
Research Research
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Balanced Fund/VA $3,179,924 $304,467,774
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Capital Appreciation $1,648,886 $1,749,674,556
Fund/VA
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Core Bond Fund/VA $0 $0
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Global Securities Fund/VA $1,355,256 $1,270,310,175
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
High Income Fund/VA $0 $0
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Main Street Fund(R)/VA $1,260,798 $2,818,394,539
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Main Street Small Cap $373,245 $606,394,736
Fund(R)/VA
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MidCap Fund/VA $1,110,922 $1,343,969,532
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Strategic Bond Fund/VA $0 $0
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Value Fund/VA $5,125 $6,428,542
- -------------------------------------------------------------------------------

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, 2006, 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 period
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,
2006, the Board had set no minimum asset amount. For the fiscal year ended
December 31, 2006, 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, 2006, for all Funds having Service shares outstanding as of that date,
were as follows:

- --------------------------------------------------------------------------
Fund Service Plan Payments by
OFDI
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Balanced Fund/VA Service Shares $182,249
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Capital Appreciation Fund/VA Service Shares $751,102
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Core Bond Fund/VA Service Shares $17,979
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Global Securities Fund/VA Service Shares $1,031,019
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Global Securities Fund/VA Class 4 $153,083
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
High Income Fund/VA Service Shares $352,904
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Main Street Fund(R)/VA Service Shares $1,122,003
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Main Street Small Cap Fund(R)/VA Service Shares $550,413
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
MidCap Fund/VA Service Shares $71,776
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Strategic Bond Fund/VA Service Shares $1,018,455
- --------------------------------------------------------------------------

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 brokers, dealers, financial institutions and other intermediaries
for providing 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.

Unless a plan is terminated as described below, each Plan continues in
effect from year to year but only if the Trust's Board of Trustees and its
Independent Trustees specially vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose
of voting on continuing each Plan. Each Plan may be terminated at any time by
the vote of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the Investment Company Act) of the
outstanding Service shares or Class 4 shares. The Board of Trustees and the
Independent Trustees must approve all material amendments to each plan. An
amendment to increase materially the amount of payments to be made under a
plan must be approved by shareholders of the class affected by the amendment.

While the plans are in effect and Service shares and/or Class 4 shares
are outstanding, the Treasurer of the Trust shall provide separate written
reports on each plan to the Board of Trustees at least quarterly for their
review. The reports shall detail the amount of all payments made under a plan
and the purpose for which the payments were made. Those reports are subject
to the review and approval of the Independent Trustees.

Payments to Fund Intermediaries

Financial intermediaries may receive various forms of compensation or
reimbursement from the Funds in the form of 12b-1 plan payments as described
in the preceding section of this SAI. Additionally, the Manager and/or the
Distributor (including their affiliates) may make payments to financial
intermediaries in connection with their offering and selling shares of the
Funds and other Oppenheimer funds, providing marketing or promotional
support, transaction processing and/or administrative services. Among the
financial intermediaries that may receive these payments are brokers, dealers
or insurance agents who sell and/or hold shares of a fund, banks (including
bank trust departments), registered investment advisers, insurance companies,
retirement plan and qualified tuition program administrators, third party
administrators, and other institutions that have selling, servicing or
similar arrangements with the Manager or Distributor. The payments to
intermediaries vary by the types of product sold, the features of the funds
share class and the role played by the intermediary.

Possible types of payments to financial intermediaries include, without
limitation, those discussed below.

o Payments made by the Funds, or by an investor buying or selling shares
of the Funds may include:
o ongoing asset-based payments attributable to the share class selected,
including fees payable under the Funds' distribution and/or
service plans adopted under Rule 12b-1 under the Investment
Company Act, which are paid from the Funds' assets and
allocated to the class of shares to which the plan relates (see
"About the Funds--Distribution and Service Plans" above);

o shareholder servicing payments for providing omnibus accounting,
recordkeeping, networking, sub-transfer agency or other
administrative or shareholder services, including retirement
plan and 529 plan administrative services fees, which are paid
from the assets of a Fund as reimbursement to the Manager or
Distributor for expenses they incur on behalf of the Funds.

o Payments made by the Manager or Distributor out of their respective
resources and assets, which may include profits the Manager derives
from investment advisory fees paid by the Funds. These payments are
made at the discretion of the Manager and/or the Distributor. These
payments, often referred to as "revenue sharing" payments, may be in
addition to the payments by the Funds listed above.
o These types of payments may reflect compensation for marketing support,
support provided in offering the Funds or other Oppenheimer
funds through certain trading platforms and programs,
transaction processing or other services;
o The Manager and Distributor each may also pay other compensation to the
extent the payment is not prohibited by law or by any
self-regulatory agency, such as the NASD. Payments are made
based on the guidelines established by the Manager and
Distributor, subject to applicable law.

These payments may provide an incentive to financial intermediaries to
actively market or promote the sale of shares of the Funds or other
Oppenheimer funds, or to support the marketing or promotional efforts of the
Distributor in offering shares of the Funds or other Oppenheimer funds. In
addition, some types of payments may provide a financial intermediary with an
incentive to recommend the Funds or a particular share class. Financial
intermediaries may earn profits on these payments, since the amount of the
payment may exceed the cost of providing the service. Certain of these
payments are subject to limitations under applicable law. Financial
intermediaries may categorize and disclose these arrangements to their
clients and to members of the public in a manner different from the
disclosures in the Funds' Prospectuses and this SAI. You should ask your
financial intermediary for information about any payments it receives from
the Funds, the Manager or the Distributor and any services it provides, as
well as the fees and commissions it charges.

Although brokers or dealers that sell Fund shares may also act as a
broker or dealer in connection with the execution of the purchase or sale of
portfolio securities by the Funds or other Oppenheimer funds, a financial
intermediary's sales of shares of the Funds or such other Oppenheimer funds
is not a consideration for the Manager when choosing brokers or dealers to
effect portfolio transactions for the Funds or such other Oppenheimer funds.

Revenue sharing payments can pay for distribution-related or asset
retention items including, without limitation,

o transactional support, one-time charges for setting up access for the
Funds or other Oppenheimer funds on particular trading systems, and
paying the intermediary's networking fees;
o program support, such as expenses related to including the Oppenheimer
funds in retirement plans, college savings plans, fee-based advisory
or wrap fee programs, fund "supermarkets", bank or trust company
products or insurance companies' variable annuity or variable life
insurance products;
o placement on the dealer's list of offered funds and providing
representatives of the Distributor with access to a financial
intermediary's sales meetings, sales representatives and management
representatives.

Additionally, the Manager or Distributor may make payments for firm
support, such as business planning assistance, advertising, and educating a
financial intermediary's sales personnel about the Oppenheimer funds and
shareholder financial planning needs.

For the year ended December 31, 2006, the following financial
intermediaries that are broker-dealers offering shares of the Oppenheimer
funds, and/or their respective affiliates, received revenue sharing or
similar distribution-related payments from the Manager or Distributor for
marketing or program support:

1st Global Capital Co. Advantage Capital Corporation /
FSC
Aegon Aetna Life Ins & Annuity Co.
AG Edwards AIG Financial Advisors
AIG Life Allianz Life Insurance Company
American Enterprise Life
Allstate Life Insurance
American General Annuity American Portfolios
Ameriprise Ameritas
Annuity Investors Life Associated Securities
AXA Advisors AXA Equitable Life Insurance
Banc One Securities Corporation BNY Investment Center
Cadaret Grant & Co, Inc. Chase Investment Services
Citigroup Global Markets Inc
Citicorp Investment Services, Inc. (SSB)
CitiStreet Citizen's Bank of Rhode Island
Columbus Life Commonwealth Financial Network
CUNA Brokerage Services, Inc. CUSO Financial Services, L.P.
Edward D Jones & Co. Federal Kemper
Financial Network (ING) GE Financial Assurance
GE Life & Annuity Genworth Financial
GlenBrook Life and Annuity Co. Great West Life
Hartford Life Insurance Co. HD Vest Investment Services
Hewitt Associates IFMG Securities, Inc.
ING Financial Advisers ING Financial Partners
Kemper Investors Life Insurance
Jefferson Pilot Securities Co. Co.
Legend Equities Co. Legg Mason Wood Walker
Lincoln Benefit National Life Lincoln Financial
Lincoln Investment Planning, Inc. Linsco Private Ledger Financial
Mass Mutual McDonald Investments, Inc.
Merrill Lynch Minnesota Life
Mony Life Morgan Stanley Dean Witter
Multifinancial (ING) Mutual Service Co.
National Planning Co. Nationwide
NFP Park Avenue Securities LLC
PFS Investments, Inc. Phoenix Life Insurance Co.
Plan Member Securities Prime Capital Services, Inc.
Primevest Financial Services, Inc. Protective Life Insurance Co.
Provident Mutual Life & Annuity Prudential
Raymond James & Associates, Inc. RBC Daine Rauscher
Royal Alliance Securities America, Inc.
Security Benefit Security First-Metlife
Signator Investments Sun Life Insurance Co.
Sun Trust Securities, Inc. Thrivent Financial
Travelers Life & Annuity Co. UBS Financial Services, Inc.
Union Central United Planners
Walnut Street Securities (Met
Wachovia Life)
Waterstone Financial Group Wells Fargo

or the year ended December 31, 2006, the following firms, which in some
cases are broker-dealers, received payments from the Manager or Distributor
for administrative or other services provided (other than revenue sharing
arrangements), as described above:

1st Global Capital Co. A G Edwards
ACS HR Solutions ADP
AETNA Life Ins & Annuity Co. Alliance Benefit Group
American Enterprise Investments American Express Retirement Service
American Funds (Fascorp) American United Life Insurance Co.
Ameriprise Ameritrade, Inc.
AMG Administrative Management Group AST (American Stock & Transfer)
AXA Advisors Baden Retirement
BCG - New BCG (Programs for Benefit Plans)
Bear Stearns Securities Co. Benefit Administration, Inc.(WA)
Benefit Administration, Inc.(WIS) Benefit Plans Administration
Benetech, Inc. Bisys
Boston Financial Data Services Ceridian
Charles Schwab & Co, Inc. Citigroup Global Markets Inc (SSB)
CitiStreet City National Investments
Clark Consulting CPI
DA Davidson & Co. Daily Access. Com, Inc.
Davenport & Co, LLC David Lerner Associates
Digital Retirement Solutions DR, Inc.
Dyatech E*Trade Clearing LLC
Edgewood Edward D Jones & Co.
Equitable Life / AXA ERISA Administrative Svcs, Inc
ExpertPlan.com FAS Co. (FASCore/RK Pro)
FBD Consulting Ferris Baker Watts, Inc.
Fidelity First Clearing LLC
First Southwest Co. First Trust - Datalynx
First Trust Corp Franklin Templeton
Geller Group Great West Life
H&R Block Financial Advisors, Inc. Hartford Life Insurance Co.
HD Vest Investment Services Hewitt Associates
HSBC Brokerage USA, Inc. ICMA - RC Services
Independent Plan Coordinators Ingham Group
Interactive Retirement Systems Invesmart
Janney Montgomery Scott, Inc. JJB Hillard W L Lyons, Inc.
John Hancock JP Morgan
July Business Services Kaufman & Goble
Legend Equities Co. Legg Mason Wood Walker
Lehman Brothers, Inc. Liberty-Columbia 529 Program
Lincoln Investment Planning, Inc. Lincoln National Life Insurance Co.
Linsco Private Ledger Financial MassMutual
Matrix Settlement & Clearance
Services McDonald Investments, Inc.
Mercer HR Services Merrill Lynch
Mesirow Financial, Inc. MetLife
MFS Investment Management Mid Atlantic Capital Co.
Milliman USA Morgan Keegan & Co, Inc.
Morgan Stanley Dean Witter Nathan & Lewis Securities, Inc.
National City Bank National Deferred Comp
National Financial National Investor Services Co.
Nationwide Newport Retirement Services
Northwest Plan Services NY Life Benefits
Oppenheimer & Co, Inc. Peoples Securities, Inc.
Pershing PFPC
Piper Jaffray & Co. Plan Administrators
Plan Member Securities Primevest Financial Services, Inc.
Principal Life Insurance Prudential
PSMI Group Quads Trust Company
Raymond James & Associates, Inc. Reliastar
Robert W Baird & Co. RSM McGladrey
Scott & Stringfellow, Inc. Scottrade, Inc.
Southwest Securities, Inc. Standard Insurance Co
Stanley, Hunt, Dupree & Rhine Stanton Group, Inc.
Sterne Agee & Leach, Inc. Stifel Nicolaus & Co, Inc.
Sun Trust Securities, Inc. Symetra
T Rowe Price The 401k Company
The Princeton Retirement Group Inc. The Retirement Plan Company, LLC
TruSource TruSource Union Bank of CA
UBS Financial Services, Inc. Unified Fund Services (UFS)
US Clearing Co. USAA Investment Management Co.
USI Consulting Group Valic
Vanguard Group Wachovia
Web401K.com Wedbush Morgan Securities
Wells Fargo Wilmington Trust

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 the
participating insurance company selects to have dividends paid in
cash, or 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 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 When an investor's shares are redeemed, they may be worth more or less
than their original cost.
o Oppenheimer MidCap Fund/VA did not adopt its investment policy on
investing in mid-cap stocks (see page 40) until April 30, 2006.
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. That is
because of the different kinds of expenses each class bears. The yields and
total returns of each class of shares of the Funds 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 that are allocated to the particular class.

|X| Yields. The Funds use a variety of different yields 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.

- ------------------------------------------------------------------------------
Standardized Yield = 2 [ (a -b + 1)6- 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, 2006. The
formula is shown below:

Dividend Yield = Distribution Paid / No. of Days in the Period x No. of Days
in the Calendar Year
Maximum Offering Price (payment date)

- ----------------------------------------------------------------------------
Standardized Yield for the Dividend Yield for the
Fund 30-Day 30-Day
Period Ended 12/31/06 Period Ended 3/31/06
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Core Bond Fund/VA 4.67% 5.56%
Non-Service Shares
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Core Bond Fund/VA 4.40% 5.41%
Service Shares
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
High Income Fund/VA 6.82% 8.02%
Non-Service Shares
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
High Income Fund/VA 6.55% 7.81%
Service Shares
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Strategic Bond 4.11% 4.42%
Fund/VA
Non-Service Shares
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Strategic Bond 3.89% 4.22%
Fund/VA
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:

- ------------------------------------------------------------------------------
ERV 1/n - 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 12/31/06
- ---------------------------------------------------------------------------
---------------------------------------------------------------------------
Fund and Class/Inception 1 Year 5 Years 10 Years
Date (or (or
life-of-class) life-of-class)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Balanced Fund/VA 11.15% 7.32% 8.03%
Non-Service Shares(2/9/87)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Balanced Fund/VA 10.86% 7.88% N/A
Service Shares (5/1/02)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Capital Appreciation Fund/VA 7.95% 3.05% 8.47%
Non-Service Shares (4/3/85)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Capital Appreciation Fund/VA 7.68% 2.78% 5.47%
Service Shares (9/18/01)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Core Bond Fund/VA 5.28% 5.81% 5.71%
Non-Service Shares (4/3/85)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Core Bond Fund/VA 4.93% 5.80% N/A
Service Shares (5/1/02)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Global Securities Fund/VA 17.69% 12.29% 13.83%
Non-Service Shares
(11/12/90)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Global Securities Fund/VA 17.36% 12.03% 5.78%
Service Shares (7/13/00)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Global Securities Fund/VA 17.69% 25.53% N/A
Class 3 shares (5/1/03)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Global Securities Fund/VA 17.40% 18.15% N/A
Class 4 shares (5/3/04)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
High Income Fund/VA 9.42% 8.10% 5.45%
Non-Service Shares (4/30/86)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
High Income Fund/VA 9.23% 7.86% 7.75%
Service Shares (9/18/01)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Main Street Fund(R)/VA 15.03% 6.55% 6.63%
Non-Service Shares (7/5/95)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Main Street Fund(R)/VA 14.76% 6.29% 1.14%
Service Shares (7/13/00)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Main Street Small Cap 15.00% 12.92% 8.95%
Fund(R)/VA
Non-Service Shares (5/1/98)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Main Street Small Cap 14.66% 12.70% 12.41%
Fund(R)/VA
Service Shares (7/16/01)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
MidCap Fund/VA 2.96% 4.67% 5.85%
Non-Service Shares (8/15/86)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
MidCap Fund/VA 2.70% 4.39% -7.50%
Service Shares (10/16/00)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Money Fund/VA (4/3/85) 4.71% 2.15% 3.63%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Strategic Bond Fund/VA 7.49% 8.75% 6.53%
Non-Service Shares (5/3/93)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Strategic Bond Fund/VA 7.23% 8.36% 7.55%
Service Shares (3/19/01)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Value Fund/VA* 14.03% 15.57% N/A
Non-Service Shares (1/2/03)
---------------------------------------------------------------------------
* Information for a full calendar year is not available for the Service
Shares because it commenced operations on September 15, 2006

Other Performance Comparisons. The Funds compare their performance annually
to that of an appropriate broadly-based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer
Agent at the addresses or telephone numbers shown on the cover of this SAI.
The Funds may also compare their performance to that of other investments,
including other mutual funds, or use rankings of its performance by
independent ranking entities. Examples of these performance comparisons are
set forth below.

|X| Lipper Rankings. From time to time the Funds may publish the
rankings of their performance of each classes of shares 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
classes 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 of shareholder and
investor services by third parties may include comparisons of their services
to those provided by other mutual fund families selected by the rating or
ranking services. They may be based upon the opinions of the rating or
ranking service itself, using its research or judgment, or based upon surveys
of investors, brokers, 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 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 performance may combine total return
performance of the Funds and the total return performance of other
Oppenheimer 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 fees, 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.

Other 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 as of the close of
business of the NYSE on each day that the NYSE is open. The calculation is
done by dividing the value of a Fund's net assets attributable to a class by
the number of shares of that class that are outstanding. The NYSE 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 SAI mean "Eastern time." The NYSE'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 NYSE members may conduct trading in certain
securities on days on which the NYSE 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 many foreign
stock exchanges and over-the-counter markets normally is completed before the
close of the NYSE.

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 NYSE, 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 traded on a U.S. securities exchange 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, 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 available to the pricing service approved by the
Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of the
principal exchange on which the security is traded at its last
trading session on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the
principal exchange on which the security is traded or, on the
basis of reasonable inquiry, from two market makers in the
security.
o Long-term debt securities having a remaining maturity in excess of 60
days are valued based on the mean between the "bid" and "asked"
prices determined by a portfolio pricing service approved by the
Funds' Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable
inquiry.
o The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the
Funds' Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable
inquiry:
(1) debt instruments that have a maturity of more than 397 days when
issued,
(2) debt instruments that had a maturity of 397 days or less when issued
and have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or
less when issued and which have a remaining maturity of 60 days or
less.
o The following securities are valued at cost, adjusted for amortization
of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than 397 days when issued that have a remaining
maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of 397 days or less.

o Securities (including restricted securities) not having
readily-available market quotations are valued at fair value determined under
the Board's procedures. If the Manager is unable to locate two market makers
willing to give quotes, a security may be priced at the mean between the
"bid" and "asked" prices provided by a single active market maker (which in
certain cases may be the "bid" price if no "asked" price is available).

In the case of U.S. government securities, mortgage-backed securities,
corporate bonds and foreign government securities, when last sale information
is not generally available, the Manager may use pricing services approved by
the Board of Trustees. The pricing service may use "matrix" comparisons to
the prices for comparable instruments on the basis of quality, yield and
maturity. Other special factors may be involved (such as the tax-exempt
status of the interest paid by municipal securities). The Manager will
monitor the accuracy of the pricing services. That monitoring may include
comparing prices used for portfolio valuation to actual sales prices of
selected securities.

The closing prices in the New York foreign exchange market on a
particular business day that are provided to the Manager by a bank, dealer or
pricing service that the Manager has determined to be reliable are used to
value foreign currency, including forward contracts, and to convert to U.S.
dollars securities that are denominated in foreign currency.

Puts, calls, and futures are valued at the last sale price on the
principal exchange on which they are traded, as determined by a pricing
service approved by the Board of Trustees or by the Manager. If there were no
sales that day, they shall be valued at the last sale price on the preceding
trading day if it is within the spread of the closing "bid" and "asked"
prices on the principal exchange on the valuation date. If not, the value
shall be the closing bid price on the principal exchange on the valuation
date. If the put, call or future is not traded on an exchange, it shall be
valued by the mean between "bid" and "asked" prices obtained by the Manager
from two active market makers. In certain cases that may be at the "bid"
price if no "asked" price is available.

When 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 SAI, 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 rate 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 class of shares
will vary from time to time depending on market conditions, the composition
of the Funds' 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. Each Fund is treated as a separate entity for federal income tax
purposes. Each Fund intends to qualify as a "regulated investment company"
under the provisions of Subchapter M of the Code. As a regulated investment
company, each Fund is required to distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain,
and net gains from certain foreign currency transactions). To qualify for
treatment as a regulated investment company, a Fund must meet certain income
source, asset diversification and income distribution requirements. If each
Fund qualifies as a "regulated investment company" and complies with the
relevant provisions of the Code, each Fund will be relieved of federal income
tax on the part of its net ordinary income and realized net capital gain
which it distributes to the separate accounts. If a Fund fails to qualify as
a regulated investment company, the Fund will be subject to federal, and
possibly state, corporate taxes on its taxable income and gains. Furthermore,
distributions to its shareholders will constitute ordinary dividend income to
the extent of such Fund's available earnings and profits, and insurance
policy and product holders could be subject to current tax on distributions
received with respect to Fund shares.

Each Fund supports variable life insurance, variable annuity contracts
and other insurance company separate accounts and therefore must, and intends
to, comply with the diversification requirements imposed by section 817(h) of
the Code and the regulations hereunder. These requirements place certain
limitations on the proportion of each Fund's assets that may be represented
by any single investment (which includes all securities of the issuer) and
are in addition to the diversification requirements applicable to such Fund's
status as a regulated investment company. For these purposes, each U.S.
Government agency or instrumentality is treated as a separate issuer, while a
particular foreign government and its agencies, instrumentalities, and
political subdivisions are all considered the same issuer.

Generally, a regulated investment company must distribute substantially
all of its ordinary income and capital gains in accordance with a calendar
year distribution requirement in order to avoid a nondeductible 4% federal
excise tax. However, the excise tax does not apply to a Fund whose only
shareholders are certain tax-exempt trusts or segregated asset accounts of
life insurance companies held in connection with variable contracts. The
Funds intend to qualify for this exemption or to make distributions in
accordance with the calendar year distribution requirements and therefore do
not expect to be subject to this excise tax.

Foreign Taxes. Investment income received from sources within foreign
countries may be subject to foreign income taxes. In this regard, withholding
tax rates in countries with which the United States does not have a tax
treaty are often as high as 30% or more. The United States has entered into
tax treaties with many foreign countries that entitle certain investors to a
reduced rate of tax (generally 10-15%) or to certain exemptions from tax.
Each Fund will operate so as to qualify for such reduced tax rates or tax
exemptions whenever possible. While insurance policy and product holders will
bear the cost of any foreign tax withholding, they will not be able to claim
a foreign tax credit or deduction for taxes paid by the Fund.

The Funds that may invest in foreign securities, may invest in
securities of "passive foreign investment companies" ("PFICs"). A PFIC is a
foreign corporation that, in general, meets either of the following tests:
(1) at least 75% of the its gross income is passive; or (2) an average of at
least 50% of its assets produce, or are held for the production of, passive
income. A Fund investing in securities of PFICs may be subject to U.S.
federal income taxes and interest charges, which would reduce the investment
return of a Fund making such investments. The owners of variable annuities,
variable life insurance products and other insurance company separate
accounts investing in such Fund would effectively bear the cost of these
taxes and interest charges. In certain cases, a Fund may be eligible to make
certain elections with respect to securities of PFICs that could reduce taxes
and interest charges payable by the Fund. However, no assurance can be given
that such elections can or will be made.

This is a general and abbreviated summary of the applicable provisions
of the Code and Treasury Regulations currently in effect as interpreted by
the Courts and the Internal Revenue Service. For further information, consult
the prospectus and/or statement of additional information for your particular
insurance product, as well as your own tax advisor.

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. J.P. Morgan 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. Deloitte
& Touche LLP audits the Funds' financial statements and performs other
related audit services. Deloitte & Touche LLP also acts 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.

32 | OPPENHEIMER BALANCED FUND/VA

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 (the "Fund"), a series of Oppenheimer Variable
Account Funds, including the statement of investments, as of December 31, 2006,
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.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included 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, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2006, by correspondence with the
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. 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 the
Fund as of December 31, 2006, 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.

DELOITTE & TOUCHE LLP

Denver, Colorado
February 8, 2007

STATEMENT OF INVESTMENTS December 31, 2006
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--54.6%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--7.0%
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--1.1%
Hilton Hotels Corp. 44,200 $ 1,542,580
- --------------------------------------------------------------------------------
Starwood Hotels & Resorts
Worldwide, Inc. 36,300 2,268,750
- --------------------------------------------------------------------------------
Wyndham Worldwide Corp. 1 73,420 2,350,908
---------------
6,162,238

- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--1.0%
Liberty Media Holding
Corp.-Interactive, Series A 1 250,550 5,404,364
- --------------------------------------------------------------------------------
MEDIA--4.9%
Liberty Global, Inc., Series A 1 355,108 10,351,398
- --------------------------------------------------------------------------------
Liberty Global, Inc., Series C 1 360,130 10,083,640
- --------------------------------------------------------------------------------
Liberty Media Holding
Corp.-Capital, Series A 1 65,470 6,414,751
---------------
26,849,789

- --------------------------------------------------------------------------------
CONSUMER STAPLES--5.9%
- --------------------------------------------------------------------------------
BEVERAGES--1.3%
Constellation Brands, Inc., Cl. A 1 104,900 3,044,198
- --------------------------------------------------------------------------------
Diageo plc, Sponsored ADR 48,600 3,854,466
---------------
6,898,664

- --------------------------------------------------------------------------------
FOOD PRODUCTS--0.3%
ConAgra Foods, Inc. 71,900 1,941,300
- --------------------------------------------------------------------------------
TOBACCO--4.3%
Altria Group, Inc. 194,700 16,709,154
- --------------------------------------------------------------------------------
Loews Corp./Carolina Group 105,200 6,808,544
---------------
23,517,698

- --------------------------------------------------------------------------------
ENERGY--3.5%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.4%
Halliburton Co. 2 62,000 1,925,100
- --------------------------------------------------------------------------------
OIL & GAS--3.1%
BP plc, ADR 47,400 3,180,540
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 135,800 10,406,354
- --------------------------------------------------------------------------------
Kinder Morgan, Inc. 15,800 1,670,850
- --------------------------------------------------------------------------------
Petroleo Brasileiro SA, Preference 73,000 1,701,568
---------------
16,959,312

- --------------------------------------------------------------------------------
FINANCIALS--9.0%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--2.6%
E*TRADE Financial Corp. 1 126,900 2,845,098
- --------------------------------------------------------------------------------
UBS AG 184,934 11,196,841
---------------
14,041,939

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--1.4%
Wachovia Corp. 136,415 $ 7,768,834
- --------------------------------------------------------------------------------
CONSUMER FINANCE--1.1%
Capital One Financial Corp. 77,100 5,922,822
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--1.6%
Bank of America Corp. 165,368 8,828,998
- --------------------------------------------------------------------------------
INSURANCE--1.9%
Everest Re Group Ltd. 45,400 4,454,194
- --------------------------------------------------------------------------------
Genworth Financial, Inc., Cl. A 80,000 2,736,800
- --------------------------------------------------------------------------------
Platinum Underwriters Holdings Ltd. 102,200 3,162,068
---------------
10,353,062

- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.4%
Freddie Mac 34,000 2,308,600
- --------------------------------------------------------------------------------
HEALTH CARE--6.6%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--2.7%
Amgen, Inc. 1,3 42,900 2,930,499
- --------------------------------------------------------------------------------
Human Genome Sciences, Inc. 1,2 146,600 1,823,704
- --------------------------------------------------------------------------------
MedImmune, Inc. 1 138,000 4,467,060
- --------------------------------------------------------------------------------
Vanda Pharmaceuticals, Inc. 1 226,800 5,590,620
---------------
14,811,883

- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--1.1%
Beckman Coulter, Inc. 55,500 3,318,900
- --------------------------------------------------------------------------------
Boston Scientific Corp. 1 147,900 2,540,922
---------------
5,859,822

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--0.8%
WellPoint, Inc. 1 55,700 4,383,033
- --------------------------------------------------------------------------------
PHARMACEUTICALS--2.0%
Medicines Co. (The) 1,2 70,800 2,245,776
- --------------------------------------------------------------------------------
Novartis AG, ADR 50,700 2,912,208
- --------------------------------------------------------------------------------
Sanofi-Aventis SA, ADR 120,600 5,568,102
---------------
10,726,086

- --------------------------------------------------------------------------------
INDUSTRIALS--5.2%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.1%
Empresa Brasileira de
Aeronautica SA, ADR 2 101,400 4,201,002
- --------------------------------------------------------------------------------
Orbital Sciences Corp. 1 291,764 5,380,128
- --------------------------------------------------------------------------------
Spirit Aerosystems Holdings,
Inc., Cl. A 1 46,060 1,541,628
- --------------------------------------------------------------------------------
United Technologies Corp. 96,900 6,058,188
---------------
17,180,946

- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--1.8%
Siemens AG, Sponsored ADR 99,800 9,835,290

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
MACHINERY--0.3%
Navistar International Corp. 1,2 43,400 $ 1,450,862
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--14.0%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--1.3%
Cisco Systems, Inc. 1,2 163,100 4,457,523
- --------------------------------------------------------------------------------
Juniper Networks, Inc. 1 74,600 1,412,924
- --------------------------------------------------------------------------------
QUALCOMM, Inc. 34,300 1,296,197
---------------
7,166,644

- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--1.1%
Hutchinson Technology, Inc. 1,2 89,700 2,114,229
- --------------------------------------------------------------------------------
International Business Machines Corp. 41,300 4,012,295
---------------
6,126,524

- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.0%
CalAmp Corp. 1 19 160
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--1.0%
eBay, Inc. 1 128,900 3,876,023
- --------------------------------------------------------------------------------
Yahoo!, Inc. 1 53,600 1,368,944
---------------
5,244,967

- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.0%
Texas Instruments, Inc. 192,500 5,544,000
- --------------------------------------------------------------------------------
SOFTWARE--9.6%
Compuware Corp. 1 384,700 3,204,551
- --------------------------------------------------------------------------------
Microsoft Corp. 628,700 18,772,982
- --------------------------------------------------------------------------------
Novell, Inc. 1 597,500 3,704,500
- --------------------------------------------------------------------------------
Synopsys, Inc. 1 286,300 7,652,799
- --------------------------------------------------------------------------------
Take-Two Interactive Software, Inc. 1,2 1,083,450 19,242,072
---------------
52,576,904

- --------------------------------------------------------------------------------
MATERIALS--1.2%
- --------------------------------------------------------------------------------
CHEMICALS--0.0%
Sterling Chemicals, Inc. 1,4 21 268
- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.8%
Martin Marietta Materials, Inc. 15,500 1,610,605
- --------------------------------------------------------------------------------
Texas Industries, Inc. 2 23,700 1,522,251
- --------------------------------------------------------------------------------
Vulcan Materials Co. 17,000 1,527,790
---------------
4,660,646

- --------------------------------------------------------------------------------
METALS & MINING--0.4%
Companhia Vale do Rio Doce,
Sponsored ADR 77,400 2,031,750
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.0%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.0%
WorldCom, Inc./WorldCom Group 1,4 375,000 --
- --------------------------------------------------------------------------------
XO Holdings, Inc. 1,2 85 366
---------------
366

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
UTILITIES--2.2%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.8%
Reliant Energy, Inc. 1 297,500 $ 4,227,475
- --------------------------------------------------------------------------------
ENERGY TRADERS--1.4%
AES Corp. (The) 1 355,500 7,835,220
---------------
Total Common Stocks (Cost $225,220,347) 298,545,566

PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--4.1%
- --------------------------------------------------------------------------------
Ace Securities Corp. Home Equity
Loan Trust, Asset-Backed
Pass-Through Certificates, Series
2005-HE7, Cl. A2B, 5.53%, 11/25/35 5 $ 510,000 510,500
- --------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile
Asset-Backed Certificates, Series
2005-1A, Cl. A2, 5.41%, 4/20/08 5 370,000 370,371
- --------------------------------------------------------------------------------
Argent Securities Trust 2004-W8,
Asset-Backed Pass-Through
Certificates, Series 2004-W8, Cl.
A2, 5.83%, 5/25/34 5 1,760,000 1,766,280
- --------------------------------------------------------------------------------
Argent Securities Trust 2006-W5,
Asset-Backed Pass-Through
Certificates, Series 2006-W5, Cl.
A2B, 5.45%, 5/26/36 5 670,000 670,511
- --------------------------------------------------------------------------------
Capital Auto Receivables Asset
Trust 2004-2, Automobile
Asset-Backed Securities, Series
2004-2, Cl. A3, 3.58%, 1/15/09 1,270,000 1,256,270
- --------------------------------------------------------------------------------
Centex Home Equity Loan Trust
2005-D, Asset-Backed Certificates:
Series 2005-D, Cl. AF1,
5.04%, 10/25/35 237,770 236,953
Series 2005-D, Cl. AV2,
5.62%, 10/25/35 5 1,000,000 1,001,006
- --------------------------------------------------------------------------------
Centex Home Equity Loan Trust
2006-A, Asset-Backed Certificates,
Series 2006-A, Cl. AV2, 5.45%, 5/16/36 5 850,000 850,657

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust,
Credit Card Receivable Nts., Series
2003-C4, Cl. C4, 5%, 6/10/15 $ 180,000 $ 175,159
- --------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust
2005-WF2, Asset-Backed
Pass-Through Certificates, Series
2005-WF2, Cl. AF2, 4.922%, 8/25/35 5 640,438 635,893
- --------------------------------------------------------------------------------
Consumer Credit Reference Index
Securities Program, Credit Card
Asset-Backed Certificates, Series
2002-B, Cl. FX, 10.421%, 3/22/07 6 1,130,000 1,138,541
- --------------------------------------------------------------------------------
CWABS Asset-Backed Certificates
Trust 2002-4, Asset-Backed
Certificates, Series 2002-4, Cl. A1,
5.72%, 2/25/33 5 18,836 18,859
- --------------------------------------------------------------------------------
CWABS Asset-Backed Certificates
Trust 2005-16, Asset-Backed
Certificates, Series 2005-16, Cl.
2AF2, 5.382%, 5/25/36 5 360,000 358,807
- --------------------------------------------------------------------------------
CWABS Asset-Backed Certificates
Trust 2005-17, Asset-Backed
Certificates:
Series 2005-17, Cl. 1AF1, 5.55%,
5/25/36 5 408,277 408,739
Series 2005-17, Cl. 1AF2, 5.363%,
5/25/36 5 240,000 239,141
- --------------------------------------------------------------------------------
CWABS Asset-Backed Certificates
Trust 2006-25, Asset-Backed
Certificates, Series 2006-25, Cl.
2A2, 5.44%, 12/25/29 5 480,000 480,336
- --------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust
2005-FF10, Mtg. Pass-Through
Certificates, Series 2005-FF10, Cl.
A3, 5.56%, 11/25/35 5 1,480,000 1,481,467
- --------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust
2006-FF10, Mtg. Pass-Through
Certificates, Series 2006-FF10, Cl.
A3, 5.41%, 7/25/36 5 660,000 660,422
- --------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust
2006-FF5, Mtg. Pass-Through
Certificates, Series 2006-FF5, Cl.
2A1, 5.40%, 5/15/36 5 384,085 384,353
- --------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust
2006-FF9, Mtg. Pass-Through
Certificates, Series 2006-FF9, Cl.
2A2, 5.43%, 7/7/36 5 330,000 330,211
- --------------------------------------------------------------------------------
Ford Credit Auto Owner Trust,
Automobile Loan Pass-Through
Certificates, Series 2005-A, Cl. A3,
3.48%, 11/17/08 505,678 502,844
- --------------------------------------------------------------------------------
GS Auto Loan Trust, Automobile
Loan Asset-Backed Securities, Series
2005-1, Cl. A2, 4.32%, 5/15/08 431,043 430,981

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Household Home Equity Loan
Trust, Home Equity Loan
Pass-Through Certificates:
Series 2005-3, Cl. A1, 5.61%, 1/20/35 5 $ 479,417 $ 480,194
Series 2006-4, Cl. A2V, 5.46%,
3/20/36 4,5 180,000 180,000
- --------------------------------------------------------------------------------
Lehman XS Trust, Mtg.
Pass-Through Certificates, Series
2005-2, Cl. 2A1B, 5.18%, 8/25/35 5 568,582 567,337
- --------------------------------------------------------------------------------
MBNA Credit Card Master Note
Trust, Credit Card Receivables,
Series 2003-C7, Cl. C7, 6.70%,
3/15/16 5 1,710,000 1,814,857
- --------------------------------------------------------------------------------
Morgan Stanley ABS Capital I,
Mtg. Pass-Through Certificates,
Series 2005-WMC6, Cl. A2B,
5.61%, 7/25/35 5 430,000 430,827
- --------------------------------------------------------------------------------
Option One Mortgage Loan Trust,
Asset-Backed Certificates, Series
2006-2, Cl. 2A2, 5.45%, 7/1/36 5 1,100,000 1,100,858
- --------------------------------------------------------------------------------
Popular ABS Mortgage
Pass-Through Trust 2004-5, Mtg.
Pass-Through Certificates, Series
2004-5, Cl. AF2, 3.735%, 11/10/34 5 23,090 23,022
- --------------------------------------------------------------------------------
Popular ABS Mortgage
Pass-Through Trust 2005-1, Mtg.
Pass-Through Certificates, Series
2005-1, Cl. AF2, 3.914%, 5/25/35 5 80,597 80,322
- --------------------------------------------------------------------------------
Popular ABS Mortgage
Pass-Through Trust 2005-2, Mtg.
Pass-Through Certificates, Series
2005-2, Cl. AF2, 4.415%, 4/25/35 5 420,000 416,045
- --------------------------------------------------------------------------------
RAMP:
Series 2004-RS7 Trust, Mtg.
Asset-Backed Pass-Through
Certificates, Series 2004-RS7, Cl.
AI32, 4.45%, 7/25/28 514,361 510,775
Series 2006-RS4 Trust, Mtg.
Asset-Backed Pass-Through
Certificates, Series 2006-RS4, Cl.
A1, 5.43%, 7/25/36 5 354,621 354,872
- --------------------------------------------------------------------------------
RASC, Series 2006-KS7 Trust,
Home Equity Mtg. Asset-Backed
Pass-Through Certificates, Series
2006-KS7, Cl. A2, 5.42%, 9/25/36 5 800,000 800,511
- --------------------------------------------------------------------------------
Structured Asset Investment Loan
Trust, Mtg. Pass-Through
Certificates, Series 2006-2, Cl. A1,
5.41%, 4/25/36 5 358,858 359,106
- --------------------------------------------------------------------------------
Structured Asset Securities Corp.,
Mtg. Pass-Through Certificates,
Series 2005-4XS, Cl. 3A1,
5.18%, 3/26/35 841,473 839,423

STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--24.7%
- --------------------------------------------------------------------------------
GOVERNMENT AGENCY--21.0%
- --------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--20.9%
Federal Home Loan Mortgage Corp.:
4.50%, 5/1/19-7/1/19 2,128,279 2,054,145
5%, 12/1/32-8/1/33 3,308,361 3,199,136
5%, 1/1/37 7 574,000 553,910
6.50%, 4/1/18-4/1/34 3,471,519 3,558,460
7%, 5/1/29-11/1/32 1,486,351 1,529,629
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., CMO Gtd. Real Estate Mtg.
Investment Conduit Multiclass
Pass-Through Certificates:
Series 2006-11, Cl. PS, 5.06%, 3/25/36 5 401,716 398,971
Series 2043, Cl. ZP, 6.50%, 4/15/28 684,523 699,735
Series 2055, Cl. ZM, 6.50%, 5/15/28 400,925 407,240
Series 2075, Cl. D, 6.50%, 8/15/28 936,505 956,148
Series 2080, Cl. Z, 6.50%, 8/15/28 257,059 261,213
Series 2387, Cl. PD, 6%, 4/15/30 140,156 140,267
Series 2461, Cl. PZ, 6.50%, 6/15/32 696,132 725,324
Series 2500, Cl. FD, 5.85%, 3/15/32 5 125,987 127,268
Series 2526, Cl. FE, 5.75%, 6/15/29 5 179,700 181,682
Series 2551, Cl. FD, 5.75%, 1/15/33 5 139,763 141,109
Series 2583, Cl. KA, 5.50%, 3/15/22 239,805 239,545
Series 3025, Cl. SJ, 5.133%, 8/15/35 5 133,873 134,589
Series 3153, Cl. FJ, 5.73%, 5/15/36 5 399,270 400,954
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 176, Cl. IO, 12.035%, 6/1/26 8 255,764 54,607
Series 183, Cl. IO, 8.654%, 4/1/27 8 390,287 86,143
Series 184, Cl. IO, 14.269%, 12/1/26 8 424,978 90,239
Series 192, Cl. IO, 11.884%, 2/1/28 8 115,972 25,674
Series 200, Cl. IO, 10.64%, 1/1/29 8 138,280 29,405
Series 2003-118, Cl. S, 7.949%,
12/25/33 8 1,959,797 242,306
Series 2005-87, Cl. SG, 9.386%,
10/25/35 8 3,083,867 168,812
Series 2130, Cl. SC, (4.254)%, 3/15/29 8 311,540 22,093
Series 2796, Cl. SD, (0.663)%, 7/15/26 8 444,351 32,195
Series 2920, Cl. S, (4.226)%, 1/15/35 8 2,487,135 115,909
Series 3000, Cl. SE, (4.716)%, 7/15/25 8 2,501,259 88,019
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Principal-Only Stripped
Mtg.-Backed Security, Series 176,
Cl. PO, 4.691%, 6/1/26 9 112,560 91,816

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn.:
4.50%, 5/1/18-12/1/20 $ 6,475,199 $ 6,261,326
5%, 12/1/17-11/1/33 13,457,424 13,197,071
5%, 1/1/22-1/1/37 7 14,021,000 13,607,733
5.50%, 3/1/33-11/1/34 9,086,608 8,995,205
5.50%, 1/1/22-1/1/37 7 3,153,000 3,149,277
6%, 8/1/32-11/1/32 6,534,153 6,596,038
6%, 1/1/22-3/1/33 7 11,501,040 11,638,540
6.50%, 6/1/17-10/1/30 6,010,243 6,167,872
7%, 11/1/17-11/1/35 3,269,130 3,371,275
7.50%, 1/1/33 443,183 462,800
8.50%, 7/1/32 19,093 20,560
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.
Grantor Trust, CMO, Trust 2002-T1,
Cl. A2, 7%, 11/25/31 848,359 872,907
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
CMO Gtd. Real Estate Mtg.
Investment Conduit Pass-Through
Certificates:
Trust 1998-61, Cl. PL, 6%, 11/25/28 388,430 393,419
Trust 1993-215, Cl. ZQ,
6.50%, 11/25/23 801,016 819,334
Trust 1993-87, Cl. Z, 6.50%, 6/25/23 729,745 750,012
Trust 2001-50, Cl. NE, 6%, 8/25/30 77,768 77,741
Trust 2001-51, Cl. OD, 6.50%, 10/25/31 995,625 1,017,526
Trust 2001-70, Cl. LR, 6%, 9/25/30 138,765 138,794
Trust 2001-72, Cl. NH, 6%, 4/25/30 29,050 29,104
Trust 2001-74, Cl. PD, 6%, 5/25/30 19,497 19,452
Trust 2001-82, Cl. ZA, 6.50%, 1/25/32 361,205 371,574
Trust 2002-77, Cl. WF, 5.75%, 12/18/32 5 205,272 206,831
Trust 2002-9, Cl. PC, 6%, 3/25/17 879,748 891,715
Trust 2003-28, Cl. KG, 5.50%, 4/25/23 1,052,000 1,036,120
Trust 2003-84, Cl. PW, 3%, 6/25/22 771,255 758,092
Trust 2004-101, Cl. BG, 5%, 1/25/20 1,110,000 1,082,707
Trust 2006-24, Cl. DB, 5.50%, 4/25/26 1,000,000 995,551
Trust 2006-44, Cl. OA, 5.50%, 12/25/26 1,660,000 1,664,177
Trust 2006-46, Cl. SW, 4.583%, 6/25/36 5 297,024 288,994
Trust 2006-50, Cl. KS, 4.583%, 6/25/36 5 798,189 771,696
Trust 2006-50, Cl. SA, 4.583%, 6/25/36 5 242,472 234,540
Trust 2006-50, Cl. SK, 4.583%, 6/25/36 5 765,861 740,153
Trust 2006-57, Cl. PA, 5.50%, 8/25/27 2,215,422 2,218,453
Trust 2006-64, Cl. MD, 5.50%, 7/25/36 2,983,000 2,908,382
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Interest-Only Stripped Mtg.-Backed
Security:
Trust 2001-65, Cl. S, 7.004%, 11/25/31 8 1,130,568 108,545
Trust 2001-81, Cl. S, (0.047)%, 1/25/32 8 251,237 23,593
Trust 2002-47, Cl. NS,
(1.251)%, 4/25/32 8 536,602 50,772
Trust 2002-51, Cl. S, (1.134)%, 8/25/32 8 492,728 46,584
Trust 2002-52, Cl. SD, (2.64)%, 9/25/32 8 573,378 46,641
Trust 2002-77, Cl. SH,
0.153%, 12/18/32 8 325,809 30,062

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn.,
Interest-Only Stripped Mtg.-Backed
Security: Continued
Trust 2002-84, Cl. SA, 6.972%,
12/25/32 8 $ 976,034 $ 100,412
Trust 2002-9, Cl. MS, (0.473)%,
3/25/32 8 364,145 35,087
Trust 2003-33, Cl. SP, 9.233%, 5/25/33 8 1,061,700 132,980
Trust 2003-4, Cl. S, 6.753%, 2/25/33 8 626,066 65,751
Trust 2003-46, Cl. IH, 6.736%, 6/25/33 8 3,646,879 746,824
Trust 2004-54, Cl. DS, (6.639)%,
11/25/30 8 479,796 28,741
Trust 2005-19, Cl. SA, (3.159)%,
3/25/35 8 6,556,373 334,895
Trust 2005-40, Cl. SA, (3.22)%,
5/25/35 8 1,404,405 68,735
Trust 2005-6, Cl. SE, (3.646)%,
2/25/35 8 1,760,227 89,699
Trust 2005-71, Cl. SA, 3.302%,
8/25/25 8 1,574,195 91,577
Trust 2006-33, Cl. SP, 11.645%,
5/25/36 8 3,234,090 282,235
Trust 222, Cl. 2, 11.975%, 6/1/23 8 882,409 187,360
Trust 233, Cl. 2, 12.908%, 8/1/23 8 782,327 168,845
Trust 240, Cl. 2, 15.955%, 9/1/23 8 1,391,801 312,248
Trust 252, Cl. 2, 9.293%, 11/1/23 8 663,924 152,895
Trust 273, Cl. 2, 11.97%, 8/1/26 8 188,367 40,146
Trust 319, Cl. 2, 9.936%, 2/1/32 8 243,244 55,958
Trust 321, Cl. 2, 5.259%, 4/1/32 8 2,521,837 579,861
Trust 329, Cl. 2, 8.358%, 1/1/33 8 680,149 157,929
Trust 331, Cl. 9, 8.274%, 2/1/33 8 704,001 171,675
Trust 334, Cl. 17, 16.631%, 2/1/33 8 399,830 92,595
Trust 342, Cl. 2, 9.01%, 9/1/33 8 493,276 112,089
Trust 344, Cl. 2, 4.612%, 12/1/33 8 1,733,236 393,042
Trust 346, Cl. 2, 11.437%, 12/1/33 8 1,271,810 293,869
Trust 362, Cl. 12, 5.435%, 8/1/35 8 1,580,902 333,762
Trust 362, Cl. 13, 5.442%, 8/1/35 8 877,256 185,634
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Principal-Only Stripped Mtg.-Backed
Security, Trust 1993-184, Cl. M,
5.671%, 9/25/23 9 295,674 240,366
---------------
114,272,921

- --------------------------------------------------------------------------------
GNMA/GUARANTEED--0.1%
Government National Mortgage
Assn., 8%, 4/15/23 161,236 170,597
- --------------------------------------------------------------------------------
Government National Mortgage
Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, (5.039)%,
1/16/27 8 520,547 35,123
Series 2002-15, Cl. SM, (8.305)%,
2/16/32 8 584,597 38,407
Series 2002-76, Cl. SY, (4.851)%,
12/16/26 8 1,214,303 84,888

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
GNMA/GUARANTEED Continued
Government National Mortgage
Assn., Interest-Only Stripped
Mtg.-Backed Security: Continued
Series 2004-11, Cl. SM, (7.941)%,
1/17/30 8 $ 425,124 $ 30,055
---------------
359,070

- --------------------------------------------------------------------------------
NON-AGENCY--3.7%
- --------------------------------------------------------------------------------
COMMERCIAL--3.4%
Banc of America Commercial
Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates, Series
2005-3, Cl. A2, 4.501%, 7/10/43 1,050,000 1,026,202
- --------------------------------------------------------------------------------
Banc of America Funding Corp.,
CMO Pass-Through Certificates,
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 766,585 777,021
- --------------------------------------------------------------------------------
Banc of America Mortgage
Securities, Inc., CMO Pass-Through
Certificates:
Series 2005-E, Cl. 2A2, 4.975%,
6/25/35 5 62,716 62,611
Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 646,640 652,501
- --------------------------------------------------------------------------------
ChaseFlex Trust 2006-2, Multiclass
Mtg. Pass-Through Certificates,
Series 2006-2, Cl. A1B, 5.607%,
8/25/08 4,5 537,108 537,671
- --------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust
2006-WF1, Asset-Backed
Pass-Through Certificates, Series
2006-WF1, Cl. A2B, 5.536%, 3/1/36 260,000 259,216
- --------------------------------------------------------------------------------
Deutsche Alt-A Securities Mortgage
Loan Trust, Mtg. Pass-Through
Certificates:
Series 2006-AB2, Cl. A7, 5.961%,
6/25/36 1,124,942 1,122,894
Series 2006-AB3, Cl. A7, 6.36%,
4/25/08 326,045 326,137
- --------------------------------------------------------------------------------
GE Capital Commercial Mortgage
Corp., Commercial Mtg.
Obligations, Series 2005-C3, Cl.
A2, 4.853%, 7/10/45 620,000 613,069
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Commercial Mtg.
Pass-Through Certificates, Series
1997-C1, Cl. A3, 6.869%, 7/15/29 191,928 192,665
- --------------------------------------------------------------------------------
Greenwich Capital Commercial
Funding Corp., Commercial Mtg.
Pass-Through Certificates:
Series 2005-GG3, Cl. A2, 4.305%,
8/10/42 890,000 866,977
Series 2005-GG5, Cl. A2, 5.117%,
4/10/37 680,000 678,007

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
COMMERCIAL Continued
JPMorgan Chase Commercial
Mortgage Securities Corp.,
Commercial Mtg. Pass-Through
Certificates:
Series 2005-LDP2, Cl. A2, 4.575%,
7/15/42 $ 260,000 $ 254,729
Series 2005-LDP4, Cl. A2, 4.79%,
10/15/42 890,000 877,056
- --------------------------------------------------------------------------------
LB-UBS Commercial Mortgage
Trust, Commercial Mtg.
Pass-Through Certificates, Series
2005-C5, Cl. A2, 4.885%, 9/15/30 740,000 733,330
- --------------------------------------------------------------------------------
Mastr Alternative Loan Trust, CMO
Pass-Through Certificates:
Series 2004-9, Cl. A3, 4.70%, 8/25/34 5 1,125,264 1,116,344
Series 2004-6, Cl. 10A1, 6%, 7/25/34 1,034,463 1,029,911
- --------------------------------------------------------------------------------
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 1,058,828
- --------------------------------------------------------------------------------
RALI:
Series 2003-QS1 Trust, Mtg.
Asset-Backed Pass-Through
Certificates, Series 2003-QS1, Cl.
A2, 5.75%, 1/25/33 504,922 502,698
Series 2006-QS5 Trust, Mtg.
Asset-Backed Pass-Through
Certificates, Series 2006-QS5, Cl.
2A2, 6%, 4/25/08 1,309,289 1,306,940
Series 2006-QS13 Trust, Mtg.
Asset-Backed Pass-Through
Certificates, Series 2006-QS13, Cl.
1A8, 6%, 9/25/36 1,231,973 1,230,877
- --------------------------------------------------------------------------------
Residential Asset Securitization
Trust 2006-A9CB, CMO
Pass-Through Certificates, Series
2006-A9CB, Cl. A5, 6%, 9/25/36 1,343,731 1,341,647
- --------------------------------------------------------------------------------
Wachovia Bank Commercial
Mortgage Trust 2005-C17,
Commercial Mtg. Obligations,
Series 2005-C17, Cl. A2, 4.782%,
3/15/42 1,450,000 1,431,033
- --------------------------------------------------------------------------------
Wachovia Bank Commercial
Mortgage Trust 2006-C29,
Commercial Asset-Backed Securities,
Series 2006-C29, Cl. A2, 5.272%,
11/15/48 256,000 255,793
- --------------------------------------------------------------------------------
WAMU Mortgage Pass-Through
Certificates Series 2005-AR5 Trust,
Series 2005-AR5, Cl. A1, 4.673%,
5/25/35 5 371,036 370,264
---------------
18,624,421

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
RESIDENTIAL--0.3%
Countrywide Alternative Loan
Trust, CMO, Series 2005-J1, Cl. 3A1,
6.50%, 8/25/32 $ 1,526,024 $ 1,542,716
---------------
Total Mortgage-Backed Obligations
(Cost $135,674,737) 134,799,128

- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--3.4%
- --------------------------------------------------------------------------------
Federal Home Loan Bank Unsec.
Bonds, 3.50%, 11/15/07 650,000 640,615
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp. Unsec. Nts.:
4.125%, 7/12/10 807,000 787,061
5.25%, 7/18/11 2 870,000 881,294
- --------------------------------------------------------------------------------
Federal National Mortgage
Assn. Unsec. Nts.:
4%, 2/28/07 1,470,000 1,467,328
4.25%, 7/15/07 2,015,000 2,004,603
5%, 10/15/11 2 1,200,000 1,203,925
6%, 5/15/11 2 1,200,000 1,250,676
7.25%, 1/15/10 800,000 851,695
- --------------------------------------------------------------------------------
U.S. Treasury Bonds:
4.50%, 2/15/36 2,10 1,768,000 1,681,812
5.375%, 2/15/31 2 193,000 206,797
8.875%, 8/15/17 2 687,000 919,238
- --------------------------------------------------------------------------------
U.S. Treasury Nts.:
4.375%, 1/31/08 2 565,000 561,447
4.625%, 10/31/11-11/15/16 2 5,665,000 5,643,718
4.875%, 10/31/08 2 684,000 684,535
---------------
Total U.S. Government Obligations
(Cost $18,851,123) 18,784,744

- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES--14.8%
- --------------------------------------------------------------------------------
ABN Amro Bank NV (NY Branch),
7.125% Sub. Nts., Series B, 10/15/93 400,000 448,900
- --------------------------------------------------------------------------------
Albertson's, Inc., 8% Sr. Unsec.
Debs., 5/1/31 880,000 897,036
- --------------------------------------------------------------------------------
BAE Systems Holdings, Inc., 5.20%
Nts., 8/15/15 6 1,120,000 1,068,661
- --------------------------------------------------------------------------------
Barclays Bank plc, 6.278% Perpetual
Bonds 11 1,120,000 1,102,158
- --------------------------------------------------------------------------------
Beazer Homes USA, Inc., 6.875%
Sr. Unsec. Nts., 7/15/15 2 595,000 586,075
- --------------------------------------------------------------------------------
British Sky Broadcasting Group
plc, 8.20% Sr. Unsec. Nts., 7/15/09 665,000 708,496
- --------------------------------------------------------------------------------
Bunge Ltd. Finance Corp., 4.375%
Unsec. Nts., 12/15/08 320,000 313,400
- --------------------------------------------------------------------------------
Caesars Entertainment, Inc., 7.50%
Sr. Unsec. Nts., 9/1/09 1,195,000 1,240,766
- --------------------------------------------------------------------------------
CenterPoint Energy, Inc., 7.25%
Sr. Nts., Series B, 9/1/10 1,510,000 1,592,247
- --------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr.
Unsec. Nts., 11/1/08 845,000 878,883

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------
CIT Group, Inc., 5.40% Sr.
Nts., 3/7/13 $ 1,070,000 $ 1,063,303
- --------------------------------------------------------------------------------
Citigroup, Inc., 6.125% Sub.
Nts., 8/25/36 445,000 464,993
- --------------------------------------------------------------------------------
Clear Channel Communications,
Inc., 6.25% Nts., 3/15/11 2 710,000 690,614
- --------------------------------------------------------------------------------
Coca-Cola Co. (The), 7.375% Unsec.
Debs., 7/29/93 360,000 443,812
- --------------------------------------------------------------------------------
Comcast Corp., 6.45% Unsec. Nts.,
3/15/37 1,280,000 1,284,938
- --------------------------------------------------------------------------------
D.R. Horton, Inc.:
5.375% Sr. Unsec. Nts., 6/15/12 690,000 668,143
6.125% Nts., 1/15/14 525,000 522,019
- --------------------------------------------------------------------------------
DaimlerChrysler North America
Holding Corp., 7.30% Nts., 1/15/12 1,085,000 1,152,967
- --------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub.
Debs., 4/15/31 655,000 780,960
- --------------------------------------------------------------------------------
Duke Energy Field Services Corp.,
6.875% Sr. Unsec. Nts., 2/1/11 760,000 795,397
- --------------------------------------------------------------------------------
Earthgrains Co. (The), 6.50% Nts.,
4/15/09 335,000 340,882
- --------------------------------------------------------------------------------
Eastman Kodak Co., 3.625% Nts.,
Series A, 5/15/08 131,000 126,941
- --------------------------------------------------------------------------------
EchoStar DBS Corp., 5.75% Sr. Unsec.
Nts., 10/1/08 900,000 898,875
- --------------------------------------------------------------------------------
El Paso Corp.:
6.50% Sr. Unsec. Nts., 6/1/08 210,000 212,888
7.625% Sr. Unsec. Nts., 9/1/08 780,000 807,300
- --------------------------------------------------------------------------------
Enbridge Energy Partners LP, 5.95%
Sr. Unsec. Nts., Series B, 6/1/33 275,000 254,706
- --------------------------------------------------------------------------------
Energy Transfer Partners LP:
5.65% Sr. Unsec. Unsub. Nts., 8/1/12 200,000 199,394
6.625% Sr. Nts., 10/15/36 440,000 454,548
- --------------------------------------------------------------------------------
Enterprise Products Operating LP,
7.50% Sr. Unsec. Unsub. Nts., 2/1/11 995,000 1,062,038
- --------------------------------------------------------------------------------
EOP Operating LP, 8.10% Unsec.
Nts., 8/1/10 1,345,000 1,483,162
- --------------------------------------------------------------------------------
Federated Department Stores, Inc.,
6.625% Sr. Unsec. Nts., 9/1/08 760,000 772,660
- --------------------------------------------------------------------------------
FirstEnergy Corp., 7.375% Sr. Unsub.
Nts., Series C, 11/15/31 410,000 468,342
- --------------------------------------------------------------------------------
Ford Motor Credit Co., 9.75% Sr.
Unsec. Nts., 9/15/10 6 2,030,000 2,161,205
- --------------------------------------------------------------------------------
Gap, Inc. (The):
6.90% Nts., 9/15/07 685,000 689,859
9.445% Unsub. Nts., 12/15/08 5 141,000 150,591
- --------------------------------------------------------------------------------
General Motors Acceptance Corp.,
8% Bonds, 11/1/31 930,000 1,070,803
- --------------------------------------------------------------------------------
Goldman Sachs Capital, Inc. (The),
6.345% Sub. Bonds, 2/15/34 1,090,000 1,106,932

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------
HBOS plc, 6.413% Sub. Perpetual
Bonds, Series A 6,11 $ 1,100,000 $ 1,096,174
- --------------------------------------------------------------------------------
HCA, Inc., 8.75% Sr. Nts., 9/1/10 1,075,000 1,123,375
- --------------------------------------------------------------------------------
Heinz (H.J.) Co., 6.428% Bonds,
12/1/08 6 150,000 152,744
- --------------------------------------------------------------------------------
Hilton Hotels Corp., 8.25% Sr.
Unsec. Nts., 2/15/11 785,000 845,838
- --------------------------------------------------------------------------------
HSBC Finance Capital Trust IX,
5.911% Nts., 11/30/35 5 1,600,000 1,610,672
- --------------------------------------------------------------------------------
Hyatt Equities LLC, 6.875% Nts.,
6/15/07 6 1,045,000 1,049,457
- --------------------------------------------------------------------------------
Hyundai Motor Manufacturing
Alabama LLC, 5.30% Sr. Unsec.
Nts., 12/19/08 6 610,000 606,148
- --------------------------------------------------------------------------------
IPALCO Enterprises, Inc., 8.375%
Sr. Sec. Nts., 11/14/08 5 540,000 562,950
- --------------------------------------------------------------------------------
iStar Financial, Inc., 5.15% Sr.
Unsec. Nts., 3/1/12 1,090,000 1,061,246
- --------------------------------------------------------------------------------
J.C. Penney Co., Inc., 9% Nts., 8/1/12 275,000 314,797
- --------------------------------------------------------------------------------
JPMorgan Chase & Co., 5.15% Sub.
Nts., 10/1/15 1,065,000 1,046,913
- --------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc.,
6.50% Sr. Nts., 1/15/14 925,000 901,875
- --------------------------------------------------------------------------------
Kaneb Pipe Line Operating
Partnership LP:
5.875% Sr. Unsec. Nts., 6/1/13 175,000 175,744
7.75% Sr. Unsec. Nts., 2/15/12 100,000 109,102
- --------------------------------------------------------------------------------
KB Home, 5.75% Sr. Unsec. Unsub.
Nts., 2/1/14 750,000 693,938
- --------------------------------------------------------------------------------
Kinder Morgan Energy Partners
LP, 7.30% Sr. Unsec. Nts., 8/15/33 975,000 1,060,587
- --------------------------------------------------------------------------------
Kroger Co. (The), 5.50% Unsec.
Unsub. Nts., 2/1/13 1,110,000 1,099,414
- --------------------------------------------------------------------------------
Lennar Corp., 7.625% Sr. Unsec.
Nts., 3/1/09 2 980,000 1,020,753
- --------------------------------------------------------------------------------
Liberty Media Corp., 7.875% Sr.
Nts., 7/15/09 290,000 303,869
- --------------------------------------------------------------------------------
Limited Brands, Inc., 6.125% Sr.
Unsec. Nts., 12/1/12 1,090,000 1,103,285
- --------------------------------------------------------------------------------
Marsh & McLennan Cos., Inc.:
5.875% Sr. Unsec. Bonds, 8/1/33 705,000 644,173
7.125% Sr. Unsec. Nts., 6/15/09 590,000 610,029
- --------------------------------------------------------------------------------
May Department Stores Co., 7.90%
Unsec. Debs., 10/15/07 410,000 416,204
- --------------------------------------------------------------------------------
MBIA, Inc., 5.70% Sr. Unsec. Unsub.
Nts., 12/1/34 1,115,000 1,064,923
- --------------------------------------------------------------------------------
MeadWestvaco Corp., 6.85% Unsec.
Unsub. Nts., 4/1/12 2 1,030,000 1,080,534
- --------------------------------------------------------------------------------
MGM Mirage, Inc., 6% Sr. Sec.
Nts., 10/1/09 1,085,000 1,087,713

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
- --------------------------------------------------------------------------------
Mission Energy Holding Co.,
13.50% Sr. Sec. Nts., 7/15/08 $ 935,000 $ 1,035,513
- --------------------------------------------------------------------------------
Monongahela Power Co., 7.36%
Unsec. Nts., Series A, 1/15/10 695,000 728,580
- --------------------------------------------------------------------------------
Morgan Stanley, 4.75% Sub.
Nts., 4/1/14 1,120,000 1,072,475
- --------------------------------------------------------------------------------
NCR Corp., 7.125% Sr. Unsec. Unsub.
Nts., 6/15/09 100,000 102,615
- --------------------------------------------------------------------------------
NiSource Finance Corp., 7.875% Sr.
Unsec. Nts., 11/15/10 1,450,000 1,565,639
- --------------------------------------------------------------------------------
ONEOK Partners LP:
7.10% Sr. Unsec. Nts., 3/15/11 150,000 157,839
6.65% Nts., 10/1/36 520,000 533,615
- --------------------------------------------------------------------------------
Pemex Project Funding Master
Trust, 7.875% Unsec. Unsub.
Nts., 2/1/09 1,025,000 1,076,763
- --------------------------------------------------------------------------------
Petroleum Export Ltd. Cayman
SPV, 4.623% Sr. Nts., Cl. A1, 6/15/10 6 1,398,444 1,377,122
- --------------------------------------------------------------------------------
PF Export Receivables Master
Trust, 3.748% Sr. Nts., Series B, 6/1/13 6 338,601 317,565
- --------------------------------------------------------------------------------
Popular North America, Inc., 4.70%
Nts., 6/30/09 1,360,000 1,332,083
- --------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695%
Bonds, Series C, 12/18/23 6 1,095,000 1,342,131
- --------------------------------------------------------------------------------
Prudential Insurance Co. of America,
8.30% Nts., 7/1/25 1,110,000 1,397,201
- --------------------------------------------------------------------------------
PSEG Funding Trust I, 5.381% Nts.,
11/16/07 690,000 688,698
- --------------------------------------------------------------------------------
Pulte Homes, Inc., 4.875% Nts.,
7/15/09 1,075,000 1,059,184
- --------------------------------------------------------------------------------
Qwest Corp., 5.625% Unsec. Nts.,
11/15/08 131,000 131,819
- --------------------------------------------------------------------------------
R&B Falcon Corp., 9.50% Sr. Unsec.
Nts., 12/15/08 500,000 537,603
- --------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings,
Inc., 6.50% Unsec. Nts., 6/1/07 30,000 30,190
- --------------------------------------------------------------------------------
Reed Elsevier Capital, Inc., 4.625%
Nts., 6/15/12 480,000 458,996
- --------------------------------------------------------------------------------
Reynolds American, Inc., 6.50% Sr.
Sec. Nts., 6/1/07 665,000 669,218
- --------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 7%
Sr. Unsec. Unsub. Nts., 10/15/07 294,000 298,137
- --------------------------------------------------------------------------------
Safeway, Inc., 6.50% Sr. Unsec.
Nts., 3/1/11 1,560,000 1,615,378
- --------------------------------------------------------------------------------
Sara Lee Corp., 2.75% Unsec.
Nts., 6/15/08 450,000 432,538
- --------------------------------------------------------------------------------
Telecom Italia Capital SpA:
4% Sr. Unsec. Nts., 11/15/08 525,000 511,499
4% Unsec. Unsub. Nts., 1/15/10 575,000 549,447
- --------------------------------------------------------------------------------
Telefonos de Mexico SA de CV,
4.50% Nts., 11/19/08 1,085,000 1,070,855

SHARES
- --------------------------------------------------------------------------------
MONEY MARKET FUND--2.9%
- --------------------------------------------------------------------------------
Oppenheimer Institutional Money
Market Fund, Cl. E, 5.25% 12,13
(Cost $15,913,062) 15,913,062 15,913,062

- --------------------------------------------------------------------------------
Total Investments, at Value
(excluding Investments
Purchased with Cash Collateral
from Securities Loaned)
(Cost $498,043,437) 571,329,872

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
YANKEE FLOATING CERTIFICATE OF DEPOSIT--0.4%
Natexis Banques Populaires NY,
5.34%, 1/2/07 $ 2,000,000 $ 2,000,000
---------------
Total Investments Purchased with
Cash Collateral from Securities
Loaned (Cost $41,048,883) 41,048,883

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $539,092,320) 112.0% 612,378,755
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (12.0) (65,377,150)
--------------------------------
NET ASSETS 100.0% $ 547,001,605
================================

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. Partial or fully-loaned security. See Note 10 of accompanying Notes.

3. 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 PRICE RECEIVED SEE NOTE 1
- --------------------------------------------------------------------------------
Amgen, Inc. 89 4/23/07 $75 $46,768 $11,125

4. Illiquid security. The aggregate value of illiquid securities as of December
31, 2006 was $1,791,592, which represents 0.33% of the Fund's net assets. See
Note 9 of accompanying Notes.

5. Represents the current interest rate for a variable or increasing rate
security.

6. 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 $10,309,748 or 1.88% of the Fund's net
assets as of December 31, 2006.

7. When-issued security or forward commitment to be delivered and settled after
December 31, 2006. See Note 1 of accompanying Notes.

8. 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 $6,664,916 or 1.22% of the Fund's net assets
as of December 31, 2006.

9. 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 $332,182 or 0.06% of the Fund's net assets as of
December 31, 2006.

10. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures contracts. The aggregate market
value of such securities is $1,236,626. See Note 6 of accompanying Notes.

11. This bond has no contractual maturity date, is not redeemable and
contractually pays an indefinite stream of interest. Rate reported represents
the current interest rate for this variable rate security.

12. Represents ownership of an affiliated fund, at or during the period ended
December 31, 2006. Transactions during the period in which the issuer was an
affiliate are as follows:

SHARES GROSS GROSS SHARES
DECEMBER 31, 2005 ADDITIONS REDUCTIONS DECEMBER 31, 2006
- ------------------------------------------------------------------------------------------------------------------------------------

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25%* -- 67,843,655 51,930,593 15,913,062

VALUE DIVIDEND
SEE NOTE 1 INCOME
- ------------------------------------------------------------------------------------------------------------------------------------

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25%* $15,913,062 $226,614

* The money market fund and the Fund are affiliated by having the same
investment advisor.

13. Rate shown is the 7-day yield as of December 31, 2006.

14. The security/securities have 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
accompanying Notes.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF ASSETS AND LIABILITIES December 31, 2006
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $523,179,258) $ 596,465,693
Affiliated companies (cost $15,913,062) 15,913,062
--------------
612,378,755
- -----------------------------------------------------------------------------------------------------------------------
Cash 32,618
- -----------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 234,018
- -----------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $7,205,196 sold on a when-issued basis or forward commitment) 10,076,306
Interest, dividends and principal paydowns 2,804,922
Futures margins 20,599
Other 22,490
--------------
Total assets 625,569,708

- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received $46,768)--see accompanying statement of investments 11,125
- -----------------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned 41,048,883
- -----------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts 209,969
- -----------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $36,396,850 purchased on a when-issued basis or forward commitment) 36,723,640
Shares of beneficial interest redeemed 411,393
Distribution and service plan fees 67,923
Shareholder communications 48,421
Trustees' compensation 15,880
Transfer and shareholder servicing agent fees 1,725
Other 29,144
--------------
Total liabilities 78,568,103

- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 547,001,605
==============

- -----------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 30,963
- -----------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 417,345,514
- -----------------------------------------------------------------------------------------------------------------------
Accumulated net investment income 13,444,735
- -----------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 42,592,233
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and
liabilities denominated in foreign currencies 73,588,160
--------------
NET ASSETS $ 547,001,605
==============

- -----------------------------------------------------------------------------------------------------------------------
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 $435,638,757 and 24,622,795 shares of beneficial interest outstanding) $ 17.69
- -----------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $111,362,848 and 6,339,774 shares of beneficial interest outstanding) $ 17.57

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

18 | OPPENHEIMER BALANCED FUND/VA

STATEMENT OF OPERATIONS For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------
Interest $ 13,669,624
- -----------------------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $108,963) 3,561,909
Affiliated companies 226,614
- -----------------------------------------------------------------------------------------------------------------------
Portfolio lending fees 198,706
--------------
Total investment income 17,656,853

- -----------------------------------------------------------------------------------------------------------------------
EXPENSES
- -----------------------------------------------------------------------------------------------------------------------
Management fees 4,020,826
- -----------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares 249,902
- -----------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares 10,120
Service shares 10,014
- -----------------------------------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares 59,572
Service shares 13,386
- -----------------------------------------------------------------------------------------------------------------------
Trustees' compensation 13,760
- -----------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 10,598
- -----------------------------------------------------------------------------------------------------------------------
Administration service fees 1,500
- -----------------------------------------------------------------------------------------------------------------------
Other 49,536
--------------
Total expenses 4,439,214
Less waivers and reimbursements of expenses (4,303)
--------------
Net expenses 4,434,911

- -----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 13,221,942

- -----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain on:
Investments 47,956,962
Closing and expiration of option contracts written 109,425
Closing and expiration of futures contracts 832,920
Foreign currency transactions 420,870
Swap contracts 122,209
--------------
Net realized gain 49,442,386
- -----------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments (5,140,761)
Translation of assets and liabilities denominated in foreign currencies 182,101
Futures contracts (18,386)
Option contracts (30,516)
Swap contracts 14,078
--------------
Net change in unrealized appreciation (4,993,484)

- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 57,670,844
==============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

19 | OPPENHEIMER BALANCED FUND/VA

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2006 2005
- -----------------------------------------------------------------------------------------------------------------------

OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------
Net investment income $ 13,221,942 $ 11,621,499
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain 49,442,386 31,133,140
- -----------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (4,993,484) (20,360,340)
-------------------------------
Net increase in net assets resulting from operations 57,670,844 22,394,299

- -----------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares (10,383,550) (9,339,985)
Service shares (1,826,958) (1,047,623)
-------------------------------
(12,210,508) (10,387,608)
- -----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Non-Service shares (22,826,230) (19,081,318)
Service shares (4,434,656) (2,361,220)
-------------------------------
(27,260,886) (21,442,538)

- -----------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Non-Service shares (81,734,942) (34,790,673)
Service shares 18,628,043 29,195,366
-------------------------------
(63,106,899) (5,595,307)

- -----------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------
Total decrease (44,907,449) (15,031,154)
- -----------------------------------------------------------------------------------------------------------------------
Beginning of period 591,909,054 606,940,208
-------------------------------
End of period (including accumulated net investment income of $13,444,735
and $12,162,267, respectively) $ 547,001,605 $ 591,909,054
===============================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.75%

5. Voluntary waiver of affiliated funds management fees less than 0.01%.

6. Reduction to custodian expenses less than 0.01%.

7. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

21 | OPPENHEIMER BALANCED FUND/VA

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

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002 1
- -------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.97 $ 17.26 $ 15.87 $ 13.14 $ 14.51
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .36 2 .29 2 .23 2 .39 .13
Net realized and unrealized gain (loss) 1.37 .31 1.31 2.74 (1.50)
------------------------------------------------------------------------
Total from investment operations 1.73 .60 1.54 3.13 (1.37)
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.33) (.27) (.15) (.40) --
Distributions from net realized gain (.80) (.62) -- -- --
------------------------------------------------------------------------
Total dividends and/or distributions to shareholders (1.13) (.89) (.15) (.40) --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.57 $ 16.97 $ 17.26 $ 15.87 $ 13.14
========================================================================

- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 10.86% 3.67% 9.79% 24.69% (9.44)%
- -------------------------------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 111,363 $ 88,156 $ 59,650 $ 25,302 $ 2,306
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 100,010 $ 72,977 $ 39,851 $ 9,908 $ 1,037
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 2.17% 1.74% 1.41% 1.37% 3.30%
Total expenses 1.01% 5,6 1.00% 7 1.02% 7 1.01% 7 0.99% 7
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 76% 8 67% 8 68% 8 248% 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.

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

5. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 1.01%

6. Voluntary waiver of affiliated funds management fees less than 0.01%.

7. Reduction to custodian expenses less than 0.01%.

8. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Balanced Fund/VA (the Fund), is a separate series of Oppenheimer
Variable Account Funds, 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 Fund'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 may be
valued primarily using dealer-supplied valuations or a portfolio pricing service
authorized by the Board of Trustees. Securities listed or traded on National
Stock Exchanges or other domestic 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(R) 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. Securities traded on
foreign exchanges are valued based on the last sale price on the principal
exchange on which the security is traded, as identified by the portfolio pricing
service, prior to the time when the Fund's assets are valued. In the absence of
a sale, the security is valued at the official closing price on the principal
exchange. Corporate, government and municipal debt instruments having a
remaining maturity in excess of sixty days and all mortgage-backed securities
will be valued at the mean between the "bid" and "asked" prices. Futures
contracts traded on a commodities or futures exchange will be valued at the
final settlement price or official closing price on the principal exchange as
reported by such principal exchange at its trading session ending at, or most
recently prior to, the time when the Fund's assets are valued. Options are
valued daily based upon the last sale price on the principal exchange on which
the option is traded. 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. Investments in
open-end registered investment companies (including affiliated funds) are valued
at that fund's net asset value. Short-term "money market type" debt securities
with remaining maturities of sixty days or less are valued at amortized cost
(which approximates market value).

- --------------------------------------------------------------------------------
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 take place generally at least 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, 2006,

NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

the Fund had purchased $36,396,850 of securities issued on a when-issued basis
or forward commitment and sold $7,205,196 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.

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. The values of securities denominated in foreign currencies and
amounts related to the purchase and sale of foreign securities and foreign
investment income 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. 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.

- --------------------------------------------------------------------------------
AFFILIATED FUNDS. The Fund is permitted to invest daily available cash balances
in affiliated money market funds. Each day, the Fund invests the available cash
in Class E shares of Oppenheimer Institutional Money Market Fund ("IMMF") which
seeks current income and stability of principal. IMMF is a registered open-end
management investment company, regulated as a money market fund under the
Investment Company Act of 1940, as amended. The Manager is also the investment
advisor of IMMF. The Fund's investment in IMMF is included in the Statement of
Investments. As a shareholder, the Fund is subject to its proportional share of
IMMF's Class E expenses, including its management fee. The Manager will waive
fees and/or reimburse Fund expenses in an amount equal to the indirect
management fees incurred through the Fund's investment in IMMF.

- --------------------------------------------------------------------------------
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.

- --------------------------------------------------------------------------------
INVESTMENTS WITH OFF BALANCE SHEET RISK. The Fund enters into financial
instrument transactions (such as swaps, futures, options and other derivatives)
that may have off-balance sheet market risk. Off-balance sheet market risk
exists when the maximum potential loss on a particular financial instrument is
greater than the value of such financial instrument, as reflected in the Fund's
Statement of Assets and Liabilities.

- --------------------------------------------------------------------------------
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
--------------------------------------------------------------------------
$14,779,244 $41,618,992 $291,587 $73,534,353

1. The Fund had $180 of post-October foreign currency losses which were
deferred.

2. The Fund had $291,407 of straddle losses which were deferred.

3. During the fiscal year ended December 31, 2006, the Fund did not utilize any
capital loss carryforward.

4. During the fiscal year ended December 31, 2005, 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, 2006. Net assets of
the Fund were unaffected by the reclassifications.

INCREASE DECREASE
TO ACCUMULATED TO ACCUMULATED NET
INCREASE NET INVESTMENT REALIZED GAIN
TO PAID-IN CAPITAL INCOME ON INVESTMENTS 5
----------------------------------------------------------------------
$5,842,781 $271,034 $6,113,815

5. $5,842,781, including $5,663,677 of long-term capital gain, was distributed
in connection with Fund share redemptions.

The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005 was as follows:

YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
-----------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 15,967,610 $ 10,387,608
Long-term capital gain 23,503,784 21,442,538
---------------------------------------
Total $ 39,471,394 $ 31,830,146
=======================================

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, 2006 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.

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

Federal tax cost of securities $ 539,128,378
Federal tax cost of other investments (58,285,567)
--------------
Total federal tax cost $ 480,842,811
==============

Gross unrealized appreciation $ 81,639,790
Gross unrealized depreciation (8,105,437)
--------------
Net unrealized appreciation $ 73,534,353
==============

- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a compensation
deferral 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, to the extent they are not
offset by positive cash balances maintained by the Fund, 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.

- --------------------------------------------------------------------------------
INDEMNIFICATIONS. The Fund's organizational documents provide current and former
trustees and officers with a limited indemnification against liabilities arising
in connection with the performance of their duties to the Fund. In the normal
course of business, the Fund may also enter into contracts that provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would be dependent on future claims that may be made against the
Fund. The risk of material loss from such claims is considered remote.

- --------------------------------------------------------------------------------
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, 2006 YEAR ENDED DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold 714,924 $ 11,819,806 1,776,358 $ 29,867,328
Dividends and/or distributions reinvested 2,069,145 33,209,780 1,726,689 28,421,303
Redeemed (7,669,019) (126,764,528) (5,537,549) (93,079,304)
-------------------------------------------------------------
Net decrease (4,884,950) $ (81,734,942) (2,034,502) $ (34,790,673)
=============================================================

SERVICE SHARES
Sold 1,978,250 $ 32,390,681 1,918,395 $ 32,184,682
Dividends and/or distributions reinvested 392,086 6,261,614 207,983 3,408,843
Redeemed (1,226,866) (20,024,252) (385,436) (6,398,159)
-------------------------------------------------------------
Net increase 1,143,470 $ 18,628,043 1,740,942 $ 29,195,366
=============================================================

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and money market funds, for the year ended December
31, 2006, were as follows:

PURCHASES SALES
------------------------------------------------------------------
Investment securities $327,098,095 $374,792,936
U.S. government and government
agency obligations 54,372,214 66,701,912
To Be Announced (TBA)
mortgage-related securities 612,825,833 666,549,894

- --------------------------------------------------------------------------------
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 average net assets as shown in the following table:

FEE SCHEDULE
----------------------------------------------------
Up to $200 million 0.75%
Next $200 million 0.72
Next $200 million 0.69
Next $200 million 0.66
Over $800 million 0.60

- --------------------------------------------------------------------------------
ADMINISTRATION SERVICE FEES. 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, 2006, the Fund paid
$20,164 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.

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued

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.

- --------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS 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.

The Manager will waive fees and/or reimburse Fund expenses in an amount
equal to the indirect management fees incurred through the Fund's investment in
IMMF. During the year ended December 31, 2006, the Manager waived $4,303 for
IMMF management fees.

- --------------------------------------------------------------------------------
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, 2006, 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 at 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, 2006, the Fund had outstanding futures contracts as follows:

UNREALIZED
EXPIRATION NUMBER OF VALUATION AS OF APPRECIATION
CONTRACT DESCRIPTION DATES CONTRACTS DECEMBER 31, 2006 (DEPRECIATION)
- --------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
U.S. Long Bonds 3/21/07 160 $ 17,830,000 $ (226,586)
------------

CONTRACTS TO SELL
Euro-Bundesobligation, 10 yr. 3/8/07 59 9,036,724 223,746
U.S. Treasury Nts., 2 yr. 3/30/07 245 49,987,656 121,360
U.S. Treasury Nts., 5 yr. 3/30/07 65 6,829,063 40,101
U.S Treasury Nts., 10 yr. 3/21/07 93 9,994,594 80,373
------------
465,580
------------
$ 238,994
============

- --------------------------------------------------------------------------------
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 or put options are noted
in the Statement of Investments where applicable. Contracts subject to call or
put, 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, 2006 was as follows:

CALL OPTIONS
--------------------------
NUMBER OF AMOUNT OF
CONTRACTS PREMIUMS
---------------------------------------------------------------
Options outstanding as of
December 31, 2005 539 $ 66,159
Options written 549 90,034
Options closed or expired (999) (109,425)
--------------------------
Options outstanding as of
December 31, 2006 89 $ 46,768
==========================

- --------------------------------------------------------------------------------
8. CREDIT DEFAULT SWAP CONTRACTS

Credit default swaps are designed to transfer the credit exposure of fixed
income products between counterparties. The Fund 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 a basket of securities. The Fund may take a short position
(purchaser of credit protection) or a long position (seller of credit
protection) in the credit default swap. Risks of credit default swaps include,
but are not limited to, 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 defaulted bonds depending on whether the Fund is long or short the swap,
respectively).

The Fund 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. As a purchaser of credit protection under a swap
contract, the Fund pays a periodic interest fee on the notional amount to the
counterparty. This interest fee is accrued daily as a component of unrealized
appreciation (depreciation) and is recorded as realized loss upon payment. Upon
occurrence of a specific credit event with respect to the underlying referenced
debt obligation, the Fund is obligated to deliver that security to the
counterparty in exchange for receipt of the notional amount from the
counterparty. The difference between the value of the security delivered and the
notional amount received is recorded as realized gain and is included on the
Statement of Operations. Credit default swaps are marked to market daily using
different sources, including quotations from counterparties, pricing services,
brokers or market makers. The unrealized appreciation (depreciation) related to
the change in the valuation of the notional amount of the swap is combined with
the amount due to (owed by) the Fund at termination or settlement and disclosed
separately on the Statement of Assets and Liabilities. The net change in this
amount is included on the Statement of Operations.

Information regarding such credit default swaps as of December 31, 2006 is as
follows:

NOTIONAL AMOUNT ANNUAL
RECEIVED BY INTEREST
REFERENCED DEBT THE FUND UPON RATE PAID BY TERMINATION UNREALIZED
COUNTERPARTY OBLIGATION CREDIT EVENT THE FUND DATES DEPRECIATION
- -------------------------------------------------------------------------------------------------------------

Deutsche Bank AG:
CDX.NA.IG.7 $4,700,000 0.400% 12/20/11 $ 13,917
J.C. Penney Co., Inc. 320,000 0.580 3/20/12 539
Weyerhaeuser Co. 1,070,000 0.580 9/20/11 6,991
- -------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital
Services, Inc.:
Arrow Electronics, Inc. 1,070,000 0.790 9/20/11 19,155
Arrow Electronics, Inc. 530,000 0.770 9/20/11 9,037
Belo Corp. 660,000 0.650 6/20/11 4,530
Belo Corp. 365,000 0.670 6/20/11 2,800
Belo Corp. 735,000 0.675 6/20/11 5,787
Ford Motor Co. 525,000 5.300 12/20/08 29,212
Ford Motor Co. 1,100,000 5.400 12/20/08 63,280
General Motors Corp. 545,000 4.000 12/20/08 22,468
General Motors Corp. 535,000 3.950 12/20/08 21,548
International Paper Co. 1,090,000 0.409 12/20/11 3,465
-------------
$ 202,729
=============

The Fund would take a long position in the credit default swap note (the
"funded swap") to increase the exposure to specific high yield corporate
issuers. As a seller of credit protection under a swap contract, the Fund
receives a periodic interest fee on the notional amount from the counterparty.
This interest fee is accrued daily as a component of unrealized appreciation
(depreciation) and is recorded as realized gain upon receipt. Upon occurrence of
a specific credit event with respect to the underlying referenced debt
obligation, the Fund receives that security from the counterparty in exchange
for payment of the notional amount to the counterparty. The difference between
the value of the security received and the notional amount paid is recorded as
realized loss and is included on the Statement of Operations. Credit default
swaps are marked to market daily using different sources, including quotations
from counterparties, pricing services, brokers or market makers. The unrealized
appreciation (depreciation) related to the change in the valuation of the
notional amount of the swap is combined with the amount due to (owed by) the
Fund at termination or settlement and disclosed separately on the Statement of
Assets and Liabilities. The net change in this amount is included on the
Statement of Operations.

Information regarding such credit default swaps as of December 31, 2006 is as
follows:

NOTIONAL AMOUNT ANNUAL
PAID BY THE INTEREST RATE UNREALIZED
REFERENCED DEBT FUND UPON RECEIVED TERMINATION APPRECIATION
COUNTERPARTY OBLIGATION CREDIT EVENT BY THE FUND DATES (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------

Deutsche Bank AG:
Abitibi-Consolidated Co. of Canada $ 860,000 1.52% 9/20/07 $ 3,547
Allied Waste North America, Inc. 340,000 2.00 9/20/09 9,245
Allied Waste North America, Inc. 530,000 2.00 9/20/09 14,412
Bombardier, Inc. 265,000 0.90 9/20/07 975
Eastman Kodak Co. 735,000 1.00 12/20/08 4,146
General Motors Acceptance Corp. 200,000 2.30 6/20/07 1,960
- -------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital
Services, Inc.:
ArvinMeritor, Inc. 295,000 1.05 9/20/07 885
ArvinMeritor, Inc. 240,000 1.10 9/20/07 811
ArvinMeritor, Inc. 20,000 1.20 9/20/07 83
Bombardier, Inc. 290,000 1.00 9/20/07 1,542
Bombardier, Inc. 295,000 1.05 9/20/07 1,681
Ford Motor Co. 525,000 7.05 12/20/16 30,598
Ford Motor Co. 1,100,000 7.15 12/20/16 69,924
General Motors Corp. 545,000 5.80 12/20/16 42,960
General Motors Corp. 535,000 5.75 12/20/16 40,620
General Motors Acceptance Corp. 730,000 3.15 6/20/07 10,010
Hyundai Motor Manufacturing Alabama LLC 465,000 0.40 6/20/07 619
J.C. Penney Co., Inc. 1,070,000 0.61 6/20/13 (7,240)
-------------
$ 226,778
=============

- --------------------------------------------------------------------------------
9. ILLIQUID SECURITIES

As of December 31, 2006, 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. Securities that are
illiquid are marked with the applicable footnote on the Statement of
Investments.

- --------------------------------------------------------------------------------
10. SECURITIES LENDING

- --------------------------------------------------------------------------------
10. SECURITIES LENDING Continued

or in gaining access to the collateral. The Fund continues to receive the
economic benefit of interest or dividends paid on the securities loaned in the
form of a substitute payment received from the borrower. As of December 31,
2006, the Fund had on loan securities valued at $48,104,010, which are included
in the Statement of Assets and Liabilities as "Investments, at value" and, when
applicable, as "Receivable for Investments sold." Cash collateral of $41,048,883
was received for the loans, all of which was received in cash and subsequently
invested in approved investments. In addition, collateral of $8,500,439 was also
received in the form of securities.

- --------------------------------------------------------------------------------
11. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. FIN 48 requires the evaluation of tax positions
taken in the course of preparing the Fund's tax returns to determine whether it
is "more-likely-than-not" that tax positions taken in the Fund's tax return will
be ultimately sustained. A tax liability and expense must be recorded in respect
of any tax position that, in Management's judgment, will not be fully realized.
FIN 48 is effective for fiscal years beginning after December 15, 2006. As of
December 31, 2006, the Manager has evaluated the implications of FIN 48 and does
not currently anticipate a material impact to the Fund's financial statements.
The Manager will continue to monitor the Fund's tax positions prospectively for
potential future impacts.

In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 157, FAIR VALUE MEASUREMENTS. This standard establishes a
single authoritative definition of fair value, sets out a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. As of December 31, 2006, the Manager does not believe the
adoption of SFAS No. 157 will materially impact the financial statement amounts;
however, additional disclosures may be required about the inputs used to develop
the measurements and the effect of certain of the measurements on changes in net
assets for the period.

- --------------------------------------------------------------------------------
12. LITIGATION

A consolidated amended complaint was filed as a putative class action against
the Manager and the Transfer Agent and other defendants (including 51 of the
Oppenheimer funds excluding the Fund) in the U.S. District Court for the
Southern District of New York on January 10, 2005 and was amended on March 4,
2005. The complaint alleged, among other things, that the Manager charged
excessive fees for distribution and other costs, and that by permitting and/or
participating in those actions, the Directors/Trustees and the Officers of the
funds breached their fiduciary duties to fund shareholders under the Investment
Company Act of 1940 and at common law. The plaintiffs sought unspecified
damages, an accounting of all fees paid, and an award of attorneys' fees and
litigation expenses.

In response to the defendants' motions to dismiss the suit, seven of the
eight counts in the complaint, including the claims against certain of the
Oppenheimer funds, as nominal defendants, and against certain present and former
Directors, Trustees and Officers of the funds, and the Distributor, as
defendants, were dismissed with prejudice, by court order dated March 10, 2006,
and the remaining count against the Manager and the Transfer Agent was dismissed
with prejudice by court order dated April 5, 2006. The plaintiffs filed an
appeal of those dismissals on May 11, 2006.

The Manager believes that the allegations contained in the complaint are
without merit and that there are substantial grounds to sustain the district
court's rulings. The Manager also believes that it is premature to render any
opinion as to the likelihood of an outcome unfavorable to it, the funds, the
Directors/Trustees or the Officers on the appeal of the decisions of the
district court, 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 (the "Fund"), a series of Oppenheimer
Variable Account Funds, including the statement of investments, as of December
31, 2006, 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.

DELOITTE &amp; TOUCHE LLP

Denver, Colorado
February 8, 2007

STATEMENT OF INVESTMENTS December 31, 2006
- --------------------------------------------------------------------------------

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--98.7%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--11.5%
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS &amp; LEISURE--2.1%
Las Vegas Sands Corp. 1 176,600 $ 15,802,168
- --------------------------------------------------------------------------------
Melco PBL Entertainment Ltd., ADR 1 205,400 4,366,804
- --------------------------------------------------------------------------------
Panera Bread Co., Cl. A 1 159,720 8,929,945
- --------------------------------------------------------------------------------
Starbucks Corp. 1 422,100 14,950,782
---------------
44,049,699

- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.6%
Harman International Industries, Inc. 124,700 12,458,777
- --------------------------------------------------------------------------------
MEDIA--1.8%
Comcast Corp., Cl. A
Special, Non-Vtg. 1 533,500 22,342,980
- --------------------------------------------------------------------------------
XM Satellite Radio Holdings, Inc.,
Cl. A 1 1,062,500 15,353,125
---------------
37,696,105

- --------------------------------------------------------------------------------
MULTILINE RETAIL--2.7%
J.C. Penney Co., Inc. (Holding Co.) 216,300 16,732,968
- --------------------------------------------------------------------------------
Kohl's Corp. 1 269,000 18,407,670
- --------------------------------------------------------------------------------
Target Corp. 344,200 19,636,610
---------------
54,777,248

- --------------------------------------------------------------------------------
SPECIALTY RETAIL--3.3%
Best Buy Co., Inc. 334,150 16,436,839
- --------------------------------------------------------------------------------
Lowe's Cos., Inc. 762,000 23,736,300
- --------------------------------------------------------------------------------
Staples, Inc. 1,044,200 27,880,140
---------------
68,053,279

- --------------------------------------------------------------------------------
TEXTILES, APPAREL &amp; LUXURY GOODS--1.0%
Polo Ralph Lauren Corp. 264,200 20,517,772
- --------------------------------------------------------------------------------
CONSUMER STAPLES--7.7%
- --------------------------------------------------------------------------------
BEVERAGES--1.0%
PepsiCo, Inc. 342,900 21,448,395
- --------------------------------------------------------------------------------
FOOD &amp; STAPLES RETAILING--1.5%
CVS Corp. 389,600 12,042,536
- --------------------------------------------------------------------------------
Sysco Corp. 280,620 10,315,591
- --------------------------------------------------------------------------------
Whole Foods Market, Inc. 171,900 8,067,267
---------------
30,425,394

- --------------------------------------------------------------------------------
FOOD PRODUCTS--2.1%
Cadbury Schweppes plc 1,125,400 12,042,196
- --------------------------------------------------------------------------------
Nestle SA 84,757 30,118,819
---------------
42,161,015

- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--3.1%
Procter &amp; Gamble Co. (The) 599,800 38,549,146
- --------------------------------------------------------------------------------
Reckitt Benckiser plc 568,470 25,978,677
---------------
64,527,823

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
ENERGY--6.2%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT &amp; SERVICES--4.3%
Halliburton Co. 957,600 $ 29,733,480
- --------------------------------------------------------------------------------
Schlumberger Ltd. 533,600 33,702,176
- --------------------------------------------------------------------------------
Smith International, Inc. 610,000 25,052,700
---------------
88,488,356

- --------------------------------------------------------------------------------
OIL &amp; GAS--1.9%
Kinder Morgan Management LLC 1 241,018 11,009,702
- --------------------------------------------------------------------------------
Occidental Petroleum Corp. 257,000 12,549,310
- --------------------------------------------------------------------------------
XTO Energy, Inc. 343,100 16,142,855
---------------
39,701,867
- --------------------------------------------------------------------------------
FINANCIALS--10.4%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--5.1%
Franklin Resources, Inc. 119,000 13,110,230
- --------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 105,100 20,951,685
- --------------------------------------------------------------------------------
Legg Mason, Inc. 261,200 24,827,060
- --------------------------------------------------------------------------------
Nomura Securities Co. Ltd. 538,000 10,149,237
- --------------------------------------------------------------------------------
Northern Trust Corp. 263,200 15,973,608
- --------------------------------------------------------------------------------
UBS AG 331,286 20,057,733
---------------
105,069,553

- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--1.6%
Chicago Mercantile Exchange (The) 65,200 33,235,700
- --------------------------------------------------------------------------------
INSURANCE--3.7%
American International Group, Inc. 457,450 32,780,867
- --------------------------------------------------------------------------------
Hartford Financial Services Group,
Inc. (The) 166,800 15,564,108
- --------------------------------------------------------------------------------
Prudential Financial, Inc. 324,700 27,878,742
---------------
76,223,717
- --------------------------------------------------------------------------------
HEALTH CARE--14.5%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--2.9%
Celgene Corp. 1 286,700 16,493,851
- --------------------------------------------------------------------------------
Genentech, Inc. 1 237,200 19,244,036
- --------------------------------------------------------------------------------
Genzyme Corp. (General Division) 1 203,300 12,519,214
- --------------------------------------------------------------------------------
Gilead Sciences, Inc. 1 180,600 11,726,358
---------------
59,983,459

- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT &amp; SUPPLIES--1.4%
St. Jude Medical, Inc. 1 465,300 17,011,368
- --------------------------------------------------------------------------------
Varian Medical Systems, Inc. 1 248,500 11,821,145
---------------
28,832,513

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS &amp; SERVICES--2.7%
Caremark Rx, Inc. 290,800 16,607,588
- --------------------------------------------------------------------------------
Express Scripts, Inc. 1 136,100 9,744,760
- --------------------------------------------------------------------------------
UnitedHealth Group, Inc. 538,700 28,944,351
---------------
55,296,699

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
LIFE SCIENCES TOOLS &amp; SERVICES--2.2%
Covance, Inc. 1 292,157 $ 17,210,969
- --------------------------------------------------------------------------------
Thermo Fisher Scientific, Inc. 1 638,400 28,913,136
---------------
46,124,105

- --------------------------------------------------------------------------------
PHARMACEUTICALS--5.3%
Allergan, Inc. 77,600 9,291,824
- --------------------------------------------------------------------------------
Novartis AG 611,525 35,142,530
- --------------------------------------------------------------------------------
Roche Holdings AG 182,548 32,734,295
- --------------------------------------------------------------------------------
Sepracor, Inc. 1 166,700 10,265,386
- --------------------------------------------------------------------------------
Shionogi &amp; Co. Ltd. 487,000 9,541,705
- --------------------------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.,
Sponsored ADR 364,646 11,333,198
---------------
108,308,938
- --------------------------------------------------------------------------------
INDUSTRIALS--9.7%
- --------------------------------------------------------------------------------
AEROSPACE &amp; DEFENSE--4.6%
Empresa Brasileira de Aeronautica SA,
ADR 434,900 18,017,907
- --------------------------------------------------------------------------------
General Dynamics Corp. 266,100 19,784,535
- --------------------------------------------------------------------------------
KBR, Inc. 1 136,660 3,575,026
- --------------------------------------------------------------------------------
Lockheed Martin Corp. 227,400 20,936,718
- --------------------------------------------------------------------------------
Rockwell Collins, Inc. 154,980 9,808,684
- --------------------------------------------------------------------------------
United Technologies Corp. 375,000 23,445,000
---------------
95,567,870

- --------------------------------------------------------------------------------
AIR FREIGHT &amp; LOGISTICS--0.3%
Expeditors International of
Washington, Inc. 178,400 7,225,200
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES &amp; SUPPLIES--1.0%
Corporate Executive Board Co. (The) 239,500 21,004,150
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--2.3%
General Electric Co. 961,000 35,758,810
- --------------------------------------------------------------------------------
Textron, Inc. 118,500 11,111,745
---------------
46,870,555

- --------------------------------------------------------------------------------
MACHINERY--1.0%
Danaher Corp. 271,600 19,674,704
- --------------------------------------------------------------------------------
TRADING COMPANIES &amp; DISTRIBUTORS--0.5%
Fastenal Co. 265,400 9,522,552
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--32.3%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--7.5%
Cisco Systems, Inc. 1 2,484,100 67,890,453
- --------------------------------------------------------------------------------
Corning, Inc. 1 1,606,200 30,052,002
- --------------------------------------------------------------------------------
F5 Networks, Inc. 1 182,400 13,535,904
- --------------------------------------------------------------------------------
QUALCOMM, Inc. 555,100 20,977,229
- --------------------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson,
Sponsored ADR 563,900 22,685,697
---------------
155,141,285

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMPUTERS &amp; PERIPHERALS--3.5%
Apple Computer, Inc. 1 388,200 $ 32,934,888
- --------------------------------------------------------------------------------
EMC Corp. 1 1,831,500 24,175,800
- --------------------------------------------------------------------------------
Network Appliance, Inc. 1 360,700 14,168,296
---------------
71,278,984

- --------------------------------------------------------------------------------
INTERNET SOFTWARE &amp; SERVICES--6.4%
eBay, Inc. 1 1,282,400 38,561,768
- --------------------------------------------------------------------------------
Google, Inc., Cl. A 1 120,300 55,395,744
- --------------------------------------------------------------------------------
Yahoo!, Inc. 1 1,510,200 38,570,508
---------------
132,528,020

- --------------------------------------------------------------------------------
IT SERVICES--4.6%
Affiliated Computer Services, Inc.,
Cl. A 1 649,300 31,711,812
- --------------------------------------------------------------------------------
Alliance Data Systems Corp. 1 169,100 10,563,677
- --------------------------------------------------------------------------------
Automatic Data Processing, Inc. 494,420 24,350,185
- --------------------------------------------------------------------------------
Cognizant Technology Solutions
Corp. 1 245,200 18,919,632
- --------------------------------------------------------------------------------
Global Payments, Inc. 181,700 8,412,710
---------------
93,958,016
- --------------------------------------------------------------------------------
SEMICONDUCTORS &amp; SEMICONDUCTOR EQUIPMENT--4.7%
Advanced Micro Devices, Inc. 1 709,600 14,440,360
- --------------------------------------------------------------------------------
ASML Holding NV 1 370,900 9,135,267
- --------------------------------------------------------------------------------
Broadcom Corp., Cl. A 1 864,900 27,944,919
- --------------------------------------------------------------------------------
Marvell Technology Group Ltd. 1 591,800 11,356,642
- --------------------------------------------------------------------------------
Microchip Technology, Inc. 490,700 16,045,890
- --------------------------------------------------------------------------------
SiRF Technology Holdings, Inc. 1 322,260 8,224,075
- --------------------------------------------------------------------------------
Texas Instruments, Inc. 321,300 9,253,440
---------------
96,400,593

- --------------------------------------------------------------------------------
SOFTWARE--5.6%
Adobe Systems, Inc. 1 654,600 26,917,152
- --------------------------------------------------------------------------------
Amdocs Ltd. 1 565,040 21,895,300
- --------------------------------------------------------------------------------
Autodesk, Inc. 1 452,900 18,324,334
- --------------------------------------------------------------------------------
Electronic Arts, Inc. 1 229,600 11,562,656
- --------------------------------------------------------------------------------
Microsoft Corp. 727,800 21,732,108
- --------------------------------------------------------------------------------
Red Hat, Inc. 1 668,600 15,377,800
---------------
115,809,350
- --------------------------------------------------------------------------------
MATERIALS--3.7%
- --------------------------------------------------------------------------------
CHEMICALS--3.7%
Monsanto Co. 948,200 49,808,946
- --------------------------------------------------------------------------------
Praxair, Inc. 433,300 25,707,689
---------------
75,516,635

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--2.7%
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--2.7%
America Movil SA de CV, Series L 293,500 $ 13,272,069
- --------------------------------------------------------------------------------
American Tower Corp. 1 580,500 21,641,040
- --------------------------------------------------------------------------------
Crown Castle International Corp. 1 369,400 11,931,620
- --------------------------------------------------------------------------------
NII Holdings, Inc. 1 153,500 9,891,540
---------------
56,736,269
---------------
Total Common Stocks (Cost $1,629,190,808) 2,034,614,597

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
MONEY MARKET FUND--0.7%
Oppenheimer Institutional Money
Market Fund, Cl. E, 5.25% 2,3
(Cost $15,177,546) 15,177,546 $ 15,177,546

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $1,644,368,354) 99.4% 2,049,792,143
- --------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.6 12,314,409
-------------------------------
NET ASSETS 100.0% $2,062,106,552
==============================

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. Represents ownership of an affiliated fund, at or during the period ended
December 31, 2006. Transactions during the period in which the issuer was an
affiliate are as follows:

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25%* -- 59,735,542 44,557,996 15,177,546

VALUE DIVIDEND
SEE NOTE 1 INCOME
- -----------------------------------------------------------------------------------------------------------------------------------

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25%* $15,177,546 $279,935

* The money market fund and the Fund are affiliated by having the same
investment advisor.

3. Rate shown is the 7-day yield as of December 31, 2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

ASSETS
- --------------------------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $1,629,190,808) $2,034,614,597
Affiliated companies (cost $15,177,546) 15,177,546
---------------
2,049,792,143
- --------------------------------------------------------------------------------------------------------------------
Cash 26,829
- --------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 16,779,917
Shares of beneficial interest sold 2,314,639
Dividends 1,616,855
Other 46,152
---------------
Total assets 2,070,576,535

- --------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables and other liabilities:
Investments purchased 6,800,366
Shares of beneficial interest redeemed 1,138,776
Distribution and service plan fees 288,231
Shareholder communications 165,525
Trustees' compensation 33,461
Transfer and shareholder servicing agent fees 1,770
Other 41,854
---------------
Total liabilities 8,469,983

- --------------------------------------------------------------------------------------------------------------------
NET ASSETS $2,062,106,552
===============

- --------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 49,864
- --------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 1,942,128,151
- --------------------------------------------------------------------------------------------------------------------
Accumulated net investment income 2,398,470
- --------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (287,913,618)
- --------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities denominated
in foreign currencies 405,443,685
---------------
NET ASSETS $2,062,106,552
===============

- --------------------------------------------------------------------------------------------------------------------
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 $1,598,967,158 and 38,592,272 shares of beneficial interest outstanding) $ 41.43
- --------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share (based on net assets
of $463,139,394 and 11,271,776 shares of beneficial interest outstanding) $ 41.09

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF OPERATIONS For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------

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

INVESTMENT INCOME
- -----------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $438,675) $ 15,720,860
Affiliated companies 279,935
- -----------------------------------------------------------------------------------------
Interest 1,055,606
- -----------------------------------------------------------------------------------------
Portfolio lending fees 17,038
-------------
Total investment income 17,073,439

- -----------------------------------------------------------------------------------------
EXPENSES
- -----------------------------------------------------------------------------------------
Management fees 13,090,904
- -----------------------------------------------------------------------------------------
Distribution and service plan fees -- Service shares 1,065,348
- -----------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares 10,350
Service shares 10,080
- -----------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares 264,533
Service shares 70,997
- -----------------------------------------------------------------------------------------
Custodian fees and expenses 39,285
- -----------------------------------------------------------------------------------------
Trustees' compensation 32,615
- -----------------------------------------------------------------------------------------
Administration service fees 1,500
- -----------------------------------------------------------------------------------------
Other 83,009
-------------
Total expenses 14,668,621
Less reduction to custodian expenses (3,441)
Less waivers and reimbursements of expenses (5,287)
-------------
Net expenses 14,659,893

- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,413,546

- -----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
- -----------------------------------------------------------------------------------------
Net realized gain on:
Investments 29,275,475
Foreign currency transactions 692,347
-------------
Net realized gain 29,967,822
- -----------------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments 113,124,566
Translation of assets and liabilities denominated in foreign currencies 9,929,507
-------------
Net change in unrealized appreciation 123,054,073

- -----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $155,435,441
=============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2006 2005
- ------------------------------------------------------------------------------------------------------------------------------

OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 2,413,546 $ 8,432,318
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 29,967,822 (33,018,356)
- ------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 123,054,073 121,242,883
-----------------------------------
Net increase in net assets resulting from operations 155,435,441 96,656,845

- ------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares (6,085,308) (15,541,862)
Service shares (772,510) (1,926,965)
-----------------------------------
(6,857,818) (17,468,827)

- ------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest transactions:
Non-Service shares (169,765,856) (181,635,386)
Service shares 49,160,827 117,658,602
-----------------------------------
(120,605,029) (63,976,784)

- ------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
Total increase 27,972,594 15,211,234
- ------------------------------------------------------------------------------------------------------------------------------
Beginning of period 2,034,133,958 2,018,922,724
-----------------------------------
End of period (including accumulated net investment income of $2,398,470 and
$6,819,916, respectively) $2,062,106,552 $2,034,133,958
===================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

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

2. Net investment income per share and the net investment income ratio include
$.16 and 0.43%, respectively, resulting from a special dividend from Microsoft
Corp. in November 2004.

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

5. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.67%

6. Reduction to custodian expenses less than 0.01%.

7. Voluntary waiver of affiliated funds management fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------

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

2. Net investment income per share and the net investment income ratio include
$.16 and 0.43%, respectively, resulting from a special dividend from Microsoft
Corp. in November 2004.

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

5. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.92%

6. Reduction to custodian expenses less than 0.01%.

7. Voluntary waiver of affiliated funds management fees less than 0.01%.

8. 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 Capital Appreciation Fund/VA (the Fund) is a separate series of
Oppenheimer Variable Account Funds, 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 Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).

The following is a summary of significant accounting policies consistently
followed by the Fund.

NET UNREALIZED
APPRECIATION
BASED ON COST OF
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED SECURITIES AND OTHER
NET INVESTMENT LONG-TERM LOSS INVESTMENTS FOR FEDERAL
INCOME GAIN CARRYFORWARD 1,2,3 INCOME TAX PURPOSES
----------------------------------------------------------------------------
$3,754,173 $-- $282,941,512 $400,331,942

1. As of December 31, 2006, the Fund had $282,941,512 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, 2006,
details of the capital loss carryforwards were as follows:

EXPIRING
------------------------------
2010 $ 54,487,309
2011 193,776,365
2013 34,677,838
------------
Total $282,941,512
============

2. During the fiscal year ended December 31, 2006, the Fund utilized $28,826,516
of capital loss carryforward to offset capital gains realized in that fiscal
year.

3. During the fiscal year ended December 31, 2005, the Fund did not utilize any
capital loss carryforward.

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

INCREASE TO ACCUMULATED
INCREASE TO ACCUMULATED NET REALIZED LOSS
NET INVESTMENT INCOME ON INVESTMENTS
-------------------------------------------------------------
$22,826 $22,826

The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005 was as follows:

YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
-------------------------------------------------------------------
Distributions paid from:
Ordinary income $6,857,818 $17,468,827

Federal tax cost of securities $ 1,649,480,097
================

Gross unrealized appreciation $ 430,460,413
Gross unrealized depreciation (30,128,471)
----------------
Net unrealized appreciation $ 400,331,942
================

- --------------------------------------------------------------------------------
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:

NON-SERVICE SHARES
Sold 4,072,357 $ 160,034,277 4,329,144 $ 158,705,810
Dividends and/or distributions reinvested 154,136 6,085,308 429,927 15,541,862
Redeemed (8,524,929) (335,885,441) (9,732,224) (355,883,058)
------------------------------------------------------------------
Net decrease (4,298,436) $(169,765,856) (4,973,153) $(181,635,386)
==================================================================

- -----------------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold 3,206,477 $ 125,342,151 4,094,952 $ 149,465,324
Dividends and/or distributions reinvested 19,641 770,510 53,616 1,926,965
Redeemed (1,942,425) (76,951,834) (929,573) (33,733,687)
------------------------------------------------------------------
Net increase 1,283,693 $ 49,160,827 3,218,995 $ 117,658,602
==================================================================

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and money market funds, for the year ended December
31, 2006, were as follows:

PURCHASES SALES
-------------------------------------------------------------
Investment securities $952,157,069 $1,060,183,222

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

FEE SCHEDULE
--------------------------------------
Up to $200 million 0.75%
Next $200 million 0.72
Next $200 million 0.69
Next $200 million 0.66
Over $800 million 0.60

- --------------------------------------------------------------------------------
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, 2006, the Fund paid
$20,489 to OFS for services to the Fund.

- --------------------------------------------------------------------------------
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, personal
service and account maintenance for the Fund's Service shares. Under the plan,
payments are made periodically 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.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

As of December 31, 2006, the Fund had no outstanding foreign currency
contracts.

- --------------------------------------------------------------------------------
6. 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
securities, letters of credit 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 each day. If the Fund is
undercollateralized at the close of business due to an increase in market value
of securities on loan, additional collateral is requested from the borrowing
counterparty and is delivered to the Fund on the next business day. Cash
collateral may be invested in approved investments and the Fund bears the risk
of any loss in value of these investments. The Fund retains a portion of the
interest earned from the collateral. 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. The Fund continues to receive the economic
benefit of interest or dividends paid on the securities loaned in the form of a
substitute payment received from the borrower.

As of December 31, 2006, the Fund had no securities on loan.

- --------------------------------------------------------------------------------
7. RECENT ACCOUNTING PRONOUNCEMENTS

- --------------------------------------------------------------------------------
8. LITIGATION

31 | OPPENHEIMER CORE BOND FUND/VA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
OPPENHEIMER CORE BOND FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer Core Bond Fund/VA (the "Fund"), a series of Oppenheimer Variable
Account Funds, including the statement of investments, as of December 31, 2006,
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.

DELOITTE &amp; TOUCHE LLP

Denver, Colorado
February 8, 2007

STATEMENT OF INVESTMENTS December 31, 2006
- -------------------------------------------------------------------------------

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--9.0%
- -------------------------------------------------------------------------------
Ace Securities Corp. Home Equity
Loan Trust, Asset-Backed
Pass-Through Certificates, Series
2005-HE7, Cl. A2B, 5.53%, 11/25/35 1 $ 960,000 $ 960,941
- -------------------------------------------------------------------------------
Aesop Funding II LLC, Automobile
Asset-Backed Certificates, Series
2005-1A, Cl. A2, 5.41%, 4/20/08 1 640,000 640,641
- -------------------------------------------------------------------------------
Argent Securities Trust 2004-W8,
Asset-Backed Pass-Through
Certificates, Series 2004-W8, Cl. A2,
5.83%, 5/25/34 1 3,130,000 3,141,168
- -------------------------------------------------------------------------------
Argent Securities Trust 2006-W5,
Asset-Backed Pass-Through
Certificates, Series 2006-W5, Cl. A2B,
5.45%, 5/26/36 1 1,230,000 1,230,938
- -------------------------------------------------------------------------------
Centex Home Equity Loan Trust
2005-D, Asset-Backed Certificates:
Series 2005-D, Cl. AF1, 5.04%,
10/25/35 448,477 446,936
Series 2005-D, Cl. AV2, 5.62%,
10/25/35 1 1,920,000 1,921,931
- -------------------------------------------------------------------------------
Centex Home Equity Loan Trust
2006-A, Asset-Backed Certificates,
Series 2006-A, Cl. AV2, 5.45%, 5/16/36 1 1,540,000 1,541,190
- -------------------------------------------------------------------------------
Citibank Credit Card Issuance Trust,
Credit Card Receivable Nts., Series
2003-C4, Cl. C4, 5%, 6/10/15 310,000 301,663
- -------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust
2005-WF2, Asset-Backed
Pass-Through Certificates, Series
2005-WF2, Cl. AF2, 4.922%, 8/25/35 1 1,237,886 1,229,100
- -------------------------------------------------------------------------------
Consumer Credit Reference Index
Securities Program, Credit Card
Asset-Backed Certificates, Series
2002-B, Cl. FX, 10.421%, 3/22/07 2 1,520,000 1,531,489
- -------------------------------------------------------------------------------
CWABS Asset-Backed Certificates
Trust 2002-4, Asset-Backed
Certificates, Series 2002-4, Cl. A1,
5.72%, 2/25/33 1 35,747 35,791
- -------------------------------------------------------------------------------
CWABS Asset-Backed Certificates
Trust 2005-16, Asset-Backed
Certificates,
Series 2005-16, Cl. 2AF2,
5.382%, 5/25/36 1 670,000 667,780
- -------------------------------------------------------------------------------
CWABS Asset-Backed Certificates
Trust 2005-17, Asset-Backed
Certificates:
Series 2005-17, Cl. 1AF1, 5.55%,
5/25/36 1 756,673 757,529
Series 2005-17, Cl. 1AF2, 5.363%,
5/25/36 1 440,000 438,426

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- -------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust
2005-FF10, Mtg. Pass-Through
Certificates, Series 2005-FF10, Cl. A3,
5.56%, 11/25/35 1 $ 2,840,000 $ 2,842,814
- -------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust
2006-FF10, Mtg. Pass-Through
Certificates, Series 2006-FF10, Cl. A3,
5.41%, 7/25/36 1 1,240,000 1,240,792
- -------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust
2006-FF5, Mtg. Pass-Through
Certificates, Series 2006-FF5, Cl. 2A1,
5.40%, 5/15/36 1 673,834 674,303
- -------------------------------------------------------------------------------
First Franklin Mortgage Loan Trust
2006-FF9, Mtg. Pass-Through
Certificates, Series 2006-FF9, Cl. 2A2,
5.43%, 7/7/36 1 630,000 630,403
- -------------------------------------------------------------------------------
Household Home Equity Loan Trust,
Home Equity Loan Pass-Through
Certificates, Series 2005-3, Cl. A1,
5.61%, 1/20/35 1 917,402 918,889
- -------------------------------------------------------------------------------
Lehman XS Trust, Mtg. Pass-Through
Certificates:
Series 2005-10, Cl. 2A3B, 5.55%,
1/25/36 962,972 955,521
Series 2005-4, Cl. 2A1B, 5.17%,
10/25/35 885,128 881,429
- -------------------------------------------------------------------------------
Litigation Settlement Monetized
Fee Trust, Asset-Backed Certificates,
Series 2001-1A, Cl. A1, 8.33%, 4/25/31 3 2,865,539 2,925,171
- -------------------------------------------------------------------------------
Morgan Stanley ABS Capital I, Mtg.
Pass-Through Certificates, Series
2005-WMC6, Cl. A2B, 5.61%, 7/25/35 1 770,000 771,482
- -------------------------------------------------------------------------------
NC Finance Trust, CMO Pass-Through
Certificates, Series 1999-I, Cl. ECFD,
1.762%, 1/25/29 3 3,370,016 707,703
- -------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through
Trust 2004-5, Mtg. Pass-Through
Certificates, Series 2004-5, Cl. AF2,
3.735%, 11/10/34 1 42,105 41,981
- -------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through
Trust 2005-1, Mtg. Pass-Through
Certificates, Series 2005-1, Cl. AF2,
3.914%, 5/25/35 1 139,495 139,019
- -------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through
Trust 2005-2, Mtg. Pass-Through
Certificates, Series 2005-2, Cl. AF2,
4.415%, 4/25/35 1 730,000 723,127
- -------------------------------------------------------------------------------
Popular ABS Mortgage Pass-Through
Trust 2005-6, Mtg. Pass-Through
Certificates, Series 2005-6, Cl. A3,
5.68%, 1/25/36 1 690,000 688,129

- -------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--62.6%
- -------------------------------------------------------------------------------
GOVERNMENT AGENCY--52.9%
- -------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED--52.7%
Fannie Mae Whole Loan, CMO
Pass-Through Certificates, Trust
2004-W9, Cl. 2A2, 7%, 2/25/44 654,894 675,257
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
4.50%, 5/1/19 11,024,502 10,646,848
5%, 8/1/33 4,457,463 4,309,921
5%, 1/1/37 4 2,538,000 2,449,170
6%, 7/1/17-10/1/29 9,447,241 9,580,695
6.50%, 4/1/18-4/1/34 1,517,346 1,554,380
7%, 5/1/29-3/1/35 7,754,133 7,974,131
8%, 4/1/16 725,984 768,104
9%, 8/1/22-5/1/25 213,538 228,743
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
CMO Gtd. Real Estate Mtg.
Investment Conduit Multiclass
Pass-Through Certificates:
Series 2006-11, Cl. PS, 5.06%, 3/25/36 1 742,261 737,189
Series 2043, Cl. ZP, 6.50%, 4/15/28 1,268,381 1,296,568
Series 2066, Cl. Z, 6.50%, 6/15/28 2,670,596 2,725,222
Series 2195, Cl. LH, 6.50%, 10/15/29 1,557,689 1,589,329
Series 2326, Cl. ZP, 6.50%, 6/15/31 534,014 545,904
Series 2461, Cl. PZ, 6.50%, 6/15/32 1,289,183 1,343,244
Series 2500, Cl. FD, 5.85%, 3/15/32 1 386,160 390,087

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal Home Loan Mortgage Corp.,
CMO Gtd. Real Estate Mtg.
Investment Conduit Multiclass
Pass-Through Certificates: Continued
Series 2526, Cl. FE, 5.75%, 6/15/29 1 $ 605,356 $ 612,036
Series 2551, Cl. FD, 5.75%, 1/15/33 1 472,230 476,777
Series 3025, Cl. SJ, 5.133%, 8/15/35 1 160,647 161,507
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
CMO Pass-Through Participation
Certificates, Series 151, Cl. F, 9%,
5/15/21 39,317 39,232
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Interest-Only Stripped Mtg.-Backed
Security:
Series 176, Cl. IO, 12.115%, 6/1/26 5 690,695 147,466
Series 183, Cl. IO, 8.723%, 4/1/27 5 1,016,879 224,443
Series 184, Cl. IO, 14.333%, 12/1/26 5 1,118,621 237,526
Series 192, Cl. IO, 11.951%, 2/1/28 5 268,566 59,455
Series 200, Cl. IO, 10.703%, 1/1/29 5 320,154 68,080
Series 2003-118, Cl. S, 7.949%,
12/25/33 5 3,786,553 468,163
Series 2005-87, Cl. SG, 9.386%,
10/25/35 5 5,814,217 318,273
Series 206, Cl. IO, (9.382)%, 12/1/29 5 667,816 152,991
Series 2130, Cl. SC, (4.254)%, 3/15/29 5 729,893 51,761
Series 2796, Cl. SD, (0.684)%, 7/15/26 5 1,157,734 83,883
Series 2920, Cl. S, (4.226)%, 1/15/35 5 4,286,489 199,765
Series 3000, Cl. SE, (4.716)%, 7/15/25 5 4,987,890 175,523
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Principal-Only Stripped Mtg.-Backed
Security, Series 176, Cl. PO, 4.681%,
6/1/26 6 281,400 229,539
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 9/1/18-3/1/19 6,575,524 6,360,913
5%, 12/1/17-3/1/34 30,087,785 29,442,361
5%, 1/1/22-1/1/37 4 20,040,000 19,477,860
5.50%, 1/1/33-1/1/34 14,498,887 14,356,626
5.50%, 1/1/22-1/1/37 4 12,900,000 12,828,743
6%, 5/1/29-11/1/33 6,836,919 6,913,567
6%, 1/1/22-3/1/33 4 14,979,975 15,159,436
6.50%, 3/1/11-11/1/31 12,568,915 12,899,235
7%, 11/1/17-7/1/35 4,916,180 5,068,464
7.50%, 1/1/08-1/1/33 33,097 34,368
8%, 5/1/17 9,179 9,612
8.50%, 7/1/32 68,241 73,485
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.,
CMO Gtd. Real Estate Mtg.
Investment Conduit Pass-Through
Certificates:
Series 1998-61, Cl. PL, 6%, 11/25/28 731,162 740,553
Trust 1989-17, Cl. E, 10.40%, 4/25/19 73,607 78,968
Trust 1993-87, Cl. Z, 6.50%, 6/25/23 1,558,559 1,601,843
Trust 1998-58, Cl. PC, 6.50%, 10/25/28 1,305,097 1,341,104

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn.,
CMO Gtd. Real Estate Mtg.
Investment Conduit Pass-Through
Certificates: Continued
Trust 2001-70, Cl. LR, 6%, 9/25/30 $ 319,309 $ 319,374
Trust 2001-72, Cl. NH, 6%, 4/25/30 66,400 66,524
Trust 2001-74, Cl. PD, 6%, 5/25/30 44,026 43,924
Trust 2001-82, Cl. ZA, 6.50%, 1/25/32 681,129 700,682
Trust 2002-77, Cl. WF, 5.75%, 12/18/32 1 693,558 698,824
Trust 2002-9, Cl. PC, 6%, 3/25/17 1,676,016 1,698,814
Trust 2003-28, Cl. KG, 5.50%, 4/25/23 3,964,000 3,904,163
Trust 2003-84, Cl. PW, 3%, 6/25/22 1,468,171 1,443,115
Trust 2004-101, Cl. BG, 5%, 1/25/20 1,908,000 1,861,085
Trust 2005-100, Cl. BQ, 5.50%, 11/25/25 1,120,000 1,079,008
Trust 2006-44, Cl. OA, 5.50%, 12/25/26 3,160,000 3,167,951
Trust 2006-46, Cl. SW, 4.583%, 6/25/36 1 560,834 545,673
Trust 2006-50, Cl. KS, 4.583%, 6/25/36 1 1,256,918 1,215,199
Trust 2006-50, Cl. SA, 4.583%, 6/25/36 1 1,608,885 1,556,251
Trust 2006-50, Cl. SK, 4.583%, 6/25/36 1 513,577 496,338
Trust 2006-57, Cl. PA, 5.50%, 8/25/27 4,081,041 4,086,623
Trust 2006-64, Cl. MD, 5.50%, 7/25/36 4,671,000 4,554,157
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Interest-Only Stripped Mtg.-Backed
Security:
Trust 2001-65, Cl. S, 7.004%, 11/25/31 5 2,202,780 211,487
Trust 2001-81, Cl. S, (0.047)%, 1/25/32 5 549,448 51,597
Trust 2002-47, Cl. NS, (1.251)%,
4/25/32 5 1,396,749 132,156
Trust 2002-51, Cl. S, (1.134)%, 8/25/32 5 1,282,220 121,226
Trust 2002-52, Cl. SD, (2.785)%,
9/25/32 5 1,498,543 121,898
Trust 2002-77, Cl. SH, 0.153%,
12/18/32 5 657,507 60,667
Trust 2002-84, Cl. SA, 8.972%,
12/25/32 5 1,905,713 196,054
Trust 2003-33, Cl. SP, 9.233%, 5/25/33 5 1,950,958 244,362
Trust 2003-4, Cl. S, 6.753%, 2/25/33 5 1,270,545 133,436
Trust 2004-54, Cl. DS, (6.639)%,
11/25/30 5 1,066,822 63,904
Trust 2005-19, Cl. SA, (3.159)%,
3/25/35 5 10,940,322 558,824
Trust 2005-40, Cl. SA, (3.22)%, 5/25/35 5 2,444,953 119,661
Trust 2005-6, Cl. SE, (3.646)%, 2/25/35 5 3,074,826 156,689
Trust 2005-71, Cl. SA, 3.302%, 8/25/25 5 3,134,014 182,318
Trust 2006-33, Cl. SP, 11.645%, 5/25/36 5 4,348,663 379,503
Trust 222, Cl. 2, 12.629%, 6/1/23 5 2,228,340 473,138
Trust 240, Cl. 2, 14.777%, 9/1/23 5 2,665,145 597,920
Trust 252, Cl. 2, 9.386%, 11/1/23 5 1,736,899 399,989
Trust 273, Cl. 2, 12.07%, 8/1/26 5 508,719 108,422
Trust 303, Cl. IO, (5.565)%, 11/1/29 5 293,651 69,853
Trust 319, Cl. 2, 10.023%, 2/1/32 5 473,620 108,956
Trust 321, Cl. 2, 5.116%, 4/1/32 5 5,226,157 1,201,681
Trust 329, Cl. 2, 8.389%, 1/1/33 5 2,383,681 553,486
Trust 331, Cl. 9, 8.348%, 2/1/33 5 1,241,594 302,770
Trust 334, Cl. 17, 16.758%, 2/1/33 5 844,069 195,475
Trust 340, Cl. 2, 7.032%, 9/1/33 5 826,482 199,324
Trust 344, Cl. 2, 4.951%, 12/1/33 5 4,128,193 936,141

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
FHLMC/FNMA/SPONSORED Continued
Federal National Mortgage Assn.,
Interest-Only Stripped Mtg.-Backed
Security: Continued
Trust 346, Cl. 2, 11.437%, 12/1/33 5 $ 3,563,664 $ 823,432
Trust 362, Cl. 12, 5.435%, 8/1/35 5 2,244,411 473,843
Trust 362, Cl. 13, 5.442%, 8/1/35 5 1,245,443 263,545
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.,
Principal-Only Stripped Mtg.-Backed
Security:
Trust 1993-184, Cl. M, 5.655%, 9/25/23 6 625,613 508,586
Trust 340, Cl. 1, 5.532%, 9/1/33 6 826,482 603,998
---------------
214,900,396

- -------------------------------------------------------------------------------
GNMA/GUARANTEED--0.2%
Government National Mortgage
Assn.:
7%, 1/15/09-5/15/09 19,479 19,771
8.50%, 8/15/17-12/15/17 297,871 317,646
- -------------------------------------------------------------------------------
Government National Mortgage
Assn., Interest-Only Stripped
Mtg.-Backed Security:
Series 2001-21, Cl. SB, (5.039)%,
1/16/27 5 1,166,756 78,725
Series 2002-15, Cl. SM, (8.305)%,
2/16/32 5 1,355,279 89,039
Series 2004-11, Cl. SM, (7.941)%,
1/17/30 5 970,768 68,631
Series 2006-47, Cl. SA, 14.403%,
8/16/36 5 7,185,348 371,700
---------------
945,512

- -------------------------------------------------------------------------------
NON-AGENCY--9.7%
- -------------------------------------------------------------------------------
COMMERCIAL--8.1%
Asset Securitization Corp.,
Commercial Interest-Only Stripped
Mtg.-Backed Security, Series 1997-D4,
Cl. PS1, 1.889%, 4/14/29 5 28,135,292 737,904
- -------------------------------------------------------------------------------
Asset Securitization Corp.,
Commercial Mtg. Pass-Through
Certificates, Series 1996-MD6, Cl. A3,
7.267%, 11/13/29 1 1,200,000 1,218,210
- -------------------------------------------------------------------------------
Banc of America Commercial
Mortgage, Inc., Commercial Mtg.
Pass-Through Certificates, Series
2005-3, Cl. A2, 4.501%, 7/10/43 2,100,000 2,052,404
- -------------------------------------------------------------------------------
Banc of America Funding Corp.,
CMO Pass-Through Certificates,
Series 2004-2, Cl. 2A1, 6.50%, 7/20/32 1,690,418 1,713,432
- -------------------------------------------------------------------------------
Banc of America Mortgage Securities,
Inc., CMO Pass-Through Certificates:
Series 2005-E, Cl. 2A2, 4.975%, 6/25/35 1 128,917 128,700
Series 2004-8, Cl. 5A1, 6.50%, 5/25/32 1,370,363 1,382,783

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
COMMERCIAL Continued
Capital Lease Funding Securitization
LP, Interest-Only Corporate-Backed
Pass-Through Certificates, Series
1997-CTL1, 7.269%, 6/22/24 5 $ 18,232,329 $ 722,013
- -------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust
2006-WF1, Asset-Backed
Pass-Through Certificates, Series
2006-WF1, Cl. A2B, 5.536%, 3/1/36 460,000 458,613
- -------------------------------------------------------------------------------
Deutsche Alt-A Securities Mortgage
Loan Trust, Mtg. Pass-Through
Certificates:
Series 2006-AB2, Cl. A7, 5.961%,
6/25/36 2,062,393 2,058,639
Series 2006-AB3, Cl. A7, 6.36%,
4/25/08 618,128 618,301
- -------------------------------------------------------------------------------
GE Capital Commercial Mortgage
Corp., Commercial Mtg. Obligations,
Series 2005-C3, Cl. A2, 4.853%, 7/10/45 1,190,000 1,176,696
- -------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Commercial Mtg.
Pass-Through Certificates, Series
1997-C1, Cl. A3, 6.869%, 7/15/29 436,482 438,156
- -------------------------------------------------------------------------------
Greenwich Capital Commercial
Funding Corp., Commercial Mtg.
Pass-Through Certificates:
Series 2005-GG3, Cl. A2, 4.305%,
8/10/42 1,460,000 1,422,232
Series 2005-GG5, Cl. A2, 5.117%,
4/10/37 1,290,000 1,286,219
- -------------------------------------------------------------------------------
JPMorgan Chase Commercial
Mortgage Securities Corp.,
Commercial Mtg. Pass-Through
Certificates:
Series 2005-LDP2, Cl. A2, 4.575%,
7/15/42 510,000 499,661
Series 2005-LDP4, Cl. A2, 4.79%,
10/15/42 1,720,000 1,694,984
- -------------------------------------------------------------------------------
LB-UBS Commercial Mortgage Trust,
Commercial Mtg. Pass-Through
Certificates, Series 2005-C5, Cl. A2,
4.885%, 9/15/30 1,430,000 1,417,110
- -------------------------------------------------------------------------------
Lehman Brothers Commercial
Conduit Mortgage Trust,
Interest-Only Stripped Mtg.-Backed
Security, Series 1998-C1, Cl. IO,
5.566%, 2/18/30 5 15,327,819 287,556
- -------------------------------------------------------------------------------
Lehman Structured Securities Corp.,
CMO, Series 2002-GE1, Cl. A, 2.514%,
7/26/24 3 304,351 190,219
- -------------------------------------------------------------------------------
Mastr Alternative Loan Trust, CMO
Pass-Through Certificates:
Series 2004-9, Cl. A3, 4.70%, 8/25/34 1 1,310,775 1,300,384
Series 2004-6, Cl. 10A1, 6%, 7/25/34 1,923,379 1,914,915

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
COMMERCIAL Continued
RALI:
Series 2003-QS1 Trust, Mtg.
Asset-Backed Pass-Through
Certificates, Series 2003-QS1, Cl. A2,
5.75%, 1/25/33 $ 1,006,564 $ 1,002,132
Series 2006-QS5 Trust, Mtg.
Asset-Backed Pass-Through
Certificates, Series 2006-QS5, Cl.
2A2, 6%, 4/25/08 2,450,541 2,446,144
- -------------------------------------------------------------------------------
Residential Asset Securitization Trust
2006-A9CB, CMO Pass-Through
Certificates, Series 2006-A9CB, Cl. A5,
6%, 9/25/36 2,549,407 2,545,454
- -------------------------------------------------------------------------------
Salomon Brothers Mortgage
Securities VII, Inc., Interest-Only
Commercial Mtg. Pass-Through
Certificates, Series 1999-C1, Cl. X,
(5.022)%, 5/18/32 5 290,528,367 723,299
- -------------------------------------------------------------------------------
Wachovia Bank Commercial
Mortgage Trust 2005-C17,
Commercial Mtg. Obligations, Series
2005-C17, Cl. A2, 4.782%, 3/15/42 2,520,000 2,487,037
- -------------------------------------------------------------------------------
Wachovia Bank Commercial
Mortgage Trust 2006-C29,
Commercial Asset-Backed Securities,
Series 2006-C29, Cl. A2, 5.272%,
11/15/48 355,000 354,712
- -------------------------------------------------------------------------------
WAMU Mortgage Pass-Through
Certificates Series 2005-AR5 Trust,
Series 2005-AR5, Cl. A1, 4.673%,
5/25/35 1 846,075 844,315
---------------
33,122,224

- -------------------------------------------------------------------------------
OTHER--0.2%
Salomon Brothers Mortgage
Securities VI, Inc., Interest-Only
Stripped Mtg.-Backed Security, Series
1987-3, Cl. B, 70.949%, 10/23/17 5 12,563 2,412
- -------------------------------------------------------------------------------
Salomon Brothers Mortgage
Securities VI, Inc., Principal-Only
Stripped Mtg.-Backed Security, Series
1987-3, Cl. A, 6.109%, 10/23/17 6 18,593 16,802
- -------------------------------------------------------------------------------
WAMU Mortgage Pass-Through
Certificates Series 2005-AR8 Trust,
Series 2005-AR8, Cl. 2AB1, 5.60%,
7/25/45 1 824,931 827,069
---------------
846,283

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
RESIDENTIAL--1.4%
Countrywide Alternative Loan Trust,
CMO:
Series 2005-J1, Cl. 3A1, 6.50%, 8/25/32 $ 2,943,703 $ 2,975,901
Series 2005-J3, Cl. 3A1, 6.50%, 9/25/34 2,602,980 2,647,378
---------------
5,623,279
---------------
Total Mortgage-Backed Obligations
(Cost $257,344,422) 255,437,694

- -------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--1.8%
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.
Unsec. Nts., 5.25%, 7/18/11 7 1,860,000 1,884,147
- -------------------------------------------------------------------------------
Federal National Mortgage Assn.
Unsec. Nts., 5%, 10/15/11 7 2,800,000 2,809,159
- -------------------------------------------------------------------------------
U.S. Treasury Bonds, 4.50%, 2/15/36 7 787,000 748,635
- -------------------------------------------------------------------------------
U.S. Treasury Nts.:
4.625%, 10/31/11 211,000 210,299
4.625%, 11/15/16 7 417,000 414,394
4.875%, 10/31/08 7 1,293,000 1,294,011
---------------
Total U.S. Government Obligations
(Cost $7,378,286) 7,360,645

- -------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--36.7%
- -------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--12.5%
- -------------------------------------------------------------------------------
AUTOMOBILES--2.3%
DaimlerChrysler North America
Holding Corp., 7.30% Nts., 1/15/12 1,930,000 2,050,899
- -------------------------------------------------------------------------------
Ford Motor Credit Co., 9.75% Sr.
Unsec. Nts., 9/15/10 2 3,860,000 4,109,483
- -------------------------------------------------------------------------------
General Motors Acceptance Corp.,
8% Bonds, 11/1/31 1,660,000 1,911,326
- -------------------------------------------------------------------------------
Hyundai Motor Manufacturing
Alabama LLC, 5.30% Sr. Unsec. Nts.,
12/19/08 2 1,115,000 1,107,959
---------------
9,179,667

- -------------------------------------------------------------------------------
HOTELS, RESTAURANTS &amp; LEISURE--2.4%
Caesars Entertainment, Inc., 7.50% Sr.
Unsec. Nts., 9/1/09 2,250,000 2,336,171
- -------------------------------------------------------------------------------
Hilton Hotels Corp., 8.25% Sr. Unsec.
Nts., 2/15/11 1,475,000 1,589,313
- -------------------------------------------------------------------------------
Hyatt Equities LLC, 6.875% Nts.,
6/15/07 2 1,965,000 1,973,381
- -------------------------------------------------------------------------------
MGM Mirage, Inc., 6% Sr. Sec. Nts.,
10/1/09 2,020,000 2,025,050
- -------------------------------------------------------------------------------
Royal Caribbean Cruises Ltd., 7% Sr.
Unsec. Unsub. Nts., 10/15/07 545,000 552,670
- -------------------------------------------------------------------------------
Yum! Brands, Inc., 7.70% Sr. Nts., 7/1/12 1,335,000 1,461,032
---------------
9,937,617

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
HOUSEHOLD DURABLES--2.5%
Beazer Homes USA, Inc., 6.875% Sr.
Unsec. Nts., 7/15/15 7 $ 1,150,000 $ 1,132,750
- -------------------------------------------------------------------------------
D.R. Horton, Inc.:
5.375% Sr. Unsec. Nts., 6/15/12 1,200,000 1,161,988
6.125% Nts., 1/15/14 1,035,000 1,029,123
- -------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc., 6.50%
Sr. Nts., 1/15/14 1,725,000 1,681,875
- -------------------------------------------------------------------------------
KB Home, 5.75% Sr. Unsec. Unsub.
Nts., 2/1/14 1,445,000 1,336,986
- -------------------------------------------------------------------------------
Lennar Corp., 7.625% Sr. Unsec. Nts.,
3/1/09 7 1,870,000 1,947,764
- -------------------------------------------------------------------------------
Pulte Homes, Inc., 4.875% Nts.,
7/15/09 2,025,000 1,995,206
---------------
10,285,692

- -------------------------------------------------------------------------------
LEISURE EQUIPMENT &amp; PRODUCTS--0.1%
Eastman Kodak Co., 3.625% Nts.,
Series A, 5/15/08 247,000 239,346
- -------------------------------------------------------------------------------
MEDIA--3.6%
British Sky Broadcasting Group plc,
8.20% Sr. Unsec. Nts., 7/15/09 1,265,000 1,347,741
- -------------------------------------------------------------------------------
Chancellor Media CCU, 8% Sr.
Unsec. Nts., 11/1/08 1,540,000 1,601,751
- -------------------------------------------------------------------------------
Clear Channel Communications, Inc.,
6.25% Nts., 3/15/11 7 1,370,000 1,332,594
- -------------------------------------------------------------------------------
Comcast Corp., 6.45% Unsec. Nts.,
3/15/37 2,425,000 2,434,356
- -------------------------------------------------------------------------------
EchoStar DBS Corp., 5.75% Sr. Unsec.
Nts., 10/1/08 1,670,000 1,667,913
- -------------------------------------------------------------------------------
Liberty Media Corp., 7.875% Sr. Nts.,
7/15/09 480,000 502,956
- -------------------------------------------------------------------------------
Reed Elsevier Capital, Inc., 4.625%
Nts., 6/15/12 860,000 822,368
- -------------------------------------------------------------------------------
Time Warner Entertainment Co. LP,
8.375% Sr. Nts., 7/15/33 1,645,000 1,994,039
- -------------------------------------------------------------------------------
Tribune Co., 5.50% Nts., Series E,
10/6/08 1,115,000 1,104,134
- -------------------------------------------------------------------------------
Univision Communications, Inc.:
3.50% Sr. Unsec. Nts., 10/15/07 1,270,000 1,242,865
3.875% Sr. Unsec. Nts., 10/15/08 590,000 562,961
---------------
14,613,678

- -------------------------------------------------------------------------------
MULTILINE RETAIL--0.7%
Federated Department Stores, Inc.,
6.625% Sr. Unsec. Nts., 9/1/08 1,455,000 1,479,237
- -------------------------------------------------------------------------------
J.C. Penney Co., Inc., 9% Nts., 8/1/12 510,000 583,806
- -------------------------------------------------------------------------------
May Department Stores Co., 7.90%
Unsec. Debs., 10/15/07 785,000 796,878
---------------
2,859,921

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
SPECIALTY RETAIL--0.9%
Gap, Inc. (The):
6.90% Nts., 9/15/07 $ 1,315,000 $ 1,324,327
9.445% Unsub. Nts., 12/15/08 1 466,000 497,699
- -------------------------------------------------------------------------------
Limited Brands, Inc., 6.125% Sr. Unsec.
Nts., 12/1/12 8 2,025,000 2,049,681
---------------
3,871,707

- -------------------------------------------------------------------------------
CONSUMER STAPLES--2.9%
- -------------------------------------------------------------------------------
FOOD &amp; STAPLES RETAILING--2.0%
Albertson's, Inc., 8% Sr. Unsec. Debs.,
5/1/31 7 1,675,000 1,707,426
- -------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub.
Debs., 4/15/31 1,235,000 1,472,497
- -------------------------------------------------------------------------------
Kroger Co. (The), 5.50% Unsec.
Unsub. Nts., 2/1/13 2,065,000 2,045,306
- -------------------------------------------------------------------------------
Safeway, Inc., 6.50% Sr. Unsec. Nts.,
3/1/11 2,905,000 3,008,125
---------------
8,233,354

- -------------------------------------------------------------------------------
FOOD PRODUCTS--0.6%
Bunge Ltd. Finance Corp., 4.375%
Unsec. Nts., 12/15/08 595,000 582,728
- -------------------------------------------------------------------------------
Earthgrains Co. (The), 6.50% Nts.,
4/15/09 600,000 610,534
- -------------------------------------------------------------------------------
Heinz (H.J.) Co., 6.428% Bonds,
12/1/08 2 280,000 285,122
- -------------------------------------------------------------------------------
Sara Lee Corp., 2.75% Unsec. Nts.,
6/15/08 845,000 812,210
---------------
2,290,594

- -------------------------------------------------------------------------------
TOBACCO--0.3%
R.J. Reynolds Tobacco Holdings, Inc.,
6.50% Unsec. Nts., 6/1/07 60,000 60,381
- -------------------------------------------------------------------------------
Reynolds American, Inc., 6.50% Sr.
Sec. Nts., 6/1/07 1,272,000 1,280,068
---------------
1,340,449

- -------------------------------------------------------------------------------
ENERGY--4.6%
- -------------------------------------------------------------------------------
OIL &amp; GAS--4.6%
El Paso Corp.:
6.50% Sr. Unsec. Nts., 6/1/08 7 390,000 395,363
7.625% Sr. Unsec. Nts., 9/1/08 1,490,000 1,542,150
- -------------------------------------------------------------------------------
Enbridge Energy Partners LP, 5.95%
Sr. Unsec. Nts., Series B, 6/1/33 505,000 467,734
- -------------------------------------------------------------------------------
Energy Transfer Partners LP:
5.65% Sr. Unsec. Unsub. Nts., 8/1/12 380,000 378,848
6.625% Sr. Nts., 10/15/36 810,000 836,781
- -------------------------------------------------------------------------------
Enterprise Products Operating LP
7.50% Sr. Unsec. Unsub. Nts., 2/1/11 1,880,000 2,006,665

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
OIL &amp; GAS Continued
Kaneb Pipe Line Operating
Partnership LP:
5.875% Sr. Unsec. Nts., 6/1/13 $ 330,000 $ 331,403
7.75% Sr. Unsec. Nts., 2/15/12 180,000 196,384
- -------------------------------------------------------------------------------
Kinder Morgan Energy Partners LP,
7.30% Sr. Unsec. Nts., 8/15/33 1,845,000 2,006,958
- -------------------------------------------------------------------------------
ONEOK Partners LP, 7.10% Sr. Unsec.
Nts., 3/15/11 275,000 289,372
- -------------------------------------------------------------------------------
Pemex Project Funding Master Trust,
7.875% Unsec. Unsub. Nts., 2/1/09 1,890,000 1,985,445
- -------------------------------------------------------------------------------
Petroleum Export Ltd. Cayman SPV,
4.623% Sr. Nts., Cl. A1, 6/15/10 2 2,741,667 2,699,864
- -------------------------------------------------------------------------------
PF Export Receivables Master Trust,
3.748% Sr. Nts., Series B, 6/1/13 2 1,213,636 1,138,238
- -------------------------------------------------------------------------------
TEPPCO Partners LP:
6.125% Nts., 2/1/13 900,000 901,216
7.625% Sr. Unsec. Nts., 2/15/12 285,000 306,764
- -------------------------------------------------------------------------------
Valero Logistics Operations LP, 6.05%
Nts., 3/15/13 1,410,000 1,422,211
- -------------------------------------------------------------------------------
Williams Cos., Inc. (The) Credit Linked
Certificate Trust, 6.75% Nts.,
4/15/09 3 1,885,000 1,927,413
---------------
18,832,809

- -------------------------------------------------------------------------------
FINANCIALS--8.5%
- -------------------------------------------------------------------------------
CAPITAL MARKETS--1.0%
Goldman Sachs Capital, Inc. (The),
6.345% Sub. Bonds, 2/15/34 2,045,000 2,076,767
- -------------------------------------------------------------------------------
Morgan Stanley, 4.75% Sub. Nts.,
4/1/14 2,100,000 2,010,891
---------------
4,087,658

- -------------------------------------------------------------------------------
COMMERCIAL BANKS--2.3%
Barclays Bank plc, 6.278% Perpetual
Bonds 9 2,110,000 2,076,388
- -------------------------------------------------------------------------------
HBOS plc, 6.413% Sub. Perpetual
Bonds, Series A 2,9 2,100,000 2,092,696
- -------------------------------------------------------------------------------
HSBC Finance Capital Trust IX,
5.911% Nts., 11/30/35 1 2,900,000 2,919,343
- -------------------------------------------------------------------------------
Popular North America, Inc., 4.70%
Nts., 6/30/09 2,485,000 2,433,990
---------------
9,522,417

- -------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--1.2%
CIT Group, Inc., 5.40% Sr. Nts., 3/7/13 2,010,000 1,997,419
- -------------------------------------------------------------------------------
Citigroup, Inc., 6.125% Sub. Nts.,
8/25/36 810,000 846,391
- -------------------------------------------------------------------------------
JPMorgan Chase &amp; Co., 5.15% Sub.
Nts., 10/1/15 2,035,000 2,000,440
---------------
4,844,250

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
INSURANCE--2.3%
Marsh &amp; McLennan Cos., Inc.:
5.875% Sr. Unsec. Bonds, 8/1/33 $ 1,355,000 $ 1,238,091
7.125% Sr. Unsec. Nts., 6/15/09 1,050,000 1,085,644
- -------------------------------------------------------------------------------
MBIA, Inc., 5.70% Sr. Unsec. Unsub.
Nts., 12/1/34 2,090,000 1,996,134
- -------------------------------------------------------------------------------
Prudential Holdings LLC, 8.695%
Bonds, Series C, 12/18/23 2 2,055,000 2,518,793
- -------------------------------------------------------------------------------
Prudential Insurance Co. of America,
8.30% Nts., 7/1/25 2,035,000 2,561,536
---------------
9,400,198

- -------------------------------------------------------------------------------
REAL ESTATE--1.7%
EOP Operating LP, 8.10% Unsec. Nts.,
8/1/10 2,505,000 2,762,321
- -------------------------------------------------------------------------------
iStar Financial, Inc., 5.15% Sr. Unsec.
Nts., 3/1/12 2,050,000 1,995,921
- -------------------------------------------------------------------------------
Vornado Realty LP, 5.625% Sr. Unsec.
Unsub. Nts., 6/15/07 2,225,000 2,223,767
---------------
6,982,009

- -------------------------------------------------------------------------------
HEALTH CARE--0.5%
- -------------------------------------------------------------------------------
HEALTH CARE PROVIDERS &amp; SERVICES--0.5%
HCA, Inc., 8.75% Sr. Nts., 9/1/10 2,055,000 2,147,475
- -------------------------------------------------------------------------------
INDUSTRIALS--0.5%
- -------------------------------------------------------------------------------
AEROSPACE &amp; DEFENSE--0.5%
BAE Systems Holdings, Inc., 5.20%
Nts., 8/15/15 2 2,115,000 2,018,053
- -------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--0.6%
- -------------------------------------------------------------------------------
COMPUTERS &amp; PERIPHERALS--0.1%
NCR Corp., 7.125% Sr. Unsec. Unsub.
Nts., 6/15/09 185,000 189,837
- -------------------------------------------------------------------------------
OFFICE ELECTRONICS--0.5%
Xerox Corp., 9.75% Sr. Unsec. Nts.,
1/15/09 1,860,000 2,018,100
- -------------------------------------------------------------------------------
MATERIALS--0.5%
- -------------------------------------------------------------------------------
PAPER &amp; FOREST PRODUCTS--0.5%
MeadWestvaco Corp., 6.85% Unsec.
Unsub. Nts., 4/1/12 1,930,000 2,024,690
- -------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--1.5%
- -------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.5%
Qwest Corp., 5.625% Unsec. Nts.,
11/15/08 250,000 251,563
- -------------------------------------------------------------------------------
Telecom Italia Capital SpA:
4% Sr. Unsec. Nts., 11/15/08 985,000 959,669
4% Unsec. Unsub. Nts., 1/15/10 1,085,000 1,036,783
- -------------------------------------------------------------------------------
Telefonos de Mexico SA de CV, 4.50%
Nts., 11/19/08 2,035,000 2,008,470
- -------------------------------------------------------------------------------
Telus Corp., 8% Nts., 6/1/11 1,790,000 1,959,257
---------------
6,215,742

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
UTILITIES--4.6%
- -------------------------------------------------------------------------------
ELECTRIC UTILITIES--1.4%
FirstEnergy Corp., 7.375% Sr. Unsub.
Nts., Series C, 11/15/31 $ 780,000 $ 890,992
- -------------------------------------------------------------------------------
Mission Energy Holding Co., 13.50%
Sr. Sec. Nts., 7/15/08 1,780,000 1,971,350
- -------------------------------------------------------------------------------
Monongahela Power Co., 7.36%
Unsec. Nts., Series A, 1/15/10 1,285,000 1,347,087
- -------------------------------------------------------------------------------
Westar Energy, Inc., 7.125% Sr. Unsec.
Nts., 8/1/09 1,635,000 1,698,132
---------------
5,907,561

- -------------------------------------------------------------------------------
ENERGY TRADERS--0.7%
IPALCO Enterprises, Inc., 8.375% Sr.
Sec. Nts., 11/14/08 1 1,180,000 1,230,150
- -------------------------------------------------------------------------------
TXU Energy Co., 6.125% Nts., 3/15/08 1,430,000 1,439,415
---------------
2,669,565

- -------------------------------------------------------------------------------
GAS UTILITIES--0.2%
ONEOK Partners LP, 6.65% Nts.,
10/1/36 970,000 995,397
- -------------------------------------------------------------------------------
MULTI-UTILITIES &amp; UNREGULATED POWER--2.3%
CenterPoint Energy, Inc., 7.25% Sr.
Nts., Series B, 9/1/10 2,790,000 2,941,966
- -------------------------------------------------------------------------------
Duke Energy Field Services Corp.,
6.875% Sr. Unsec. Nts., 2/1/11 1,400,000 1,465,205
- -------------------------------------------------------------------------------
NiSource Finance Corp., 7.875% Sr.
Unsec. Nts., 11/15/10 2,753,000 2,972,585
- -------------------------------------------------------------------------------
PSEG Funding Trust I, 5.381% Nts.,
11/16/07 1,835,000 1,831,538
---------------
9,211,294
---------------
Total Corporate Bonds and Notes
(Cost $148,350,437) 149,919,080

SHARES
- -------------------------------------------------------------------------------
MONEY MARKET FUND--1.1%
- -------------------------------------------------------------------------------
Oppenheimer Institutional Money
Market Fund, Cl. E, 5.25% 11,12
(Cost $4,562,502) 4,562,502 4,562,502
- -------------------------------------------------------------------------------
Total Investments, at Value
(excluding Investments Purchased
with Cash Collateral from Securities
Loaned) (Cost $456,720,809) 453,936,212

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM
SECURITIES LOANED--1.5% 13
- -------------------------------------------------------------------------------
ASSET-BACKED FLOATING NOTES--0.6%
Trust Money Market Securities,
Series A-2, 5.43%, 1/16/07 $ 1,000,000 $ 1,000,000
- -------------------------------------------------------------------------------
Whitehawk CDO Funding Corp.,
5.41%, 3/15/07 1,500,000 1,500,000
---------------
2,500,000

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--0.9%
Undivided interest of 0.09% in joint repurchase agreement
(Principal Amount/Value $4,100,000,000, with a maturity
value of $4,102,437,222) with Nomura Securities, 5.35%,
dated 12/29/06, to be repurchased at $3,822,669 on
1/2/07, collateralized by U.S. Agency Mortgages,
0.00%-22.12%, 3/15/14-5/1/46, with a
value of $4,182,000,000 $ 3,820,398 $ 3,820,398
---------------
Total Investments Purchased with
Cash Collateral from Securities
Loaned (Cost $6,320,398) 6,320,398

- -------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $463,041,207) 112.7% 460,256,610
- -------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (12.7) (51,959,187)
---------------------------------
NET ASSETS 100.0% $ 408,297,423
=================================

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Represents the current interest rate for a variable or increasing rate
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 $19,475,078 or 4.77% of the Fund's net
assets as of December 31, 2006.

3. Illiquid security. The aggregate value of illiquid securities as of December
31, 2006 was $5,750,506, which represents 1.41% of the Fund's net assets. See
Note 7 of accompanying Notes.

4. When-issued security or forward commitment to be delivered and settled after
December 31, 2006. See Note 1 of accompanying Notes.

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 $14,710,365 or 3.60% of the Fund's net assets
as of December 31, 2006.

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 $1,358,925 or 0.33% of the Fund's net assets as of
December 31, 2006.

7. Partial or fully-loaned security. See Note 8 of accompanying Notes.

8. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures contracts. The aggregate market
value of such securities is $2,024,376. See Note 5 of accompanying Notes.

9. This bond has no contractual maturity date, is not redeemable and
contractually pays an indefinite stream of interest. Rate reported represents
the current interest rate for this variable rate security.

10. Non-income producing security.

11. Rate shown is the 7-day yield as of December 31, 2006.

12. Represents ownership of an affiliated fund, at or during the period ended
December 31, 2006. Transactions during the period in which the issuer was an
affiliate are as follows

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25% * -- 22,171,390 17,608,888 4,562,502

VALUE DIVIDEND
SEE NOTE 1 INCOME
- -----------------------------------------------------------------------------------------------------------------------------

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25% * $4,562,502 $5,949

* The money market fund and the Fund are affiliated by having the same
investment advisor.

13. The security/securities have 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 8 of
accompanying Notes.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF ASSETS AND LIABILITIES December 31, 2006
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $458,478,705) $ 455,694,108
Affiliated companies (cost $4,562,502) 4,562,502
--------------
460,256,610
- ----------------------------------------------------------------------------------------------------------------------------------
Cash 600,311
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 439,906
- ----------------------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $7,921,226 sold on a when-issued basis or forward commitment) 8,483,875
Interest and principal paydowns 4,073,005
Shares of beneficial interest sold 893,379
Futures margins 28,106
Other 20,518
--------------
Total assets 474,795,710

- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned 6,320,398
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts 377,329
- ----------------------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $58,229,544 purchased on a when-issued basis or forward commitment) 59,396,000
Shares of beneficial interest redeemed 292,872
Shareholder communications 46,578
Distribution and service plan fees 22,206
Trustees' compensation 15,015
Transfer and shareholder servicing agent fees 1,722
Other 26,167
--------------
Total liabilities 66,498,287

- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 408,297,423
==============

- ----------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 36,604
- ----------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 426,378,068
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated net investment income 20,676,318
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (36,249,470)
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (2,544,097)
--------------
NET ASSETS $ 408,297,423
==============

- ----------------------------------------------------------------------------------------------------------------------------------
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 $367,106,124 and 32,892,925 shares of beneficial interest outstanding) $ 11.16
- ----------------------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $41,191,299 and 3,710,736 shares of beneficial interest outstanding) $ 11.10

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF OPERATIONS For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------------------------------------------
Interest $ 22,467,196
- ----------------------------------------------------------------------------------------------------------------------------------
Fee income 594,169
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio lending fees 53,580
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends--Affiliated companies 5,949
--------------
Total investment income 23,120,894

- ----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------------------------------------------------
Management fees 3,030,438
- ----------------------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares 53,042
- ----------------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares 10,079
Service shares 9,952
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares 70,804
Service shares 3,755
- ----------------------------------------------------------------------------------------------------------------------------------
Trustees' compensation 11,925
- ----------------------------------------------------------------------------------------------------------------------------------
Administration service fees 1,500
- ----------------------------------------------------------------------------------------------------------------------------------
Other 41,843
--------------
Total expenses 3,233,338
Less waivers and reimbursements of expenses (126)
--------------
Net expenses 3,233,212

- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 19,887,682

- ----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments (3,695,752)
Closing and expiration of futures contracts 1,570,446
Foreign currency transactions 14,895
Swap contracts 254,005
--------------
Net realized loss (1,856,406)
- ----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 2,914,992
Futures contracts (214,870)
Swap contracts 36,618
--------------
Net change in unrealized depreciation 2,736,740

- ----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 20,768,016
==============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2006 2005
- ----------------------------------------------------------------------------------------------------------------------------------

OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 19,887,682 $ 21,402,707
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized loss (1,856,406) (480,546)
- ----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized depreciation 2,736,740 (8,992,109)
-------------------------------
Net increase in net assets resulting from operations 20,768,016 11,930,052

- ----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares (21,803,446) (24,996,468)
Service shares (608,147) (231,902)
-------------- --------------
(22,411,593) (25,228,370)

- ----------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest transactions:
Non-Service shares (61,099,902) (60,382,816)
Service shares 29,289,033 7,684,268
-------------------------------
(31,810,869) (52,698,548)

- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------------------
Total decrease (33,454,446) (65,996,866)
- ----------------------------------------------------------------------------------------------------------------------------------
Beginning of period 441,751,869 507,748,735
-------------------------------
End of period (including accumulated net investment income of $20,676,318 and
$22,323,507, respectively) $ 408,297,423 $ 441,751,869
===============================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.77%

6. Voluntary waiver of affiliated funds management fees less than 0.01%.

7. Reduction to custodian expenses less than 0.01%.

8. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002 1
- -------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.15 $ 11.47 $ 11.39 $ 11.30 $ 10.46
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .49 2 .47 2 .40 2 .43 .11
Net realized and unrealized gain (loss) .03 (.22) .18 .28 .72
Payment from affiliate -- -- -- -- .01
-------------------------------------------------------------------------
Total from investment operations .52 .25 .58 .71 .84
- -------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.57) (.57) (.50) (.62) --
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.10 $ 11.15 $ 11.47 $ 11.39 $ 11.30
=========================================================================

- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 41,191 $ 11,110 $ 3,505 $ 3,835 $ 2,435
- -------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 21,265 $ 7,213 $ 3,002 $ 3,903 $ 834
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 5
Net investment income before payment from affiliate 4.56% 4.29% 3.55% 3.73% 4.37% 4
Net investment income after payment from affiliate N/A N/A N/A N/A 5.04%
Total expenses 1.06% 6,7 1.03% 8 0.99% 8 0.98% 8 0.98% 8,9
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 114% 10 111% 10 95% 10 101% 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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 1.06%

7. Voluntary waiver of affiliated funds management fees less than 0.01%.

8. Reduction to custodian expenses less than 0.01%.

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

10. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

PURCHASE TRANSACTIONS SALE TRANSACTIONS
--------------------------------------------------------------------------
Year Ended December 31, 2006 $ 1,168,229,255 $ 1,270,329,129
Year Ended December 31, 2005 2,420,041,493 2,423,498,913
Year Ended December 31, 2004 2,841,348,053 2,925,500,296

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Core Bond Fund/VA (the Fund), is a separate series of Oppenheimer
Variable Account Funds, 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. As a secondary objective,
the Fund seeks capital appreciation when consistent with its primary objective.
The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager).

The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
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.

NET UNREALIZED
DEPRECIATION
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
--------------------------------------------------------------------------
$20,696,739 $-- $36,231,290 $2,567,686

1. As of December 31, 2006, the Portfolio had $36,024,345 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, 2006,
details of the capital loss carryforwards were as follows:

EXPIRING
--------------------------
2010 $ 29,885,554
2013 57,295
2014 6,081,496
-------------
Total $ 36,024,345
=============

2. As of December 31, 2006, the Portfolio had $206,945 of post-October losses
available to offset future realized capital gains, if any. Such losses, if
unutilized, will expire in 2015.

3. During the fiscal year ended December 31, 2006, the Portfolio did not utilize
any capital loss carryforward.

4. During the fiscal year ended December 31, 2005, the Portfolio did not utilize
any capital loss carryforward.

INCREASE TO INCREASE TO
ACCUMULATED ACCUMULATED NET
NET INVESTMENT REALIZED LOSS
INCOME ON INVESTMENTS
-------------------------------------
$876,722 $876,722

The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005 was as follows:

YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
------------------------------------------------------------------
Distributions paid from:
Ordinary income $22,411,593 $25,228,370

Federal tax cost of securities $ 463,144,411
Federal tax cost of other investments (74,626,488)
-------------
Total federal tax cost $ 388,517,923
=============

Gross unrealized appreciation $ 5,342,946
Gross unrealized depreciation (7,910,632)
-------------
Net unrealized depreciation $ (2,567,686)
=============

- --------------------------------------------------------------------------------
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.

- --------------------------------------------------------------------------------
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:

NON-SERVICE SHARES
Sold 953,894 $ 10,320,632 1,220,400 $ 13,663,072
Dividends and/or distributions reinvested 2,058,871 21,803,446 2,291,152 24,996,468
Redeemed (8,604,369) (93,223,980) (8,857,827) (99,042,356)
-----------------------------------------------------------------
Net decrease (5,591,604) $ (61,099,902) (5,346,275) $(60,382,816)
=================================================================

- -----------------------------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold 2,826,656 $ 30,522,972 767,551 $ 8,537,370
Dividends and/or distributions reinvested 57,590 608,147 21,295 231,902
Redeemed (170,116) (1,842,086) (97,717) (1,085,004)
-----------------------------------------------------------------
Net increase 2,714,130 $ 29,289,033 691,129 $ 7,684,268
=================================================================

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and money market funds, for the year ended December
31, 2006, were as follows:

PURCHASES SALES
- ----------------------------------------------------------------------------------------

Investment securities $ 334,577,936 $ 324,181,656
U.S. government and government agency obligations 82,309,782 105,592,841
To Be Announced (TBA) mortgage-related securities 1,168,229,255 1,270,329,129

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

FEE SCHEDULE
-------------------------------
Up to $200 million 0.75%
Next $200 million 0.72
Next $200 million 0.69
Next $200 million 0.66
Next $200 million 0.60
Over $1 billion 0.50

- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS

- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS Continued

As of December 31, 2006, the Fund had outstanding futures contracts as follows:

CONTRACTS TO PURCHASE
U.S. Long Bonds 3/21/07 404 $ 45,020,750 $ (636,497)
U.S. Treasury Nts., 5 yr. 3/30/07 255 26,790,938 (149,269)
--------------
(785,766)
--------------

CONTRACTS TO SELL
Euro-Bundesobligation, 10 yr. 3/8/07 71 10,874,701 269,254
U.S. Treasury Nts., 2 yr. 3/30/07 522 106,504,313 265,345
U.S. Treasury Nts., 10 yr. 3/21/07 268 28,801,625 435,396
--------------
969,995
--------------
$ 184,229
==============

- --------------------------------------------------------------------------------
6. CREDIT DEFAULT SWAP CONTRACTS

Information regarding such credit default swaps as of December 31, 2006 is as
follows:

Deutsche Bank AG:
CDX.NA.IG.7 $3,600,000 0.400% 12/20/11 $ 10,659
J.C. Penney Co., Inc. 590,000 0.580 3/20/12 994
Weyerhaeuser Co. 2,010,000 0.580 9/20/11 13,133
- -------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital
Services, Inc.:
Arrow Electronics, Inc. 2,010,000 0.790 9/20/11 35,983
Arrow Electronics, Inc. 1,000,000 0.770 9/20/11 17,052
Belo Corp. 1,170,000 0.650 6/20/11 8,031
Belo Corp. 655,000 0.670 6/20/11 5,025
Belo Corp. 1,295,000 0.675 6/20/11 10,196
Ford Motor Co. 980,000 5.300 12/20/08 54,529
Ford Motor Co. 2,065,000 5.400 12/20/08 118,793
General Motors Corp. 1,035,000 4.000 12/20/08 42,668
General Motors Corp. 1,000,000 3.950 12/20/08 40,277
International Paper Co. 2,020,000 0.409 12/20/11 6,422
--------------
$ 363,762
==============

The Fund would take a long position in the credit default swap note (the "funded
swap") to increase the exposure to specific high yield corporate issuers. As a
seller of credit protection under a swap contract, the Fund receives a periodic
interest fee on the notional amount from the counterparty. This interest fee is
accrued daily as a component of unrealized appreciation (depreciation) and is
recorded as realized gain upon receipt. Upon occurrence of a specific credit
event with respect to the underlying referenced debt obligation, the Fund
receives that security from the counterparty in exchange for payment of the
notional amount to the counterparty. The difference between the value of the
security received and the notional amount paid is recorded as realized loss and
is included on the Statement of Operations. Credit default swaps are marked to
market daily using different sources, including quotations from counterparties,
pricing services, brokers or market makers. The unrealized appreciation
(depreciation) related to the change in the valuation of the notional amount of
the swap is combined with the amount due to (owed by) the Fund at termination or
settlement and disclosed separately on the Statement of Assets and Liabilities.
The net change in this amount is included on the Statement of Operations.

Information regarding such credit default swaps as of December 31, 2006 is as
follows:

NOTIONAL AMOUNT ANNUAL
PAID BY INTEREST RATE UNREALIZED
REFERENCED DEBT THE FUND UPON RECEIVED BY TERMINATION APPRECIATION
COUNTERPARTY OBLIGATION CREDIT EVENT THE FUND DATES (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------

Deutsche Bank AG:
Abitibi-Consolidated Co. of Canada $ 1,630,000 1.52% 9/20/07 $ 6,723
Allied Waste North America, Inc. 630,000 2.00 9/20/09 17,131
Allied Waste North America, Inc. 990,000 2.00 9/20/09 26,920
Bombardier, Inc. 500,000 0.90 9/20/07 1,840
Eastman Kodak Co. 1,390,000 1.00 12/20/08 7,841
General Motors Acceptance Corp. 465,000 2.30 6/20/07 4,557

- ------------------------------------------------------------------------------
6. CREDIT DEFAULT SWAP CONTRACTS Continued

Morgan Stanley Capital
Services, Inc.:
ArvinMeritor, Inc. $ 555,000 1.05% 9/20/07 $ 1,665
ArvinMeritor, Inc. 445,000 1.10 9/20/07 1,504
Bombardier, Inc. 550,000 1.00 9/20/07 2,924
Bombardier, Inc. 555,000 1.05 9/20/07 3,163
Ford Motor Co. 980,000 7.05 12/20/16 57,117
Ford Motor Co. 2,065,000 7.15 12/20/16 131,267
General Motors Corp. 1,035,000 5.80 12/20/16 81,585
General Motors Corp. 1,000,000 5.75 12/20/16 75,925
General Motors Acceptance Corp. 1,355,000 3.15 6/20/07 18,579
Hyundai Motor Manufacturing Alabama LLC 875,000 0.40 6/20/07 1,165
J.C. Penney Co., Inc. 2,005,000 0.61 6/20/13 (13,567)
--------------
$ 426,339
==============

- --------------------------------------------------------------------------------
7. ILLIQUID SECURITIES

- --------------------------------------------------------------------------------
8. SECURITIES LENDING

- --------------------------------------------------------------------------------
9. RECENT ACCOUNTING PRONOUNCEMENTS

- --------------------------------------------------------------------------------
10. LITIGATION

26 | OPPENHEIMER GLOBAL SECURITIES FUND/VA

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 (the "Fund"), a series of Oppenheimer
Variable Account Funds, including the statement of investments, as of December
31, 2006, 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.

DELOITTE & TOUCHE LLP

Denver, Colorado
February 16, 2007

STATEMENT OF INVESTMENTS December 31, 2006
- --------------------------------------------------------------------------------

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--98.3%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--19.0%
- --------------------------------------------------------------------------------
AUTOMOBILES--2.6%
Bayerische Motoren Werke AG 621,667 $ 35,657,209
- --------------------------------------------------------------------------------
Porsche AG, Preference 19,480 24,864,868
- --------------------------------------------------------------------------------
Toyota Motor Corp. 575,000 37,716,857
-----------------
98,238,934

- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--2.5%
Carnival Corp. 976,900 47,916,945
- --------------------------------------------------------------------------------
International Game Technology 524,500 24,231,900
- --------------------------------------------------------------------------------
McDonald's Corp. 549,400 24,354,902
-----------------
96,503,747

- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--2.3%
Koninklijke (Royal) Philips
Electronics NV 1,178,000 44,426,718
- --------------------------------------------------------------------------------
Sony Corp. 1,012,600 43,395,320
-----------------
87,822,038

- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--0.1%
Home Retail Group 575,348 4,618,736
- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--0.2%
Sega Sammy Holdings, Inc. 225,400 6,079,862
- --------------------------------------------------------------------------------
MEDIA--4.9%
Getty Images, Inc. 1 230,600 9,874,292
- --------------------------------------------------------------------------------
Grupo Televisa SA, Sponsored GDR 1,664,596 44,960,738
- --------------------------------------------------------------------------------
Pearson plc 1,044,058 15,723,606
- --------------------------------------------------------------------------------
Singapore Press Holdings Ltd. 3,040,840 8,485,604
- --------------------------------------------------------------------------------
Sirius Satellite Radio, Inc. 1 7,107,110 25,159,169
- --------------------------------------------------------------------------------
Walt Disney Co. (The) 767,000 26,285,090
- --------------------------------------------------------------------------------
WPP Group plc 1,366,790 18,478,815
- --------------------------------------------------------------------------------
Zee Entertainment Enterprises Ltd. 4,170,300 36,242,546
-----------------
185,209,860

- --------------------------------------------------------------------------------
SPECIALTY RETAIL--3.7%
H&M Hennes & Mauritz AB,
B Shares 1,469,100 73,981,716
- --------------------------------------------------------------------------------
Industria de Diseno Textil SA 663,000 35,716,494
- --------------------------------------------------------------------------------
Tiffany & Co. 762,700 29,928,348
-----------------
139,626,558

- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--2.7%
Bulgari SpA 1,284,618 18,229,349
- --------------------------------------------------------------------------------
Burberry Group plc 1,299,628 16,334,275
- --------------------------------------------------------------------------------
Coach, Inc. 1 498,900 21,432,744
- --------------------------------------------------------------------------------
LVMH Moet Hennessey Louis
Vuitton 448,060 47,102,657
-----------------
103,099,025

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
CONSUMER STAPLES--8.4%
- --------------------------------------------------------------------------------
BEVERAGES--2.4%
Companhia de Bebidas das
Americas, ADR, Preference 477,115 $ 23,283,212
- --------------------------------------------------------------------------------
Diageo plc 1,088,380 21,363,557
- --------------------------------------------------------------------------------
Fomento Economico Mexicano
SA de CV, UBD 2,415,200 28,024,190
- --------------------------------------------------------------------------------
Grupo Modelo SA de CV, Series C 3,279,000 18,150,903
-----------------
90,821,862

- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--2.0%
Seven & I Holdings Co. Ltd. 298,053 9,266,805
- --------------------------------------------------------------------------------
Tesco plc 3,919,983 31,046,407
- --------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 743,300 34,325,594
-----------------
74,638,806

- --------------------------------------------------------------------------------
FOOD PRODUCTS--1.0%
Cadbury Schweppes plc 3,672,404 39,296,082
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--2.6%
Colgate-Palmolive Co. 347,300 22,657,852
- --------------------------------------------------------------------------------
Hindustan Lever Ltd. 3,934,500 19,236,914
- --------------------------------------------------------------------------------
Reckitt Benckiser plc 1,201,678 54,915,835
-----------------
96,810,601

- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.4%
Avon Products, Inc. 504,300 16,662,072
- --------------------------------------------------------------------------------
ENERGY--6.1%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--3.0%
GlobalSantaFe Corp. 560,700 32,957,946
- --------------------------------------------------------------------------------
Technip SA 597,970 41,046,056
- --------------------------------------------------------------------------------
Transocean, Inc. 1 515,700 41,714,973
-----------------
115,718,975

- --------------------------------------------------------------------------------
OIL & GAS--3.1%
BP plc, ADR 437,669 29,367,590
- --------------------------------------------------------------------------------
Chevron Corp. 354,244 26,047,561
- --------------------------------------------------------------------------------
Husky Energy, Inc. 622,515 41,659,367
- --------------------------------------------------------------------------------
Neste Oil Oyj 105,900 3,219,427
- --------------------------------------------------------------------------------
Total SA 222,240 16,032,494
-----------------
116,326,439

- --------------------------------------------------------------------------------
FINANCIALS--14.7%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--3.6%
3i Group plc 488,871 9,662,939
- --------------------------------------------------------------------------------
Credit Suisse Group 734,213 51,367,795
- --------------------------------------------------------------------------------
Morgan Stanley 503,900 41,032,577
- --------------------------------------------------------------------------------
Northern Trust Corp. 597,300 36,250,137
-----------------
138,313,448

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--4.4%
HSBC Holdings plc 2,049,283 $ 37,569,618
- --------------------------------------------------------------------------------
ICICI Bank Ltd., Sponsored ADR 236,450 9,869,423
- --------------------------------------------------------------------------------
Resona Holdings, Inc. 5,213 14,236,587
- --------------------------------------------------------------------------------
Royal Bank of Scotland Group plc
(The) 1,591,853 61,865,632
- --------------------------------------------------------------------------------
Societe Generale, Cl. A 200,478 33,919,336
- --------------------------------------------------------------------------------
Sumitomo Mitsui Financial
Group, Inc. 753 7,681,937
-----------------
165,142,533

- --------------------------------------------------------------------------------
CONSUMER FINANCE--0.6%
Credit Saison Co. Ltd. 687,700 23,557,892
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--1.1%
Investor AB, B Shares 931,128 22,746,104
- --------------------------------------------------------------------------------
JPMorgan Chase & Co. 385,963 18,642,013
-----------------
41,388,117

- --------------------------------------------------------------------------------
INSURANCE--4.7%
ACE Ltd. 397,571 24,080,875
- --------------------------------------------------------------------------------
Allianz SE 231,832 47,406,897
- --------------------------------------------------------------------------------
Berkshire Hathaway, Inc., Cl. B 1 6,110 22,399,260
- --------------------------------------------------------------------------------
Everest Re Group Ltd. 104,800 10,281,928
- --------------------------------------------------------------------------------
Manulife Financial Corp. 559,426 18,877,000
- --------------------------------------------------------------------------------
Prudential plc 2,573,657 35,249,018
- --------------------------------------------------------------------------------
XL Capital Ltd., Cl. A 255,900 18,429,918
-----------------
176,724,896

- --------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--0.3%
Realogy Corp. 1 354,600 10,751,472
- --------------------------------------------------------------------------------
HEALTH CARE--10.2%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--2.1%
Amgen, Inc. 1 256,000 17,487,360
- --------------------------------------------------------------------------------
Genentech, Inc. 1 186,300 15,114,519
- --------------------------------------------------------------------------------
Gilead Sciences, Inc. 1 436,160 28,319,869
- --------------------------------------------------------------------------------
NicOx SA 1 163,560 4,903,049
- --------------------------------------------------------------------------------
Nuvelo, Inc. 1 191,700 766,800
- --------------------------------------------------------------------------------
Regeneron Pharmaceuticals, Inc. 1 176,802 3,548,416
- --------------------------------------------------------------------------------
Theravance, Inc. 1 271,000 8,371,190
-----------------
78,511,203

- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--2.1%
Biomet, Inc. 557,600 23,012,152
- --------------------------------------------------------------------------------
Boston Scientific Corp. 1 1,465,353 25,174,765
- --------------------------------------------------------------------------------
Medtronic, Inc. 257,400 13,773,474
- --------------------------------------------------------------------------------
Smith & Nephew plc 1,874,897 19,566,505
-----------------
81,526,896

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--0.8%
Express Scripts, Inc. 1 181,800 $ 13,016,880
- --------------------------------------------------------------------------------
Quest Diagnostics, Inc. 294,300 15,597,900
-----------------
28,614,780

- --------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES--0.3%
Affymetrix, Inc. 1 322,800 7,443,768
- --------------------------------------------------------------------------------
Nektar Therapeutics 1 314,361 4,781,431
-----------------
12,225,199

- --------------------------------------------------------------------------------
PHARMACEUTICALS--4.9%
AtheroGenics, Inc. 1 769,500 7,625,745
- --------------------------------------------------------------------------------
Chugai Pharmaceutical Co. Ltd. 647,500 13,357,527
- --------------------------------------------------------------------------------
Johnson & Johnson 141,300 9,328,626
- --------------------------------------------------------------------------------
Novartis AG 341,694 19,636,142
- --------------------------------------------------------------------------------
Novo Nordisk AS, Cl. B 139,600 11,627,567
- --------------------------------------------------------------------------------
Roche Holdings AG 266,433 47,776,455
- --------------------------------------------------------------------------------
Sanofi-Aventis SA 625,154 57,724,932
- --------------------------------------------------------------------------------
Shionogi & Co. Ltd. 980,000 19,200,966
-----------------
186,277,960

- --------------------------------------------------------------------------------
INDUSTRIALS--9.4%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--4.2%
Boeing Co. 286,600 25,461,544
- --------------------------------------------------------------------------------
Empresa Brasileira de Aeronautica
SA, ADR 815,034 33,766,859
- --------------------------------------------------------------------------------
European Aeronautic Defence &
Space Co. 1,219,910 42,029,768
- --------------------------------------------------------------------------------
Lockheed Martin Corp. 229,600 21,139,272
- --------------------------------------------------------------------------------
Northrop Grumman Corp. 248,200 16,803,140
- --------------------------------------------------------------------------------
Raytheon Co. 414,100 21,864,480
-----------------
161,065,063

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.6%
Experian Group Ltd. 1 646,239 7,585,618
- --------------------------------------------------------------------------------
Secom Co. Ltd. 296,000 15,346,582
-----------------
22,932,200

- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--1.0%
Emerson Electric Co. 856,200 37,749,858
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--2.9%
3M Co. 456,700 35,590,631
- --------------------------------------------------------------------------------
Hutchison Whampoa Ltd. 1,377,000 13,947,557
- --------------------------------------------------------------------------------
Siemens AG 611,871 61,061,907
-----------------
110,600,095

- --------------------------------------------------------------------------------
MACHINERY--0.6%
Fanuc Ltd. 104,500 10,248,400
- --------------------------------------------------------------------------------
Hyundai Heavy Industries Co. Ltd. 1 89,299 12,059,907
-----------------
22,308,307

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
ROAD & RAIL--0.1%
Avis Budget Group, Inc. 132,760 $ 2,879,564
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--25.7%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--6.5%
Cisco Systems, Inc. 1 621,100 16,974,663
- --------------------------------------------------------------------------------
Corning, Inc. 1 1,742,100 32,594,691
- --------------------------------------------------------------------------------
Juniper Networks, Inc. 1 1,827,900 34,620,426
- --------------------------------------------------------------------------------
QUALCOMM, Inc. 48,062 1,816,263
- --------------------------------------------------------------------------------
Tandberg ASA 1,042,850 15,721,693
- --------------------------------------------------------------------------------
Telefonaktiebolaget LM Ericsson,
B Shares 36,028,300 145,514,135
-----------------
247,241,871

- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.2%
Benq Corp. 1 11,647,000 6,237,230
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--2.9%
Hoya Corp. 621,300 24,224,461
- --------------------------------------------------------------------------------
Keyence Corp. 82,640 20,478,582
- --------------------------------------------------------------------------------
Kyocera Corp. 203,700 19,205,193
- --------------------------------------------------------------------------------
Murata Manufacturing Co. Ltd. 508,500 34,397,084
- --------------------------------------------------------------------------------
Nidec Corp. 138,200 10,683,921
-----------------
108,989,241

- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--1.6%
eBay, Inc. 1 1,826,400 54,919,848
- --------------------------------------------------------------------------------
Yahoo!, Inc. 1 250,100 6,387,554
-----------------
61,307,402

- --------------------------------------------------------------------------------
IT SERVICES--2.4%
Automatic Data Processing, Inc. 882,800 43,477,900
- --------------------------------------------------------------------------------
Infosys Technologies Ltd. 965,326 48,708,688
-----------------
92,186,588

- --------------------------------------------------------------------------------
OFFICE ELECTRONICS--0.4%
Canon, Inc. 269,450 15,261,022
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--5.8%
Advanced Micro Devices, Inc. 1 2,030,700 41,324,745
- --------------------------------------------------------------------------------
Altera Corp. 1 1,173,000 23,084,640
- --------------------------------------------------------------------------------
Cree, Inc. 1 573,300 9,929,556
- --------------------------------------------------------------------------------
International Rectifier Corp. 1 355,100 13,682,003
- --------------------------------------------------------------------------------
Linear Technology Corp. 360,496 10,930,239
- --------------------------------------------------------------------------------
Maxim Integrated Products, Inc. 829,265 25,392,094
- --------------------------------------------------------------------------------
MediaTek, Inc. 2,692,700 27,848,393
- --------------------------------------------------------------------------------
Samsung Electronics Co. 37,722 24,705,190
- --------------------------------------------------------------------------------
Taiwan Semiconductor
Manufacturing Co. Ltd. 11,269,837 23,345,527
- --------------------------------------------------------------------------------
Xilinx, Inc. 783,700 18,659,897
-----------------
218,902,284

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
SOFTWARE--5.9%
Adobe Systems, Inc. 1 1,174,100 $ 48,278,992
- --------------------------------------------------------------------------------
Enix Corp. 542,500 14,222,932
- --------------------------------------------------------------------------------
Intuit, Inc. 1 960,800 29,314,008
- --------------------------------------------------------------------------------
Microsoft Corp. 2,292,300 68,448,078
- --------------------------------------------------------------------------------
Nintendo Co. Ltd. 82,700 21,473,299
- --------------------------------------------------------------------------------
SAP AG 777,964 41,427,058
-----------------
223,164,367

- --------------------------------------------------------------------------------
MATERIALS--0.4%
- --------------------------------------------------------------------------------
CHEMICALS--0.4%
Arkema 1 129,175 6,638,219
- --------------------------------------------------------------------------------
Syngenta AG 1 47,067 8,756,741
-----------------
15,394,960

- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--3.8%
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--3.8%
KDDI Corp. 5,409 36,679,661
- --------------------------------------------------------------------------------
SK Telecom Co. Ltd., ADR 1,315,660 34,838,677
- --------------------------------------------------------------------------------
Vodafone Group plc 26,488,172 73,066,906
-----------------
144,585,244

- --------------------------------------------------------------------------------
UTILITIES--0.6%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.6%
Fortum Oyj 811,900 23,106,810
-----------------
Total Common Stocks (Cost $2,500,178,581) 3,728,420,099

- --------------------------------------------------------------------------------
MONEY MARKET FUND--1.4%
- --------------------------------------------------------------------------------
Oppenheimer Institutional Money
Market Fund, Cl. E, 5.25% 2,3
(Cost $51,475,095) 51,475,095 51,475,095

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $2,551,653,676) 99.7% 3,779,895,194
- --------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.3 11,110,616
-------------------------------
NET ASSETS 100.0% $ 3,791,005,810
===============================

11 | OPPENHEIMER GLOBAL SECURITIES FUND/VA

STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. Represents ownership of an affiliated fund, at or during the period ended
December 31, 2006. Transactions during the period in which the issuer was an
affiliate are as follows:

SHARES SHARES
DECEMBER 31, GROSS GROSS DECEMBER 31,
2005 ADDITIONS REDUCTIONS 2006
- --------------------------------------------------------------------------------
Oppenheimer
Institutional
Money Market
Fund, Cl. E, 5.25%* -- 168,041,033 116,565,938 51,475,095

VALUE DIVIDEND
SEE NOTE 1 INCOME
- --------------------------------------------------------------------------------
Oppenheimer Institutional
Money Market Fund, Cl. E, 5.25%* $51,475,095 $697,540

* The money market fund and the Fund are affiliated by having the same
investment advisor.

3. Rate shown is the 7-day yield as of December 31, 2006.

- --------------------------------------------------------------------------------
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 $ 1,398,786,923 37.0%
United Kingdom 475,711,139 12.6
Japan 396,714,890 10.5
Sweden 242,241,955 6.4
Germany 210,417,939 5.6
France 207,366,743 5.5
Switzerland 127,537,133 3.4
India 114,057,571 3.0
Mexico 91,135,831 2.4
The Netherlands 86,456,486 2.3
Korea, Republic of South 71,603,774 1.9
Canada 60,536,367 1.6
Taiwan 57,431,150 1.5
Brazil 57,050,071 1.5
Cayman Islands 42,510,793 1.1
Spain 35,716,494 0.9
Finland 26,326,237 0.7
Italy 18,229,349 0.5
Norway 15,721,693 0.4
Hong Kong 13,947,557 0.4
Denmark 11,627,567 0.3
Bermuda 10,281,928 0.3
Singapore 8,485,604 0.2
-----------------------------------
Total $ 3,779,895,194 100.0%
===================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF ASSETS AND LIABILITIES December 31, 2006
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $2,500,178,581) $ 3,728,420,099
Affiliated companies (cost $51,475,095) 51,475,095
-----------------
3,779,895,194
- ----------------------------------------------------------------------------------------------------------
Cash 204,533
- ----------------------------------------------------------------------------------------------------------
Cash--foreign currencies (cost $3,643,638) 3,666,674
- ----------------------------------------------------------------------------------------------------------
Receivables and other assets:
Dividends 4,466,852
Shares of beneficial interest sold 3,403,979
Investments sold 2,727,249
Other 73,318
-----------------
Total assets 3,794,437,799

- ----------------------------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed 2,382,161
Distribution and service plan fees 641,599
Shareholder communications 185,126
Trustees' compensation 56,788
Transfer and shareholder servicing agent fees 3,491
Foreign capital gains tax 1,587
Other 161,237
-----------------
Total liabilities 3,431,989

- ----------------------------------------------------------------------------------------------------------
NET ASSETS $ 3,791,005,810
=================

- ----------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 103,228
- ----------------------------------------------------------------------------------------------------------
Additional paid-in capital 2,351,698,141
- ----------------------------------------------------------------------------------------------------------
Accumulated net investment income 32,036,968
- ----------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 178,859,631
- ----------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and
liabilities denominated in foreign currencies 1,228,307,842
-----------------
NET ASSETS $ 3,791,005,810
=================

- ----------------------------------------------------------------------------------------------------------
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 $2,297,314,868 and 62,443,172 shares of beneficial interest outstanding) $ 36.79
- ----------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share (based on
net assets of $983,558,174 and 26,952,283 shares of beneficial interest outstanding) $ 36.49
- ----------------------------------------------------------------------------------------------------------
Class 3 Shares:
Net asset value, redemption price per share and offering price per share (based on
net assets of $395,900,494 and 10,702,597 shares of beneficial interest outstanding) $ 36.99
- ----------------------------------------------------------------------------------------------------------
Class 4 Shares:
Net asset value, redemption price per share and offering price per share (based on
net assets of $114,232,274 and 3,130,369 shares of beneficial interest outstanding) $ 36.49

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF OPERATIONS For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $2,070,758) $ 61,975,453
Affiliated companies 697,540
- ----------------------------------------------------------------------------------------------------------
Interest 1,885,026
- ----------------------------------------------------------------------------------------------------------
Portfolio lending fees 763,336
-----------------
Total investment income 65,321,355

- ----------------------------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------------------------
Management fees 21,291,245
- ----------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Service shares 1,874,012
Class 4 shares 252,314
- ----------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares 10,469
Service shares 10,144
Class 3 shares 10,070
Class 4 shares 10,011
- ----------------------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares 250,292
Service shares 87,743
Class 3 shares 42,285
Class 4 shares 11,578
- ----------------------------------------------------------------------------------------------------------
Custodian fees and expenses 474,040
- ----------------------------------------------------------------------------------------------------------
Trustees' compensation 52,190
- ----------------------------------------------------------------------------------------------------------
Administration service fees 1,500
- ----------------------------------------------------------------------------------------------------------
Other 123,821
-----------------
Total expenses 24,501,714
Less reduction to custodian expenses (11,073)
Less waivers and reimbursements of expenses (13,271)
-----------------
Net expenses 24,477,370

- ----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 40,843,985

- ----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
- ----------------------------------------------------------------------------------------------------------
Net realized gain on:
Investments (net of foreign capital gains tax of $172,786) 192,086,312
Foreign currency transactions 10,653,722
-----------------
Net realized gain 202,740,034
- ----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on:
Investments (net of foreign capital gains tax of $2,946) 225,687,523
Translation of assets and liabilities denominated in foreign currencies 90,754,137
-----------------
Net change in unrealized appreciation 316,441,660

- ----------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 560,025,679
=================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2006 2005
- -----------------------------------------------------------------------------------------------------------------

OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
Net investment income $ 40,843,985 $ 29,782,881
- -----------------------------------------------------------------------------------------------------------------
Net realized gain 202,740,034 337,263,306
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 316,441,660 (12,913,782)
-----------------------------------
Net increase in net assets resulting from operations 560,025,679 354,132,405

- -----------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares (22,390,271) (25,791,077)
Service shares (5,586,912) (3,177,917)
Class 3 shares (3,732,415) (2,857,511)
Class 4 shares (875,877) (420,976)
-----------------------------------
(32,585,475) (32,247,481)
- -----------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Non-Service shares (116,956,054) --
Service shares (34,605,939) --
Class 3 shares (19,539,725) --
Class 4 shares (5,424,732) --
-----------------------------------
(176,526,450) --

- -----------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Non-Service shares (44,482,210) (607,707,602)
Service shares 340,074,365 152,495,021
Class 3 shares 12,707,608 40,656,196
Class 4 shares 13,427,523 43,339,023
-----------------------------------
321,727,286 (371,217,362)

- -----------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
Total increase (decrease) 672,641,040 (49,332,438)
- -----------------------------------------------------------------------------------------------------------------
Beginning of period 3,118,364,770 3,167,697,208
-----------------------------------
End of period (including accumulated net investment income of
$32,036,968 and $20,023,318, respectively) $ 3,791,005,810 $ 3,118,364,770
===================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 17.69% 14.31% 19.16% 43.02% (22.13)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 2,297,315 $ 2,124,413 $ 2,518,867 $ 2,280,752 $ 1,549,993
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 2,189,511 $ 2,123,523 $ 2,451,188 $ 1,751,226 $ 1,776,289
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.27% 1.08% 1.01% 0.99% 0.80%
Total expenses 0.66% 4,5,6 0.67% 4 0.66% 4 0.67% 4 0.67% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 35% 30% 34% 34%

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.66%

6. Voluntary waiver of affiliated funds management fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 33.16 $ 29.33 $ 24.96 $ 17.61 $ 22.78
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .33 1 .24 1 .20 1 .12 .12
Net realized and unrealized gain (loss) 5.16 3.84 4.46 7.36 (5.19)
----------------------------------------------------------------------------------
Total from investment operations 5.49 4.08 4.66 7.48 (5.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.30) (.25) (.29) (.13) (.10)
Distributions from net realized gain (1.86) -- -- -- --
----------------------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (2.16) (.25) (.29) (.13) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 36.49 $ 33.16 $ 29.33 $ 24.96 $ 17.61
==================================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 17.36% 14.06% 18.88% 42.86% (22.37)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 983,558 $ 557,284 $ 346,403 $ 168,739 $ 52,830
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 750,499 $ 413,849 $ 247,490 $ 91,800 $ 34,847
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 0.98% 0.79% 0.77% 0.68% 0.51%
Total expenses 0.91% 4,5,6 0.92% 4 0.91% 4 0.93% 4 0.90% 4
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 21% 35% 30% 34% 34%

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.91%

6. Voluntary waiver of affiliated funds management fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

CLASS 3 SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 1
- ----------------------------------------------------------------------------------------------------------------------------

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%.

6. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.66%

7. Voluntary waiver of affiliated funds management fees less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

CLASS 4 SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 1
- -----------------------------------------------------------------------------------------------------------------------

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%.

6. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.91%

7. Voluntary waiver of affiliated funds management fees 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, 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 Fund'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.

- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records are maintained in
U.S. dollars. The values of securities denominated in foreign currencies and
amounts related to the purchase and sale of foreign securities and foreign
investment income 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. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Trustees.

NET UNREALIZED
APPRECIATION
BASED ON COST OF
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED SECURITIES AND OTHER
NET INVESTMENT LONG-TERM LOSS INVESTMENTS FOR FEDERAL
INCOME GAIN CARRYFORWARD 1,2 INCOMETAX PURPOSES
---------------------------------------------------------------------------
$64,626,002 $174,754,860 $-- $1,199,880,214

1. During the fiscal year ended December 31, 2006, the Fund did not utilize any
capital loss carryforward.

2. During the fiscal year ended December 31, 2005, the Fund utilized
$130,358,556 of capital loss carryforward to offset capital gains realized in
that fiscal year.

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

REDUCTION TO
INCREASE TO ACCUMULATED NET
INCREASE TO ACCUMULATED NET REALIZED GAIN
PAID-IN CAPITAL INVESTMENT INCOME ON INVESTMENTS 3
---------------------------------------------------------------------
$15,875,325 $3,755,140 $19,630,465

3. $15,766,438, including $14,544,502 of long-term capital gain, was distributed
in connection with Fund share redemptions.

The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005 was as follows:

YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------------------------------------------------
Distributions paid from:
Ordinary income $ 32,585,475 $ 32,247,481
Long-term capital gain 176,526,450 --
---------------------------------
Total $ 209,111,925 $ 32,247,481
=================================

Federal tax cost of securities $ 2,580,081,304
Federal tax cost of other investments 3,639,525
----------------
Total federal tax cost $ 2,583,720,829
================

Gross unrealized appreciation $ 1,246,837,794
Gross unrealized depreciation (46,957,580)
----------------
Net unrealized appreciation $ 1,199,880,214
================

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.

- --------------------------------------------------------------------------------
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, 2006 YEAR ENDED DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold 6,575,899 $ 223,540,908 8,706,521 $ 257,431,509
Dividends and/or distributions reinvested 4,267,881 139,346,325 895,835 25,791,077
Redeemed (12,034,584) (407,369,443) (31,323,712) (890,930,188)
-------------------------------------------------------------
Net decrease (1,190,804) $ (44,482,210) (21,721,356) $(607,707,602)
=============================================================

- -----------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold 11,801,332 $ 396,822,488 6,930,473 $ 208,836,898
Dividends and/or distributions reinvested 1,238,609 40,192,851 110,922 3,177,917
Redeemed (2,895,139) (96,940,974) (2,043,354) (59,519,794)
-------------------------------------------------------------
Net increase 10,144,802 $ 340,074,365 4,998,041 $ 152,495,021
=============================================================

- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST Continued

YEAR ENDED DECEMBER 31, 2006 YEAR ENDED DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------

CLASS 3 SHARES
Sold 1,146,143 $ 39,045,508 2,056,580 $ 61,404,566
Dividends and/or distributions reinvested 708,868 23,272,140 98,739 2,857,511
Redeemed (1,466,336) (49,610,040) (779,132) (23,605,881) 1
---------------------------------------------------------------
Net increase 388,675 $ 12,707,608 1,376,187 $ 40,656,196
===============================================================

- -------------------------------------------------------------------------------------------------------------
CLASS 4 SHARES
Sold 850,052 $ 28,652,172 1,634,734 $ 48,519,848
Dividends and/or distributions reinvested 194,164 6,300,609 14,694 420,976
Redeemed (646,862) (21,525,258) (189,923) (5,601,801) 1
---------------------------------------------------------------
Net increase 397,354 $ 13,427,523 1,459,505 $ 43,339,023
===============================================================

1. Net of redemption fees of $29,707 and $6,752 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 and money market funds, for the year ended December
31, 2006, were as follows:

PURCHASES SALES
--------------------------------------------------------------------
Investment securities $872,965,569 $721,557,820

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

FEE SCHEDULE
-------------------------------------------
Up to $200 million 0.75%
Next $200 million 0.72
Next $200 million 0.69
Next $200 million 0.66
Over $800 million 0.60

- --------------------------------------------------------------------------------
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
periodically 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.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

As of December 31, 2006, the Fund had no outstanding foreign currency
contracts.

- --------------------------------------------------------------------------------
6. SECURITIES LENDING

As of December 31, 2006, the Fund had no securities on loan.

- --------------------------------------------------------------------------------
7. RECENT ACCOUNTING PRONOUNCEMENTS

- --------------------------------------------------------------------------------
8. LITIGATION

34 | OPPENHEIMER HIGH INCOME FUND/VA

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 (the "Fund"), a series of Oppenheimer Variable
Account Funds, including the statement of investments, as of December 31, 2006,
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.

DELOITTE & TOUCHE LLP

Denver, Colorado
February 8, 2007

STATEMENT OF INVESTMENTS December 31, 2006
- --------------------------------------------------------------------------------

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--89.4%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--31.0%
- --------------------------------------------------------------------------------
AUTO COMPONENTS--1.4%
Collins & Aikman Floorcoverings, Inc.,
9.75% Sr. Sub. Nts., Series B, 2/15/10 $ 800,000 $ 822,000
- --------------------------------------------------------------------------------
Goodyear Tire & Rubber Co. (The):
7.857% Nts., 8/15/11 1,250,000 1,262,500
9% Sr. Unsec. Nts., 7/1/15 445,000 468,363
- --------------------------------------------------------------------------------
Keystone Automotive Operations,
Inc., 9.75% Sr. Unsec. Sub. Nts., 11/1/13 200,000 199,000
- --------------------------------------------------------------------------------
Stoneridge, Inc., 11.50% Sr. Nts., 5/1/12 900,000 931,500
- --------------------------------------------------------------------------------
Tenneco Automotive, Inc., 10.25% Sr.
Sec. Nts., Series B, 7/15/13 900,000 990,000
- --------------------------------------------------------------------------------
United Components, Inc., 9.375% Sr.
Sub. Nts., 6/15/13 400,000 416,000
- --------------------------------------------------------------------------------
Visteon Corp.:
7% Sr. Unsec. Nts., 3/10/14 800,000 704,000
8.25% Sr. Unsec. Nts., 8/1/10 1,800,000 1,764,000
---------------
7,557,363

- --------------------------------------------------------------------------------
AUTOMOBILES--2.9%
Ford Motor Co., 7.45% Bonds,
7/16/31 800,000 632,000
- --------------------------------------------------------------------------------
Ford Motor Credit Co., 7.375% Nts.,
10/28/09 4,500,000 4,512,411
- --------------------------------------------------------------------------------
General Motors Acceptance Corp.:
6.875% Nts., 9/15/11 6,490,000 6,663,406
8% Bonds, 11/1/31 3,210,000 3,695,997
---------------
15,503,814

- --------------------------------------------------------------------------------
DISTRIBUTORS--0.1%
SGS International, Inc., 12% Sr. Unsec.
Sub. Nts., 12/15/13 745,000 778,525
- --------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES--0.2%
Education Management
LLC/Education Management Corp.,
10.25% Sr. Sub. Nts., 6/1/16 1 830,000 881,875
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--7.0%
American Casino & Entertainment
Properties LLC, 7.85% Sr. Sec. Nts.,
2/1/12 1,300,000 1,334,125
- --------------------------------------------------------------------------------
Aztar Corp., 9% Sr. Unsec. Sub. Nts.,
8/15/11 450,000 472,500
- --------------------------------------------------------------------------------
Boyd Gaming Corp., 8.75% Sr. Sub.
Nts., 4/15/12 1,200,000 1,260,000
- --------------------------------------------------------------------------------
Buffets, Inc., 12.50% Sr. Unsec. Nts.,
11/1/14 1 315,000 318,938
- --------------------------------------------------------------------------------
CCM Merger, Inc., 8% Unsec. Nts.,
8/1/13 1 1,340,000 1,316,550
- --------------------------------------------------------------------------------
Domino's, Inc., 8.25% Sr. Unsec. Sub.
Nts., 7/1/11 875,000 911,094

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE Continued
French Lick Resorts & Casino LLC,
10.75% First Mtg. Nts., 4/15/14 1 $ 1,310,000 $ 1,231,400
- --------------------------------------------------------------------------------
Gaylord Entertainment Co.:
6.75% Sr. Unsec. Unsub. Nts., 11/15/14 500,000 498,750
8% Sr. Nts., 11/15/13 700,000 729,750
- --------------------------------------------------------------------------------
Greektown Holdings, Inc., 10.75% Sr.
Nts., 12/1/13 1 1,435,000 1,506,750
- --------------------------------------------------------------------------------
Isle of Capri Casinos, Inc.:
7% Sr. Unsec. Sub. Nts., 3/1/14 1,150,000 1,150,000
9% Sr. Sub. Nts., 3/15/12 600,000 630,000
- --------------------------------------------------------------------------------
Mandalay Resort Group:
9.375% Sr. Sub. Nts., 2/15/10 41,000 44,075
10.25% Sr. Unsec. Sub. Nts., Series B,
8/1/07 800,000 823,000
- --------------------------------------------------------------------------------
MGM Mirage, Inc.:
6.75% Sr. Unsec. Nts., 4/1/13 510,000 501,075
8.375% Sr. Unsec. Sub. Nts., 2/1/11 3,200,000 3,336,000
9.75% Sr. Unsec. Sub. Nts., 6/1/07 800,000 814,000
- --------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority:
6.125% Sr. Unsec. Sub. Nts., 2/15/13 440,000 438,900
6.375% Sr. Sub. Nts., 7/15/09 800,000 804,000
6.875% Sr. Unsec. Sub. Nts., 2/15/15 915,000 921,863
8% Sr. Sub. Nts., 4/1/12 1,700,000 1,778,625
- --------------------------------------------------------------------------------
NCL Corp., 10.625% Sr. Unsub. Nts.,
7/15/14 800,000 804,000
- --------------------------------------------------------------------------------
Park Place Entertainment Corp.:
7.875% Sr. Sub. Nts., 3/15/10 1,000,000 1,047,500
9.375% Sr. Unsec. Sub. Nts., 2/15/07 1,500,000 1,505,625
- --------------------------------------------------------------------------------
Penn National Gaming, Inc.:
6.75% Sr. Unsec. Sub. Nts., 3/1/15 145,000 142,825
6.875% Sr. Sub. Nts., 12/1/11 150,000 151,875
- --------------------------------------------------------------------------------
Pinnacle Entertainment, Inc., 8.25%
Sr. Unsec. Sub. Nts., 3/15/12 2,350,000 2,385,250
- --------------------------------------------------------------------------------
Pokagon Gaming Authority,
10.375% Sr. Nts., 6/15/14 1 610,000 671,000
- --------------------------------------------------------------------------------
Six Flags, Inc.:
9.625% Sr. Nts., 6/1/14 957,000 892,403
9.75% Sr. Nts., 4/15/13 850,000 802,188
- --------------------------------------------------------------------------------
Station Casinos, Inc.:
6.50% Sr. Unsec. Sub. Nts., 2/1/14 1,800,000 1,608,750
6.875% Sr. Unsec. Sub. Nts., 3/1/16 480,000 433,200
- --------------------------------------------------------------------------------
Trump Entertainment Resorts, Inc.,
8.50% Sec. Nts., 6/1/15 1,500,000 1,500,000
- --------------------------------------------------------------------------------
Universal City Development
Partners Ltd., 11.75% Sr. Nts., 4/1/10 1,000,000 1,076,250
- --------------------------------------------------------------------------------
Vail Resorts, Inc., 6.75% Sr. Sub. Nts.,
2/15/14 1,100,000 1,105,500
- --------------------------------------------------------------------------------
Wynn Las Vegas LLC/Wynn
Las Vegas Capital Corp., 6.625%
Nts., 12/1/14 2,500,000 2,496,875
---------------
37,444,636

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--1.6%
Beazer Homes USA, Inc.:
6.875% Sr. Unsec. Nts., 7/15/15 $ 300,000 $ 295,500
8.375% Sr. Nts., 4/15/12 500,000 516,250
- --------------------------------------------------------------------------------
D.R. Horton, Inc., 9.75% Sr. Sub.
Nts., 9/15/10 300,000 331,277
- --------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc.:
6.50% Sr. Nts., 1/15/14 300,000 292,500
7.75% Sr. Unsec. Sub. Nts., 5/15/13 900,000 902,250
8.875% Sr. Sub. Nts., 4/1/12 800,000 816,000
- --------------------------------------------------------------------------------
KB Home:
8.625% Sr. Sub. Nts., 12/15/08 150,000 156,602
9.50% Sr. Unsec. Sub. Nts., 2/15/11 350,000 360,938
- --------------------------------------------------------------------------------
Meritage Homes Corp., 6.25% Sr.
Unsec. Nts., 3/15/15 300,000 286,500
- --------------------------------------------------------------------------------
Sealy Mattress Co., 8.25% Sr. Sub.
Nts., 6/15/14 460,000 483,000
- --------------------------------------------------------------------------------
Standard Pacific Corp.:
6.25% Sr. Unsec. Unsub. Nts., 4/1/14 600,000 562,500
7.75% Sr. Nts., 3/15/13 650,000 648,375
9.25% Sr. Sub. Nts., 4/15/12 700,000 719,250
- --------------------------------------------------------------------------------
Toll Corp., 8.25% Sr. Sub. Nts., 12/1/11 500,000 517,500
- --------------------------------------------------------------------------------
WCI Communities, Inc., 9.125% Sr.
Sub. Nts., 5/1/12 800,000 766,000
- --------------------------------------------------------------------------------
William Lyon Homes, Inc., 10.75%
Sr. Nts., 4/1/13 1,150,000 1,101,125
---------------
8,755,567

- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--0.3%
Leslie's Poolmart, Inc., 7.75% Sr. Unsec.
Nts., 2/1/13 1,245,000 1,245,000
- --------------------------------------------------------------------------------
Steinway Musical Instruments, Inc.,
7% Sr. Nts., 3/1/14 1 275,000 270,188
---------------
1,515,188

- --------------------------------------------------------------------------------
MEDIA--15.0%
Adelphia Communications Corp.:
7.875% Sr. Unsec. Nts., 5/1/09 2,9 360,000 326,700
8.125% Sr. Nts., Series B, 7/15/03 2,9 575,000 530,438
8.375% Sr. Nts., Series B, 2/1/08 2,9 1,000,000 922,500
10.25% Sr. Unsec. Sub. Nts., 6/15/11 2,9 1,000,000 955,000
10.875% Sr. Unsec. Nts., 10/1/10 2,9 1,000,000 922,500
- --------------------------------------------------------------------------------
Allbritton Communications Co.,
7.75% Sr. Unsec. Sub. Nts., 12/15/12 700,000 710,500
- --------------------------------------------------------------------------------
AMC Entertainment, Inc.:
8% Sr. Unsec. Sub. Nts., 3/1/14 1,050,000 1,047,375
9.50% Sr. Unsec. Sub. Nts., 2/1/11 192,000 193,680
- --------------------------------------------------------------------------------
American Media Operations, Inc.:
8.875% Sr. Unsec. Sub. Nts., 1/15/11 900,000 825,750
10.25% Sr. Unsec. Sub. Nts., Series B,
5/1/09 1,450,000 1,408,313

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
Block Communications, Inc., 8.25%
Sr. Nts., 12/15/15 1 $ 625,000 $ 626,563
- --------------------------------------------------------------------------------
Charter Communications Holdings II
LLC/Charter Communications
Holdings II Capital Corp.:
10.25% Sr. Unsec. Nts., 9/15/10 2,050,000 2,155,063
10.25% Sr. Unsec. Nts., Series B,
9/15/10 1,845,000 1,934,944
- --------------------------------------------------------------------------------
Charter Communications Operating
LLC/Charter Communications
Operating Capital Corp., 8.375% Sr.
Nts., Second Lien, 4/30/14 1 2,450,000 2,569,438
- --------------------------------------------------------------------------------
Cinemark USA, Inc., 9% Sr. Unsec.
Sub. Nts., 2/1/13 400,000 426,000
- --------------------------------------------------------------------------------
Cinemark, Inc., 0%/9.75% Sr. Unsec.
Disc. Nts., 3/15/14 3 2,700,000 2,332,125
- --------------------------------------------------------------------------------
CSC Holdings, Inc.:
7.625% Sr. Unsec. Debs., 7/15/18 1,500,000 1,468,125
7.625% Sr. Unsec. Unsub. Nts.,
Series B, 4/1/11 900,000 921,375
- --------------------------------------------------------------------------------
Dex Media East LLC/Dex Media
East Finance Co., 9.875% Sr. Unsec.
Nts., 11/15/09 800,000 840,000
- --------------------------------------------------------------------------------
Dex Media West LLC/Dex Media
West Finance Co.:
8.50% Sr. Nts., 8/15/10 700,000 730,625
9.875% Sr. Sub. Nts., 8/15/13 1,772,000 1,940,340
- --------------------------------------------------------------------------------
Dex Media, Inc.:
0%/9% Unsec. Disc. Nts., 11/15/13 3 500,000 448,750
8% Unsec. Nts., 11/15/13 2,250,000 2,328,750
- --------------------------------------------------------------------------------
DirecTV Holdings LLC/DirecTV
Financing Co., Inc.:
6.375% Sr. Unsec. Nts., 6/15/15 1,100,000 1,060,125
8.375% Sr. Unsec. Nts., 3/15/13 1,800,000 1,881,000
- --------------------------------------------------------------------------------
EchoStar DBS Corp.:
6.625% Sr. Unsec. Nts., 10/1/14 2,800,000 2,737,000
7% Sr. Unsec. Nts., 10/1/13 640,000 642,400
7.125% Sr. Unsec. Nts., 2/1/16 800,000 804,000
- --------------------------------------------------------------------------------
Granite Broadcasting Corp., 9.75%
Sr. Sec. Nts., 12/1/10 610,000 596,275
- --------------------------------------------------------------------------------
Gray Television, Inc., 9.25% Sr. Sub.
Nts., 12/15/11 500,000 524,375
- --------------------------------------------------------------------------------
Idearc, Inc., 8% Sr. Nts., 11/15/16 4 2,300,000 2,334,500
- --------------------------------------------------------------------------------
Lamar Media Corp.:
6.625% Sr. Unsec. Sub. Nts., 8/15/15 1,357,000 1,351,911
7.25% Sr. Unsec. Sub. Nts., 1/1/13 200,000 204,750
- --------------------------------------------------------------------------------
Lin Television Corp., 6.50% Sr. Sub.
Nts., 5/15/13 785,000 751,638
- --------------------------------------------------------------------------------
Marquee Holdings, Inc., 0%/12% Sr.
Disc. Nts., 8/15/14 3 2,200,000 1,856,250
- --------------------------------------------------------------------------------
Mediacom Broadband LLC, 8.50%
Sr. Nts., 10/15/15 1 1,465,000 1,490,638

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

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
Mediacom Broadband
LLC/Mediacom Broadband Corp.,
8.50% Sr. Nts., 10/15/15 $ 280,000 $ 284,900
- --------------------------------------------------------------------------------
Mediacom LLC/Mediacom Capital
Corp., 9.50% Sr. Unsec. Nts., 1/15/13 957,000 990,495
- --------------------------------------------------------------------------------
MediaNews Group, Inc.:
6.375% Sr. Sub. Nts., 4/1/14 1,400,000 1,211,000
6.875% Sr. Unsec. Sub. Nts., 10/1/13 800,000 728,000
- --------------------------------------------------------------------------------
Nielsen Finance LLC/Nielsen
Finance Co.:
0%/12.50% Sr. Sub. Disc. Nts., 8/1/16 1,3 1,090,000 756,188
10% Sr. Nts., 8/1/14 1 3,230,000 3,516,663
- --------------------------------------------------------------------------------
NTL Cable plc, 9.125% Sr. Nts.,
8/15/16 395,000 419,194
- --------------------------------------------------------------------------------
Paxson Communications Corp.,
11.624% Sr. Sec. Nts., 1/15/13 1,5 1,165,000 1,185,388
- --------------------------------------------------------------------------------
PRIMEDIA, Inc.:
8% Sr. Nts., 5/15/13 1,100,000 1,069,750
8.875% Sr. Unsec. Nts., 5/15/11 1,157,000 1,185,925
- --------------------------------------------------------------------------------
Quebecor World Capital Corp.,
8.75% Sr. Nts., 3/15/16 1 460,000 442,750
- --------------------------------------------------------------------------------
R.H. Donnelley Corp.:
6.875% Sr. Disc. Nts., Series A-1,
1/15/13 4,135,000 3,985,106
6.875% Sr. Disc. Nts., Series A-2,
1/15/13 1,960,000 1,888,950
6.875% Sr. Nts., 1/15/13 2,700,000 2,602,125
8.875% Sr. Unsec. Nts., Series A-3,
1/15/16 2,855,000 3,012,025
- --------------------------------------------------------------------------------
R.H. Donnelley Financial Corp. I,
10.875% Sr. Sub. Nts., 12/15/12 1 1,000,000 1,095,000
- --------------------------------------------------------------------------------
Radio One, Inc., 8.875% Sr. Unsec.
Sub. Nts., Series B, 7/1/11 800,000 830,000
- --------------------------------------------------------------------------------
Rainbow National Services LLC,
8.75% Sr. Nts., 9/1/12 1 900,000 950,625
- --------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 8%
Sr. Unsec. Sub. Nts., 3/15/12 4,300,000 4,461,250
- --------------------------------------------------------------------------------
Sirius Satellite Radio, Inc., 9.625%
Sr. Unsec. Nts., 8/1/13 730,000 721,788
- --------------------------------------------------------------------------------
Vertis, Inc.:
9.75% Sr. Sec. Nts., 4/1/09 1,400,000 1,449,000
10.875% Sr. Unsec. Nts., Series B,
6/15/09 400,000 404,000
- --------------------------------------------------------------------------------
Warner Music Group, 7.375% Sr.
Sub. Bonds, 4/15/14 800,000 796,000
- --------------------------------------------------------------------------------
WMG Holdings Corp., 0%/9.50% Sr.
Disc. Nts., 12/15/14 3 2,365,000 1,903,825
- --------------------------------------------------------------------------------
XM Satellite Radio Holdings, Inc.,
9.75% Sr. Unsec. Nts., 5/1/14 1,500,000 1,507,500
---------------
80,197,163

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MULTILINE RETAIL--0.7%
Bon-Ton Stores, Inc. (The), 10.25%
Sr. Unsec. Unsub. Nts., 3/15/14 $ 1,800,000 $ 1,849,500
- --------------------------------------------------------------------------------
Neiman Marcus Group, Inc. (The):
9% Sr. Unsec. Nts., 10/15/15 1,345,000 1,474,456
10.375% Sr. Unsec. Sub. Nts., 10/15/15 625,000 698,438
---------------
4,022,394

- --------------------------------------------------------------------------------
SPECIALTY RETAIL--0.8%
Asbury Automotive Group, Inc.,
9% Sr. Sub. Nts., 6/15/12 600,000 630,000
- --------------------------------------------------------------------------------
Atlantic Broadband Finance LLC,
9.375% Sr. Unsec. Sub. Nts., 1/15/14 400,000 406,500
- --------------------------------------------------------------------------------
Boise Cascade LLC, 7.125% Sr. Unsec.
Sub. Nts., 10/15/14 550,000 534,875
- --------------------------------------------------------------------------------
Gamestop Corp., 8% Sr. Unsec.
Nts., 10/1/12 900,000 945,000
- --------------------------------------------------------------------------------
Linens `N Things, Inc., 10.999%
Sr. Sec. Nts., 1/15/14 5 1,335,000 1,301,625
- --------------------------------------------------------------------------------
Rent-A-Center, Inc., 7.50% Sr. Unsec.
Sub. Nts., Series B, 5/1/10 350,000 352,625
---------------
4,170,625

- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--1.0%
Invista, Inc., 9.25% Sr. Nts., 5/1/12 1 1,075,000 1,158,313
- --------------------------------------------------------------------------------
Levi Strauss & Co., 9.75% Sr. Unsec.
Unsub. Nts., 1/15/15 2,270,000 2,457,275
- --------------------------------------------------------------------------------
Oxford Industries, Inc., 8.875%
Sr. Nts., 6/1/11 4 500,000 518,750
- --------------------------------------------------------------------------------
Quiksilver, Inc., 6.875% Sr. Unsec.
Nts., 4/15/15 975,000 962,813
---------------
5,097,151

- --------------------------------------------------------------------------------
CONSUMER STAPLES--5.1%
- --------------------------------------------------------------------------------
BEVERAGES--0.3%
Constellation Brands, Inc.:
7.25% Sr. Nts., 9/1/16 1,035,000 1,068,638
8.125% Sr. Sub. Nts., 1/15/12 500,000 522,500
---------------
1,591,138

- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.9%
Albertson's, Inc., 8% Sr. Unsec.
Debs., 5/1/31 1,370,000 1,396,522
- --------------------------------------------------------------------------------
Delhaize America, Inc., 9% Unsub.
Debs., 4/15/31 4,092,000 4,878,912
- --------------------------------------------------------------------------------
Jean Coutu Group (PJC), Inc. (The),
8.50% Sr. Sub. Nts., 8/1/14 1,200,000 1,213,500
- --------------------------------------------------------------------------------
Real Time Data Co., 11% Disc.
Nts., 5/31/09 2,4,6,9 476,601 --
- --------------------------------------------------------------------------------
Rite Aid Corp.:
8.125% Sr. Sec. Nts., 5/1/10 900,000 923,625
9.50% Sr. Sec. Nts., 2/15/11 450,000 473,063

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING Continued
Supervalu, Inc., 7.50% Sr. Nts., 11/15/14 $ 1,170,000 $ 1,225,811
---------------
10,111,433

- --------------------------------------------------------------------------------
FOOD PRODUCTS--1.1%
Del Monte Corp.:
6.75% Sr. Unsec. Sub. Nts., 2/15/15 350,000 348,250
8.625% Sr. Sub. Nts., 12/15/12 1,000,000 1,060,000
- --------------------------------------------------------------------------------
Dole Food Co., Inc.:
7.25% Sr. Unsec. Nts., 6/15/10 400,000 383,000
8.625% Sr. Nts., 5/1/09 687,000 686,141
8.875% Sr. Unsec. Nts., 3/15/11 146,000 144,540
- --------------------------------------------------------------------------------
Hines Nurseries, Inc., 10.25% Sr.
Unsec. Sub. Nts., 10/1/11 1,200,000 1,050,000
- --------------------------------------------------------------------------------
Smithfield Foods, Inc.:
7% Sr. Nts., 8/1/11 300,000 304,500
7.625% Sr. Unsec. Sub. Nts., 2/15/08 925,000 943,500
8% Sr. Nts., Series B, 10/15/09 900,000 945,000
---------------
5,864,931

- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.6%
Church & Dwight Co., Inc., 6% Sr.
Unsec. Sub. Nts., 12/15/12 900,000 884,250
- --------------------------------------------------------------------------------
Nutro Products, Inc., 10.75% Sr. Sub.
Nts., 4/15/14 1 460,000 504,850
- --------------------------------------------------------------------------------
Spectrum Brands, Inc., 7.375% Sr.
Unsec. Sub. Nts., 2/1/15 1,900,000 1,653,000
---------------
3,042,100

- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.8%
Elizabeth Arden, Inc., 7.75% Sr. Unsec.
Sub. Nts., 1/15/14 1,150,000 1,164,375
- --------------------------------------------------------------------------------
Playtex Products, Inc.:
8% Sr. Sec. Nts., 3/1/11 1,000,000 1,050,000
9.375% Sr. Unsec. Sub. Nts., 6/1/11 1,295,000 1,356,513
- --------------------------------------------------------------------------------
Sally Holdings LLC:
9.25% Sr. Nts., 11/15/14 4 275,000 282,563
10.50% Sr. Sub. Nts., 11/15/16 4 275,000 281,875
---------------
4,135,326

- --------------------------------------------------------------------------------
TOBACCO--0.4%
Reynolds American, Inc., 7.25% Sr.
Sec. Nts., 6/1/13 2,265,000 2,365,783
- --------------------------------------------------------------------------------
ENERGY--9.0%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.7%
Basic Energy Services, Inc., 7.125%
Sr. Unsec. Nts., 4/15/16 455,000 450,450
- --------------------------------------------------------------------------------
Hanover Compressor Co., 8.625%
Sr. Unsec. Sub. Nts., 12/15/10 700,000 735,000
- --------------------------------------------------------------------------------
Hanover Equipment Trust, 8.50%
Sr. Sec. Nts., Series A, 9/1/08 221,000 224,868
- --------------------------------------------------------------------------------
PHI, Inc., 7.125% Sr. Unsec.
Nts., 4/15/13 545,000 530,013

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES Continued
RathGibson, Inc., 11.25% Sr.
Unsec. Nts., 2/15/14 $ 660,000 $ 702,900
- --------------------------------------------------------------------------------
Universal Compression, Inc., 7.25%
Sr. Unsec. Sub. Nts., 5/15/10 800,000 808,000
---------------
3,451,231

- --------------------------------------------------------------------------------
OIL & GAS--8.3%
Arch Western Finance LLC, 6.75%
Sr. Nts., 7/1/13 900,000 897,750
- --------------------------------------------------------------------------------
Atlas Pipeline Partners LP, 8.125%
Sr. Unsec. Nts., 12/15/15 450,000 464,625
- --------------------------------------------------------------------------------
Berry Petroleum Co., 8.25% Sr. Sub.
Nts., 11/1/16 260,000 261,625
- --------------------------------------------------------------------------------
Chesapeake Energy Corp.:
6.375% Sr. Unsec. Nts., 6/15/15 1,150,000 1,144,250
6.875% Sr. Unsec. Nts., 1/15/16 1,920,000 1,946,400
7.50% Sr. Nts., 6/15/14 700,000 730,625
- --------------------------------------------------------------------------------
Clayton Williams Energy, Inc., 7.75%
Sr. Unsec. Nts., 8/1/13 195,000 180,863
- --------------------------------------------------------------------------------
Compton Petroleum Finance Corp.,
7.625% Sr. Nts., 12/1/13 1,400,000 1,358,000
- --------------------------------------------------------------------------------
Copano Energy LLC, 8.125% Sr.
Unsec. Nts., 3/1/16 425,000 442,000
- --------------------------------------------------------------------------------
El Paso Corp.:
7.75% Sr. Nts., 1/15/32 1,300,000 1,430,000
7.875% Sr. Unsec. Nts., 6/15/12 4 3,207,000 3,455,543
- --------------------------------------------------------------------------------
El Paso Energy Corp., 7.625%
Nts., 7/15/11 350,000 372,750
- --------------------------------------------------------------------------------
El Paso Production Holding Co.,
7.75% Sr. Unsec. Nts., 6/1/13 3,000,000 3,153,750
- --------------------------------------------------------------------------------
Forest Oil Corp., 7.75% Sr. Nts., 5/1/14 1,000,000 1,022,500
- --------------------------------------------------------------------------------
Foundation PA Coal Co., 7.25%
Sr. Unsec. Nts., 8/1/14 850,000 869,125
- --------------------------------------------------------------------------------
Frontier Oil Corp., 6.625%
Sr. Unsec. Nts., 10/1/11 450,000 451,125
- --------------------------------------------------------------------------------
Inergy LP/Inergy Finance Corp.,
8.25% Sr. Unsec. Nts., 3/1/16 1,165,000 1,229,075
- --------------------------------------------------------------------------------
Massey Energy Co., 6.625% Sr. Nts.,
11/15/10 400,000 402,000
- --------------------------------------------------------------------------------
Newfield Exploration Co., 6.625%
Sr. Unsec. Sub. Nts., 9/1/14 1,600,000 1,608,000
- --------------------------------------------------------------------------------
Pacific Energy Partners LP/Pacific
Energy Finance Corp., 6.25% Sr.
Unsec. Nts., 9/15/15 195,000 190,955
- --------------------------------------------------------------------------------
Peabody Energy Corp., 6.875% Sr.
Unsec. Nts., Series B, 3/15/13 1,200,000 1,236,000
- --------------------------------------------------------------------------------
Pogo Producing Co.:
6.875% Sr. Unsec. Sub. Nts., 10/1/17 200,000 192,000
7.875% Sr. Unsec. Sub. Nts., 5/1/13 440,000 448,800
- --------------------------------------------------------------------------------
Premcor Refining Group, Inc., 9.50%
Sr. Nts., 2/1/13 1,000,000 1,080,352

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
OIL & GAS Continued
Quicksilver Resources, Inc., 7.125%
Sr. Sub. Nts., 4/1/16 $ 1,515,000 $ 1,488,488
- --------------------------------------------------------------------------------
Range Resources Corp.:
6.375% Sr. Sub. Nts., 3/15/15 745,000 730,100
7.375% Sr. Sub. Nts., 7/15/13 400,000 412,000
7.50% Sr. Sub. Nts., 5/15/16 1,760,000 1,812,800
- --------------------------------------------------------------------------------
Sabine Pass LNG LP:
7.25% Sr. Sec. Nts., 11/30/13 4 1,300,000 1,293,500
7.50% Sr. Sec. Nts., 11/30/16 4 2,600,000 2,593,500
- --------------------------------------------------------------------------------
Southern Natural Gas Co.:
7.35% Nts., 2/15/31 1,100,000 1,216,321
8% Sr. Unsub. Nts., 3/1/32 500,000 586,751
8.875% Sr. Nts., 3/15/10 700,000 737,863
- --------------------------------------------------------------------------------
Stone Energy Corp.:
6.75% Sr. Unsec. Sub. Nts., 12/15/14 860,000 825,600
8.25% Sr. Unsec. Sub. Nts., 12/15/11 1,300,000 1,283,750
- --------------------------------------------------------------------------------
Targa Resources, Inc., 8.50%
Sr. Nts., 11/1/13 1 950,000 961,875
- --------------------------------------------------------------------------------
Teekay Shipping Corp., 8.875%
Sr. Nts., 7/15/11 375,000 404,531
- --------------------------------------------------------------------------------
Tennessee Gas Pipeline Co., 7.50%
Bonds, 4/1/17 965,000 1,057,772
- --------------------------------------------------------------------------------
Tesoro Corp.:
6.25% Sr. Unsec. Nts., 11/1/12 515,000 515,000
6.625% Sr. Unsec. Nts., 11/1/15 515,000 513,713
- --------------------------------------------------------------------------------
Transcontinental Gas Pipe Line Corp.:
6.40% Sr. Unsec. Unsub. Nts., 4/15/16 635,000 644,525
8.875% Sr. Unsub. Nts.,
Series B, 7/15/12 200,000 227,000
- --------------------------------------------------------------------------------
Whiting Petroleum Corp.:
7.25% Sr. Sub. Nts., 5/1/12 800,000 806,000
7.25% Sr. Unsec. Sub. Nts., 5/1/13 350,000 352,625
- --------------------------------------------------------------------------------
Williams Cos., Inc. (The):
7.125% Nts., 9/1/11 150,000 156,750
8.75% Unsec. Nts., 3/15/32 900,000 1,021,500
- --------------------------------------------------------------------------------
Williams Holdings of Delaware, Inc.,
6.50% Nts., 12/1/08 4 300,000 298,500
---------------
44,508,577

- --------------------------------------------------------------------------------
FINANCIALS--2.4%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--0.8%
Berry Plastics Holding Corp.:
8.875% Sr. Sec. Nts., 9/15/14 1 735,000 749,700
9.235% Sr. Sec. Nts., 9/15/14 1,5 735,000 747,863
- --------------------------------------------------------------------------------
DeCrane Aircraft Holdings, Inc., 12%
Sr. Unsec. Sub. Nts., Series B, 9/30/08 4 1,550,000 1,325,250
- --------------------------------------------------------------------------------
E*TRADE Financial Corp.:
7.375% Sr. Unsec. Nts., 9/15/13 691,000 722,095
8% Sr. Nts., 6/15/11 825,000 866,250
---------------
4,411,158

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--0.1%
Bank Plus Corp., 12% Sr. Nts., 7/18/07 4 $ 517,000 $ 538,973
- --------------------------------------------------------------------------------
CONSUMER FINANCE--0.2%
Ace Cash Express, Inc., 10.25%
Sr. Nts., 10/1/14 1 785,000 798,738
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--0.5%
AAC Group Holding Corp.,
0%/10.25% Sr. Unsec. Disc. Nts.,
10/1/12 3 200,000 176,000
- --------------------------------------------------------------------------------
Affinia Group, Inc., 9% Sr. Unsec.
Sub. Nts., 11/30/14 135,000 132,975
- --------------------------------------------------------------------------------
JSG Funding plc, 7.75% Sr. Unsec.
Sub. Nts., 4/1/15 4 865,000 834,725
- --------------------------------------------------------------------------------
Nell AF Sarl, 8.375% Sr. Nts., 8/15/15 1 920,000 949,900
- --------------------------------------------------------------------------------
Universal City Florida:
8.375% Sr. Unsec. Nts., 5/1/10 270,000 278,100
10.121% Sr. Unsec. Nts., 5/1/10 5 270,000 280,125
---------------
2,651,825

- --------------------------------------------------------------------------------
REAL ESTATE--0.8%
Felcor Lodging LP, 8.50% Sr.
Nts., 6/1/11 5 837,000 895,590
- --------------------------------------------------------------------------------
Host Hotels & Resorts LP, 6.875%
Sr. Nts., 11/1/14 1 260,000 264,550
- --------------------------------------------------------------------------------
Host Marriott LP:
6.375% Sr. Nts., Series O, 3/15/15 2,025,000 2,007,281
6.75% Sr. Nts., Series Q, 6/1/16 500,000 503,125
- --------------------------------------------------------------------------------
Ventas Realty LP/Ventas Capital
Corp., 6.75% Sr. Nts., 4/1/17 550,000 570,625
---------------
4,241,171

- --------------------------------------------------------------------------------
HEALTH CARE--4.4%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--0.1%
Angiotech Pharmaceuticals, Inc.,
7.75% Sr. Sub. Nts., 4/1/14 1 455,000 398,125
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.3%
Inverness Medical Innovations, Inc.,
8.75% Sr. Sub. Nts., 2/15/12 600,000 627,000
- --------------------------------------------------------------------------------
Universal Hospital Services, Inc.,
10.125% Sr. Unsec. Nts., 11/1/11 800,000 858,000
---------------
1,485,000

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--3.9%
AmeriPath, Inc., 10.50% Sr. Unsec.
Sub. Nts., 4/1/13 700,000 761,250
- --------------------------------------------------------------------------------
Community Health Systems, Inc.,
6.50% Sr. Unsec. Sub. Nts., 12/15/12 900,000 891,000
- --------------------------------------------------------------------------------
DaVita, Inc.:
6.625% Sr. Unsec. Nts., 3/15/13 890,000 896,675
7.25% Sr. Unsec. Sub. Nts., 3/15/15 1,910,000 1,957,750
- --------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust II,
7.875% Nts., 2/1/08 1,600,000 1,632,000

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES Continued
Genesis HealthCare Corp., 8% Sr.
Sub. Nts., 10/15/13 $ 400,000 $ 419,000
- --------------------------------------------------------------------------------
HCA, Inc.:
6.25% Nts., 2/15/13 20,000 17,750
8.75% Sr. Nts., 9/1/10 2,800,000 2,926,000
9.125% Sr. Sec. Nts., 11/15/14 1 365,000 391,006
9.25% Sr. Sec. Nts., 11/15/16 1 365,000 391,919
9.625% Sr. Sec. Nts., 11/15/16 1,6 910,000 980,525
- --------------------------------------------------------------------------------
HEALTHSOUTH Corp., 10.75% Sr.
Nts., 6/15/16 1 505,000 546,031
- --------------------------------------------------------------------------------
Omnicare, Inc.:
6.75% Sr. Sub. Nts., 12/15/13 185,000 183,613
6.875% Sr. Sub. Nts., 12/15/15 285,000 282,863
- --------------------------------------------------------------------------------
Psychiatric Solutions, Inc., 7.75% Sr.
Unsec. Sub. Nts., 7/15/15 485,000 486,213
- --------------------------------------------------------------------------------
Select Medical Corp., 7.625% Sr.
Unsec. Sub. Nts., 2/1/15 2,475,000 2,066,625
- --------------------------------------------------------------------------------
Tenet Healthcare Corp.:
6.375% Sr. Nts., 12/1/11 974,000 896,080
7.375% Nts., 2/1/13 77,000 71,129
9.875% Sr. Nts., 7/1/14 1,950,000 1,993,875
- --------------------------------------------------------------------------------
Triad Hospitals, Inc., 7% Sr. Sub.
Nts., 11/15/13 270,000 273,038
- --------------------------------------------------------------------------------
US Oncology, Inc.:
9% Sr. Unsec. Nts., 8/15/12 4 650,000 689,000
10.75% Sr. Unsec. Sub. Nts., 8/15/14 650,000 721,500
- --------------------------------------------------------------------------------
Vanguard Health Holding Co. I LLC,
0%/11.25% Sr. Disc. Nts., 10/1/15 3 1,760,000 1,364,000
---------------
20,838,842

- --------------------------------------------------------------------------------
PHARMACEUTICALS--0.1%
Valeant Pharmaceuticals
International, Inc., 7% Sr. Nts.,
12/15/11 4 800,000 772,000
- --------------------------------------------------------------------------------
INDUSTRIALS--8.1%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.4%
Alliant Techsystems, Inc., 6.75% Sr.
Sub. Nts., 4/1/16 910,000 912,275
- --------------------------------------------------------------------------------
BE Aerospace, Inc., 8.875% Sr. Unsec.
Sub. Nts., 5/1/11 57,000 59,280
- --------------------------------------------------------------------------------
Bombardier, Inc., 8% Sr. Nts., 11/15/14 4 455,000 468,332
- --------------------------------------------------------------------------------
DRS Technologies, Inc.:
6.625% Sr. Nts., 2/1/16 735,000 744,188
6.875% Sr. Unsec. Sub. Nts., 11/1/13 300,000 303,750
7.625% Sr. Sub. Nts., 2/1/18 320,000 331,200
- --------------------------------------------------------------------------------
L-3 Communications Corp.:
5.875% Sr. Sub. Nts., 1/15/15 684,000 663,480
6.125% Sr. Unsec. Sub. Nts., 1/15/14 1,100,000 1,080,750
6.375% Sr. Unsec. Sub. Nts., Series B,
10/15/15 1,280,000 1,273,600
7.625% Sr. Sub. Nts., 6/15/12 500,000 520,000

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE Continued
TRW Automotive, Inc.:
9.375% Sr. Nts., 2/15/13 $ 580,000 $ 624,950
11% Sr. Sub. Nts., 2/15/13 454,000 499,968
---------------
7,481,773

- --------------------------------------------------------------------------------
AIRLINES--0.0%
ATA Holdings Corp., 13% Sr. Unsec.
Nts., 2/1/09 2,4,9 1,575,000 --
- --------------------------------------------------------------------------------
BUILDING PRODUCTS--0.6%
Associated Materials, Inc., 9.75%
Sr. Sub. Nts., 4/15/12 700,000 724,500
- --------------------------------------------------------------------------------
Dayton Superior Corp., 13% Sr.
Unsec. Sub. Nts., 6/15/09 100,000 103,000
- --------------------------------------------------------------------------------
Goodman Global Holding Co., Inc.,
7.875% Sr. Unsec. Sub. Nts., 12/15/12 1,060,000 1,046,750
- --------------------------------------------------------------------------------
Jacuzzi Brands, Inc., 9.625% Sr. Sec.
Nts., 7/1/10 544,000 580,720
- --------------------------------------------------------------------------------
Nortek, Inc., 8.50% Sr. Unsec. Unsub.
Nts., 9/1/14 600,000 591,000
---------------
3,045,970

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--1.4%
Allied Waste North America, Inc.:
7.25% Sr. Nts., 3/15/15 225,000 226,406
7.375% Sr. Sec. Nts., Series B, 4/15/14 2,850,000 2,850,000
9.25% Sr. Sec. Debs., Series B, 9/1/12 283,000 302,103
- --------------------------------------------------------------------------------
American Pad & Paper Co., 13% Sr.
Sub. Nts., Series B, 11/15/05 2,4,9 200,000 --
- --------------------------------------------------------------------------------
Cenveo Corp., 7.875% Sr. Sub.
Nts., 12/1/13 1,100,000 1,061,500
- --------------------------------------------------------------------------------
Corrections Corp. of America:
6.25% Sr. Unsec. Sub. Nts., 3/15/13 890,000 886,663
7.50% Sr. Nts., 5/1/11 500,000 517,500
- --------------------------------------------------------------------------------
FTI Consulting, Inc., 7.75% Sr. Unsec.
Nts., 10/1/16 1 640,000 667,200
- --------------------------------------------------------------------------------
Mobile Services Group, Inc., 9.75%
Sr. Nts., 8/1/14 1 130,000 136,500
- --------------------------------------------------------------------------------
MSW Energy Holdings II LLC/MSW
Energy Finance Co. II, Inc., 7.375% Sr.
Sec. Nts., Series B, 9/1/10 700,000 717,500
- --------------------------------------------------------------------------------
MSW Energy Holdings LLC/MSW
Energy Finance Co., Inc., 8.50% Sr.
Sec. Nts., 9/1/10 400,000 418,000
---------------
7,783,372

- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.3%
Belden & Blake Corp., 8.75% Sec.
Nts., 7/15/12 650,000 669,500
- --------------------------------------------------------------------------------
General Cable Corp., 9.50% Sr.
Nts., 11/15/10 500,000 532,500

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT Continued
UCAR Finance, Inc., 10.25% Sr.
Nts., 2/15/12 $ 400,000 $ 423,500
---------------
1,625,500

- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.3%
Covalence Specialty Materials Corp.,
10.25% Sr. Sub. Nts., 3/1/16 1 1,475,000 1,357,000
- --------------------------------------------------------------------------------
Great Lakes Dredge & Dock Co.,
7.75% Sr. Unsec. Sub. Nts., 12/15/13 250,000 245,000
---------------
1,602,000

- --------------------------------------------------------------------------------
MACHINERY--1.3%
Case New Holland, Inc.:
7.125% Sr. Unsec. Nts., 3/1/14 730,000 744,600
9.25% Sr. Nts., 8/1/11 800,000 851,000
- --------------------------------------------------------------------------------
Douglas Dynamics LLC, 7.75% Sr.
Nts., 1/15/12 1 600,000 567,000
- --------------------------------------------------------------------------------
Greenbrier Cos., Inc., 8.375% Sr.
Unsec. Nts., 5/15/15 740,000 756,650
- --------------------------------------------------------------------------------
Manitowoc Co., Inc. (The):
7.125% Sr. Nts., 11/1/13 150,000 152,250
10.50% Sr. Sub. Nts., 8/1/12 520,000 560,950
- --------------------------------------------------------------------------------
Milacron Escrow Corp., 11.50% Sr.
Sec. Nts., 5/15/11 4 1,700,000 1,623,500
- --------------------------------------------------------------------------------
Trinity Industries, Inc., 6.50% Sr.
Nts., 3/15/14 1,000,000 987,500
- --------------------------------------------------------------------------------
Wolverine Tube, Inc., 7.375% Sr.
Nts., 8/1/08 1 1,250,000 993,750
---------------
7,237,200

- --------------------------------------------------------------------------------
ROAD & RAIL--1.5%
Avis Budget Car Rental LLC/Avis
Budget Finance, Inc.:
7.625% Sr. Nts., 5/15/14 800,000 784,000
7.75% Sr. Nts., 5/15/16 1 455,000 440,213
7.874% Sr. Nts., 5/15/14 1,5 180,000 174,600
- --------------------------------------------------------------------------------
Hertz Corp.:
8.875% Sr. Nts., 1/1/14 1 90,000 94,725
10.50% Sr. Sub. Nts., 1/1/16 1 1,570,000 1,734,850
- --------------------------------------------------------------------------------
Kansas City Southern Railway Co.
(The), 7.50% Sr. Nts., 6/15/09 500,000 506,875
- --------------------------------------------------------------------------------
Stena AB:
7% Sr. Unsec. Nts., 12/1/16 4 150,000 143,250
7.50% Sr. Unsec. Nts., 11/1/13 928,000 921,040
9.625% Sr. Nts., 12/1/12 4 1,100,000 1,177,000
- --------------------------------------------------------------------------------
TDS Investor Corp., 11.875% Sr. Sub.
Nts., 9/1/16 1 1,800,000 1,854,000
---------------
7,830,553

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--1.2%
Ashtead Capital, Inc., 9%
Nts., 8/15/16 1 $ 440,000 $ 473,000
- --------------------------------------------------------------------------------
H&E Equipment Services, Inc.,
8.375% Sr. Unsec. Nts., 7/15/16 480,000 505,200
- --------------------------------------------------------------------------------
Interline Brands, Inc., 8.125% Sr.
Sub. Nts., 6/15/14 575,000 593,688
- --------------------------------------------------------------------------------
United Rentals, Inc., 7% Sr. Sub.
Nts., 2/15/14 7 5,000,000 4,931,250
---------------
6,503,138

- --------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE--0.1%
Horizon Lines LLC, 9% Nts., 11/1/12 473,000 499,015
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--4.8%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.8%
Loral Skynet Corp., 14% Sr. Sec.
Nts., 11/21/15 4,6 198,000 228,195
- --------------------------------------------------------------------------------
Lucent Technologies, Inc., 6.45%
Unsec. Debs., 3/15/29 4,100,000 3,802,750
- --------------------------------------------------------------------------------
Nortel Networks Ltd., 9.624% Sr.
Nts., 7/15/11 1,5 435,000 460,556
- --------------------------------------------------------------------------------
Orion Network Systems, Inc.,
12.50% Sr. Unsub. Disc. Nts., 1/15/07 2,9 1,150,000 12
---------------
4,491,513

- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.2%
Seagate Technology HDD Holdings:
6.375% Sr. Nts., 10/1/11 920,000 924,600
6.80% Sr. Nts., 10/1/16 275,000 277,750
---------------
1,202,350

- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.4%
Flextronics International Ltd.,
6.25% Sr. Sub. Nts., 11/15/14 300,000 291,000
- --------------------------------------------------------------------------------
RBS Global & Rexnord Corp.:
9.50% Sr. Nts., 8/1/14 1 75,000 78,375
11.75% Sr. Sub. Nts., 8/1/16 1 265,000 278,250
- --------------------------------------------------------------------------------
Sanmina-SCI Corp.:
6.75% Unsec. Sub. Nts., 3/1/13 470,000 434,750
8.125% Sr. Sub. Nts., 3/1/16 550,000 534,875
- --------------------------------------------------------------------------------
Solectron Global Finance Ltd., 8%
Sr. Unsec. Sub. Nts., 3/15/16 240,000 244,200
---------------
1,861,450

- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.0%
Exodus Communications, Inc.,
10.75% Sr. Nts., 12/15/09 2,4,9 [EUR] 846,550 --
- --------------------------------------------------------------------------------
NorthPoint Communications
Group, Inc., 12.875% Nts., 2/15/10 2,4,9 240,208 --
- --------------------------------------------------------------------------------
PSINet, Inc., 10.50% Sr. Unsec.
Nts., 12/1/06 2,4,9 [EUR] 1,000,000 --
---------------
--

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
IT SERVICES--1.3%
DI Finance/DynCorp International
LLC, 9.50% Sr. Unsec. Sub. Nts.,
Series B, 2/15/13 $ 1,186,000 $ 1,263,090
- --------------------------------------------------------------------------------
iPayment Holdings, Inc., 9.75% Sr.
Unsec. Sub. Nts., 5/15/14 750,000 774,375
- --------------------------------------------------------------------------------
Iron Mountain, Inc.:
7.75% Sr. Sub. Nts., 1/15/15 200,000 205,000
8.625% Sr. Unsec. Sub. Nts., 4/1/13 1,000,000 1,037,500
- --------------------------------------------------------------------------------
SunGard Data Systems, Inc.:
9.125% Sr. Unsec. Nts., 8/15/13 700,000 738,500
10.25% Sr. Unsec. Sub. Nts., 8/15/15 2,490,000 2,670,525
---------------
6,688,990

- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--2.1%
Advanced Micro Devices, Inc.,
7.75% Sr. Unsec. Nts., 11/1/12 1,955,000 2,033,200
- --------------------------------------------------------------------------------
Amkor Technology, Inc.:
7.75% Sr. Nts., 5/15/13 1,750,000 1,616,563
9.25% Sr. Unsec. Nts., 6/1/16 1,200,000 1,182,000
- --------------------------------------------------------------------------------
Conexant Systems, Inc., 9.126%
Sr. Sec. Nts., 11/15/10 4,5 455,000 464,100
- --------------------------------------------------------------------------------
Freescale Semiconductor, Inc.:
8.875% Sr. Nts., 12/15/14 1 1,370,000 1,371,713
9.125% Sr. Nts., 12/15/14 1 2,285,000 2,282,144
10.125% Sr. Sub. Nts., 12/15/16 1 1,830,000 1,841,438
- --------------------------------------------------------------------------------
NXP BV, 7.875% Sr. Sec. Bonds,
10/15/14 1 455,000 472,631
---------------
11,263,789

- --------------------------------------------------------------------------------
MATERIALS--9.4%
- --------------------------------------------------------------------------------
CHEMICALS--2.7%
BCP Crystal US Holdings Corp.,
9.625% Sr. Sub. Nts., 6/15/14 1,560,000 1,731,600
- --------------------------------------------------------------------------------
Crystal US Holdings 3 LLC/Crystal
US Sub 3 Corp., 0%/10.50% Sr. Unsec.
Disc. Nts., Series B, 10/1/14 3 1,600,000 1,384,000
- --------------------------------------------------------------------------------
Equistar Chemicals LP/Equistar
Funding Corp.:
8.75% Sr. Unsec. Nts., 2/15/09 400,000 421,000
10.125% Sr. Unsec. Nts., 9/1/08 57,000 60,848
10.625% Sr. Unsec. Nts., 5/1/11 1,400,000 1,498,000
- --------------------------------------------------------------------------------
Georgia Gulf Corp., 10.75% Sr. Sub.
Nts., 10/15/16 1,465,000 1,413,725
- --------------------------------------------------------------------------------
Huntsman International LLC:
7.875% Sr. Unsec. Sub. Nts., 11/13/14 1 260,000 263,250
8.375% Sr. Sub. Nts., 1/1/15 1,5 420,000 418,950
- --------------------------------------------------------------------------------
Huntsman LLC:
11.50% Sr. Unsec. Nts., 7/15/12 5 332,000 375,990
11.625% Sr. Unsec. Nts., 10/15/10 37,000 40,608
- --------------------------------------------------------------------------------
Ineos Group Holdings plc, 8.50%
Nts., 2/15/16 1 590,000 566,400
- --------------------------------------------------------------------------------
Innophos, Inc., 8.875% Sr. Unsec.
Sub. Nts., 8/15/14 280,000 285,600

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
CHEMICALS Continued
KI Holdings, Inc., 0%/9.875% Sr.
Unsec. Sub. Disc. Nts., 11/15/14 3 $ 750,000 $ 603,750
- --------------------------------------------------------------------------------
Lyondell Chemical Co.:
8% Sr. Unsec. Nts., 9/15/14 1,375,000 1,433,438
8.25% Sr. Unsec. Nts., 9/15/16 735,000 775,425
10.50% Sr. Sec. Nts., 6/1/13 800,000 884,000
11.125% Sr. Sec. Nts., 7/15/12 300,000 324,000
- --------------------------------------------------------------------------------
Mosaic Global Holdings, Inc.:
7.375% Sr. Nts., 12/1/14 1 365,000 376,406
7.625% Sr. Nts., 12/1/16 1 365,000 380,056
- --------------------------------------------------------------------------------
Rockwood Specialties Group, Inc.:
7.50% Sr. Sub. Nts., 11/15/14 400,000 405,000
10.625% Sr. Unsec. Sub. Nts., 5/15/11 291,000 311,370
- --------------------------------------------------------------------------------
Tronox Worldwide LLC/Tronox
Finance Corp., 9.50% Sr. Unsec.
Nts., 12/1/12 195,000 206,213
---------------
14,159,629

- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.3%
NTK Holdings, Inc., 0%/10.75% Sr.
Disc. Nts., 3/1/14 3 2,420,000 1,706,100
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING--3.6%
Ball Corp., 6.625% Sr. Nts., 3/15/18 910,000 907,725
- --------------------------------------------------------------------------------
Crown Americas, Inc., 7.75% Sr.
Nts., 11/15/15 760,000 792,300
- --------------------------------------------------------------------------------
Graham Packaging Co., Inc., 9.875%
Sr. Unsec. Sub. Nts., 10/15/14 3,500,000 3,552,500
- --------------------------------------------------------------------------------
Graphic Packaging International Corp.:
8.50% Sr. Nts., 8/15/11 1,000,000 1,040,000
9.50% Sr. Sub. Nts., 8/15/13 950,000 1,007,000
- --------------------------------------------------------------------------------
Jefferson Smurfit Corp.:
7.50% Sr. Unsec. Unsub. Nts., 6/1/13 350,000 330,750
8.25% Sr. Unsec. Nts., 10/1/12 1,750,000 1,715,000
- --------------------------------------------------------------------------------
MDP Acquisitions plc, 9.625% Sr.
Nts., 10/1/12 800,000 852,000
- --------------------------------------------------------------------------------
Owens-Brockway Glass Container, Inc.:
7.75% Sr. Sec. Nts., 5/15/11 500,000 516,250
8.25% Sr. Unsec. Nts., 5/15/13 1,657,000 1,721,209
8.75% Sr. Sec. Nts., 11/15/12 1,350,000 1,437,750
8.875% Sr. Sec. Nts., 2/15/09 264,000 271,260
- --------------------------------------------------------------------------------
Pliant Corp., 11.85% Sr. Sec.
Nts., 6/15/09 2,6 605,424 663,696
- --------------------------------------------------------------------------------
Solo Cup Co., 8.50% Sr. Sub.
Nts., 2/15/14 1,100,000 957,000
- --------------------------------------------------------------------------------
Stone Container Corp.:
8.375% Sr. Nts., 7/1/12 220,000 216,700
9.75% Sr. Unsec. Nts., 2/1/11 601,000 622,786
- --------------------------------------------------------------------------------
Tekni-Plex, Inc., 10.875% Sr. Sec.
Nts., 8/15/12 1 290,000 327,700
- --------------------------------------------------------------------------------
TriMas Corp., 9.875% Sr. Unsec.
Sub. Nts., 6/15/12 2,300,000 2,236,750
---------------
19,168,376

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
METALS & MINING--1.6%
AK Steel Corp., 7.75% Sr. Unsec.
Nts., 6/15/12 $ 1,107,000 $ 1,120,838
- --------------------------------------------------------------------------------
Century Aluminum Co., 7.50% Sr.
Unsec. Nts., 8/15/14 1,000,000 1,018,750
- --------------------------------------------------------------------------------
Gibraltar Industries, Inc., 8% Sr.
Unsec. Sub. Nts., Series B, 12/1/15 4 1,075,000 1,065,594
- --------------------------------------------------------------------------------
IPSCO, Inc., 8.75% Sr. Nts., 6/1/13 300,000 322,875
- --------------------------------------------------------------------------------
Ispat Inland ULC, 9.75% Sr. Sec.
Nts., 4/1/14 1,364,000 1,526,286
- --------------------------------------------------------------------------------
Koppers Industry, Inc., 9.875% Sr. Sec.
Nts., 10/15/13 614,000 670,795
- --------------------------------------------------------------------------------
Northwest Pipeline Corp., 8.125% Sr.
Nts., 3/1/10 200,000 209,250
- --------------------------------------------------------------------------------
Novelis, Inc., 8.25% Sr. Nts., 2/15/15 1,5 1,915,000 1,862,338
- --------------------------------------------------------------------------------
Steel Dynamics, Inc., 9.50% Sr.
Nts., 3/15/09 400,000 412,500
- --------------------------------------------------------------------------------
United States Steel Corp., 9.75% Sr.
Nts., 5/15/10 505,000 539,719
---------------
8,748,945

- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--1.2%
Abitibi-Consolidated Co. of Canada,
8.375% Sr. Unsec. Sub. Nts., 4/1/15 1,200,000 1,044,000
- --------------------------------------------------------------------------------
Abitibi-Consolidated, Inc.:
8.55% Nts., 8/1/10 600,000 573,000
8.85% Unsec. Bonds, 8/1/30 500,000 412,500
- --------------------------------------------------------------------------------
Appleton Papers, Inc., 8.125% Sr.
Nts., 6/15/11 380,000 389,500
- --------------------------------------------------------------------------------
Buckeye Technologies, Inc., 8.50% Sr.
Nts., 10/1/13 350,000 371,000
- --------------------------------------------------------------------------------
Domtar, Inc., 7.125% Nts., 8/15/15 800,000 788,000
- --------------------------------------------------------------------------------
JSG Holding plc, 11.50% Sr. Nts.,
10/1/15 4,6 [EUR] 325,525 449,044
- --------------------------------------------------------------------------------
Mercer International, Inc., 9.25%
Sr. Nts., 2/15/13 440,000 432,300
- --------------------------------------------------------------------------------
Norske Skog Canada Ltd., 7.375%
Sr. Unsec. Nts., 3/1/14 1,000,000 952,500
- --------------------------------------------------------------------------------
Verso Paper Holdings LLC/Verson
Paper, Inc.:
9.121% Sr. Sec. Nts., 8/1/14 1,5 530,000 540,600
11.375% Sr. Sub. Nts., 8/1/16 1 530,000 559,150
---------------
6,511,594

- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--9.3%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--5.0%
Citizens Communications Co.,
6.25% Sr. Nts., 1/15/13 1 3,500,000 3,451,875
- --------------------------------------------------------------------------------
Intelsat Bermuda Ltd., 11.25% Sr.
Nts., 6/15/16 1 430,000 474,075

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES Continued
Intelsat Subsidiary Holding Co. Ltd.:
8.25% Sr. Nts., 1/15/13 5 $ 1,300,000 $ 1,326,000
8.625% Sr. Nts., 1/15/15 625,000 653,125
- --------------------------------------------------------------------------------
Level 3 Financing, Inc., 9.25% Sr.
Nts., 11/1/14 1 2,075,000 2,126,875
- --------------------------------------------------------------------------------
Nordic Telephone Co. Holdings
ApS, 8.875% Sr. Nts., 5/1/16 1 455,000 489,125
- --------------------------------------------------------------------------------
PanAmSat Corp.:
9% Sr. Nts., 6/15/16 1 495,000 526,556
9% Sr. Unsec. Nts., 8/15/14 1,300,000 1,379,625
- --------------------------------------------------------------------------------
Qwest Capital Funding, Inc.:
7.25% Unsec. Unsub. Nts., 2/15/11 900,000 923,625
7.90% Unsec. Nts., 8/15/10 757,000 792,011
- --------------------------------------------------------------------------------
Qwest Communications
International, Inc., 7.25% Sr. Unsec.
Sub. Nts., 2/15/11 5 600,000 616,500
- --------------------------------------------------------------------------------
Qwest Corp.:
7.50% Sr. Unsec. Nts., 10/1/14 880,000 937,200
8.875% Unsec. Unsub. Nts., 3/15/12 5 3,700,000 4,139,375
- --------------------------------------------------------------------------------
Teligent, Inc., 11.50% Sr. Nts., 12/1/07 2,4,9 400,000 --
- --------------------------------------------------------------------------------
Time Warner Telecom Holdings,
Inc., 9.25% Sr. Unsec. Unsub.
Nts., 2/15/14 2,650,000 2,845,438
- --------------------------------------------------------------------------------
Valor Telecommunications
Enterprises LLC, 7.75% Sr. Unsec.
Sub. Nts., 2/15/15 445,000 481,156
- --------------------------------------------------------------------------------
West Corp.:
9.50% Sr. Nts., 10/15/14 1 1,040,000 1,045,200
11% Sr. Sub. Nts., 10/15/16 1 935,000 949,025
- --------------------------------------------------------------------------------
Windstream Corp.:
8.125% Sr. Nts., 8/1/13 1 655,000 712,313
8.625% Sr. Nts., 8/1/16 1 2,555,000 2,810,500
- --------------------------------------------------------------------------------
Winstar Communications, Inc.,
12.75% Sr. Nts., 4/15/10 2,4,9 1,000,000 --
---------------
26,679,599

- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--4.3%
Alamosa Delaware, Inc.:
8.50% Sr. Nts., 1/31/12 4 500,000 530,063
11% Sr. Unsec. Nts., 7/31/10 4 57,000 61,602
- --------------------------------------------------------------------------------
American Cellular Corp., 10% Sr.
Nts., Series B, 8/1/11 2,110,000 2,241,875
- --------------------------------------------------------------------------------
American Tower Corp.:
7.125% Sr. Unsec. Nts., 10/15/12 500,000 516,250
7.50% Sr. Nts., 5/1/12 1,450,000 1,508,000
- --------------------------------------------------------------------------------
CellNet Data Systems, Inc., Sr.
Unsec. Disc. Nts., 10/1/07 2,4,9 1,834,000 --
- --------------------------------------------------------------------------------
Centennial Cellular Operating
Co. LLC/Centennial Communications
Corp., 10.125% Sr. Nts., 6/15/13 2,200,000 2,381,500
- --------------------------------------------------------------------------------
Centennial Communications
Corp., 10% Sr. Unsec. Nts., 1/1/13 300,000 320,625

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES Continued
Cricket Communications, Inc.,
9.375% Sr. Nts., 11/1/14 1 $ 1,170,000 $ 1,240,200
- --------------------------------------------------------------------------------
Dobson Cellular Systems, Inc.,
8.375% Sr. Sec. Nts., 11/1/11 470,000 497,613
- --------------------------------------------------------------------------------
Dobson Communications Corp.:
8.875% Sr. Nts., 10/1/13 769,000 787,264
9.624% Sr. Unsec. Nts., 10/15/12 5 290,000 297,250
- --------------------------------------------------------------------------------
IWO Holdings, Inc., 9.124% Sr. Sec.
Nts., 1/15/12 5 220,000 225,500
- --------------------------------------------------------------------------------
Nextel Communications, Inc., 7.375%
Sr. Nts., Series D, 8/1/15 3,590,000 3,684,815
- --------------------------------------------------------------------------------
Nextel Partners, Inc., 8.125% Sr.
Nts., 7/1/11 700,000 732,375
- --------------------------------------------------------------------------------
Rogers Wireless, Inc.:
6.375% Sec. Nts., 3/1/14 700,000 712,250
7.50% Sec. Nts., 3/15/15 900,000 981,000
8% Sr. Sub. Nts., 12/15/12 600,000 643,500
- --------------------------------------------------------------------------------
Rural Cellular Corp.:
9.75% Sr. Sub. Nts., 1/15/10 3,357,000 3,466,103
9.875% Sr. Nts., 2/1/10 600,000 641,250
- --------------------------------------------------------------------------------
UbiquiTel Operating Co., 9.875%
Sr. Nts., 3/1/11 1,100,000 1,193,500
- --------------------------------------------------------------------------------
US Unwired, Inc., 10% Sr. Sec.
Nts., 6/15/12 500,000 552,500
---------------
23,215,035

- --------------------------------------------------------------------------------
UTILITIES--5.9%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--2.0%
Edison Mission Energy:
7.50% Sr. Unsec. Nts., 6/15/13 445,000 467,250
7.75% Sr. Unsec. Nts., 6/15/16 525,000 559,125
- --------------------------------------------------------------------------------
ESI Tractebel Acquisition Corp.,
7.99% Sec. Bonds, Series B, 12/30/11 782,000 806,460
- --------------------------------------------------------------------------------
Midwest Generation LLC, 8.75%
Sr. Sec. Nts., 5/1/34 4,420,000 4,817,800
- --------------------------------------------------------------------------------
Reliant Energy, Inc.:
6.75% Sr. Sec. Nts., 12/15/14 600,000 589,500
9.25% Sr. Sec. Nts., 7/15/10 457,000 482,135
9.50% Sr. Sec. Nts., 7/15/13 1,825,000 1,966,438
- --------------------------------------------------------------------------------
Sierra Pacific Resources, 6.75% Sr.
Unsec. Nts., 8/15/17 1,081,000 1,065,661
---------------
10,754,369

- --------------------------------------------------------------------------------
ENERGY TRADERS--3.5%
AES Corp. (The):
7.75% Sr. Unsec. Unsub. Nts., 3/1/14 200,000 212,000
8.75% Sr. Sec. Nts., 5/15/13 1 1,550,000 1,668,188
- --------------------------------------------------------------------------------
AES Red Oak LLC:
8.54% Sr. Sec. Bonds, Series A,
11/30/19 570,019 622,746
9.20% Sr. Sec. Bonds, Series B,
11/30/29 500,000 566,250

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ENERGY TRADERS Continued
Dynegy Holdings, Inc.:
6.875% Sr. Unsec. Unsub. Nts., 4/1/11 $ 1,501,000 $ 1,508,505
8.375% Sr. Unsec. Nts., 5/1/16 410,000 432,550
8.75% Sr. Nts., 2/15/12 424,000 451,560
- --------------------------------------------------------------------------------
Mirant Americas Generation LLC:
8.30% Sr. Unsec. Nts., 5/1/11 4,400,000 4,532,000
9.125% Sr. Unsec. Nts., 5/1/31 1,200,000 1,278,000
- --------------------------------------------------------------------------------
Mirant Mid-Atlantic LLC, 8.625%
Sec. Pass-Through Certificates,
Series A, 6/30/12 1,132,726 1,198,566
- --------------------------------------------------------------------------------
NRG Energy, Inc.:
7.375% Sr. Nts., 1/15/17 2,300,000 2,311,500
7.375% Sr. Nts., 2/1/16 4,140,000 4,171,050
---------------
18,952,915

- --------------------------------------------------------------------------------
GAS UTILITIES--0.1%
SEMCO Energy, Inc., 7.125% Sr.
Nts., 5/15/08 400,000 401,598
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.3%
CMS Energy Corp.:
7.50% Sr. Nts., 1/15/09 357,000 369,941
7.75% Sr. Nts., 8/1/10 400,000 424,000
- --------------------------------------------------------------------------------
NorthWestern Corp., 5.875% Sr.
Sec. Nts., 11/1/14 580,000 570,753
---------------
1,364,694
---------------
Total Corporate Bonds and Notes
(Cost $471,832,897) 477,910,119

SHARES
- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.8%
- --------------------------------------------------------------------------------
AmeriKing, Inc., 13% Cum. Sr.
Exchangeable, Non-Vtg. 4,6 13,764 --
- --------------------------------------------------------------------------------
Dobson Communications Corp.,
6% Cv., Series F (converts into
Dobson Communications Corp.,
Cl. A common stock), Non-Vtg. 1 885 169,367
- --------------------------------------------------------------------------------
Eagle-Picher Holdings, Inc., 11.75%
Cum. Exchangeable, Series B,
Non-Vtg. 4,9 8,000 --
- --------------------------------------------------------------------------------
ICG Holdings, Inc., 14.25%
Exchangeable, Non-Vtg. 4,6,9 342 --
- --------------------------------------------------------------------------------
ION Media Networks, Inc.:
14.25% Cum., Non-Vtg. 4,6 229 1,705,693
9.75% Cv., Series AI 4,6,9 1 894
- --------------------------------------------------------------------------------
Loral Skynet Corp., 12% Cum.,
Series A, Non-Vtg. 4,6 1,750 362,250
- --------------------------------------------------------------------------------
PTV, Inc., 10% Cum., Series A,
Non-Vtg. 22 83
- --------------------------------------------------------------------------------
Rural Cellular Corp., 11.375%
Cum., Series B, Non-Vtg. 4,6 245 306,863

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
PREFERRED STOCKS Continued
- --------------------------------------------------------------------------------
Sovereign Real Estate Investment
Trust, 12% Non-Cum., Series A 4 10,000 $ 1,557,500
---------------
Total Preferred Stocks (Cost $4,495,691) 4,102,650

- --------------------------------------------------------------------------------
COMMON STOCKS--1.8%
- --------------------------------------------------------------------------------
American Tower Corp. 9 19,733 735,646
- --------------------------------------------------------------------------------
ATA Holdings Corp. 4,9 4,647 69,705
- --------------------------------------------------------------------------------
Cebridge Connections Holding LLC 4,9 18,668 --
- --------------------------------------------------------------------------------
Charles River Laboratories
International, Inc. 9 8,360 361,570
- --------------------------------------------------------------------------------
Chesapeake Energy Corp. 12,000 348,600
- --------------------------------------------------------------------------------
Citigroup, Inc. 359 19,996
- --------------------------------------------------------------------------------
Covad Communications Group, Inc. 9 20,660 28,511
- --------------------------------------------------------------------------------
Dobson Communications Corp.,
Cl. A 9 43,391 377,936
- --------------------------------------------------------------------------------
El Paso Corp. 45,000 687,600
- --------------------------------------------------------------------------------
Globix Corp. 9 11,467 49,881
- --------------------------------------------------------------------------------
Gulfstream Holding, Inc. 4,9 56 --
- --------------------------------------------------------------------------------
ICO Global Communication
Holdings Ltd. 9 42,107 192,429
- --------------------------------------------------------------------------------
Idearc, Inc. 9 46 1,318
- --------------------------------------------------------------------------------
iPCS, Inc. 9 10,189 564,063
- --------------------------------------------------------------------------------
Kaiser Aluminum Corp. 9 2,945 164,861
- --------------------------------------------------------------------------------
Leap Wireless International, Inc. 9 1,913 113,766
- --------------------------------------------------------------------------------
Liberty Global, Inc., Series A 9 7,577 220,870
- --------------------------------------------------------------------------------
Liberty Global, Inc., Series C 9 7,684 215,152
- --------------------------------------------------------------------------------
Loral Space & Communications Ltd. 9 12,399 504,887
- --------------------------------------------------------------------------------
Manitowoc Co., Inc. (The) 2,078 123,496
- --------------------------------------------------------------------------------
NTL, Inc. 69,198 1,746,558
- --------------------------------------------------------------------------------
Orbital Sciences Corp. 9 2,235 41,213
- --------------------------------------------------------------------------------
Polymer Group, Inc., Cl. A 9 24,040 614,222
- --------------------------------------------------------------------------------
Prandium, Inc. 4,9 62,829 628
- --------------------------------------------------------------------------------
Quicksilver Resources, Inc. 9 15,000 548,850
- --------------------------------------------------------------------------------
Smithfield Foods, Inc. 9 18,000 461,880
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. 4,9 398 5,075
- --------------------------------------------------------------------------------
Teco Energy, Inc. 20,000 344,600
- --------------------------------------------------------------------------------
TVMAX Holdings, Inc. 4,9 7,500 7,500
- --------------------------------------------------------------------------------
United Rentals, Inc. 9 36,000 915,446
- --------------------------------------------------------------------------------
Verizon Communications, Inc. 935 34,819
- --------------------------------------------------------------------------------
Viatel Holding (Bermuda) Ltd. 4,9 2,701 14
- --------------------------------------------------------------------------------
Western Forest Products, Inc. 9,10 85,047 140,025
- --------------------------------------------------------------------------------
WRC Media Corp. 4,9 1,353 14
- --------------------------------------------------------------------------------
XO Holdings, Inc. 9 3,538 15,213
---------------
Total Common Stocks
(Cost $9,140,100) 9,656,344

VALUE
UNITS SEE NOTE 1
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- --------------------------------------------------------------------------------
ATA Holdings Corp. Wts.,
Exp. 2/28/11 9 570 $ 4,183
- --------------------------------------------------------------------------------
COLO.com, Inc. Wts., Exp. 3/15/10 4,9 600 --
- --------------------------------------------------------------------------------
Concentric Network Corp. Wts.,
Exp. 12/15/07 4,9 750 --
- --------------------------------------------------------------------------------
DeCrane Aircraft Holdings, Inc.
Wts., Exp. 9/30/08 4,9 1,750 --
- --------------------------------------------------------------------------------
Diva Systems Corp. Wts.,
Exp. 3/1/08 4,9 1,500 --
- --------------------------------------------------------------------------------
iPCS, Inc. Wts., Exp. 6/15/10 4,9 750 --
- --------------------------------------------------------------------------------
Long Distance International, Inc.
Wts., Exp. 4/13/08 4,9 800 --
- --------------------------------------------------------------------------------
Ntelos, Inc. Wts., Exp. 8/15/10 4,9 1,000 --
- --------------------------------------------------------------------------------
Pathmark Stores, Inc. Wts.,
Exp. 9/19/10 9 20,000 5,000
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. Wts.,
Exp. 12/19/08 9 651 7
- --------------------------------------------------------------------------------
XO Communications, Inc.:
Series A Wts., Exp. 1/16/10 9 7,093 4,965
Series B Wts., Exp. 1/16/10 9 5,319 2,287
Series C Wts., Exp. 1/16/10 4,9 5,319 1,170
---------------
Total Rights, Warrants and Certificates
(Cost $76,785) 17,612

PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
STRUCTURED NOTES--0.4%
- --------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc.,
High Yield Targeted Return Index
Securities, Series 2006-1, 7.546%,
5/1/16 4,11 (Cost $1,943,845) $ 1,920,000 1,987,258

SHARES
- --------------------------------------------------------------------------------
MONEY MARKET FUND--5.5%
- --------------------------------------------------------------------------------
Oppenheimer Institutional Money
Market Fund, Cl. E, 5.25% 12,13
(Cost $29,765,155) 29,765,155 29,765,155

- --------------------------------------------------------------------------------
Total Investments, at Value
(excluding Investments Purchased
with Cash Collateral from
Securities Loaned)
(Cost $517,254,473) 523,439,138

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $517,307,980) 97.9% 523,492,645
- --------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 2.1 11,250,911
--------------------------------
NET ASSETS 100.0% $ 534,743,556
================================

FOOTNOTES TO STATEMENT OF INVESTMENTS

Principal amount is reported in U.S. Dollars, except for those denoted in the
following currency:

EUR Euro

1. 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 $63,909,443 or 11.95% of the Fund's net
assets as of December 31, 2006.

2. Issuer is in default. See Note 1 of accompanying Notes.

3. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.

4. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of December 31, 2006 was $27,433,923, which represents
5.13% of the Fund's net assets, of which $628 is considered restricted. See Note
8 of accompanying Notes.

5. Represents the current interest rate for a variable or increasing rate
security.

6. Interest or dividend is paid-in-kind, when applicable.

7. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures contracts. The aggregate market
value of such securities is $986,250. See Note 6 of accompanying Notes.

8. The security/securities have 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
accompanying Notes.

9. Non-income producing security.

10. Partial or fully-loaned security. See Note 9 of accompanying Notes.

11. Interest rate represents a weighted average rate comprised of the interest
rates of the underlying securities.

12. Rate shown is the 7-day yield as of December 31, 2006.

13. Represents ownership of an affiliated fund, at or during the period ended
December 31, 2006. Transactions during the period in which the issuer was an
affiliate are as follows:

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25%* -- 59,265,639 29,500,484 29,765,155

VALUE DIVIDEND
SEE NOTE 1 INCOME
- -------------------------------------------------------------------------------------------------------------------------------

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25%* $29,765,155 $344,798

* The money market fund and the Fund are affiliated by having the same
investment advisor.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF ASSETS AND LIABILITIES December 31, 2006
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $487,542,825) $ 493,727,490
Affiliated companies (cost $29,765,155) 29,765,155
----------------
523,492,645
- ---------------------------------------------------------------------------------------------
Cash 1,020,392
- ---------------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 334,476
- ---------------------------------------------------------------------------------------------
Receivables and other assets:
Interest, dividends and principal paydowns 10,140,274
Shares of beneficial interest sold 548,180
Investments sold 30,000
Futures margins 26,359
Other 21,103
----------------
Total assets 535,613,429

- ---------------------------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------------------------
Return of collateral for securities loaned 53,507
- ---------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts 340,355
- ---------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed 307,981
Distribution and service plan fees 106,295
Shareholder communications 20,314
Trustees' compensation 14,777
Transfer and shareholder servicing agent fees 1,727
Other 24,917
----------------
Total liabilities 869,873

- ---------------------------------------------------------------------------------------------
NET ASSETS $ 534,743,556
================

- ---------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ---------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 62,648
- ---------------------------------------------------------------------------------------------
Additional paid-in capital 595,343,637
- ---------------------------------------------------------------------------------------------
Accumulated net investment income 36,328,896
- ---------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (103,210,528)
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation
of assets and liabilities denominated in foreign currencies 6,218,903
----------------
NET ASSETS $ 534,743,556
================

- ---------------------------------------------------------------------------------------------
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 $361,444,400 and 42,256,593 shares
of beneficial interest outstanding) $ 8.55
- ---------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $173,299,156 and 20,391,802 shares
of beneficial interest outstanding) $ 8.50

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF OPERATIONS For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ---------------------------------------------------------------------------------------------
Interest (net of foreign withholding taxes of $3,354) $ 40,248,660
- ---------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $38) 381,790
Affiliated companies 344,798
- ---------------------------------------------------------------------------------------------
Portfolio lending fees 53
----------------
Total investment income 40,975,301

- ---------------------------------------------------------------------------------------------
EXPENSES
- ---------------------------------------------------------------------------------------------
Management fees 3,808,520
- ---------------------------------------------------------------------------------------------
Distribution and service plan fees -- Service shares 401,558
- ---------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares 10,126
Service shares 10,047
- ---------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares 13,468
Service shares 5,217
- ---------------------------------------------------------------------------------------------
Trustees' compensation 13,364
- ---------------------------------------------------------------------------------------------
Administrative fees 1,500
- ---------------------------------------------------------------------------------------------
Custodian fees and expenses 1,326
- ---------------------------------------------------------------------------------------------
Other 46,809
----------------
Total expenses 4,311,935
Less reduction to custodian expenses (474)
Less waivers and reimbursements of expenses (6,549)
----------------
Net expenses 4,304,912

- ---------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 36,670,389

- ---------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ---------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments 2,583,312
Closing and expiration of futures contracts (516,413)
Foreign currency transactions 375,064
Swap contracts 495,170
----------------
Net realized gain 2,937,133
- ---------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 7,637,549
Translation of assets and liabilities denominated in foreign currencies (33,052)
Futures contracts 89,353
Swap contracts (5,879)
----------------
Net change in unrealized appreciation 7,687,971

- ---------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 47,295,493
================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2006 2005
- ---------------------------------------------------------------------------------------------

OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income $ 36,670,389 $ 39,416,355
- ---------------------------------------------------------------------------------------------
Net realized gain 2,937,133 4,793,340
- ---------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 7,687,971 (31,729,313)
----------------------------------
Net increase in net assets resulting from operations 47,295,493 12,480,382

- ---------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ---------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares (28,179,781) (29,392,362)
Service shares (11,514,103) (8,541,230)
----------------------------------
(39,693,884) (37,933,592)

- ---------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from beneficial interest transactions:
Non-Service shares (28,076,230) (74,783,236)
Service shares 14,875,665 27,161,237
----------------------------------
(13,200,565) (47,621,999)

- ---------------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------------------------
Total decrease (5,598,956) (73,075,209)
- ---------------------------------------------------------------------------------------------
Beginning of period 540,342,512 613,417,721
----------------------------------
End of period (including accumulated net investment
income of $36,328,896 and $38,892,209, respectively) $ 534,743,556 $ 540,342,512
==================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.44 $ 8.80 $ 8.61 $ 7.51 $ 8.54
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58 1 .57 1 .58 1 .60 .58
Net realized and unrealized gain (loss) .17 (.37) .15 1.09 (.76)
--------------------------------------------------------------------------------
Total from investment operations .75 .20 .73 1.69 (.18)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.64) (.56) (.54) (.59) (.85)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.55 $ 8.44 $ 8.80 $ 8.61 $ 7.51
================================================================================

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. Voluntary waiver of affiliated fund management fees less than 0.01%.

6. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.74%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.39 $ 8.76 $ 8.58 $ 7.49 $ 8.54
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .56 1 .55 1 .56 1 .61 .88
Net realized and unrealized gain (loss) .17 (.38) .15 1.06 (1.08)
----------------------------------------------------------------------------------
Total from investment operations .73 .17 .71 1.67 (.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.62) (.54) (.53) (.58) (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.50 $ 8.39 $ 8.76 $ 8.58 $ 7.49
==================================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 9.23% 2.01% 8.73% 23.79% (2.67)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 173,299 $ 155,617 $ 134,013 $ 76,354 $ 17,705
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 160,703 $ 141,287 $ 101,464 $ 41,246 $ 5,602
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 6.80% 6.54% 6.63% 7.84% 8.91%
Total expenses 1.00% 4,5,6 1.00% 4 1.01% 4 1.04% 4 1.02% 4,7
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 57% 64% 51% 48% 75%

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. Voluntary waiver of affiliated fund management fees less than 0.01%.

6. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 1.00%

7. 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, 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 investments in
high-yield fixed-income securities. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).

The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
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 Statement of Operations. The Fund records a realized gain or loss
when a structured note is sold or matures.

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

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, 2006, securities with an
aggregate market value of $4,320,846, representing 0.81% of the Fund's net
assets, were in default.

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
--------------------------------------------------------------------------
$36,748,883 $-- $101,963,617 $4,912,735

1. As of December 31, 2006, the Fund had $101,963,617 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, 2006,
details of the capital loss carryforwards were as follows:

EXPIRING
-------------------------
2007 $ 2,974,885
2008 11,572,833
2009 22,696,701
2010 56,061,391
2011 8,529,303
2012 128,504
--------------
Total $ 101,963,617
==============

2. During the fiscal year ended December 31, 2006, the Fund utilized $2,201,464
of capital loss carryforward to offset capital gains realized in that fiscal
year.

3. During the fiscal year ended December 31, 2005, the Fund utilized $3,158,488
of capital loss carryforward to offset capital gains realized in that fiscal
year.

INCREASE TO INCREASE TO
ACCUMULATED ACCUMULATED NET
NET INVESTMENT REALIZED LOSS
INCOME ON INVESTMENTS
----------------------------------------------
$460,182 $460,182

The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005 was as follows:

YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
------------------------------------------------------------------
Distributions paid from:
Ordinary income $39,693,884 $37,933,592

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

Federal tax cost of securities $ 518,515,348
Federal tax cost of other investments 14,631,351
---------------
Total federal tax cost $ 533,146,699
===============

Gross unrealized appreciation $ 19,530,601
Gross unrealized depreciation (14,617,866)
---------------
Net unrealized appreciation $ 4,912,735
===============

- --------------------------------------------------------------------------------
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, 2006 YEAR ENDED DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold 5,280,216 $ 43,432,010 10,721,772 $ 89,596,389
Dividends and/or distributions reinvested 3,544,627 28,179,781 3,524,264 29,392,362
Redeemed (12,151,871) (99,688,021) (23,117,209) (193,771,987)
--------------------------------------------------------------
Net decrease (3,327,028) $ (28,076,230) (8,871,173) $ (74,783,236)
==============================================================
SERVICE SHARES
Sold 5,002,490 $ 40,899,612 9,211,332 $ 76,634,515
Dividends and/or distributions reinvested 1,455,639 11,514,103 1,027,826 8,541,230
Redeemed (4,611,753) (37,538,050) (6,989,741) (58,014,508)
--------------------------------------------------------------
Net increase 1,846,376 $ 14,875,665 3,249,417 $ 27,161,237
==============================================================

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and money market funds, for the year ended December
31, 2006, were as follows:

PURCHASES SALES
---------------------------------------------------------------
Investment securities $258,123,423 $279,192,275

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

FEE SCHEDULE
-------------------------------------
Up to $200 million 0.75%
Next $200 million 0.72
Next $200 million 0.69
Next $200 million 0.66
Next $200 million 0.60
Over $1 billion 0.50

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued

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, personal
service and account maintenance for the Fund's Service shares. Under the plan,
payments are made periodically 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.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

As of December 31, 2006, the Fund had no outstanding foreign currency
contracts.

- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS

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.

As of December 31, 2006, the Fund had outstanding futures contracts as follows:

CONTRACTS TO PURCHASE
U.S. Long Bonds 3/21/07 271 $ 30,199,563 $ (370,194)
U.S. Treasury Nts., 2 yr. 3/30/07 211 43,050,594 (131,560)
-----------
(501,754)
-----------
CONTRACTS TO SELL
U.S. Treasury Nts., 10 yr. 3/21/07 546 58,677,938 541,422
-----------
$ 39,668
===========

- --------------------------------------------------------------------------------
7. CREDIT DEFAULT SWAP CONTRACTS

- --------------------------------------------------------------------------------
7. CREDIT DEFAULT SWAP CONTRACTS Continued

(depreciation) related to the change in the valuation of the notional amount of
the swap is combined with the amount due to (owed by) the Fund at termination or
settlement and disclosed separately on the Statement of Assets and Liabilities.
The net change in this amount is included on the Statement of Operations.

Information regarding such credit default swaps as of December 31, 2006 is as
follows:

Deutsche Bank AG:
Ford Motor Co. $ 2,200,000 3.05% 12/20/08 $ 13,355
Ford Motor Co. 2,760,000 3.30 12/20/08 51,265
Ford Motor Co. 1,865,000 3.65 12/20/08 48,675
General Motors Corp. 2,200,000 2.03 12/20/08 9,962
General Motors Corp. 1,865,000 2.55 12/20/08 29,685
- --------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Capital
Markets LP General Motors Corp. 1,865,000 2.70 12/20/08 35,040
- --------------------------------------------------------------------------------------------------------------------------
JPMorgan Chase Bank:
Ford Motor Co. 1,865,000 3.60 12/20/08 40,338
General Motors Corp. 2,760,000 2.35 12/20/08 19,508
- --------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital
Services, Inc.:
Ford Motor Co. 1,865,000 3.70 12/20/08 55,508
General Motors Corp. 1,865,000 2.70 12/20/08 37,019
----------
$ 340,355
==========

The Fund would take a long position in the credit default swap note (the "funded
swap") to increase the exposure to specific high yield corporate issuers. As a
seller of credit protection under a swap contract, the Fund receives a periodic
interest fee on the notional amount from the counterparty. This interest fee is
accrued daily as a component of unrealized appreciation (depreciation) and is
recorded as realized gain upon receipt. Upon occurrence of a specific credit
event with respect to the underlying referenced debt obligation, the Fund
receives that security from the counterparty in exchange for payment of the
notional amount to the counterparty. The difference between the value of the
security received and the notional amount paid is recorded as realized loss and
is included on the Statement of Operations. Credit default swaps are marked to
market daily using different sources, including quotations from counterparties,
pricing services, brokers or market makers. The unrealized appreciation
(depreciation) related to the change in the valuation of the notional amount of
the swap is combined with the amount due to (owed by) the Fund at termination or
settlement and disclosed separately on the Statement of Assets and Liabilities.
The net change in this amount is included on the Statement of Operations.

Information regarding such credit default swaps as of December 31, 2006 is as
follows:

NOTIONAL AMOUNT ANNUAL
PAID BY THE INTEREST RATE
REFERENCED DEBT FUND UPON RECEIVED TERMINATION UNREALIZED
COUNTERPARTY OBLIGATION CREDIT EVENT BY THE FUND DATES APPRECIATION
- --------------------------------------------------------------------------------------------------------------------------

Deutsche Bank AG:
Ford Motor Co. $ 2,750,000 5.80% 12/20/16 $ 15,353
Ford Motor Co. 3,440,000 5.85 12/20/16 31,617
Ford Motor Co. 2,335,000 6.00 12/20/16 43,333
General Motors Corp. 2,200,000 4.68 12/20/16 8,578
General Motors Corp. 1,865,000 4.75 12/20/16 27,282

Goldman Sachs Capital
Markets LP General Motors Corp. $ 1,865,000 4.95% 12/20/16 $ 45,425
- --------------------------------------------------------------------------------------------------------------------------
JPMorgan Chase Bank:
Ford Motor Co. 2,335,000 6.00 12/20/16 38,947
General Motors Corp. 2,760,000 4.75 12/20/16 21,560
- --------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital
Services, Inc.:
Ford Motor Co. 2,335,000 6.15 12/20/16 41,685
General Motors Corp. 1,865,000 4.90 12/20/16 60,696
----------
$ 334,476
==========

- --------------------------------------------------------------------------------
8. ILLIQUID OR RESTRICTED SECURITIES

As of December 31, 2006, 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.
Securities that are illiquid or restricted are marked with the applicable
footnote on the Statement of Investments. Information concerning restricted
securities is as follows:

ACQUISITION VALUATION AS OF UNREALIZED
SECURITY DATES COST DECEMBER 31, 2006 DEPRECIATION
- ----------------------------------------------------------------------------------------------

Prandium, Inc. 3/19/99-7/19/02 $738,000 $628 $737,372

- --------------------------------------------------------------------------------
9. SECURITIES LENDING

- --------------------------------------------------------------------------------
10. RECENT ACCOUNTING PRONOUNCEMENTS

- --------------------------------------------------------------------------------
10. RECENT ACCOUNTING PRONOUNCEMENTS Continued

is "more-likely-than-not" that tax positions taken in the Fund's tax return will
be ultimately sustained. A tax liability and expense must be recorded in respect
of any tax position that, in Management's judgment, will not be fully realized.
FIN 48 is effective for fiscal years beginning after December 15, 2006. As of
December 31, 2006, the Manager has evaluated the implications of FIN 48 and does
not currently anticipate a material impact to the Fund's financial statements.
The Manager will continue to monitor the Fund's tax positions prospectively for
potential future impacts.

In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 157, FAIR VALUE MEASUREMENTS. This standard establishes
a single authoritative definition of fair value, sets out a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. As of December 31, 2006, the Manager does not believe the
adoption of SFAS No. 157 will materially impact the financial statement amounts;
however, additional disclosures may be required about the inputs used to develop
the measurements and the effect of certain of the measurements on changes in net
assets for the period.

- --------------------------------------------------------------------------------
11. LITIGATION

26 | OPPENHEIMER MAIN STREET FUND/VA

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 (the "Fund"), a series of Oppenheimer Variable
Account Funds, including the statement of investments, as of December 31, 2006,
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.

DELOITTE & TOUCHE LLP

Denver, Colorado
February 8, 2007

STATEMENT OF INVESTMENTS December 31, 2006
- --------------------------------------------------------------------------------

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
COMMON STOCKS--99.4%
- -------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--13.9%
- -------------------------------------------------------------------------------
AUTO COMPONENTS--0.1%
ArvinMeritor, Inc. 1 14,600 $ 266,158
- -------------------------------------------------------------------------------
Autoliv, Inc. 8,200 494,460
- -------------------------------------------------------------------------------
Goodyear Tire & Rubber Co. (The) 1,2 23,100 484,869
- -------------------------------------------------------------------------------
Johnson Controls, Inc. 5,400 463,968
- -------------------------------------------------------------------------------
Lear Corp. 1 16,400 484,292
- -------------------------------------------------------------------------------
Tenneco, Inc. 2 4,200 103,824
----------------
2,297,571

- -------------------------------------------------------------------------------
AUTOMOBILES--0.8%
Ford Motor Co. 1 312,400 2,346,124
- -------------------------------------------------------------------------------
General Motors Corp. 1 249,100 7,652,352
- -------------------------------------------------------------------------------
Harley-Davidson, Inc. 1 95,900 6,758,073
----------------
16,756,549

- -------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES--0.1%
Apollo Group, Inc., Cl. A 1,2 11,300 440,361
- -------------------------------------------------------------------------------
Career Education Corp. 1,2 20,100 498,078
- -------------------------------------------------------------------------------
ITT Educational Services, Inc. 2 7,600 504,412
----------------
1,442,851

- -------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--0.7%
Brinker International, Inc. 12,100 364,936
- -------------------------------------------------------------------------------
Carnival Corp. 59,800 2,933,190
- -------------------------------------------------------------------------------
Chipotle Mexican Grill, Inc., Cl. B 2 7,419 385,788
- -------------------------------------------------------------------------------
Domino's Pizza, Inc. 7,700 215,600
- -------------------------------------------------------------------------------
Jack in the Box, Inc. 1,2 5,100 311,304
- -------------------------------------------------------------------------------
Las Vegas Sands Corp. 2 900 80,532
- -------------------------------------------------------------------------------
Starwood Hotels & Resorts
Worldwide, Inc. 36,300 2,268,750
- -------------------------------------------------------------------------------
Wendy's International, Inc. 16,900 559,221
- -------------------------------------------------------------------------------
Yum! Brands, Inc. 128,700 7,567,560
----------------
14,686,881

- -------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.0%
Snap-On, Inc. 11,100 528,804
- -------------------------------------------------------------------------------
Tempur-Pedic International, Inc. 1,2 20,400 417,384
----------------
946,188

- -------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--0.3%
Expedia, Inc. 1,2 19,800 415,404
- -------------------------------------------------------------------------------
IAC/InterActiveCorp 1,2 85,200 3,166,032
- -------------------------------------------------------------------------------
Liberty Media Holding Corp.-
Interactive, Series A 2 88,500 1,908,945
- -------------------------------------------------------------------------------
NetFlix.com, Inc. 1,2 7,500 193,950
----------------
5,684,331

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--0.1%
Eastman Kodak Co. 1 20,500 $ 528,900
- -------------------------------------------------------------------------------
Hasbro, Inc. 22,000 599,500
- -------------------------------------------------------------------------------
Marvel Entertainment, Inc. 1,2 16,800 452,088
- -------------------------------------------------------------------------------
Mattel, Inc. 34,600 784,036
----------------
2,364,524

- -------------------------------------------------------------------------------
MEDIA--4.6%
CBS Corp., Cl. B 53,400 1,665,012
- -------------------------------------------------------------------------------
Clear Channel Communications, Inc. 303,700 10,793,498
- -------------------------------------------------------------------------------
Comcast Corp., Cl. A 2 186,400 7,890,312
- -------------------------------------------------------------------------------
DirecTV Group, Inc. (The) 2 147,500 3,678,650
- -------------------------------------------------------------------------------
EchoStar Communications Corp.,
Cl. A 1,2 71,900 2,734,357
- -------------------------------------------------------------------------------
Gannett Co., Inc. 33,800 2,043,548
- -------------------------------------------------------------------------------
Idearc, Inc. 2 16,252 465,620
- -------------------------------------------------------------------------------
Liberty Global, Inc., Series A 1,2 39,000 1,136,850
- -------------------------------------------------------------------------------
Liberty Media Holding Corp.-Capital,
Series A 1,2 60,900 5,966,982
- -------------------------------------------------------------------------------
Live Nation, Inc. 2 3,100 69,440
- -------------------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 122,000 8,298,440
- -------------------------------------------------------------------------------
News Corp., Inc., Cl. A 450,400 9,674,592
- -------------------------------------------------------------------------------
Omnicom Group, Inc. 1 92,700 9,690,858
- -------------------------------------------------------------------------------
Time Warner, Inc. 684,800 14,914,944
- -------------------------------------------------------------------------------
Viacom, Inc., Cl. B 2 229,573 9,419,380
- -------------------------------------------------------------------------------
Walt Disney Co. (The) 324,300 11,113,761
----------------
99,556,244

- -------------------------------------------------------------------------------
MULTILINE RETAIL--2.8%
Big Lots, Inc. 1,2 27,000 618,840
- -------------------------------------------------------------------------------
Dillard's, Inc., Cl. A 1 23,500 821,795
- -------------------------------------------------------------------------------
Dollar Tree Stores, Inc. 1,2 33,500 1,008,350
- -------------------------------------------------------------------------------
Family Dollar Stores, Inc. 28,300 830,039
- -------------------------------------------------------------------------------
Federated Department Stores, Inc. 315,300 12,022,389
- -------------------------------------------------------------------------------
J.C. Penney Co., Inc. (Holding Co.) 1 134,600 10,412,656
- -------------------------------------------------------------------------------
Kohl's Corp. 2 178,800 12,235,284
- -------------------------------------------------------------------------------
Nordstrom, Inc. 215,600 10,637,704
- -------------------------------------------------------------------------------
Sears Holdings Corp. 2 35,900 6,028,687
- -------------------------------------------------------------------------------
Target Corp. 80,600 4,598,230
----------------
59,213,974

- -------------------------------------------------------------------------------
SPECIALTY RETAIL--4.1%
Abercrombie & Fitch Co., Cl. A 1 9,800 682,374
- -------------------------------------------------------------------------------
Aeropostale, Inc. 1,2 13,800 426,006
- -------------------------------------------------------------------------------
American Eagle Outfitters, Inc. 19,950 622,640
- -------------------------------------------------------------------------------
AnnTaylor Stores Corp. 2 15,300 502,452
- -------------------------------------------------------------------------------
AutoNation, Inc. 1,2 16,700 356,044
- -------------------------------------------------------------------------------
AutoZone, Inc. 1,2 5,700 658,692

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
SPECIALTY RETAIL Continued
Barnes & Noble, Inc. 14,100 $ 559,911
- -------------------------------------------------------------------------------
Best Buy Co., Inc. 168,000 8,263,920
- -------------------------------------------------------------------------------
Charming Shoppes, Inc. 1,2 3,700 50,061
- -------------------------------------------------------------------------------
Circuit City Stores, Inc./Circuit City
Group 1 22,400 425,152
- -------------------------------------------------------------------------------
Dick's Sporting Goods, Inc. 2 9,100 445,809
- -------------------------------------------------------------------------------
Dress Barn, Inc. (The) 1,2 17,300 403,609
- -------------------------------------------------------------------------------
DSW, Inc., Cl. A 1,2 700 26,999
- -------------------------------------------------------------------------------
Gap, Inc. (The) 383,800 7,484,100
- -------------------------------------------------------------------------------
Group 1 Automotive, Inc. 1 4,500 232,740
- -------------------------------------------------------------------------------
Gymboree Corp. 2 10,800 412,128
- -------------------------------------------------------------------------------
Home Depot, Inc. 645,900 25,939,344
- -------------------------------------------------------------------------------
Limited Brands, Inc. 198,300 5,738,802
- -------------------------------------------------------------------------------
Lowe's Cos., Inc. 141,700 4,413,955
- -------------------------------------------------------------------------------
Men's Wearhouse, Inc. (The) 1 17,800 681,028
- -------------------------------------------------------------------------------
Office Depot, Inc. 2 256,100 9,775,337
- -------------------------------------------------------------------------------
OfficeMax, Inc. 11,600 575,940
- -------------------------------------------------------------------------------
Payless ShoeSource, Inc. 2 15,800 518,556
- -------------------------------------------------------------------------------
RadioShack Corp. 1 17,100 286,938
- -------------------------------------------------------------------------------
Rent-A-Center, Inc. 1,2 14,400 424,944
- -------------------------------------------------------------------------------
Ross Stores, Inc. 1 19,600 574,280
- -------------------------------------------------------------------------------
Select Comfort Corp. 1,2 7,600 132,164
- -------------------------------------------------------------------------------
Staples, Inc. 253,500 6,768,450
- -------------------------------------------------------------------------------
TJX Cos., Inc. (The) 387,000 11,037,240
----------------
88,419,615

- -------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--0.3%
Brown Shoe Co., Inc. 5,600 267,344
- -------------------------------------------------------------------------------
Coach, Inc. 2 117,100 5,030,616
- -------------------------------------------------------------------------------
Jones Apparel Group, Inc. 11,800 394,474
- -------------------------------------------------------------------------------
Polo Ralph Lauren Corp. 1 7,700 597,982
- -------------------------------------------------------------------------------
Skechers USA, Inc., Cl. A 1,2 1,400 46,634
- -------------------------------------------------------------------------------
Wolverine World Wide, Inc. 1 7,500 213,900
----------------
6,550,950

- -------------------------------------------------------------------------------
CONSUMER STAPLES--5.5%
- -------------------------------------------------------------------------------
BEVERAGES--0.6%
Coca-Cola Co. (The) 87,600 4,226,700
- -------------------------------------------------------------------------------
Molson Coors Brewing Co., Cl. B 4,900 374,556
- -------------------------------------------------------------------------------
PepsiCo, Inc. 132,750 8,303,513
----------------
12,904,769

- -------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.6%
Kroger Co. (The) 305,900 7,057,113
- -------------------------------------------------------------------------------
Safeway, Inc. 249,900 8,636,544
- -------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 386,900 17,867,042
----------------
33,560,699

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
FOOD PRODUCTS--0.3%
ConAgra Foods, Inc. 162,900 $ 4,398,300
- -------------------------------------------------------------------------------
Dean Foods Co. 2 4,300 181,804
- -------------------------------------------------------------------------------
Heinz (H.J.) Co. 17,300 778,673
- -------------------------------------------------------------------------------
Kraft Foods, Inc., Cl. A 1 28,600 1,021,020
- -------------------------------------------------------------------------------
Sara Lee Corp. 66,200 1,127,386
----------------
7,507,183

- -------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--1.1%
Energizer Holdings, Inc. 1,2 5,600 397,544
- -------------------------------------------------------------------------------
Procter & Gamble Co. (The) 366,615 23,562,346
----------------
23,959,890

- -------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.1%
Avon Products, Inc. 71,300 2,355,752
- -------------------------------------------------------------------------------
NBTY, Inc. 2 13,900 577,823
----------------
2,933,575

- -------------------------------------------------------------------------------
TOBACCO--1.8%
Altria Group, Inc. 414,700 35,589,554
- -------------------------------------------------------------------------------
Reynolds American, Inc. 1 22,900 1,499,263
- -------------------------------------------------------------------------------
UST, Inc. 11,800 686,760
----------------
37,775,577

- -------------------------------------------------------------------------------
ENERGY--8.3%
- -------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.3%
Grey Wolf, Inc. 1,2 30,300 207,858
- -------------------------------------------------------------------------------
Halliburton Co. 118,500 3,679,425
- -------------------------------------------------------------------------------
Lone Star Technologies, Inc. 2 4,400 213,004
- -------------------------------------------------------------------------------
Parker Drilling Co. 2 24,100 196,897
- -------------------------------------------------------------------------------
Seacor Holdings, Inc. 1,2 5,300 525,442
- -------------------------------------------------------------------------------
Tidewater, Inc. 1 10,100 488,436
- -------------------------------------------------------------------------------
Veritas DGC, Inc. 2 9,000 770,670
----------------
6,081,732

- -------------------------------------------------------------------------------
OIL & GAS--8.0%
Chevron Corp. 423,026 31,105,102
- -------------------------------------------------------------------------------
ConocoPhillips 363,783 26,174,187
- -------------------------------------------------------------------------------
Devon Energy Corp. 105,700 7,090,356
- -------------------------------------------------------------------------------
Exxon Mobil Corp. 1,021,316 78,263,445
- -------------------------------------------------------------------------------
Foundation Coal Holdings, Inc. 1 5,800 184,208
- -------------------------------------------------------------------------------
Frontier Oil Corp. 1 22,700 652,398
- -------------------------------------------------------------------------------
General Maritime Corp. 1 5,900 207,621
- -------------------------------------------------------------------------------
Hess Corp. 91,900 4,555,483
- -------------------------------------------------------------------------------
Holly Corp. 9,600 493,440
- -------------------------------------------------------------------------------
Marathon Oil Corp. 142,300 13,162,750
- -------------------------------------------------------------------------------
Occidental Petroleum Corp. 96,052 4,690,219
- -------------------------------------------------------------------------------
OMI Corp. 1 10,600 224,402

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
OIL & GAS Continued
Overseas Shipholding Group, Inc. 1 8,500 $ 478,550
- -------------------------------------------------------------------------------
Paramount Resources Ltd., Cl. A 2 103,700 2,134,202
- -------------------------------------------------------------------------------
Sunoco, Inc. 21,000 1,309,560
- -------------------------------------------------------------------------------
Tesoro Corp. 8,700 572,199
- -------------------------------------------------------------------------------
USEC, Inc. 1,2 32,100 408,312
----------------
171,706,434

- -------------------------------------------------------------------------------
FINANCIALS--20.6%
- -------------------------------------------------------------------------------
CAPITAL MARKETS--4.4%
Ameriprise Financial, Inc. 131,200 7,150,400
- -------------------------------------------------------------------------------
Bear Stearns Cos., Inc. (The) 69,100 11,248,098
- -------------------------------------------------------------------------------
BlackRock, Inc. 1 19,100 2,901,290
- -------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 68,800 13,715,280
- -------------------------------------------------------------------------------
Janus Capital Group, Inc. 19,000 410,210
- -------------------------------------------------------------------------------
Knight Capital Group, Inc., Cl. A 1,2 16,800 322,056
- -------------------------------------------------------------------------------
Lehman Brothers Holdings, Inc. 191,600 14,967,792
- -------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 281,500 26,207,650
- -------------------------------------------------------------------------------
Morgan Stanley 205,200 16,709,436
- -------------------------------------------------------------------------------
Piper Jaffray Cos., Inc. 2 3,200 208,480
----------------
93,840,692

- -------------------------------------------------------------------------------
COMMERCIAL BANKS--3.0%
M&T Bank Corp. 7,500 916,200
- -------------------------------------------------------------------------------
U.S. Bancorp 386,170 13,975,492
- -------------------------------------------------------------------------------
Wachovia Corp. 333,893 19,015,206
- -------------------------------------------------------------------------------
Wells Fargo & Co. 836,800 29,756,608
----------------
63,663,506

- -------------------------------------------------------------------------------
CONSUMER FINANCE--0.4%
AmeriCredit Corp. 1,2 47,900 1,205,643
- -------------------------------------------------------------------------------
Capital One Financial Corp. 81,000 6,222,420
- -------------------------------------------------------------------------------
First Marblehead Corp. (The) 1 9,750 532,838
- -------------------------------------------------------------------------------
World Acceptance Corp. 1,2 2,700 126,765
----------------
8,087,666

- -------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--6.5%
Bank of America Corp. 899,009 47,998,091
- -------------------------------------------------------------------------------
Chicago Mercantile Exchange (The) 6,200 3,160,450
- -------------------------------------------------------------------------------
Citigroup, Inc. 850,788 47,388,892
- -------------------------------------------------------------------------------
International Securities Exchange,
Inc., Cl. A 1 5,700 266,703
- -------------------------------------------------------------------------------
JPMorgan Chase & Co. 829,744 40,076,635
----------------
138,890,771

- -------------------------------------------------------------------------------
INSURANCE--4.3%
ACE Ltd. 83,500 5,057,595
- -------------------------------------------------------------------------------
Allstate Corp. 111,700 7,272,787
- -------------------------------------------------------------------------------
AMBAC Financial Group, Inc. 6,700 596,769

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
INSURANCE Continued
American International Group, Inc. 423,340 $ 30,336,544
- -------------------------------------------------------------------------------
Assurant, Inc. 1 16,500 911,625
- -------------------------------------------------------------------------------
CNA Financial Corp. 2 6,200 249,984
- -------------------------------------------------------------------------------
Hanover Insurance Group, Inc. 10,000 488,000
- -------------------------------------------------------------------------------
Lincoln National Corp. 85,759 5,694,398
- -------------------------------------------------------------------------------
Loews Corp. 197,500 8,190,325
- -------------------------------------------------------------------------------
MBIA, Inc. 1 14,200 1,037,452
- -------------------------------------------------------------------------------
MetLife, Inc. 1 171,700 10,132,017
- -------------------------------------------------------------------------------
Nationwide Financial Services, Inc.,
Cl. A 1 6,100 330,620
- -------------------------------------------------------------------------------
Old Republic International Corp. 200 4,656
- -------------------------------------------------------------------------------
Partnerre Holdings Ltd. 1 3,000 213,090
- -------------------------------------------------------------------------------
Principal Financial Group, Inc. (The) 139,000 8,159,300
- -------------------------------------------------------------------------------
Prudential Financial, Inc. 1 19,200 1,648,512
- -------------------------------------------------------------------------------
RenaissanceRe Holdings Ltd. 3,700 222,000
- -------------------------------------------------------------------------------
Safeco Corp. 8,200 512,910
- -------------------------------------------------------------------------------
Safety Insurance Group, Inc. 1 1,900 96,349
- -------------------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 222,200 11,929,918
- -------------------------------------------------------------------------------
Zenith National Insurance Corp. 3,200 150,112
----------------
93,234,963

- -------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS--0.0%
CapitalSource, Inc. 1 5,800 158,398
- -------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--2.0%
Astoria Financial Corp. 1 1,050 31,668
- -------------------------------------------------------------------------------
Corus Bankshares, Inc. 1 3,100 71,517
- -------------------------------------------------------------------------------
Countrywide Financial Corp. 236,500 10,039,425
- -------------------------------------------------------------------------------
Fannie Mae 245,100 14,556,489
- -------------------------------------------------------------------------------
Freddie Mac 246,800 16,757,720
- -------------------------------------------------------------------------------
MGIC Investment Corp. 1 7,700 481,558
- -------------------------------------------------------------------------------
PMI Group, Inc. (The) 1 15,800 745,286
- -------------------------------------------------------------------------------
Radian Group, Inc. 1 18,300 986,553
----------------
43,670,216

- -------------------------------------------------------------------------------
HEALTH CARE--11.6%
- -------------------------------------------------------------------------------
BIOTECHNOLOGY--0.4%
Amgen, Inc. 2 85,900 5,867,829
- -------------------------------------------------------------------------------
Biogen Idec, Inc. 1,2 59,400 2,921,886
----------------
8,789,715

- -------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.6%
Advanced Medical Optics, Inc. 1,2 7,500 264,000
- -------------------------------------------------------------------------------
Becton, Dickinson & Co. 26,400 1,851,960
- -------------------------------------------------------------------------------
Boston Scientific Corp. 2 30,200 518,836
- -------------------------------------------------------------------------------
Edwards Lifesciences Corp. 1,2 7,300 343,392
- -------------------------------------------------------------------------------
Immucor, Inc. 1,2 14,300 417,989
- -------------------------------------------------------------------------------
Medtronic, Inc. 17,900 957,829

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES Continued
Mentor Corp. 1 9,700 $ 474,039
- -------------------------------------------------------------------------------
Stryker Corp. 13,800 760,518
- -------------------------------------------------------------------------------
Zimmer Holdings, Inc. 2 85,900 6,732,842
----------------
12,321,405

- -------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--4.2%
Aetna, Inc. 247,000 10,665,460
- -------------------------------------------------------------------------------
AMERIGROUP Corp. 1,2 12,300 441,447
- -------------------------------------------------------------------------------
AmerisourceBergen Corp. 1 45,300 2,036,688
- -------------------------------------------------------------------------------
Cardinal Health, Inc. 7,700 496,111
- -------------------------------------------------------------------------------
Caremark Rx, Inc. 235,000 13,420,850
- -------------------------------------------------------------------------------
Centene Corp. 1,2 12,800 314,496
- -------------------------------------------------------------------------------
CIGNA Corp. 44,000 5,789,080
- -------------------------------------------------------------------------------
Coventry Health Care, Inc. 2 12,200 610,610
- -------------------------------------------------------------------------------
Humana, Inc. 2 108,800 6,017,728
- -------------------------------------------------------------------------------
Laboratory Corp. of America
Holdings 1,2 15,800 1,160,826
- -------------------------------------------------------------------------------
Lincare Holdings, Inc. 1,2 1,000 39,840
- -------------------------------------------------------------------------------
McKesson Corp. 128,600 6,520,020
- -------------------------------------------------------------------------------
Medco Health Solutions, Inc. 2 13,800 737,472
- -------------------------------------------------------------------------------
UnitedHealth Group, Inc. 444,948 23,907,056
- -------------------------------------------------------------------------------
WellCare Health Plans, Inc. 1,2 5,100 351,390
- -------------------------------------------------------------------------------
WellPoint, Inc. 2 228,812 18,005,216
----------------
90,514,290

- -------------------------------------------------------------------------------
HEALTH CARE TECHNOLOGY--0.0%
Emdeon Corp. 1,2 30,900 382,851
- -------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES--0.3%
Applera Corp./Applied Biosystems
Group 38,300 1,405,227
- -------------------------------------------------------------------------------
Thermo Fisher Scientific, Inc. 2 117,100 5,303,459
----------------
6,708,686

- -------------------------------------------------------------------------------
PHARMACEUTICALS--6.1%
Abbott Laboratories 134,500 6,551,495
- -------------------------------------------------------------------------------
Eli Lilly & Co. 21,900 1,140,990
- -------------------------------------------------------------------------------
Endo Pharmaceuticals Holdings, Inc. 1,2 20,500 565,390
- -------------------------------------------------------------------------------
Forest Laboratories, Inc. 1,2 193,400 9,786,040
- -------------------------------------------------------------------------------
Johnson & Johnson 598,506 39,513,366
- -------------------------------------------------------------------------------
King Pharmaceuticals, Inc. 2 22,200 353,424
- -------------------------------------------------------------------------------
Merck & Co., Inc. 590,400 25,741,440
- -------------------------------------------------------------------------------
Mylan Laboratories, Inc. 18,400 367,264
- -------------------------------------------------------------------------------
Pfizer, Inc. 1,688,500 43,732,150
- -------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. 2 12,400 322,772
- -------------------------------------------------------------------------------
Wyeth 49,900 2,540,908
----------------
130,615,239

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
INDUSTRIALS--10.6%
- -------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.1%
Armor Holdings, Inc. 1,2 4,000 $ 219,400
- -------------------------------------------------------------------------------
General Dynamics Corp. 162,300 12,067,005
- -------------------------------------------------------------------------------
Honeywell International, Inc. 270,000 12,214,800
- -------------------------------------------------------------------------------
Lockheed Martin Corp. 166,300 15,311,241
- -------------------------------------------------------------------------------
Northrop Grumman Corp. 192,000 12,998,400
- -------------------------------------------------------------------------------
Orbital Sciences Corp. 1,2 1,200 22,128
- -------------------------------------------------------------------------------
Raytheon Co. 252,400 13,326,720
- -------------------------------------------------------------------------------
United Technologies Corp. 17,100 1,069,092
----------------
67,228,786

- -------------------------------------------------------------------------------
AIRLINES--0.1%
AMR Corp. 1,2 20,900 631,807
- -------------------------------------------------------------------------------
Continental Airlines, Inc., Cl. B 1,2 23,100 952,875
----------------
1,584,682

- -------------------------------------------------------------------------------
BUILDING PRODUCTS--0.0%
Masco Corp. 27,400 818,438
- -------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.2%
Administaff, Inc. 1 9,600 410,592
- -------------------------------------------------------------------------------
Corrections Corp. of America 2 5,900 266,857
- -------------------------------------------------------------------------------
Covanta Holding Corp. 1,2 14,900 328,396
- -------------------------------------------------------------------------------
Deluxe Corp. 1 14,400 362,880
- -------------------------------------------------------------------------------
Harland (John H.) Co. 1 4,400 220,880
- -------------------------------------------------------------------------------
Ikon Office Solutions, Inc. 1 7,700 126,049
- -------------------------------------------------------------------------------
Labor Ready, Inc. 1,2 22,200 406,926
- -------------------------------------------------------------------------------
Manpower, Inc. 15,700 1,176,401
- -------------------------------------------------------------------------------
Watson Wyatt & Co. Holdings 1 2,700 121,905
----------------
3,420,886

- -------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.1%
Chicago Bridge & Iron Co. NV 15,000 410,100
- -------------------------------------------------------------------------------
EMCOR Group, Inc. 2 7,100 403,635
- -------------------------------------------------------------------------------
Granite Construction, Inc. 1 12,500 629,000
----------------
1,442,735

- -------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.1%
Acuity Brands, Inc. 1 11,900 619,276
- -------------------------------------------------------------------------------
Belden CDT, Inc. 1 6,400 250,176
- -------------------------------------------------------------------------------
Emerson Electric Co. 17,800 784,802
- -------------------------------------------------------------------------------
Regal-Beloit Corp. 1 2,700 141,777
----------------
1,796,031

- -------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--4.0%
3M Co. 86,000 6,701,980
- -------------------------------------------------------------------------------
General Electric Co. 1,598,500 59,480,185
- -------------------------------------------------------------------------------
Tyco International Ltd. 616,200 18,732,480
----------------
84,914,645

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
MACHINERY--2.5%
AGCO Corp. 1,2 16,700 $ 516,698
- -------------------------------------------------------------------------------
Caterpillar, Inc. 235,700 14,455,481
- -------------------------------------------------------------------------------
Cummins, Inc. 1 4,100 484,538
- -------------------------------------------------------------------------------
Danaher Corp. 1 163,300 11,829,452
- -------------------------------------------------------------------------------
Deere & Co. 111,400 10,590,798
- -------------------------------------------------------------------------------
Eaton Corp. 92,800 6,972,992
- -------------------------------------------------------------------------------
Gardner Denver, Inc. 1,2 5,800 216,398
- -------------------------------------------------------------------------------
Illinois Tool Works, Inc. 126,900 5,861,511
- -------------------------------------------------------------------------------
Ingersoll-Rand Co. Ltd., Cl. A 1 25,900 1,013,467
- -------------------------------------------------------------------------------
Kaydon Corp. 1 1,900 75,506
- -------------------------------------------------------------------------------
Manitowoc Co., Inc. (The) 6,400 380,352
- -------------------------------------------------------------------------------
SPX Corp. 16,900 1,033,604
- -------------------------------------------------------------------------------
Toro Co. (The) 1 9,700 452,311
- -------------------------------------------------------------------------------
Valmont Industries, Inc. 1 2,200 122,078
- -------------------------------------------------------------------------------
Wabtec Corp. 2,600 78,988
----------------
54,084,174

- -------------------------------------------------------------------------------
ROAD & RAIL--0.5%
CSX Corp. 236,000 8,125,480
- -------------------------------------------------------------------------------
Kansas City Southern 1,2 2,300 66,654
- -------------------------------------------------------------------------------
Laidlaw International, Inc. 12,700 386,461
- -------------------------------------------------------------------------------
Norfolk Southern Corp. 51,400 2,584,906
- -------------------------------------------------------------------------------
Swift Transportation Co., Inc. 1,2 8,200 215,414
----------------
11,378,915

- -------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--19.8%
- -------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--2.6%
ADTRAN, Inc. 1 8,800 199,760
- -------------------------------------------------------------------------------
Arris Group, Inc. 2 34,900 436,599
- -------------------------------------------------------------------------------
Avaya, Inc. 1,2 51,400 718,572
- -------------------------------------------------------------------------------
Cisco Systems, Inc. 2 983,100 26,868,123
- -------------------------------------------------------------------------------
CommScope, Inc. 1,2 13,700 417,576
- -------------------------------------------------------------------------------
InterDigital Communications Corp. 1,2 6,300 211,365
- -------------------------------------------------------------------------------
Motorola, Inc. 774,200 15,917,552
- -------------------------------------------------------------------------------
Polycom, Inc. 1,2 28,600 884,026
- -------------------------------------------------------------------------------
QUALCOMM, Inc. 242,300 9,156,517
- -------------------------------------------------------------------------------
UTStarcom, Inc. 1,2 47,000 411,250
----------------
55,221,340

- -------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--4.8%
Brocade Communications Systems,
Inc. 1,2 58,100 477,001
- -------------------------------------------------------------------------------
Dell, Inc. 2 823,700 20,666,633
- -------------------------------------------------------------------------------
Diebold, Inc. 1 11,800 549,880
- -------------------------------------------------------------------------------
EMC Corp. 1,2 896,400 11,832,480
- -------------------------------------------------------------------------------
Emulex Corp. 1,2 20,600 401,906

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS Continued
Hewlett-Packard Co. 626,200 $ 25,793,178
- -------------------------------------------------------------------------------
International Business Machines
Corp. 383,300 37,237,595
- -------------------------------------------------------------------------------
Lexmark International, Inc., Cl. A 1,2 9,800 717,360
- -------------------------------------------------------------------------------
NCR Corp. 2 13,800 590,088
- -------------------------------------------------------------------------------
Network Appliance, Inc. 2 98,500 3,869,080
- -------------------------------------------------------------------------------
QLogic Corp. 2 18,400 403,328
----------------
102,538,529

- -------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.5%
Agilent Technologies, Inc. 2 246,200 8,580,070
- -------------------------------------------------------------------------------
Avnet, Inc. 1,2 11,700 298,701
- -------------------------------------------------------------------------------
AVX Corp. 1 10,500 155,295
- -------------------------------------------------------------------------------
Plexus Corp. 1,2 1,800 42,984
- -------------------------------------------------------------------------------
Solectron Corp. 2 37,100 119,462
- -------------------------------------------------------------------------------
Tech Data Corp. 2 13,300 503,671
- -------------------------------------------------------------------------------
Tektronix, Inc. 10,100 294,617
- -------------------------------------------------------------------------------
Vishay Intertechnology, Inc. 1,2 21,600 292,464
----------------
10,287,264

- -------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--1.4%
Digital River, Inc. 1,2 5,800 323,582
- -------------------------------------------------------------------------------
EarthLink, Inc. 1,2 34,500 244,950
- -------------------------------------------------------------------------------
Google, Inc., Cl. A 2 57,900 26,661,792
- -------------------------------------------------------------------------------
Sohu.com, Inc. 2 2,500 60,000
- -------------------------------------------------------------------------------
United Online, Inc. 1 32,500 431,600
- -------------------------------------------------------------------------------
ValueClick, Inc. 1,2 14,400 340,272
- -------------------------------------------------------------------------------
VeriSign, Inc. 1,2 21,600 519,480
- -------------------------------------------------------------------------------
WebEx Communications, Inc. 1,2 5,700 198,873
- -------------------------------------------------------------------------------
Websense, Inc. 1,2 12,100 276,243
----------------
29,056,792

- -------------------------------------------------------------------------------
IT SERVICES--1.5%
Acxiom Corp. 8,700 223,155
- -------------------------------------------------------------------------------
Affiliated Computer Services, Inc.,
Cl. A 2 800 39,072
- -------------------------------------------------------------------------------
BISYS Group, Inc. (The) 1,2 1,900 24,529
- -------------------------------------------------------------------------------
Ceridian Corp. 1,2 15,500 433,690
- -------------------------------------------------------------------------------
Computer Sciences Corp. 2 15,000 800,550
- -------------------------------------------------------------------------------
Convergys Corp. 2 23,100 549,318
- -------------------------------------------------------------------------------
CSG Systems International, Inc. 2 7,400 197,802
- -------------------------------------------------------------------------------
DST Systems, Inc. 1,2 9,000 563,670
- -------------------------------------------------------------------------------
Electronic Data Systems Corp. 223,400 6,154,670
- -------------------------------------------------------------------------------
First Data Corp. 1 507,100 12,941,192
- -------------------------------------------------------------------------------
Fiserv, Inc. 2 11,300 592,346
- -------------------------------------------------------------------------------
Gartner, Inc., Cl. A 2 4,500 89,055
- -------------------------------------------------------------------------------
Hewitt Associates, Inc. 1,2 900 23,175

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
IT SERVICES Continued
MPS Group, Inc. 1,2 15,000 $ 212,700
- -------------------------------------------------------------------------------
Paychex, Inc. 138,400 5,472,336
- -------------------------------------------------------------------------------
Sabre Holdings Corp. 20,300 647,367
- -------------------------------------------------------------------------------
Western Union Co. 167,900 3,764,318
----------------
32,728,945

- -------------------------------------------------------------------------------
OFFICE ELECTRONICS--0.5%
Xerox Corp. 2 677,700 11,487,015
- -------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--3.8%
Agere Systems, Inc. 2 20,300 389,151
- -------------------------------------------------------------------------------
Altera Corp. 2 28,900 568,752
- -------------------------------------------------------------------------------
Amkor Technology, Inc. 1,2 42,200 394,148
- -------------------------------------------------------------------------------
Analog Devices, Inc. 322,800 10,610,436
- -------------------------------------------------------------------------------
Applied Materials, Inc. 586,600 10,822,770
- -------------------------------------------------------------------------------
Atmel Corp. 2 12,000 72,600
- -------------------------------------------------------------------------------
Cymer, Inc. 1,2 9,200 404,340
- -------------------------------------------------------------------------------
Fairchild Semiconductor
International, Inc., Cl. A 1,2 600 10,086
- -------------------------------------------------------------------------------
Hittite Microwave Corp. 1,2 6,200 200,384
- -------------------------------------------------------------------------------
Integrated Device Technology, Inc. 2 50,500 781,740
- -------------------------------------------------------------------------------
Intel Corp. 1,298,800 26,300,700
- -------------------------------------------------------------------------------
Intersil Corp., Cl. A 23,100 552,552
- -------------------------------------------------------------------------------
Linear Technology Corp. 19,200 582,144
- -------------------------------------------------------------------------------
LSI Logic Corp. 1,2 60,500 544,500
- -------------------------------------------------------------------------------
Micrel, Inc. 1,2 23,100 249,018
- -------------------------------------------------------------------------------
Micron Technology, Inc. 2 253,300 3,536,068
- -------------------------------------------------------------------------------
National Semiconductor Corp. 1 31,200 708,240
- -------------------------------------------------------------------------------
Novellus Systems, Inc. 1,2 18,000 619,560
- -------------------------------------------------------------------------------
NVIDIA Corp. 2 206,000 7,624,060
- -------------------------------------------------------------------------------
OmniVision Technologies, Inc. 1,2 22,200 303,030
- -------------------------------------------------------------------------------
Silicon Image, Inc. 1,2 31,800 404,496
- -------------------------------------------------------------------------------
Teradyne, Inc. 1,2 36,000 538,560
- -------------------------------------------------------------------------------
Texas Instruments, Inc. 532,400 15,333,120
- -------------------------------------------------------------------------------
Varian Semiconductor Equipment
Associates, Inc. 1,2 12,500 569,000
- -------------------------------------------------------------------------------
Verigy Ltd. 2 29,347 520,909
----------------
82,640,364

- -------------------------------------------------------------------------------
SOFTWARE--4.7%
Amdocs Ltd. 2 11,000 426,250
- -------------------------------------------------------------------------------
BEA Systems, Inc. 2 82,800 1,041,624
- -------------------------------------------------------------------------------
BMC Software, Inc. 2 39,700 1,278,340
- -------------------------------------------------------------------------------
CA, Inc. 1 201,700 4,568,505
- -------------------------------------------------------------------------------
Cadence Design Systems, Inc. 1,2 34,800 623,268
- -------------------------------------------------------------------------------
Check Point Software Technologies
Ltd. 2 7,900 173,168

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
SOFTWARE Continued
Cognos, Inc. 1,2 5,400 $ 229,284
- -------------------------------------------------------------------------------
Compuware Corp. 2 61,900 515,627
- -------------------------------------------------------------------------------
Fair Isaac Corp. 1 19,800 804,870
- -------------------------------------------------------------------------------
Hyperion Solutions Corp. 2 13,300 478,002
- -------------------------------------------------------------------------------
Intuit, Inc. 2 338,400 10,324,584
- -------------------------------------------------------------------------------
McAfee, Inc. 2 20,800 590,304
- -------------------------------------------------------------------------------
Mentor Graphics Corp. 1,2 23,500 423,705
- -------------------------------------------------------------------------------
MICROS Systems, Inc. 1,2 5,500 289,850
- -------------------------------------------------------------------------------
Microsoft Corp. 1,362,700 40,690,222
- -------------------------------------------------------------------------------
MicroStrategy, Inc., Cl. A 1,2 3,600 410,436
- -------------------------------------------------------------------------------
Novell, Inc. 2 36,700 227,540
- -------------------------------------------------------------------------------
Oracle Corp. 2 1,336,100 22,900,754
- -------------------------------------------------------------------------------
Sybase, Inc. 1,2 21,500 531,050
- -------------------------------------------------------------------------------
Symantec Corp. 1,2 627,300 13,079,205
- -------------------------------------------------------------------------------
Synopsys, Inc. 2 37,600 1,005,048
- -------------------------------------------------------------------------------
TIBCO Software, Inc. 2 6,500 61,360
----------------
100,672,996

- -------------------------------------------------------------------------------
MATERIALS--3.7%
- -------------------------------------------------------------------------------
CHEMICALS--1.3%
Air Products & Chemicals, Inc. 30,900 2,171,652
- -------------------------------------------------------------------------------
Albemarle Corp. 1 7,500 538,500
- -------------------------------------------------------------------------------
Ashland, Inc. 1 8,700 601,866
- -------------------------------------------------------------------------------
Dow Chemical Co. (The) 324,900 12,976,506
- -------------------------------------------------------------------------------
Fuller (H.B.) Co. 1 9,600 247,872
- -------------------------------------------------------------------------------
Hercules, Inc. 2 26,800 517,508
- -------------------------------------------------------------------------------
Lubrizol Corp. (The) 7,100 355,923
- -------------------------------------------------------------------------------
Lyondell Chemical Co. 1 31,000 792,670
- -------------------------------------------------------------------------------
NewMarket Corp. 1 6,700 395,635
- -------------------------------------------------------------------------------
OM Group, Inc. 2 8,800 398,464
- -------------------------------------------------------------------------------
PPG Industries, Inc. 1 60,000 3,852,600
- -------------------------------------------------------------------------------
Rohm & Haas Co. 1 88,400 4,519,008
- -------------------------------------------------------------------------------
Tronox, Inc., Cl. B 1 1,019 16,090
----------------
27,384,294

- -------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.0%
Eagle Materials, Inc. 1 11,700 505,791
- -------------------------------------------------------------------------------
Headwaters, Inc. 1,2 17,600 421,696
----------------
927,487

- -------------------------------------------------------------------------------
CONTAINERS & PACKAGING--0.1%
Packaging Corp. of America 4,100 90,610
- -------------------------------------------------------------------------------
Pactiv Corp. 2 28,600 1,020,734
----------------
1,111,344

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
METALS & MINING--2.3%
AK Steel Holding Corp. 1,2 38,300 $ 647,270
- -------------------------------------------------------------------------------
Alcoa, Inc. 326,400 9,795,264
- -------------------------------------------------------------------------------
Carpenter Technology Corp. 9,300 953,436
- -------------------------------------------------------------------------------
Chaparral Steel Co. 10,600 469,262
- -------------------------------------------------------------------------------
Cleveland-Cliffs, Inc. 1 8,800 426,272
- -------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold,
Inc., Cl. B 1 80,600 4,491,838
- -------------------------------------------------------------------------------
Nucor Corp. 211,600 11,566,056
- -------------------------------------------------------------------------------
Oregon Steel Mills, Inc. 2 5,000 312,050
- -------------------------------------------------------------------------------
Phelps Dodge Corp. 110,100 13,181,172
- -------------------------------------------------------------------------------
Quanex Corp. 1 9,550 330,335
- -------------------------------------------------------------------------------
Southern Copper Corp. 1 103,000 5,550,670
- -------------------------------------------------------------------------------
Steel Dynamics, Inc. 1 20,500 665,225
- -------------------------------------------------------------------------------
United States Steel Corp. 13,000 950,820
----------------
49,339,670

- -------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.0%
Louisiana-Pacific Corp. 1 14,500 312,185
- -------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--4.9%
- -------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--3.9%
AT&T, Inc. 787,178 28,141,614
- -------------------------------------------------------------------------------
BellSouth Corp. 478,000 22,518,580
- -------------------------------------------------------------------------------
CenturyTel, Inc. 1 25,500 1,113,330
- -------------------------------------------------------------------------------
Citizens Communications Co. 33,700 484,269
- -------------------------------------------------------------------------------
Embarq Corp. 10,196 535,902
- -------------------------------------------------------------------------------
Qwest Communications International,
Inc. 2 50,500 422,685
- -------------------------------------------------------------------------------
Verizon Communications, Inc. 806,656 30,039,869
----------------
83,256,249

- -------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--1.0%
Dobson Communications Corp.,
Cl. A 2 20,500 178,555
- -------------------------------------------------------------------------------
Sprint Nextel Corp. 1,084,223 20,480,972
- -------------------------------------------------------------------------------
Telephone & Data Systems, Inc. 1 12,400 673,692
----------------
21,333,219

- -------------------------------------------------------------------------------
UTILITIES--0.5%
- -------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.1%
American Electric Power Co., Inc. 48,000 2,043,840
- -------------------------------------------------------------------------------
Progress Energy, Inc., Contingent
Value Obligation 2,3 32,000 9,920
----------------
2,053,760

- -------------------------------------------------------------------------------
GAS UTILITIES--0.0%
ONEOK, Inc. 13,800 595,056

VALUE
SHARES SEE NOTE 1
- -------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.4%
Alliant Energy Corp. 2,900 $ 109,533
- -------------------------------------------------------------------------------
Avista Corp. 1 2,100 53,151
- -------------------------------------------------------------------------------
CenterPoint Energy, Inc. 1 29,600 490,768
- -------------------------------------------------------------------------------
PG&E Corp. 184,200 8,718,185
----------------
9,371,637
----------------
Total Common Stocks
(Cost $1,746,543,505) 2,132,215,373

- -------------------------------------------------------------------------------
PREFERRED STOCKS--0.0%
- -------------------------------------------------------------------------------
Wachovia Corp., Dividend Equalization
Preferred Shares (Cost $0) 6,000 15

UNITS
- -------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- -------------------------------------------------------------------------------
Dime Bancorp, Inc. Wts., Exp. 1/2/10 2 31,900 4,626
- -------------------------------------------------------------------------------
Lucent Technologies, Inc. Wts., Exp.
12/10/07 2 4,837 1,499
----------------
Total Rights, Warrants and
Certificates (Cost $0) 6,125

SHARES
- -------------------------------------------------------------------------------
MONEY MARKET FUND--0.6%
- -------------------------------------------------------------------------------
Oppenheimer Institutional Money
Market Fund, Cl. E, 5.25% 4,5
(Cost $12,793,527) 12,793,527 12,793,527
- -------------------------------------------------------------------------------
Total Investments, at Value
(excluding Investments Purchased
with Cash Collateral from Securities
Loaned) (Cost $1,759,337,032) 2,145,015,040

PRINCIPAL
AMOUNT
- -------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED--5.2% 6
- -------------------------------------------------------------------------------
ASSET BACKED FLOATING NOTE--0.2%
Citigroup Mortgage Loan Trust, Inc.,
Series 2006-HE1, Cl. A1, 5.41%,
1/25/07 $ 1,373,669 1,373,669
- -------------------------------------------------------------------------------
Countrywide Asset-Backed Certificates,
Series 2005-17, Cl. 4AV1, 5.46%,
1/25/07 669,068 669,068
- -------------------------------------------------------------------------------
Countrywide Asset-Backed Certificates,
Series 2006-2, Cl. 2A1, 5.42%,
1/25/07 1,656,970 1,656,970
- -------------------------------------------------------------------------------
GSAA Home Equity Trust, Series
2005-15, Cl. 2A1, 5.44%, 1/25/07 1,239,628 1,239,628
- -------------------------------------------------------------------------------
Money Market Trust, Series
A-2, 5.43%, 1/16/07 1,000,000 1,000,000
----------------
5,939,335

13 | OPPENHEIMER MAIN STREET FUND/VA

STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--2.7%
Undivided interest of 1.40% in joint repurchase
agreement (Principal Amount/Value $4,100,000,000,
with a maturity value of $4,102,437,222) with
Nomura Securities, 5.35%, dated 12/29/06, to
be repurchased at $57,509,120 on 1/2/07,
collateralized by U.S. Agency Mortgages,
0.00%-22.12%, 3/15/14-5/1/46,
with a value of $4,182,000,000 $57,474,954 $ 57,474,954
- -------------------------------------------------------------------------------
MASTER FLOATING NOTE--0.1%
Citigroup Global Markets, Inc.,
5.38%, 1/2/07 1,400,000 1,400,000
- -------------------------------------------------------------------------------
MEDIUM-TERM FLOATING NOTE--2.0%
American Express Credit Corp.,
5.36%, 1/16/07 2,000,000 2,000,000
- -------------------------------------------------------------------------------
Bear Stearns, 5.37%, 1/2/07 2,000,000 2,000,000
- -------------------------------------------------------------------------------
CC USA, Inc., 5.37%, 1/2/07 2,000,000 2,000,000
- -------------------------------------------------------------------------------
CC USA, Inc., 5.37%, 1/2/07 3,000,000 3,000,000
- -------------------------------------------------------------------------------
Citigroup Funding, Inc., 5.36%,
1/2/07 3,000,000 3,000,000
- -------------------------------------------------------------------------------
Dorada Finance, Inc., 5.37%, 1/2/07 4,000,000 4,000,000
- -------------------------------------------------------------------------------
Goldman Sachs Group, Inc., 5.47%,
1/2/07 4,000,000 4,000,000
- -------------------------------------------------------------------------------
HSBC Finance Corp., 5.34%, 1/8/07 3,000,000 3,000,000
- -------------------------------------------------------------------------------
Landsbanki Islands HF, 5.43%, 1/16/07 4,000,000 4,000,000
- -------------------------------------------------------------------------------
LINKS Finance LLC, 5.37%, 1/2/07 3,000,142 3,000,142

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- -------------------------------------------------------------------------------
MEDIUM-TERM FLOATING NOTE Continued
MBIA Global Funding LLC, 5.36%,
1/30/07 $ 3,000,000 $ 3,000,000
- -------------------------------------------------------------------------------
MBIA Global Funding LLC, 5.37%,
1/2/07 2,500,000 2,500,000
- -------------------------------------------------------------------------------
Sigma Finance, Inc., 5.37%, 1/2/07 3,000,000 3,000,000
- -------------------------------------------------------------------------------
Tango Finance Corp., 5.38%, 1/2/07 4,498,874 4,498,874
----------------
42,999,016

- -------------------------------------------------------------------------------
YANKEE FLOATING CERTIFICATE OF DEPOSIT--0.2%
Natexis Banques Populaires NY, 5.37%,
1/2/07 2,000,000 2,000,000
- -------------------------------------------------------------------------------
Natexis Banques Populaires NY, 5.39%,
1/2/07 1,999,758 1,999,758
----------------
3,999,758
----------------
Total Investments Purchased with Cash
Collateral from Securities Loaned
(Cost $111,813,063) 111,813,063

- -------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $1,871,150,095) 105.2% 2,256,828,103
- -------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF
OTHER ASSETS (5.2) (111,389,376)
--------------------------------
NET ASSETS 100.0% $ 2,145,438,727
================================

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Partial or fully-loaned security. See Note 7 of accompanying Notes.

2. Non-income producing security.

3. Illiquid security. The aggregate value of illiquid securities as of December
31, 2006 was $9,920, which represents less than 0.01% of the Fund's net assets.
See Note 6 of accompanying Notes.

4. Rate shown is the 7-day yield as of December 31, 2006.

5. Represents ownership of an affiliated fund, at or during the period ended
December 31, 2006. Transactions during the period in which the issuer was an
affiliate are as follows:

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25%* -- 111,053,465 98,259,938 12,793,527

VALUE DIVIDEND
SEE NOTE 1 INCOME
- --------------------------------------------------------------------------------------------------------------------------------

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25%* $12,793,527 $147,643

* The money market fund and the Fund are affiliated by having the same
investment advisor.

6. The security/securities have 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
accompanying Notes.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF ASSETS AND LIABILITIES December 31, 2006
- --------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $1,858,356,568) $ 2,244,034,576
Affiliated companies (cost $12,793,527) 12,793,527
----------------
2,256,828,103
- -----------------------------------------------------------------------------------------------------------------------------------
Cash 25,323
- -----------------------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 18,421,998
Shares of beneficial interest sold 3,449,799
Interest and dividends 2,596,968
Other 38,243
----------------
Total assets 2,281,360,434

- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned 111,813,063
- -----------------------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 22,193,257
Shares of beneficial interest redeemed 1,085,319
Distribution and service plan fees 638,530
Shareholder communications 124,417
Trustees' compensation 26,947
Transfer and shareholder servicing agent fees 1,771
Other 38,403
----------------
Total liabilities 135,921,707

- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 2,145,438,727
================

- -----------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 86,942
- -----------------------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 1,807,530,899
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated net investment income 20,132,146
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (67,989,268)
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities denominated
in foreign currencies 385,678,008
----------------
NET ASSETS $ 2,145,438,727
================

- -----------------------------------------------------------------------------------------------------------------------------------
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 $1,046,145,894 and 42,215,791 shares of beneficial interest outstanding) $ 24.78
- -----------------------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $1,099,292,833 and 44,726,250 shares of beneficial interest outstanding) $ 24.58

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF OPERATIONS For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies $ 33,648,211
Affiliated companies 147,643
- -----------------------------------------------------------------------------------------------------------------------------------
Interest 561,064
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio lending fees 302,053
----------------
Total investment income 34,658,971

- -----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------------
Management fees 12,021,246
- -----------------------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees -- Service shares 2,022,987
- -----------------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares 10,218
Service shares 10,145
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares 130,293
Service shares 102,435
- -----------------------------------------------------------------------------------------------------------------------------------
Trustees' compensation 28,190
- -----------------------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 11,590
- -----------------------------------------------------------------------------------------------------------------------------------
Administration service fees 1,500
- -----------------------------------------------------------------------------------------------------------------------------------
Other 83,541
----------------
Total expenses 14,422,145
Less waivers and reimbursements of expenses (2,785)
----------------
Net expenses 14,419,360

- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 20,239,611

- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on:
Investments 111,791,653
Foreign currency transactions 413,398
----------------
Net realized gain 112,205,051
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 135,505,529
Translation of assets and liabilities denominated in foreign currencies (379,413)
----------------
Net change in unrealized appreciation 135,126,116

- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 267,570,778
================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2006 2005
- -----------------------------------------------------------------------------------------------------------------------------------

OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 20,239,611 $ 19,278,527
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain 112,205,051 46,249,002
- -----------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 135,126,116 29,278,464
----------------------------------
Net increase in net assets resulting from operations 267,570,778 94,805,993

- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares (12,723,204) (16,043,833)
Service shares (6,609,246) (4,680,411)
----------------------------------
(19,332,450) (20,724,244)

- -----------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest transactions:
Non-Service shares (210,884,469) (165,951,406)
Service shares 388,260,650 199,901,024
----------------------------------
177,376,181 33,949,618

- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase 425,614,509 108,031,367
- -----------------------------------------------------------------------------------------------------------------------------------
Beginning of period 1,719,824,218 1,611,792,851
----------------------------------
End of period (including accumulated net investment income of $20,132,146
and $19,275,548, respectively) $ 2,145,438,727 $ 1,719,824,218
==================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.79 $ 20.84 $ 19.20 $ 15.32 $ 18.99
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .27 1 .26 1 .27 1 .18 .16
Net realized and unrealized gain (loss) 2.98 .97 1.53 3.86 (3.70)
----------------------------------------------------------------------------
Total from investment operations 3.25 1.23 1.80 4.04 (3.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.26) (.28) (.16) (.16) (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.78 $ 21.79 $ 20.84 $ 19.20 $ 15.32
============================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 15.03% 5.98% 9.46% 26.72% (18.80)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,046,146 $1,121,476 $1,238,948 $1,214,960 $890,740
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,054,522 $1,156,299 $1,216,081 $1,003,396 $999,275
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.19% 1.26% 1.39% 1.10% 0.94%
Total expenses 0.66% 4,5 0.67% 6 0.67% 6 0.70% 6 0.69% 6
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 100% 88% 82% 85% 98%

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. Voluntary waiver of affiliated funds management fees less than 0.01%.

5. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.66%

6. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.63 $ 20.70 $ 19.10 $ 15.26 $ 18.95
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .22 1 .21 1 .25 1 .14 .13
Net realized and unrealized gain (loss) 2.95 .96 1.49 3.85 (3.70)
----------------------------------------------------------------------------
Total from investment operations 3.17 1.17 1.74 3.99 (3.57)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.22) (.24) (.14) (.15) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.58 $ 21.63 $ 20.70 $ 19.10 $ 15.26
============================================================================

- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 14.76% 5.74% 9.15% 26.44% (18.99)%
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,099,293 $ 598,348 $ 372,845 $ 166,717 $ 51,929
- ------------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 810,181 $ 462,272 $ 262,660 $ 98,210 $ 34,604
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 0.95% 1.02% 1.30% 0.83% 0.87%
Total expenses 0.91% 4,5 0.91% 6 0.92% 6 0.96% 6 0.84% 6
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 100% 88% 82% 85% 98%

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. Voluntary waiver of affiliated funds management fees less than 0.01%.

5. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.91%

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 Fund/VA (the Fund), is a separate series of Oppenheimer
Variable Account Funds, 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 Fund's investment
advisor is OppenheimerFunds, Inc. (the Manager).

The following is a summary of significant accounting policies consistently
followed by the Fund.

NET UNREALIZED
APPRECIATION
BASED ON COST OF
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED SECURITIES AND OTHER
NET INVESTMENT LONG-TERM LOSS INVESTMENTS FOR FEDERAL
INCOME GAIN CARRYFORWARD 1,2,3,4 INCOME TAX PURPOSES
--------------------------------------------------------------------------------------

$20,159,090 $-- $51,200,524 $368,889,262

1. As of December 31, 2006, the Fund had $51,195,980 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, 2006,
details of the capital loss carryforwards were as follows:

EXPIRING
------------------------
2010 $ 24,626,627
2011 26,569,353
-------------
Total $ 51,195,980
=============

2. The Fund had $4,544 of post-October foreign currency losses which were
deferred.

3. During the fiscal year ended December 31, 2006, the Fund utilized
$112,599,269 of capital loss carryforward to offset capital gains realized in
that fiscal year.

4. During the fiscal year ended December 31, 2005, the Fund utilized $44,990,386
of capital loss carryforward to offset capital gains realized in that fiscal
year.

21 | OPPENHEIMER MAIN STREET FUND/VA

NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

REDUCTION
REDUCTION TO ACCUMULATED NET
TO ACCUMULATED NET REALIZED LOSS
INVESTMENT INCOME ON INVESTMENTS
-------------------------------------------
$50,563 $50,563

The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005 was as follows:

YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
-------------------------------------------------------------------------
Distributions paid from:
Ordinary income $19,332,450 $20,724,244

Federal tax cost of securities $1,887,938,841
===============

Gross unrealized appreciation $ 376,147,948
Gross unrealized depreciation (7,258,686)
---------------
Net unrealized appreciation $ 368,889,262
===============

- --------------------------------------------------------------------------------
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:

NON-SERVICE SHARES
Sold 2,514,408 $ 57,767,133 3,666,887 $ 75,624,029
Dividends and/or distributions reinvested 570,547 12,723,204 783,008 16,043,833
Redeemed (12,341,295) (281,374,806) (12,430,546) (257,619,268)
---------------------------------------------------------------
Net decrease (9,256,340) $ (210,884,469) (7,980,651) $(165,951,406)
===============================================================

- -----------------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold 19,602,827 $ 446,509,884 10,831,089 $ 224,276,509
Dividends and/or distributions reinvested 298,058 6,604,957 229,657 4,680,411
Redeemed (2,838,200) (64,854,191) (1,404,971) (29,055,896)
---------------------------------------------------------------
Net increase 17,062,685 $ 388,260,650 9,655,775 $ 199,901,024
===============================================================

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and money market funds, for the year ended December
31, 2006, were as follows:

PURCHASES SALES
----------------------------------------------------------------
Investment securities $2,026,301,486 $1,853,000,827

- --------------------------------------------------------------------------------
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 average net assets as shown in the following table:

FEE SCHEDULE
--------------------------
Up to $200 million 0.75%
Next $200 million 0.72
Next $200 million 0.69
Next $200 million 0.66
Over $800 million 0.60

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

As of December 31, 2006, the Fund had no outstanding foreign currency
contracts.

- --------------------------------------------------------------------------------
6. ILLIQUID SECURITIES

- --------------------------------------------------------------------------------
7. SECURITIES LENDING

- --------------------------------------------------------------------------------
8. RECENT ACCOUNTING PRONOUNCEMENTS

- --------------------------------------------------------------------------------
8. RECENT ACCOUNTING PRONOUNCEMENTS Continued

beginning after November 15, 2007, and interim periods within those fiscal
years. As of December 31, 2006, the Manager does not believe the adoption of
SFAS No. 157 will materially impact the financial statement amounts; however,
additional disclosures may be required about the inputs used to develop the
measurements and the effect of certain of the measurements on changes in net
assets for the period.

- --------------------------------------------------------------------------------
9. LITIGATION

36 | OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

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 (the "Fund"), a series of Oppenheimer
Variable Account Funds, including the statement of investments, as of December
31, 2006, 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.

DELOITTE & TOUCHE LLP

Denver, Colorado
February 16, 2007

STATEMENT OF INVESTMENTS December 31, 2006
- --------------------------------------------------------------------------------

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--99.6%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--18.5%
- --------------------------------------------------------------------------------
AUTO COMPONENTS--1.4%
Aftermarket Technology Corp. 1 14,000 $ 297,920
- --------------------------------------------------------------------------------
ArvinMeritor, Inc. 2 120,800 2,202,184
- --------------------------------------------------------------------------------
Autoliv, Inc. 12,100 729,630
- --------------------------------------------------------------------------------
Fuel Systems Solutions, Inc. 1,2 4,299 94,922
- --------------------------------------------------------------------------------
GenTek, Inc. 1,2 4,700 162,573
- --------------------------------------------------------------------------------
Goodyear Tire & Rubber
Co. (The) 1,2 49,800 1,045,302
- --------------------------------------------------------------------------------
Lear Corp. 2 56,400 1,665,492
- --------------------------------------------------------------------------------
Modine Manufacturing Co. 2 34,400 861,032
- --------------------------------------------------------------------------------
Sauer-Danfoss, Inc. 2 25,800 832,050
- --------------------------------------------------------------------------------
Shiloh Industries, Inc. 1 5,900 111,805
- --------------------------------------------------------------------------------
Standard Motor Products, Inc. 800 11,984
- --------------------------------------------------------------------------------
Tenneco, Inc. 1 79,800 1,972,656
-----------------
9,987,550

- --------------------------------------------------------------------------------
AUTOMOBILES--0.1%
Winnebago Industries, Inc. 2 30,200 993,882
- --------------------------------------------------------------------------------
DISTRIBUTORS--0.1%
Building Materials Holding Corp. 17,600 434,544
- --------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES--1.7%
Apollo Group, Inc., Cl. A 1 15,000 584,550
- --------------------------------------------------------------------------------
Bright Horizons
Family Solutions, Inc. 1,2 9,800 378,868
- --------------------------------------------------------------------------------
Career Education Corp. 1 30,000 743,400
- --------------------------------------------------------------------------------
Coinstar, Inc. 1 28,400 868,188
- --------------------------------------------------------------------------------
Corinthian Colleges, Inc. 1,2 65,400 891,402
- --------------------------------------------------------------------------------
CPI Corp. 3,300 153,417
- --------------------------------------------------------------------------------
DeVry, Inc 79,600 2,228,800
- --------------------------------------------------------------------------------
INVESTools, Inc. 1,2 36,300 500,577
- --------------------------------------------------------------------------------
ITT Educational Services, Inc. 1 10,500 696,885
- --------------------------------------------------------------------------------
Jackson Hewitt Tax Service, Inc. 42,500 1,443,725
- --------------------------------------------------------------------------------
Regis Corp. 19,500 771,030
- --------------------------------------------------------------------------------
Service Corp. International 29,400 301,350
- --------------------------------------------------------------------------------
Sotheby's 2 12,900 400,158
- --------------------------------------------------------------------------------
Steiner Leisure Ltd. 1,2 17,300 787,150
- --------------------------------------------------------------------------------
Stewart Enterprises, Inc. 2 42,600 266,250
- --------------------------------------------------------------------------------
Strayer Education, Inc. 2 8,100 859,005
- --------------------------------------------------------------------------------
Vertrue, Inc. 1,2 4,400 169,004
-----------------
12,043,759

- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--2.3%
AFC Enterprises, Inc. 1,2 11,100 196,137
- --------------------------------------------------------------------------------
Ambassadors Group, Inc. 2 13,000 394,550
- --------------------------------------------------------------------------------
Aztar Corp. 1,2 18,400 1,001,328

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE Continued
Bally Technologies, Inc. 1,2 15,200 $ 283,936
- --------------------------------------------------------------------------------
Benihana, Inc., Cl. A 1 400 12,280
- --------------------------------------------------------------------------------
Bob Evans Farms, Inc. 41,214 1,410,343
- --------------------------------------------------------------------------------
Brinker International, Inc. 19,800 597,168
- --------------------------------------------------------------------------------
Buffalo Wild Wings, Inc. 1 6,800 361,760
- --------------------------------------------------------------------------------
CBRL Group, Inc. 15,000 671,400
- --------------------------------------------------------------------------------
CEC Entertainment, Inc. 1 6,300 253,575
- --------------------------------------------------------------------------------
Chipotle Mexican Grill, Inc., Cl. A 1,2 4,900 279,300
- --------------------------------------------------------------------------------
Ctrip.com International Ltd., ADR 2 8,500 531,080
- --------------------------------------------------------------------------------
Denny's Corp. 1 53,700 252,927
- --------------------------------------------------------------------------------
Domino's Pizza, Inc. 61,900 1,733,200
- --------------------------------------------------------------------------------
Dover Downs Gaming &
Entertainment, Inc. 2 24,700 330,239
- --------------------------------------------------------------------------------
IHOP Corp. 2 23,900 1,259,530
- --------------------------------------------------------------------------------
Jack in the Box, Inc. 1,2 36,300 2,215,752
- --------------------------------------------------------------------------------
Krispy Kreme Doughnuts, Inc. 1,2 27,700 307,470
- --------------------------------------------------------------------------------
Luby's, Inc. 1,2 19,500 212,355
- --------------------------------------------------------------------------------
Marcus Corp. (The) 2 1,800 46,044
- --------------------------------------------------------------------------------
McCormick & Schmick's
Seafood Restaurants, Inc. 1,2 11,600 278,864
- --------------------------------------------------------------------------------
Monarch Casino & Resort, Inc. 1,2 12,500 298,500
- --------------------------------------------------------------------------------
MTR Gaming Group, Inc. 1,2 10,400 127,088
- --------------------------------------------------------------------------------
Multimedia Games, Inc. 1,2 15,300 146,880
- --------------------------------------------------------------------------------
O'Charley's, Inc. 1 11,000 234,080
- --------------------------------------------------------------------------------
Papa John's International, Inc. 1,2 27,000 783,270
- --------------------------------------------------------------------------------
Ruby Tuesday, Inc. 2 2,400 65,856
- --------------------------------------------------------------------------------
Vail Resorts, Inc. 1,2 14,400 645,408
- --------------------------------------------------------------------------------
Wendy's International, Inc. 24,700 817,323
- --------------------------------------------------------------------------------
WMS Industries, Inc. 1,2 23,200 808,752
-----------------
16,556,395

- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--1.6%
American Greetings Corp., Cl. A 2 42,700 1,019,249
- --------------------------------------------------------------------------------
Black & Decker Corp. 4,300 343,871
- --------------------------------------------------------------------------------
Blyth, Inc. 2 41,800 867,350
- --------------------------------------------------------------------------------
CSS Industries, Inc. 2 650 22,991
- --------------------------------------------------------------------------------
Ethan Allen Interiors, Inc. 2 33,700 1,216,907
- --------------------------------------------------------------------------------
Furniture Brands
International, Inc. 2 5,100 82,773
- --------------------------------------------------------------------------------
Interface, Inc., Cl. A 1 70,900 1,008,198
- --------------------------------------------------------------------------------
Jarden Corp. 1 16,200 563,598
- --------------------------------------------------------------------------------
Kimball International, Inc., Cl. B 38,300 930,690
- --------------------------------------------------------------------------------
La-Z-Boy, Inc. 2 28,000 332,360
- --------------------------------------------------------------------------------
Leggett & Platt, Inc. 8,700 207,930
- --------------------------------------------------------------------------------
Meritage Homes Corp. 1,2 18,800 897,136
- --------------------------------------------------------------------------------
Skyline Corp. 2 400 16,088

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES Continued
Snap-On, Inc. 20,300 $ 967,092
- --------------------------------------------------------------------------------
Stanley Furniture Co., Inc. 2 12,600 270,270
- --------------------------------------------------------------------------------
Stanley Works (The) 6,300 316,827
- --------------------------------------------------------------------------------
Tempur-Pedic International, Inc. 1,2 109,500 2,240,370
-----------------
11,303,700

- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--0.6%
Blue Nile, Inc. 1,2 7,300 269,297
- --------------------------------------------------------------------------------
Expedia, Inc. 1 11,700 245,466
- --------------------------------------------------------------------------------
FTD Group, Inc. 1 18,000 322,020
- --------------------------------------------------------------------------------
GSI Commerce, Inc. 1,2 3,300 61,875
- --------------------------------------------------------------------------------
IAC/InterActiveCorp 1 20,800 772,928
- --------------------------------------------------------------------------------
NetFlix.com, Inc. 1,2 41,700 1,078,362
- --------------------------------------------------------------------------------
NutriSystem, Inc. 1,2 3,700 234,543
- --------------------------------------------------------------------------------
Priceline.com, Inc. 1,2 26,400 1,151,304
- --------------------------------------------------------------------------------
Stamps.com, Inc. 1,2 4,200 66,150
- --------------------------------------------------------------------------------
Systemax, Inc. 1,2 6,000 104,700
-----------------
4,306,645

- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--0.7%
Brunswick Corp. 7,600 242,440
- --------------------------------------------------------------------------------
Eastman Kodak Co. 2 34,800 897,840
- --------------------------------------------------------------------------------
Hasbro, Inc. 33,200 904,700
- --------------------------------------------------------------------------------
K2, Inc. 1 23,300 307,327
- --------------------------------------------------------------------------------
Marvel Entertainment, Inc. 1,2 36,300 976,833
- --------------------------------------------------------------------------------
Mattel, Inc. 50,200 1,137,532
- --------------------------------------------------------------------------------
RC2 Corp. 1,2 10,700 470,800
- --------------------------------------------------------------------------------
Steinway Musical Instruments,
Inc. 1 5,700 176,985
- --------------------------------------------------------------------------------
Sturm, Ruger & Co., Inc. 1 2,300 22,080
-----------------
5,136,537

- --------------------------------------------------------------------------------
MEDIA--1.5%
Arbitron, Inc. 2 5,300 230,232
- --------------------------------------------------------------------------------
Catalina Marketing Corp. 4,300 118,250
- --------------------------------------------------------------------------------
Charter Communications, Inc.,
Cl. A 1,2 305,800 935,748
- --------------------------------------------------------------------------------
Citadel Broadcasting Corp. 2 47,100 469,116
- --------------------------------------------------------------------------------
Cox Radio, Inc., Cl. A 1,2 84,600 1,378,980
- --------------------------------------------------------------------------------
Cumulus Media, Inc., Cl. A 1,2 33,300 345,987
- --------------------------------------------------------------------------------
Emmis Communications Corp.,
Cl. A 2 8,300 68,392
- --------------------------------------------------------------------------------
GateHouse Media, Inc. 2 9,400 174,464
- --------------------------------------------------------------------------------
Harris Interactive, Inc. 1 7,800 39,312
- --------------------------------------------------------------------------------
Journal Register Co. 2 26,100 190,530
- --------------------------------------------------------------------------------
Knology, Inc. 1 13,900 147,896
- --------------------------------------------------------------------------------
Lee Enterprises, Inc. 2 26,800 832,408

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
Lin TV Corp. 1 10,200 $ 101,490
- --------------------------------------------------------------------------------
Live Nation, Inc. 1 37,300 835,520
- --------------------------------------------------------------------------------
LodgeNet Entertainment Corp. 1 13,000 325,390
- --------------------------------------------------------------------------------
Mediacom Communications
Corp. 1 62,400 501,696
- --------------------------------------------------------------------------------
ProQuest Co. 1,2 3,100 32,395
- --------------------------------------------------------------------------------
Radio One, Inc., Cl. D 1,2 29,300 197,482
- --------------------------------------------------------------------------------
RCN Corp. 1 5,200 156,780
- --------------------------------------------------------------------------------
Readers Digest Assn., Inc. (The),
Cl. A, Non-Vtg. 27,800 464,260
- --------------------------------------------------------------------------------
Regal Entertainment Group 15,900 338,988
- --------------------------------------------------------------------------------
Scholastic Corp. 1 27,600 989,184
- --------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.,
Cl. A 2 72,100 757,050
- --------------------------------------------------------------------------------
Warner Music Group Corp. 20,400 468,180
- --------------------------------------------------------------------------------
Westwood One, Inc. 2 38,000 268,280
- --------------------------------------------------------------------------------
World Wrestling Federation
Entertainment, Inc. 2 41,900 682,970
-----------------
11,050,980

- --------------------------------------------------------------------------------
MULTILINE RETAIL--0.8%
Big Lots, Inc. 1 101,800 2,333,256
- --------------------------------------------------------------------------------
Dillard's, Inc., Cl. A 2 23,200 811,304
- --------------------------------------------------------------------------------
Dollar Tree Stores, Inc. 1 35,000 1,053,500
- --------------------------------------------------------------------------------
Family Dollar Stores, Inc. 29,700 871,101
- --------------------------------------------------------------------------------
Nordstrom, Inc. 6,900 340,446
- --------------------------------------------------------------------------------
Retail Ventures, Inc. 1 28,900 550,256
-----------------
5,959,863

- --------------------------------------------------------------------------------
SPECIALTY RETAIL--5.9%
Abercrombie & Fitch Co., Cl. A 14,200 988,746
- --------------------------------------------------------------------------------
Aeropostale, Inc. 1 74,500 2,299,815
- --------------------------------------------------------------------------------
American Eagle Outfitters, Inc. 31,650 987,797
- --------------------------------------------------------------------------------
AnnTaylor Stores Corp. 1 22,700 745,468
- --------------------------------------------------------------------------------
Asbury Automotive Group, Inc. 29,400 692,664
- --------------------------------------------------------------------------------
AutoNation, Inc. 1 26,034 555,045
- --------------------------------------------------------------------------------
AutoZone, Inc. 1 8,400 970,704
- --------------------------------------------------------------------------------
Barnes & Noble, Inc. 25,800 1,024,518
- --------------------------------------------------------------------------------
bebe stores, inc. 2 26,900 532,351
- --------------------------------------------------------------------------------
Blockbuster, Inc., Cl. A 1,2 145,600 770,224
- --------------------------------------------------------------------------------
Books-A-Million, Inc. 2 11,200 254,016
- --------------------------------------------------------------------------------
Buckle, Inc. (The) 2 25,500 1,296,675
- --------------------------------------------------------------------------------
Cache, Inc. 1,2 9,800 247,352
- --------------------------------------------------------------------------------
Casual Male Retail Group, Inc. 1,2 34,100 445,005
- --------------------------------------------------------------------------------
Cato Corp., Cl. A 32,050 734,266
- --------------------------------------------------------------------------------
Charlotte Russe Holding, Inc. 1 16,500 507,375
- --------------------------------------------------------------------------------
Charming Shoppes, Inc. 1 147,100 1,990,263

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
SPECIALTY RETAIL Continued
Christopher & Banks Corp. 50,800 $ 947,928
- --------------------------------------------------------------------------------
Circuit City Stores, Inc./Circuit
City Group 23,500 446,030
- --------------------------------------------------------------------------------
CSK Auto Corp. 1,2 18,500 317,275
- --------------------------------------------------------------------------------
Dick's Sporting Goods, Inc. 1 13,600 666,264
- --------------------------------------------------------------------------------
Dress Barn, Inc. (The) 1,2 93,600 2,183,688
- --------------------------------------------------------------------------------
DSW, Inc., Cl. A 1,2 46,600 1,797,362
- --------------------------------------------------------------------------------
Genesco, Inc. 1,2 24,100 898,930
- --------------------------------------------------------------------------------
Group 1 Automotive, Inc. 39,300 2,032,596
- --------------------------------------------------------------------------------
Gymboree Corp. 1 60,400 2,304,864
- --------------------------------------------------------------------------------
Haverty Furniture Cos., Inc. 2 13,600 201,280
- --------------------------------------------------------------------------------
Men's Wearhouse, Inc. (The) 33,150 1,268,319
- --------------------------------------------------------------------------------
Midas, Inc. 1,2 6,000 138,000
- --------------------------------------------------------------------------------
Mothers Work, Inc. 1,2 3,000 118,170
- --------------------------------------------------------------------------------
OfficeMax, Inc. 20,900 1,037,685
- --------------------------------------------------------------------------------
Pacific Sunwear of California, Inc. 1 13,700 268,246
- --------------------------------------------------------------------------------
Payless ShoeSource, Inc. 1 83,000 2,724,060
- --------------------------------------------------------------------------------
PETsMART, Inc. 7,300 210,678
- --------------------------------------------------------------------------------
RadioShack Corp. 2 37,300 625,894
- --------------------------------------------------------------------------------
Rent-A-Center, Inc. 1 82,300 2,428,673
- --------------------------------------------------------------------------------
Ross Stores, Inc. 29,400 861,420
- --------------------------------------------------------------------------------
Select Comfort Corp. 1,2 64,200 1,116,438
- --------------------------------------------------------------------------------
Sherwin-Williams Co. 14,000 890,120
- --------------------------------------------------------------------------------
Shoe Carnival, Inc. 1,2 13,300 420,280
- --------------------------------------------------------------------------------
Sonic Automotive, Inc. 2 26,700 775,368
- --------------------------------------------------------------------------------
Stage Stores, Inc. 2 14,250 433,058
- --------------------------------------------------------------------------------
Syms Corp. 1 3,200 63,712
- --------------------------------------------------------------------------------
Tween Brands, Inc. 1 34,500 1,377,585
- --------------------------------------------------------------------------------
United Retail Group, Inc. 1 5,000 70,100
- --------------------------------------------------------------------------------
West Marine, Inc. 1,2 4,100 70,807
- --------------------------------------------------------------------------------
Wet Seal, Inc., Cl. A 1,2 55,800 372,186
----------------
42,109,300

- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--1.8%
Brown Shoe Co., Inc. 51,550 2,460,997
- --------------------------------------------------------------------------------
Carter's, Inc. 1 5,100 130,050
- --------------------------------------------------------------------------------
Cherokee, Inc. 3,700 158,767
- --------------------------------------------------------------------------------
Deckers Outdoor Corp. 1,2 7,700 461,615
- --------------------------------------------------------------------------------
Jones Apparel Group, Inc. 19,700 658,571
- --------------------------------------------------------------------------------
K-Swiss, Inc., Cl. A 2 8,500 261,290
- --------------------------------------------------------------------------------
Kellwood Co. 2 47,800 1,554,456
- --------------------------------------------------------------------------------
Liz Claiborne, Inc. 3,200 139,072
- --------------------------------------------------------------------------------
Maidenform Brands, Inc. 1 11,100 201,132
- --------------------------------------------------------------------------------
Perry Ellis International, Inc. 1,2 6,000 246,000
- --------------------------------------------------------------------------------
Phillips/Van Heusen Corp. 4,700 235,799
- --------------------------------------------------------------------------------
Polo Ralph Lauren Corp. 11,100 862,026

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS Continued
Skechers USA, Inc., Cl. A 1 49,600 $ 1,652,176
- --------------------------------------------------------------------------------
Steven Madden Ltd. 43,100 1,512,379
- --------------------------------------------------------------------------------
True Religion Apparel, Inc. 1,2 9,300 142,383
- --------------------------------------------------------------------------------
VF Corp. 3,800 311,904
- --------------------------------------------------------------------------------
Volcom, Inc. 1,2 1,400 41,398
- --------------------------------------------------------------------------------
Wolverine World Wide, Inc. 2 71,250 2,032,050
-----------------
13,062,065

- --------------------------------------------------------------------------------
CONSUMER STAPLES--2.7%
- --------------------------------------------------------------------------------
BEVERAGES--0.2%
Boston Beer Co., Inc., Cl. A 1,2 4,900 176,302
- --------------------------------------------------------------------------------
Cott Corp. 1,2 10,800 154,548
- --------------------------------------------------------------------------------
Jones Soda Co. 1,2 4,600 56,580
- --------------------------------------------------------------------------------
MGP Ingredients, Inc. 2 11,300 255,493
- --------------------------------------------------------------------------------
Molson Coors Brewing Co., Cl. B 9,800 749,112
- --------------------------------------------------------------------------------
National Beverage Corp. 2 13,700 192,211
-----------------
1,584,246

- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.8%
Andersons, Inc. (The) 2 1,300 55,107
- --------------------------------------------------------------------------------
Arden Group, Inc., Cl. A 2 1,405 173,953
- --------------------------------------------------------------------------------
Casey's General Stores, Inc. 2 24,900 586,395
- --------------------------------------------------------------------------------
Ingles Markets, Inc., Cl. A 6,800 202,572
- --------------------------------------------------------------------------------
Longs Drug Stores, Inc. 24,900 1,055,262
- --------------------------------------------------------------------------------
Nash Finch Co. 2 5,300 144,690
- --------------------------------------------------------------------------------
Pantry, Inc. (The) 1,2 39,200 1,836,128
- --------------------------------------------------------------------------------
Performance Food Group Co. 1,2 13,800 381,432
- --------------------------------------------------------------------------------
Rite Aid Corp. 1 39,000 212,160
- --------------------------------------------------------------------------------
Smart & Final, Inc. 1,2 7,600 143,640
- --------------------------------------------------------------------------------
Spartan Stores, Inc. 14,100 295,113
- --------------------------------------------------------------------------------
Weis Markets, Inc. 3,700 148,407
- --------------------------------------------------------------------------------
Wild Oats Markets, Inc. 1,2 8,800 126,544
-----------------
5,361,403

- --------------------------------------------------------------------------------
FOOD PRODUCTS--0.6%
Chiquita Brands International, Inc. 2 14,600 233,162
- --------------------------------------------------------------------------------
Corn Products International, Inc. 9,500 328,130
- --------------------------------------------------------------------------------
Dean Foods Co. 1 18,100 765,268
- --------------------------------------------------------------------------------
Delta & Pine Land Co. 25,400 1,027,430
- --------------------------------------------------------------------------------
Flowers Foods, Inc. 2 17,300 466,927
- --------------------------------------------------------------------------------
Gold Kist Holdings, Inc. 1 1,600 33,632
- --------------------------------------------------------------------------------
J&J Snack Foods Corp. 2 6,800 281,520
- --------------------------------------------------------------------------------
Premium Standard Farms, Inc. 12,000 222,840
- --------------------------------------------------------------------------------
Reddy Ice Holdings, Inc. 6,200 160,084
- --------------------------------------------------------------------------------
Seaboard Corp. 2 550 970,750
-----------------
4,489,743

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.1%
Energizer Holdings, Inc. 1 11,400 $ 809,286
- --------------------------------------------------------------------------------
Spectrum Brands, Inc. 1,2 3,300 35,970
- --------------------------------------------------------------------------------
WD-40 Co. 2,500 87,175
-----------------
932,431

- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.8%
Chattem, Inc. 1,2 18,500 926,480
- --------------------------------------------------------------------------------
Estee Lauder Cos., Inc. (The), Cl. A 8,400 342,888
- --------------------------------------------------------------------------------
Mannatech, Inc. 2 13,100 192,963
- --------------------------------------------------------------------------------
NBTY, Inc. 1 50,500 2,099,285
- --------------------------------------------------------------------------------
Physicians Formula Holdings, Inc. 1 28,100 525,189
- --------------------------------------------------------------------------------
Playtex Products, Inc. 1,2 18,000 259,020
- --------------------------------------------------------------------------------
USANA Health Sciences, Inc. 1,2 18,600 960,876
-----------------
5,306,701

- --------------------------------------------------------------------------------
TOBACCO--0.2%
Loews Corp./Carolina Group 6,900 446,568
- --------------------------------------------------------------------------------
UST, Inc. 18,000 1,047,600
-----------------
1,494,168

- --------------------------------------------------------------------------------
ENERGY--4.9%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--2.4%
Basic Energy Services, Inc. 1,2 12,900 317,985
- --------------------------------------------------------------------------------
Dril-Quip, Inc. 1,2 19,200 751,872
- --------------------------------------------------------------------------------
Ensign Energy Services, Inc. 27,200 428,940
- --------------------------------------------------------------------------------
Global Industries Ltd. 1 22,900 298,616
- --------------------------------------------------------------------------------
Grey Wolf, Inc. 1,2 262,600 1,801,436
- --------------------------------------------------------------------------------
Gulfmark Offshore, Inc. 1,2 13,100 490,071
- --------------------------------------------------------------------------------
Horizon North Logistics, Inc. 1 1,470 4,488
- --------------------------------------------------------------------------------
Hornbeck Offshore Services, Inc. 1,2 20,100 717,570
- --------------------------------------------------------------------------------
Hydril Co. 1,2 12,900 969,951
- --------------------------------------------------------------------------------
Input/Output, Inc. 1,2 70,200 956,826
- --------------------------------------------------------------------------------
Leader Energy Services Ltd. 1,3 74,600 105,552
- --------------------------------------------------------------------------------
Lone Star Technologies, Inc. 1 46,100 2,231,701
- --------------------------------------------------------------------------------
Lufkin Industries, Inc. 2 700 40,656
- --------------------------------------------------------------------------------
Matrix Service Co. 1,2 14,300 230,230
- --------------------------------------------------------------------------------
NATCO Group, Inc., Cl. A 1,2 11,400 363,432
- --------------------------------------------------------------------------------
North American Energy
Partners, Inc. 1 36,100 587,708
- --------------------------------------------------------------------------------
Parker Drilling Co. 1 162,400 1,326,808
- --------------------------------------------------------------------------------
Pason Systems, Inc. 12,500 142,134
- --------------------------------------------------------------------------------
Patterson-UTI Energy, Inc. 7,700 178,871
- --------------------------------------------------------------------------------
Savanna Energy Services Corp. 1 5,760 93,551
- --------------------------------------------------------------------------------
Seacor Holdings, Inc. 1 8,700 862,518
- --------------------------------------------------------------------------------
Technicoil Corp. 1 7,100 6,393
- --------------------------------------------------------------------------------
Technicoil Corp. 1 126,700 114,081

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES Continued
Tidewater, Inc. 17,000 $ 822,120
- --------------------------------------------------------------------------------
Trican Well Service Ltd. 18,900 329,330
- --------------------------------------------------------------------------------
Trico Marine Services, Inc. 1,2 10,300 394,593
- --------------------------------------------------------------------------------
Universal Compression
Holdings, Inc. 1 13,800 857,118
- --------------------------------------------------------------------------------
Veritas DGC, Inc. 1 14,100 1,207,383
- --------------------------------------------------------------------------------
W-H Energy Services, Inc. 1 5,300 258,057
-----------------
16,889,991

- --------------------------------------------------------------------------------
OIL & GAS--2.5%
Alberta Clipper Energy, Inc. 1 7,887 40,783
- --------------------------------------------------------------------------------
Alon USA Energy, Inc. 36,100 949,791
- --------------------------------------------------------------------------------
Atlas Energy Ltd. 1 64,300 226,069
- --------------------------------------------------------------------------------
Atlas Energy Ltd. 1 27,900 98,092
- --------------------------------------------------------------------------------
Birchcliff Energy Ltd. 1 4,700 16,484
- --------------------------------------------------------------------------------
Capitol Energy Resources Ltd. 1 24,500 89,710
- --------------------------------------------------------------------------------
Celtic Exploration Ltd. 1 7,400 88,268
- --------------------------------------------------------------------------------
Celtic Exploration Ltd. 1 6,300 75,147
- --------------------------------------------------------------------------------
Comstock Resources, Inc. 1 5,600 173,936
- --------------------------------------------------------------------------------
Cyries Energy, Inc. 1 15,840 171,963
- --------------------------------------------------------------------------------
Delek US Holdings, Inc. 4,000 65,560
- --------------------------------------------------------------------------------
Delphi Energy Corp. 1 5,000 10,633
- --------------------------------------------------------------------------------
Delphi Energy Corp. 1 35,000 74,433
- --------------------------------------------------------------------------------
Duvernay Oil Corp. 1 2,200 65,143
- --------------------------------------------------------------------------------
Edge Petroleum Corp. 1,2 1,700 31,008
- --------------------------------------------------------------------------------
Ember Resources, Inc. 1 5,887 12,974
- --------------------------------------------------------------------------------
Ember Resources, Inc. 1 9,700 21,377
- --------------------------------------------------------------------------------
Foundation Coal Holdings, Inc. 60,600 1,924,656
- --------------------------------------------------------------------------------
Frontier Oil Corp. 28,200 810,468
- --------------------------------------------------------------------------------
Galleon Energy, Inc., Cl. A 1 10,350 160,466
- --------------------------------------------------------------------------------
Galleon Energy, Inc.,
Subscription Receipts 1 11,250 174,420
- --------------------------------------------------------------------------------
General Maritime Corp. 2 31,200 1,097,928
- --------------------------------------------------------------------------------
Giant Industries, Inc. 1 700 52,465
- --------------------------------------------------------------------------------
Harvest Natural Resources, Inc. 1 1,800 19,134
- --------------------------------------------------------------------------------
Highpine Oil & Gas Ltd. 1 511 6,880
- --------------------------------------------------------------------------------
Highpine Oil & Gas Ltd. 1 1,700 22,887
- --------------------------------------------------------------------------------
Holly Corp. 17,300 889,220
- --------------------------------------------------------------------------------
Kereco Energy Ltd. 1 29,365 186,844
- --------------------------------------------------------------------------------
Mahalo Energy Ltd. 1,3 19,500 58,860
- --------------------------------------------------------------------------------
Midnight Oil Exploration Ltd. 1 45,050 91,556
- --------------------------------------------------------------------------------
Midnight Oil Exploration Ltd. 1,3 27,900 56,702
- --------------------------------------------------------------------------------
Mission Oil & Gas, Inc. 1 8,732 94,722
- --------------------------------------------------------------------------------
Mission Oil & Gas, Inc. 1,4 6,400 69,425
- --------------------------------------------------------------------------------
Newfield Exploration Co. 1 4,000 183,800
- --------------------------------------------------------------------------------
OMI Corp. 2 55,300 1,170,701

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
OIL & GAS Continued
Open Range Energy Corp. 1 910 $ 2,575
- --------------------------------------------------------------------------------
Overseas Shipholding Group, Inc. 2 13,500 760,050
- --------------------------------------------------------------------------------
Paramount Resources Ltd., Cl. A 1 25,200 518,630
- --------------------------------------------------------------------------------
Pogo Producing Co. 4,300 208,292
- --------------------------------------------------------------------------------
ProEx Energy Ltd. 1 8,840 97,409
- --------------------------------------------------------------------------------
ProspEx Resources Ltd. 1 51,920 197,680
- --------------------------------------------------------------------------------
Real Resources, Inc. 1 4,800 68,739
- --------------------------------------------------------------------------------
Redstar Oil & Gas, Inc. 1 35,955 39,465
- --------------------------------------------------------------------------------
Rosetta Resources, Inc. 1 1,400 26,138
- --------------------------------------------------------------------------------
Sound Energy Trust 16,966 74,344
- --------------------------------------------------------------------------------
St. Mary Land & Exploration Co. 3,600 132,624
- --------------------------------------------------------------------------------
Sunoco, Inc. 17,600 1,097,536
- --------------------------------------------------------------------------------
Sure Energy, Inc. 1 6,023 4,855
- --------------------------------------------------------------------------------
Swift Energy Co. 1,2 13,800 618,378
- --------------------------------------------------------------------------------
Teekay Shipping Corp. 1,600 69,792
- --------------------------------------------------------------------------------
Tesoro Corp. 11,700 769,509
- --------------------------------------------------------------------------------
Thunder Energy Trust 11,833 57,534
- --------------------------------------------------------------------------------
True Energy Trust 1,464 9,403
- --------------------------------------------------------------------------------
Tusk Energy Corp. 1 26,300 71,041
- --------------------------------------------------------------------------------
Tusk Energy Corp. 1,4 21,300 57,535
- --------------------------------------------------------------------------------
Tusk Energy Corp. 1 77,900 210,423
- --------------------------------------------------------------------------------
USEC, Inc. 1,2 171,500 2,181,480
- --------------------------------------------------------------------------------
VAALCO Energy, Inc. 1,2 48,800 329,400
- --------------------------------------------------------------------------------
Vero Energy, Inc. 1 2,482 12,898
- --------------------------------------------------------------------------------
Western Refining, Inc. 2 53,200 1,354,472
- --------------------------------------------------------------------------------
Zenas Energy Corp. 1 17,437 46,652
-----------------
18,299,359

- --------------------------------------------------------------------------------
FINANCIALS--12.2%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--0.9%
Cohen & Steers, Inc. 2 23,900 960,063
- --------------------------------------------------------------------------------
Janus Capital Group, Inc. 32,600 703,834
- --------------------------------------------------------------------------------
KBW, Inc. 1 2,300 67,597
- --------------------------------------------------------------------------------
Knight Capital Group, Inc., Cl. A 1 115,500 2,214,135
- --------------------------------------------------------------------------------
Lazard Ltd., Cl. A 2 3,300 156,222
- --------------------------------------------------------------------------------
Penson Worldwide, Inc. 1,2 100 2,741
- --------------------------------------------------------------------------------
Piper Jaffray Cos., Inc. 1,2 32,700 2,130,405
- --------------------------------------------------------------------------------
Stifel Financial Corp. 1,2 3,000 117,690
- --------------------------------------------------------------------------------
SWS Group, Inc. 2 12,100 431,970
-----------------
6,784,657

- --------------------------------------------------------------------------------
COMMERCIAL BANKS--0.9%
BancorpSouth, Inc. 6,500 174,330
- --------------------------------------------------------------------------------
Banner Corp. 2 2,300 101,982
- --------------------------------------------------------------------------------
Citizens Banking Corp. 1,700 45,050
- --------------------------------------------------------------------------------
City Holding Co. 7,100 290,319

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMERCIAL BANKS Continued
Columbia Banking System, Inc. 2 5,090 $ 178,761
- --------------------------------------------------------------------------------
Community Trust Bancorp, Inc. 2 1,815 75,377
- --------------------------------------------------------------------------------
Financial Institutions, Inc. 2 700 16,135
- --------------------------------------------------------------------------------
First Citizens BancShares, Inc., Cl. A 1,300 263,432
- --------------------------------------------------------------------------------
First Security Group, Inc. 14,800 170,644
- --------------------------------------------------------------------------------
First South Bancorp, Inc. 2 600 19,134
- --------------------------------------------------------------------------------
Frontier Financial Corp. 2 10,450 305,454
- --------------------------------------------------------------------------------
Greater Bay Bancorp 34,800 916,284
- --------------------------------------------------------------------------------
Greene County Bancshares, Inc. 2 1,400 55,622
- --------------------------------------------------------------------------------
Hancock Holding Co. 2 15,800 834,872
- --------------------------------------------------------------------------------
Hanmi Financial Corp. 20,300 457,359
- --------------------------------------------------------------------------------
Independent Bank Corp. 5,827 147,365
- --------------------------------------------------------------------------------
Intervest Bancshares Corp. 1,2 7,800 268,398
- --------------------------------------------------------------------------------
National Penn Bancshares, Inc. 2 1,315 26,629
- --------------------------------------------------------------------------------
Porter Bancorp, Inc. 2,500 55,475
- --------------------------------------------------------------------------------
Preferred Bank 3,300 198,297
- --------------------------------------------------------------------------------
PrivateBancorp, Inc. 2 5,900 245,617
- --------------------------------------------------------------------------------
Provident Bankshares Corp. 2 10,951 389,856
- --------------------------------------------------------------------------------
Republic Bancorp, Inc., Cl. A 2 2,400 60,216
- --------------------------------------------------------------------------------
Southwest Bancorp, Inc. 2,600 72,436
- --------------------------------------------------------------------------------
Sterling Bancshares, Inc. 2 6,850 89,187
- --------------------------------------------------------------------------------
Sterling Financial Corp.,
Western US 2 25,075 847,786
- --------------------------------------------------------------------------------
Taylor Capital Group, Inc. 2 500 18,305
- --------------------------------------------------------------------------------
Union Bankshares Corp. 2 350 10,707
- --------------------------------------------------------------------------------
United Community Banks, Inc. 2 2,400 77,568
-----------------
6,412,597

- --------------------------------------------------------------------------------
CONSUMER FINANCE--1.2%
Advanta Corp., Cl. B 2 38,400 1,675,392
- --------------------------------------------------------------------------------
AmeriCredit Corp. 1 33,100 833,127
- --------------------------------------------------------------------------------
ASTA Funding, Inc. 2 12,600 383,544
- --------------------------------------------------------------------------------
Cash America International, Inc. 2 38,100 1,786,890
- --------------------------------------------------------------------------------
Credit Acceptance Corp. 1,2 3,428 114,255
- --------------------------------------------------------------------------------
Dollar Financial Corp. 1 7,900 220,094
- --------------------------------------------------------------------------------
EZCORP, Inc., Cl. A 1,2 33,600 546,000
- --------------------------------------------------------------------------------
First Cash Financial Services, Inc. 1 6,500 168,155
- --------------------------------------------------------------------------------
First Marblehead Corp. (The) 15,900 868,935
- --------------------------------------------------------------------------------
World Acceptance Corp. 1,2 34,900 1,638,555
-----------------
8,234,947

- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--0.2%
IntercontinentalExchange, Inc. 1 2,900 312,910
- --------------------------------------------------------------------------------
International Securities
Exchange, Inc., Cl. A 2 21,000 982,590
- --------------------------------------------------------------------------------
Medallion Financial Corp. 2 2,100 25,977

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES Continued
Resource America, Inc., Cl. A 2 1,500 $ 39,600
-----------------
1,361,077

INSURANCE--3.8%
Affirmative Insurance
Holdings, Inc. 4,000 65,080
- --------------------------------------------------------------------------------
AMBAC Financial Group, Inc. 10,900 970,863
- --------------------------------------------------------------------------------
American Financial Group, Inc. 3,900 140,049
- --------------------------------------------------------------------------------
American Physicians Capital, Inc. 1 10,950 438,438
- --------------------------------------------------------------------------------
Argonaut Group, Inc. 1 28,600 996,996
- --------------------------------------------------------------------------------
Assurant, Inc. 18,500 1,022,125
- --------------------------------------------------------------------------------
Bristol West Holdings, Inc. 15,000 237,450
- --------------------------------------------------------------------------------
CNA Financial Corp. 1 13,100 528,192
- --------------------------------------------------------------------------------
CNA Surety Corp. 1 19,200 412,800
- --------------------------------------------------------------------------------
Commerce Group, Inc. (The) 11,500 342,125
- --------------------------------------------------------------------------------
Darwin Professional
Underwriters, Inc. 1,2 6,300 147,735
- --------------------------------------------------------------------------------
Delphi Financial Group, Inc., Cl. A 2 39,250 1,588,055
- --------------------------------------------------------------------------------
Direct General Corp. 2 15,900 328,176
- --------------------------------------------------------------------------------
Donegal Group, Inc., Cl. A 2 9,166 179,562
- --------------------------------------------------------------------------------
EMC Insurance Group, Inc. 2 5,500 187,660
- --------------------------------------------------------------------------------
FBL Financial Group, Inc., Cl. A 2 8,500 332,180
- --------------------------------------------------------------------------------
First Mercury Financial Corp. 1 4,000 94,080
- --------------------------------------------------------------------------------
FPIC Insurance Group, Inc. 1 6,900 268,893
- --------------------------------------------------------------------------------
Great American Financial
Resources, Inc. 2 1,900 43,795
- --------------------------------------------------------------------------------
Hanover Insurance Group, Inc. 14,400 702,720
- --------------------------------------------------------------------------------
Harleysville Group, Inc. 22,700 790,414
- --------------------------------------------------------------------------------
Horace Mann Educators Corp. 2 25,700 519,140
- --------------------------------------------------------------------------------
Infinity Property & Casualty Corp. 24,400 1,180,716
- --------------------------------------------------------------------------------
IPC Holdings Ltd. 600 18,870
- --------------------------------------------------------------------------------
LandAmerica Financial
Group, Inc. 2 1,000 63,110
- --------------------------------------------------------------------------------
Markel Corp. 1 500 240,050
- --------------------------------------------------------------------------------
MBIA, Inc. 15,100 1,103,206
- --------------------------------------------------------------------------------
Meadowbrook Insurance
Group, Inc. 1 20,000 197,800
- --------------------------------------------------------------------------------
Midland Co. (The) 2 1,700 71,315
- --------------------------------------------------------------------------------
National Western Life Insurance
Co., Cl. A 2 800 184,112
- --------------------------------------------------------------------------------
Nationwide Financial Services,
Inc., Cl. A 11,200 607,040
- --------------------------------------------------------------------------------
Odyssey Re Holdings Corp. 2 6,300 234,990
- --------------------------------------------------------------------------------
Ohio Casualty Corp. 63,800 1,901,878
- --------------------------------------------------------------------------------
Old Republic International Corp. 16,850 392,268
- --------------------------------------------------------------------------------
OneBeacon Insurance Group Ltd. 1 17,700 495,600
- --------------------------------------------------------------------------------
Partnerre Holdings Ltd. 7,600 539,828

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
INSURANCE Continued
Phoenix Cos., Inc. (The) 76,900 $ 1,221,941
- --------------------------------------------------------------------------------
Presidential Life Corp. 2 8,100 177,795
- --------------------------------------------------------------------------------
ProCentury Corp. 15,200 281,200
- --------------------------------------------------------------------------------
Reinsurance Group of
America, Inc. 2,900 161,530
- --------------------------------------------------------------------------------
RenaissanceRe Holdings Ltd. 4,700 282,000
- --------------------------------------------------------------------------------
RLI Corp. 10,400 586,768
- --------------------------------------------------------------------------------
Safeco Corp. 14,400 900,720
- --------------------------------------------------------------------------------
Safety Insurance Group, Inc. 2 16,000 811,360
- --------------------------------------------------------------------------------
Seabright Insurance Holdings, Inc. 1 5,400 97,254
- --------------------------------------------------------------------------------
Selective Insurance Group, Inc. 2 21,500 1,231,735
- --------------------------------------------------------------------------------
State Auto Financial Corp. 13,300 461,909
- --------------------------------------------------------------------------------
Torchmark Corp. 5,300 337,928
- --------------------------------------------------------------------------------
Tower Group, Inc. 11,000 341,770
- --------------------------------------------------------------------------------
Transatlantic Holdings, Inc. 700 43,470
- --------------------------------------------------------------------------------
U.S.I. Holdings Corp. 1,2 6,000 92,160
- --------------------------------------------------------------------------------
United America Indemnity Ltd.,
Cl. A 1,2 13,606 344,640
- --------------------------------------------------------------------------------
Universal American Financial
Corp. 1 5,800 108,112
- --------------------------------------------------------------------------------
Zenith National Insurance Corp. 44,400 2,082,804
-----------------
27,132,407

- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS--3.2%
Acadia Realty Trust 2 4,600 115,092
- --------------------------------------------------------------------------------
Agree Realty Corp. 2 7,300 250,901
- --------------------------------------------------------------------------------
Alexandria Real Estate Equities,
Inc. 5,800 582,320
- --------------------------------------------------------------------------------
AMB Property Corp. 3,700 216,857
- --------------------------------------------------------------------------------
American Home Mortgage
Investment Corp. 2 3,200 112,384
- --------------------------------------------------------------------------------
Ashford Hospitality Trust 9,800 122,010
- --------------------------------------------------------------------------------
Associated Estates Realty Corp. 2 5,100 70,074
- --------------------------------------------------------------------------------
BioMed Realty Trust, Inc. 2 13,400 383,240
- --------------------------------------------------------------------------------
Brandywine Realty Trust 18,114 602,291
- --------------------------------------------------------------------------------
BRE Properties, Inc., Cl. A 2 1,800 117,036
- --------------------------------------------------------------------------------
Camden Property Trust 2,900 214,165
- --------------------------------------------------------------------------------
Capital Trust, Cl. A 1,300 64,922
- --------------------------------------------------------------------------------
CapitalSource, Inc. 2 18,700 510,697
- --------------------------------------------------------------------------------
CBL & Associates Properties, Inc. 11,000 476,850
- --------------------------------------------------------------------------------
Cedar Shopping Centers, Inc. 4,300 68,413
- --------------------------------------------------------------------------------
CentraCore Properties Trust 2 1,900 61,427
- --------------------------------------------------------------------------------
Colonial Properties Trust 2 9,554 447,892
- --------------------------------------------------------------------------------
Corporate Office Properties Trust 9,800 494,606
- --------------------------------------------------------------------------------
Crescent Real Estate Equities, Inc. 8,000 158,000
- --------------------------------------------------------------------------------
DCT Industrial Trust, Inc. 27,500 324,500

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS Continued
DiamondRock Hospitality Co. 29,900 $ 538,499
- --------------------------------------------------------------------------------
Digital Realty Trust, Inc. 12,800 438,144
- --------------------------------------------------------------------------------
Duke Realty Investments, Inc. 2,600 106,340
- --------------------------------------------------------------------------------
EastGroup Properties, Inc. 2 5,300 283,868
- --------------------------------------------------------------------------------
Entertainment Properties Trust 4,900 286,356
- --------------------------------------------------------------------------------
Equity Inns, Inc. 2 22,700 362,292
- --------------------------------------------------------------------------------
Equity Lifestyle Properties, Inc. 1,300 70,759
- --------------------------------------------------------------------------------
Equity One, Inc. 2 14,900 397,234
- --------------------------------------------------------------------------------
Federal Realty Investment Trust 3,700 314,500
- --------------------------------------------------------------------------------
FelCor Lodging Trust, Inc. 10,100 220,584
- --------------------------------------------------------------------------------
First Industrial Realty Trust, Inc. 2 13,100 614,259
- --------------------------------------------------------------------------------
First Potomac Realty Trust 900 26,199
- --------------------------------------------------------------------------------
Franklin Street Properties Corp. 1,100 23,155
- --------------------------------------------------------------------------------
Friedman, Billings, Ramsey Group,
Inc., Cl. A 2 3,300 26,400
- --------------------------------------------------------------------------------
Glimcher Realty Trust 2 6,700 178,957
- --------------------------------------------------------------------------------
Gramercy Capital Corp. 2 5,300 163,717
- --------------------------------------------------------------------------------
Health Care REIT, Inc. 2 7,100 305,442
- --------------------------------------------------------------------------------
Healthcare Realty Trust, Inc. 2 6,900 272,826
- --------------------------------------------------------------------------------
Highland Hospitality Corp. 13,000 185,250
- --------------------------------------------------------------------------------
Highwoods Properties, Inc. 12,300 501,348
- --------------------------------------------------------------------------------
Home Properties of New York, Inc. 10,400 616,408
- --------------------------------------------------------------------------------
Hospitality Properties Trust 8,500 404,005
- --------------------------------------------------------------------------------
HRPT Properties Trust 2 7,300 90,155
- --------------------------------------------------------------------------------
Inland Real Estate Corp. 2 9,200 172,224
- --------------------------------------------------------------------------------
Innkeepers USA Trust 8,900 137,950
- --------------------------------------------------------------------------------
iStar Financial, Inc. 1,100 52,602
- --------------------------------------------------------------------------------
Kilroy Realty Corp. 3,800 296,400
- --------------------------------------------------------------------------------
Kimco Realty Corp. 730 32,814
- --------------------------------------------------------------------------------
Kite Realty Group Trust 1,100 20,482
- --------------------------------------------------------------------------------
KKR Financial Corp. 6,900 184,851
- --------------------------------------------------------------------------------
LaSalle Hotel Properties 5,500 252,175
- --------------------------------------------------------------------------------
Lexington Realty Trust 2 10,100 226,442
- --------------------------------------------------------------------------------
Liberty Property Trust 8,900 437,346
- --------------------------------------------------------------------------------
Longview Fibre Co. Real Estate
Investment Trust 17,176 377,013
- --------------------------------------------------------------------------------
LTC Properties, Inc. 2 7,600 207,556
- --------------------------------------------------------------------------------
Macerich Co. (The) 900 77,913
- --------------------------------------------------------------------------------
Mack-Cali Realty Corp. 6,100 311,100
- --------------------------------------------------------------------------------
Maguire Properties, Inc. 11,700 468,000
- --------------------------------------------------------------------------------
Mid-America Apartment
Communities, Inc. 2 8,300 475,092
- --------------------------------------------------------------------------------
National Retail Properties, Inc. 2 18,700 429,165
- --------------------------------------------------------------------------------
Nationwide Health Properties, Inc. 13,900 420,058
- --------------------------------------------------------------------------------
Newcastle Investment Corp. 2 2,700 84,564
- --------------------------------------------------------------------------------
Omega Healthcare Investors, Inc. 5,500 97,460

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS Continued
Parkway Properties, Inc. 2 4,100 $ 209,141
- --------------------------------------------------------------------------------
Pennsylvania Real Estate
Investment Trust 7,800 307,164
- --------------------------------------------------------------------------------
Post Properties, Inc. 2 7,000 319,900
- --------------------------------------------------------------------------------
PS Business Parks, Inc. 5,500 388,905
- --------------------------------------------------------------------------------
RAIT Financial Trust 2 1,100 37,928
- --------------------------------------------------------------------------------
Ramco-Gershenson Properties
Trust 2 3,800 144,932
- --------------------------------------------------------------------------------
Realty Income Corp. 2 9,700 268,690
- --------------------------------------------------------------------------------
Reckson Associates Realty Corp. 1,600 72,960
- --------------------------------------------------------------------------------
Redwood Trust, Inc. 2 1,400 81,312
- --------------------------------------------------------------------------------
Regency Centers Corp. 2,600 203,242
- --------------------------------------------------------------------------------
Senior Housing Properties Trust 2 21,700 531,216
- --------------------------------------------------------------------------------
SL Green Realty Corp. 1,600 212,448
- --------------------------------------------------------------------------------
Sovran Self Storage, Inc. 2 7,000 400,960
- --------------------------------------------------------------------------------
Spirit Finance Corp. 2 22,300 278,081
- --------------------------------------------------------------------------------
Strategic Hotels & Resorts, Inc. 28,500 621,015
- --------------------------------------------------------------------------------
Sunstone Hotel Investors, Inc. 14,900 398,277
- --------------------------------------------------------------------------------
Tanger Factory Outlet Centers, Inc. 2 11,600 453,328
- --------------------------------------------------------------------------------
U-Store-It Real Estate Investment
Trust 2 5,800 119,190
- --------------------------------------------------------------------------------
United Dominion Realty Trust, Inc. 2 11,200 356,048
- --------------------------------------------------------------------------------
Ventas, Inc. 10,300 435,896
- --------------------------------------------------------------------------------
Washington Real Estate Investment
Trust 2 9,800 392,000
- --------------------------------------------------------------------------------
Weingarten Realty Investors 2 5,700 262,827
- --------------------------------------------------------------------------------
Winston Hotels, Inc. 2 4,800 63,600
-----------------
23,140,641

- --------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--0.1%
CB Richard Ellis Group, Inc., Cl. A 1 19,300 640,760
- --------------------------------------------------------------------------------
Stratus Properties, Inc. 1 2,300 73,600
-----------------
714,360

- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--1.9%
Bank Mutual Corp. 2 16,136 195,407
- --------------------------------------------------------------------------------
BankUnited Financial Corp., Cl. A 2 6,800 190,128
- --------------------------------------------------------------------------------
Citizens First Bancorp, Inc. 2 1,600 49,184
- --------------------------------------------------------------------------------
Corus Bankshares, Inc. 2 69,900 1,612,593
- --------------------------------------------------------------------------------
Downey Financial Corp. 2 300 21,774
- --------------------------------------------------------------------------------
Federal Agricultural Mortgage
Corp., Non-Vtg. 2 7,000 189,910
- --------------------------------------------------------------------------------
First Defiance Financial Corp. 500 15,150
- --------------------------------------------------------------------------------
First Financial Holdings, Inc. 2 2,400 94,032
- --------------------------------------------------------------------------------
First Niagara Financial Group, Inc. 69,000 1,025,340
- --------------------------------------------------------------------------------
First Place Financial Corp. 2 2,400 56,376
- --------------------------------------------------------------------------------
FirstFed Financial Corp. 1,2 24,400 1,634,068

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE Continued
Fremont General Corp. 2 80,200 $ 1,300,042
- --------------------------------------------------------------------------------
ITLA Capital Corp. 600 34,746
- --------------------------------------------------------------------------------
KBNT Bancorp, Inc. 2 1,100 18,403
- --------------------------------------------------------------------------------
MAF Bancorp, Inc. 15,500 692,695
- --------------------------------------------------------------------------------
MGIC Investment Corp. 12,600 788,004
- --------------------------------------------------------------------------------
NexCen Brands, Inc. 1,2 5,500 39,765
- --------------------------------------------------------------------------------
Ocwen Financial Corp. 1,2 83,900 1,330,654
- --------------------------------------------------------------------------------
PFF Bancorp, Inc. 2 19,210 662,937
- --------------------------------------------------------------------------------
PMI Group, Inc. (The) 17,500 825,475
- --------------------------------------------------------------------------------
Provident Financial Services, Inc. 29,200 529,396
- --------------------------------------------------------------------------------
Radian Group, Inc. 13,800 743,958
- --------------------------------------------------------------------------------
TierOne Corp. 2 9,300 293,973
- --------------------------------------------------------------------------------
Triad Guaranty, Inc. 1,2 16,900 927,303
- --------------------------------------------------------------------------------
WSFS Financial Corp. 3,300 220,869
-----------------
13,492,182

- --------------------------------------------------------------------------------
HEALTH CARE--8.2%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--0.3%
Alexion Pharmaceuticals, Inc. 1,2 2,000 80,780
- --------------------------------------------------------------------------------
Alnylam Pharmaceuticals, Inc. 1,2 1,400 29,960
- --------------------------------------------------------------------------------
Applera Corp./Celera Genomics
Group 1 8,600 120,314
- --------------------------------------------------------------------------------
Array BioPharma, Inc. 1 1,600 20,672
- --------------------------------------------------------------------------------
Digene Corp. 1 3,500 167,720
- --------------------------------------------------------------------------------
Enzon Pharmaceuticals, Inc. 1,2 13,200 112,332
- --------------------------------------------------------------------------------
Indevus Pharmaceuticals, Inc. 1,2 4,000 28,400
- --------------------------------------------------------------------------------
Isis Pharmaceuticals, Inc. 1,2 24,000 266,880
- --------------------------------------------------------------------------------
Omrix Biopharmaceuticals, Inc. 1 3,600 108,936
- --------------------------------------------------------------------------------
OSI Pharmaceuticals, Inc. 1,2 2,500 87,450
- --------------------------------------------------------------------------------
QLT PhotoTherapeutics, Inc. 1,2 16,300 137,898
- --------------------------------------------------------------------------------
Regeneron Pharmaceuticals, Inc. 1 7,600 152,532
- --------------------------------------------------------------------------------
Savient Pharmaceuticals, Inc. 1 24,701 276,898
- --------------------------------------------------------------------------------
United Therapeutics Corp. 1,2 8,000 434,960
-----------------
2,025,732

- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--1.7%
Abaxis, Inc. 1,2 5,000 96,250
- --------------------------------------------------------------------------------
Advanced Medical Optics, Inc. 1 7,300 256,960
- --------------------------------------------------------------------------------
Biosite, Inc. 1,2 17,500 854,875
- --------------------------------------------------------------------------------
Candela Corp. 1 14,900 184,313
- --------------------------------------------------------------------------------
Cholestech Corp. 1 2,000 36,840
- --------------------------------------------------------------------------------
Dade Behring Holdings, Inc. 9,200 366,252
- --------------------------------------------------------------------------------
Datascope Corp. 2 700 25,508
- --------------------------------------------------------------------------------
DJO, Inc. 1 9,300 398,226
- --------------------------------------------------------------------------------
Edwards Lifesciences Corp. 1 18,200 856,128
- --------------------------------------------------------------------------------
Greatbatch, Inc. 1,2 11,100 298,812

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES Continued
Hillenbrand Industries, Inc. 3,200 $ 182,176
- --------------------------------------------------------------------------------
ICU Medical, Inc. 1,2 3,400 138,312
- --------------------------------------------------------------------------------
IDEXX Laboratories, Inc. 1 3,100 245,830
- --------------------------------------------------------------------------------
Immucor, Inc. 1,2 80,300 2,347,169
- --------------------------------------------------------------------------------
Integra LifeSciences Holdings
Corp. 1,2 10,600 451,454
- --------------------------------------------------------------------------------
Invacare Corp. 2 2,400 58,920
- --------------------------------------------------------------------------------
Kinetic Concepts, Inc. 1,2 13,800 545,790
- --------------------------------------------------------------------------------
Medical Action Industries, Inc. 1,2 200 6,448
- --------------------------------------------------------------------------------
Mentor Corp. 2 13,700 669,519
- --------------------------------------------------------------------------------
Meridian Bioscience, Inc. 2 4,100 100,573
- --------------------------------------------------------------------------------
Palomar Medical Technologies,
Inc. 1,2 30,200 1,530,234
- --------------------------------------------------------------------------------
Quidel Corp. 1,2 18,000 245,160
- --------------------------------------------------------------------------------
West Pharmaceutical Services, Inc. 39,400 2,018,462
- --------------------------------------------------------------------------------
Zoll Medical Corp. 1,2 10,400 605,696
-----------------
12,519,907

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--3.1%
Air Methods Corp. 1,2 7,500 209,400
- --------------------------------------------------------------------------------
AMERIGROUP Corp. 1 74,400 2,670,216
- --------------------------------------------------------------------------------
AmerisourceBergen Corp. 22,800 1,025,088
- --------------------------------------------------------------------------------
Apria Healthcare Group, Inc. 1 50,700 1,351,155
- --------------------------------------------------------------------------------
Bio-Reference Laboratories, Inc. 1,2 3,500 78,715
- --------------------------------------------------------------------------------
Centene Corp. 1,2 56,200 1,380,834
- --------------------------------------------------------------------------------
Chemed Corp. 44,100 1,630,818
- --------------------------------------------------------------------------------
CorVel Corp. 1 4,600 218,822
- --------------------------------------------------------------------------------
Coventry Health Care, Inc. 1 18,400 920,920
- --------------------------------------------------------------------------------
Cross Country Healthcare, Inc. 1,2 14,900 325,118
- --------------------------------------------------------------------------------
Emergency Medical Services LP, Cl. A 1 1,400 29,372
- --------------------------------------------------------------------------------
Express Scripts, Inc. 1 4,600 329,360
- --------------------------------------------------------------------------------
Genesis HealthCare Corp. 1,2 10,000 472,300
- --------------------------------------------------------------------------------
Healthspring, Inc. 1,2 46,800 952,380
- --------------------------------------------------------------------------------
Healthways, Inc. 1 31,200 1,488,552
- --------------------------------------------------------------------------------
HMS Holdings Corp. 1 4,600 69,690
- --------------------------------------------------------------------------------
Humana, Inc. 1 21,700 1,200,227
- --------------------------------------------------------------------------------
InVentiv Health, Inc. 1 6,400 226,240
- --------------------------------------------------------------------------------
Kindred Healthcare, Inc. 1 56,600 1,429,150
- --------------------------------------------------------------------------------
Laboratory Corp. of America
Holdings 1 15,800 1,160,826
- --------------------------------------------------------------------------------
Landauer, Inc. 2 200 10,494
- --------------------------------------------------------------------------------
LCA-Vision, Inc. 2 5,600 192,416
- --------------------------------------------------------------------------------
Lincare Holdings, Inc. 1 7,500 298,800
- --------------------------------------------------------------------------------
Magellan Health Services, Inc. 1 36,600 1,581,852
- --------------------------------------------------------------------------------
Manor Care, Inc. 300 14,076
- --------------------------------------------------------------------------------
MedCath Corp. 1 7,500 205,200

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES Continued
Molina Healthcare, Inc. 1,2 44,600 $ 1,449,946
- --------------------------------------------------------------------------------
National HealthCare Corp. 2 2,400 132,480
- --------------------------------------------------------------------------------
Odyssey Healthcare, Inc. 1,2 12,800 169,728
- --------------------------------------------------------------------------------
Pediatrix Medical Group, Inc. 1 600 29,340
- --------------------------------------------------------------------------------
PSS World Medical, Inc. 1,2 30,500 595,665
- --------------------------------------------------------------------------------
Res-Care, Inc. 1,2 6,500 117,975
- --------------------------------------------------------------------------------
Visicu, Inc. 1,2 1,900 21,280
- --------------------------------------------------------------------------------
WellCare Health Plans, Inc. 1 8,600 592,540
-----------------
22,580,975

- --------------------------------------------------------------------------------
HEALTH CARE TECHNOLOGY--0.4%
AMICAS, Inc. 1,2 9,400 27,636
- --------------------------------------------------------------------------------
Computer Programs & Systems, Inc. 5,100 173,349
- --------------------------------------------------------------------------------
Dendrite International, Inc. 1 16,940 181,427
- --------------------------------------------------------------------------------
Emdeon Corp. 1 67,900 841,281
- --------------------------------------------------------------------------------
IMS Health, Inc. 9,400 258,312
- --------------------------------------------------------------------------------
Omnicell, Inc. 1,2 20,100 374,463
- --------------------------------------------------------------------------------
Per-Se Technologies, Inc. 1,2 8,100 225,018
- --------------------------------------------------------------------------------
Phase Forward, Inc. 1,2 19,800 296,604
- --------------------------------------------------------------------------------
Trizetto Group, Inc. 1,2 2,900 53,273
- --------------------------------------------------------------------------------
Vital Images, Inc. 1,2 2,900 100,920
-----------------
2,532,283

- --------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES--1.0%
Albany Molecular Research, Inc. 1 500 5,280
- --------------------------------------------------------------------------------
Applera Corp./Applied Biosystems
Group 33,400 1,225,446
- --------------------------------------------------------------------------------
Bio-Rad Laboratories, Inc., Cl. A 1,2 7,000 577,640
- --------------------------------------------------------------------------------
Bruker BioSciences Corp. 1,2 34,600 259,846
- --------------------------------------------------------------------------------
Charles River Laboratories
International, Inc. 1 2,900 125,425
- --------------------------------------------------------------------------------
Diversa Corp. 1,2 1,800 19,584
- --------------------------------------------------------------------------------
Illumina, Inc. 1 11,400 448,134
- --------------------------------------------------------------------------------
Invitrogen Corp. 1 6,200 350,858
- --------------------------------------------------------------------------------
Kendle International, Inc. 1 10,300 323,935
- --------------------------------------------------------------------------------
Luminex Corp. 1 9,900 125,730
- --------------------------------------------------------------------------------
Molecular Devices Corp. 1,2 10,500 221,235
- --------------------------------------------------------------------------------
Parexel International Corp. 1 23,700 686,589
- --------------------------------------------------------------------------------
Pharmanet Development Group, Inc. 1 11,000 242,770
- --------------------------------------------------------------------------------
Thermo Fisher Scientific, Inc. 1 22,600 1,023,554
- --------------------------------------------------------------------------------
Varian, Inc. 1 31,000 1,388,490
- --------------------------------------------------------------------------------
Waters Corp. 1 8,400 411,348
-----------------
7,435,864

- --------------------------------------------------------------------------------
PHARMACEUTICALS--1.7%
Alpharma, Inc., Cl. A 60,600 1,460,460
- --------------------------------------------------------------------------------
BioMimetic Therapeutics, Inc. 1,2 21,100 278,309

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
PHARMACEUTICALS Continued
Bradley Pharmaceuticals, Inc. 1,2 15,000 $ 308,700
- --------------------------------------------------------------------------------
DepoMed, Inc. 1,2 4,200 14,490
- --------------------------------------------------------------------------------
Endo Pharmaceuticals Holdings, Inc. 1,2 30,700 846,706
- --------------------------------------------------------------------------------
King Pharmaceuticals, Inc. 1 41,500 660,680
- --------------------------------------------------------------------------------
Medicines Co. (The) 1 22,800 723,216
- --------------------------------------------------------------------------------
Medicis Pharmaceutical Corp., Cl. A 2 45,300 1,591,389
- --------------------------------------------------------------------------------
Mylan Laboratories, Inc. 34,500 688,620
- --------------------------------------------------------------------------------
New River Pharmaceuticals, Inc. 1,2 8,800 481,448
- --------------------------------------------------------------------------------
Noven Pharmaceuticals, Inc. 1,2 15,800 402,110
- --------------------------------------------------------------------------------
Pain Therapeutics, Inc. 1,2 35,900 319,510
- --------------------------------------------------------------------------------
Perrigo Co. 42,300 731,790
- --------------------------------------------------------------------------------
Pozen, Inc. 1,2 10,800 183,492
- --------------------------------------------------------------------------------
Sciele Pharma, Inc. 1,2 61,000 1,464,000
- --------------------------------------------------------------------------------
ViroPharma, Inc. 1 91,400 1,338,096
- --------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. 1 22,900 596,087
-----------------
12,089,103

- --------------------------------------------------------------------------------
INDUSTRIALS--16.7%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--1.1%
AerCap Holdings NV 1 38,100 883,158
- --------------------------------------------------------------------------------
Armor Holdings, Inc. 1,2 18,700 1,025,695
- --------------------------------------------------------------------------------
Astronics Corp., Cl. B 1 650 10,855
- --------------------------------------------------------------------------------
Ceradyne, Inc. 1,2 23,100 1,305,150
- --------------------------------------------------------------------------------
Cubic Corp. 2 1,400 30,380
- --------------------------------------------------------------------------------
Curtiss-Wright Corp. 2 2,300 85,284
- --------------------------------------------------------------------------------
DynCorp International, Inc., Cl. A 1 11,200 177,744
- --------------------------------------------------------------------------------
K&F Industries Holdings, Inc. 1,2 12,500 283,875
- --------------------------------------------------------------------------------
L-3 Communications Holdings, Inc. 4,300 351,654
- --------------------------------------------------------------------------------
Orbital Sciences Corp. 1,2 90,000 1,659,600
- --------------------------------------------------------------------------------
Spirit Aerosystems Holdings, Inc.,
Cl. A 1 21,560 721,613
- --------------------------------------------------------------------------------
Teledyne Technologies, Inc. 1 24,100 967,133
- --------------------------------------------------------------------------------
Triumph Group, Inc. 500 26,215
- --------------------------------------------------------------------------------
United Industrial Corp. 2 8,000 406,000
-----------------
7,934,356

- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--0.8%
ABX Air, Inc. 1 12,800 88,704
- --------------------------------------------------------------------------------
Atlas Air Worldwide Holdings, Inc. 1,2 15,600 694,200
- --------------------------------------------------------------------------------
EGL, Inc. 1 27,600 821,928
- --------------------------------------------------------------------------------
Hub Group, Inc., Cl. A 1 74,400 2,049,720
- --------------------------------------------------------------------------------
Pacer International, Inc. 58,500 1,741,545
-----------------
5,396,097

- --------------------------------------------------------------------------------
AIRLINES--0.8%
Alaska Air Group, Inc. 1 41,400 1,635,300

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
AIRLINES Continued
Allegiant Travel Co. 1 2,020 $ 56,681
- --------------------------------------------------------------------------------
AMR Corp. 1 46,600 1,408,718
- --------------------------------------------------------------------------------
Continental Airlines, Inc., Cl. B 1,2 32,300 1,332,375
- --------------------------------------------------------------------------------
ExpressJet Holdings, Inc. 1 33,000 267,300
- --------------------------------------------------------------------------------
Frontier Airlines Holdings, Inc. 1,2 19,200 142,080
- --------------------------------------------------------------------------------
Mesa Air Group, Inc. 1,2 1,100 9,427
- --------------------------------------------------------------------------------
SkyWest, Inc. 20,100 512,751
- --------------------------------------------------------------------------------
US Airways Group, Inc. 1 3,100 166,935
-----------------
5,531,567

- --------------------------------------------------------------------------------
BUILDING PRODUCTS--0.6%
American Woodmark Corp. 2 11,600 485,460
- --------------------------------------------------------------------------------
Ameron International Corp. 2 6,100 465,857
- --------------------------------------------------------------------------------
Builders FirstSource, Inc. 1,2 25,300 451,099
- --------------------------------------------------------------------------------
Goodman Global, Inc. 1,2 20,200 347,440
- --------------------------------------------------------------------------------
Insteel Industries, Inc. 2 17,300 307,767
- --------------------------------------------------------------------------------
Jacuzzi Brands, Inc. 1 2,600 32,318
- --------------------------------------------------------------------------------
PW Eagle, Inc. 2 12,100 417,450
- --------------------------------------------------------------------------------
Universal Forest Products, Inc. 2 32,300 1,505,826
-----------------
4,013,217

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--5.2%
ABM Industries, Inc. 2 2,200 49,962
- --------------------------------------------------------------------------------
Acco Brands Corp. 1 8,100 214,407
- --------------------------------------------------------------------------------
Administaff, Inc. 2 51,100 2,185,547
- --------------------------------------------------------------------------------
Allied Waste Industries, Inc. 1 27,200 334,288
- --------------------------------------------------------------------------------
American Ecology Corp. 2 2,000 37,020
- --------------------------------------------------------------------------------
American Reprographics Co. 1,2 15,600 519,636
- --------------------------------------------------------------------------------
AMREP Corp. 2 2,500 306,250
- --------------------------------------------------------------------------------
Avery-Dennison Corp. 4,900 332,857
- --------------------------------------------------------------------------------
Banta Corp. 25,200 917,280
- --------------------------------------------------------------------------------
Bowne & Co., Inc. 5,900 94,046
- --------------------------------------------------------------------------------
CBIZ, Inc. 1,2 40,200 280,194
- --------------------------------------------------------------------------------
CDI Corp. 2 700 17,430
- --------------------------------------------------------------------------------
Central Parking Corp. 2 12,400 223,200
- --------------------------------------------------------------------------------
Cenveo, Inc. 1,2 54,600 1,157,520
- --------------------------------------------------------------------------------
Clean Harbors, Inc. 1 18,300 885,903
- --------------------------------------------------------------------------------
COMSYS IT Partners, Inc. 1 13,600 274,856
- --------------------------------------------------------------------------------
Consolidated Graphics, Inc. 1 15,900 939,213
- --------------------------------------------------------------------------------
Cornell Corrections, Inc. 1,2 3,400 62,322
- --------------------------------------------------------------------------------
Corrections Corp. of America 1 9,950 450,039
- --------------------------------------------------------------------------------
Covanta Holding Corp. 1 34,400 758,176
- --------------------------------------------------------------------------------
CRA International, Inc. 1,2 4,900 256,760
- --------------------------------------------------------------------------------
Deluxe Corp. 2 57,400 1,446,480
- --------------------------------------------------------------------------------
Diamond Management &
Technology Consultants, Inc. 2 5,100 63,444

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES Continued
Donnelley (R.R.) & Sons Co. 15,200 $ 540,208
- --------------------------------------------------------------------------------
Ennis, Inc. 2 17,700 432,942
- --------------------------------------------------------------------------------
Exponent, Inc. 1,2 15,100 281,766
- --------------------------------------------------------------------------------
First Consulting Group, Inc. 1,2 5,300 72,928
- --------------------------------------------------------------------------------
Geo Group, Inc. (The) 1 5,800 217,616
- --------------------------------------------------------------------------------
Harland (John H.) Co. 46,600 2,339,320
- --------------------------------------------------------------------------------
Healthcare Services Group, Inc. 2 7,674 222,239
- --------------------------------------------------------------------------------
Heidrick & Struggles International,
Inc. 1,2 12,200 516,792
- --------------------------------------------------------------------------------
ICT Group, Inc. 1,2 9,900 312,741
- --------------------------------------------------------------------------------
IHS, Inc., Cl. A 1 15,000 592,200
- --------------------------------------------------------------------------------
Ikon Office Solutions, Inc. 129,200 2,115,004
- --------------------------------------------------------------------------------
Kelly Services, Inc., Cl. A 2 2,200 63,668
- --------------------------------------------------------------------------------
Kenexa Corp. 1,2 5,600 186,256
- --------------------------------------------------------------------------------
Kforce, Inc. 1,2 17,300 210,541
- --------------------------------------------------------------------------------
Knoll, Inc. 50,100 1,102,200
- --------------------------------------------------------------------------------
Korn-Ferry International 1 96,800 2,222,528
- --------------------------------------------------------------------------------
Labor Ready, Inc. 1 114,100 2,091,453
- --------------------------------------------------------------------------------
Manpower, Inc. 14,100 1,056,513
- --------------------------------------------------------------------------------
Miller (Herman), Inc. 9,100 330,876
- --------------------------------------------------------------------------------
On Assignment, Inc. 1,2 14,800 173,900
- --------------------------------------------------------------------------------
PeopleSupport, Inc. 1,2 12,400 261,020
- --------------------------------------------------------------------------------
PHH Corp. 1 35,600 1,027,772
- --------------------------------------------------------------------------------
Pike Electric Corp. 1 11,100 181,263
- --------------------------------------------------------------------------------
Resources Connection, Inc. 1,2 1,500 47,760
- --------------------------------------------------------------------------------
Robert Half International, Inc. 9,400 348,928
- --------------------------------------------------------------------------------
SAIC, Inc. 1,2 4,700 83,613
- --------------------------------------------------------------------------------
School Specialty, Inc. 1 5,100 191,199
- --------------------------------------------------------------------------------
SITEL Corp. 1 17,800 75,116
- --------------------------------------------------------------------------------
Spherion Corp. 1 45,000 334,350
- --------------------------------------------------------------------------------
Standard Register Co. (The) 2 4,800 57,600
- --------------------------------------------------------------------------------
Steelcase, Inc., Cl. A 40,000 726,400
- --------------------------------------------------------------------------------
Team, Inc. 1,2 6,100 212,463
- --------------------------------------------------------------------------------
TeleTech Holdings, Inc. 1,2 9,300 222,084
- --------------------------------------------------------------------------------
Tetra Tech, Inc. 1,2 91,800 1,660,662
- --------------------------------------------------------------------------------
United Stationers, Inc. 1 10,600 494,914
- --------------------------------------------------------------------------------
Viad Corp. 42,200 1,713,320
- --------------------------------------------------------------------------------
Volt Information Sciences, Inc. 1,2 14,000 702,940
- --------------------------------------------------------------------------------
Waste Industries USA, Inc. 4,100 125,132
- --------------------------------------------------------------------------------
Watson Wyatt & Co. Holdings 47,500 2,144,625
-----------------
37,499,682

- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.9%
Baker (Michael) Corp. 1,2 2,600 58,890
- --------------------------------------------------------------------------------
Chicago Bridge & Iron Co. NV 21,100 576,874
- --------------------------------------------------------------------------------
Comfort Systems USA, Inc. 31,000 391,840

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING Continued
EMCOR Group, Inc. 1 43,000 $ 2,444,550
- --------------------------------------------------------------------------------
Granite Construction, Inc. 13,600 684,352
- --------------------------------------------------------------------------------
Infrasource Services, Inc. 1 64,400 1,401,988
- --------------------------------------------------------------------------------
Insituform Technologies, Inc., Cl. A 1,2 2,500 64,650
- --------------------------------------------------------------------------------
Perini Corp. 1 10,500 323,190
- --------------------------------------------------------------------------------
Quanta Services, Inc. 1 29,600 582,232
- --------------------------------------------------------------------------------
Sterling Construction Co., Inc. 1,2 2,400 52,224
-----------------
6,580,790

- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--1.8%
Acuity Brands, Inc. 44,500 2,315,780
- --------------------------------------------------------------------------------
AZZ, Inc. 1 400 20,480
- --------------------------------------------------------------------------------
Baldor Electric Co. 2 34,800 1,163,016
- --------------------------------------------------------------------------------
Belden CDT, Inc. 2 57,300 2,239,857
- --------------------------------------------------------------------------------
Cooper Industries Ltd., Cl. A 4,300 388,849
- --------------------------------------------------------------------------------
EnerSys, Inc. 1 27,200 435,200
- --------------------------------------------------------------------------------
First Solar, Inc. 1 2,100 62,580
- --------------------------------------------------------------------------------
Franklin Electric Co., Inc. 2 1,200 61,668
- --------------------------------------------------------------------------------
General Cable Corp. 1 18,900 826,119
- --------------------------------------------------------------------------------
Genlyte Group, Inc. (The) 1,2 6,500 507,715
- --------------------------------------------------------------------------------
GrafTech International Ltd. 1,2 37,700 260,884
- --------------------------------------------------------------------------------
II-VI, Inc. 1 6,200 173,228
- --------------------------------------------------------------------------------
Lamson & Sessions Co. (The) 1,2 8,500 206,210
- --------------------------------------------------------------------------------
LSI Industries, Inc. 7,200 142,920
- --------------------------------------------------------------------------------
Regal-Beloit Corp. 2 31,900 1,675,069
- --------------------------------------------------------------------------------
Smith (A.O.) Corp. 2 3,900 146,484
- --------------------------------------------------------------------------------
Superior Essex, Inc. 1 20,200 671,650
- --------------------------------------------------------------------------------
Thomas & Betts Corp. 1 5,100 241,128
- --------------------------------------------------------------------------------
Vicor Corp. 2 18,300 203,313
- --------------------------------------------------------------------------------
Woodward Governor Co. 2 35,600 1,413,676
-----------------
13,155,826

- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.2%
Sequa Corp., Cl. A1 5,800 667,348
- --------------------------------------------------------------------------------
Teleflex, Inc. 3,500 225,960
- --------------------------------------------------------------------------------
Tredegar Corp. 2 7,200 162,792
-----------------
1,056,100

- --------------------------------------------------------------------------------
MACHINERY--3.6%
Actuant Corp., Cl. A 2 12,600 600,390
- --------------------------------------------------------------------------------
AGCO Corp. 1,2 29,000 897,260
- --------------------------------------------------------------------------------
Albany International Corp., Cl. A 12,200 401,502
- --------------------------------------------------------------------------------
American Railcar Industries, Inc. 2 4,600 156,584
- --------------------------------------------------------------------------------
American Science & Engineering, Inc. 1,2 1,800 107,118
- --------------------------------------------------------------------------------
Ampco-Pittsburgh Corp. 10,900 364,932

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
MACHINERY Continued
Astec Industries, Inc. 1,2 8,200 $ 287,820
- --------------------------------------------------------------------------------
Briggs & Stratton Corp. 2 11,900 320,705
- --------------------------------------------------------------------------------
Bucyrus International, Inc., Cl. A 2 15,700 812,632
- --------------------------------------------------------------------------------
Cascade Corp. 2 3,800 201,020
- --------------------------------------------------------------------------------
Commercial Vehicle Group, Inc. 1 900 19,620
- --------------------------------------------------------------------------------
Cummins, Inc. 7,800 921,804
- --------------------------------------------------------------------------------
Dynamic Materials Corp. 2 7,700 216,370
- --------------------------------------------------------------------------------
Eaton Corp. 8,400 631,176
- --------------------------------------------------------------------------------
Federal Signal Corp. 21,100 338,444
- --------------------------------------------------------------------------------
Flow International Corp. 1 24,000 264,480
- --------------------------------------------------------------------------------
Freightcar America, Inc. 2 8,900 493,505
- --------------------------------------------------------------------------------
Gardner Denver, Inc. 1 48,800 1,820,728
- --------------------------------------------------------------------------------
Gorman-Rupp Co. (The) 1,275 47,137
- --------------------------------------------------------------------------------
Kadant, Inc. 1 8,500 207,230
- --------------------------------------------------------------------------------
Kaydon Corp. 45,900 1,824,066
- --------------------------------------------------------------------------------
Lindsay Manufacturing Co. 2 8,200 267,730
- --------------------------------------------------------------------------------
Manitowoc Co., Inc. (The) 10,900 647,787
- --------------------------------------------------------------------------------
Middleby Corp. (The) 1,2 3,100 324,477
- --------------------------------------------------------------------------------
Miller Industries, Inc. 1,2 6,300 151,200
- --------------------------------------------------------------------------------
Mueller Industries, Inc. 2 46,500 1,474,050
- --------------------------------------------------------------------------------
NACCO Industries, Inc., Cl. A 10,300 1,406,980
- --------------------------------------------------------------------------------
Navistar International Corp. 1 6,000 200,580
- --------------------------------------------------------------------------------
Nordson Corp. 39,300 1,958,319
- --------------------------------------------------------------------------------
RBC Bearings, Inc. 1 7,500 214,950
- --------------------------------------------------------------------------------
Robbins & Myers, Inc. 9,700 445,424
- --------------------------------------------------------------------------------
SPX Corp. 14,900 911,284
- --------------------------------------------------------------------------------
Sun Hydraulics Corp. 2 2,300 47,173
- --------------------------------------------------------------------------------
Tennant Co. 2 10,700 310,300
- --------------------------------------------------------------------------------
Terex Corp. 1 4,300 277,694
- --------------------------------------------------------------------------------
Titan International, Inc. 2 10,600 213,590
- --------------------------------------------------------------------------------
Toro Co. (The) 47,500 2,214,925
- --------------------------------------------------------------------------------
Valmont Industries, Inc. 2 37,800 2,097,522
- --------------------------------------------------------------------------------
Wabtec Corp. 62,500 1,898,750
-----------------
25,997,258

- --------------------------------------------------------------------------------
MARINE--0.3%
American Commercial Lines, Inc. 1 15,500 1,015,405
- --------------------------------------------------------------------------------
Horizon Lines, Inc., Cl. A 41,700 1,124,232
-----------------
2,139,637

- --------------------------------------------------------------------------------
ROAD & RAIL--0.7%
Arkansas Best Corp. 2 15,100 543,600
- --------------------------------------------------------------------------------
Dollar Thrifty Automotive
- --------------------------------------------------------------------------------
Group, Inc. 1,2 7,500 342,075
- --------------------------------------------------------------------------------
Genesee & Wyoming, Inc., Cl. A 1,2 7,700 202,048
- --------------------------------------------------------------------------------
Heartland Express, Inc. 7,900 118,658

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
ROAD & RAIL Continued
Kansas City Southern 1,2 17,800 $ 515,844
- --------------------------------------------------------------------------------
Laidlaw International, Inc. 31,300 952,459
- --------------------------------------------------------------------------------
P.A.M. Transportation Services, Inc. 1,2 3,900 85,878
- --------------------------------------------------------------------------------
Ryder Systems, Inc. 4,800 245,088
- --------------------------------------------------------------------------------
Saia, Inc. 1 13,600 315,656
- --------------------------------------------------------------------------------
Swift Transportation Co., Inc. 1 65,900 1,731,193
- --------------------------------------------------------------------------------
Universal Truckload Services, Inc. 1 500 11,875
- --------------------------------------------------------------------------------
Werner Enterprises, Inc. 2 9,400 164,312
-----------------
5,228,686

- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--0.7%
Applied Industrial Technologies, Inc. 61,075 1,606,883
- --------------------------------------------------------------------------------
BlueLinx Holdings, Inc. 2 19,300 200,720
- --------------------------------------------------------------------------------
Houston Wire & Cable Co. 1,2 8,400 175,560
- --------------------------------------------------------------------------------
Interline Brands, Inc. 1 24,300 546,021
- --------------------------------------------------------------------------------
Kaman Corp., Cl. A 2 5,000 111,950
- --------------------------------------------------------------------------------
Rush Enterprises, Inc., Cl. A 1,2 8,800 148,896
- --------------------------------------------------------------------------------
UAP Holding Corp. 47,000 1,183,460
- --------------------------------------------------------------------------------
United Rentals, Inc. 1,2 28,300 719,669
- --------------------------------------------------------------------------------
W.W. Grainger, Inc. 8,300 580,502
-----------------
5,273,661

- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--24.3%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--3.1%
ADTRAN, Inc. 65,700 1,491,390
- --------------------------------------------------------------------------------
Anaren Microwave, Inc. 1,2 19,200 340,992
- --------------------------------------------------------------------------------
Andrew Corp. 1 5,000 51,150
- --------------------------------------------------------------------------------
Arris Group, Inc. 1 189,400 2,369,394
- --------------------------------------------------------------------------------
Avaya, Inc. 1 77,500 1,083,450
- --------------------------------------------------------------------------------
Avocent Corp. 1 10,300 348,655
- --------------------------------------------------------------------------------
Black Box Corp. 2 3,300 138,567
- --------------------------------------------------------------------------------
C-COR.net Corp. 1,2 23,200 258,448
- --------------------------------------------------------------------------------
Carrier Access Corp. 1 9,800 64,288
- --------------------------------------------------------------------------------
CommScope, Inc. 1 79,900 2,435,352
- --------------------------------------------------------------------------------
Comtech Telecommunications
Corp. 1,2 20,600 784,242
- --------------------------------------------------------------------------------
Digi International, Inc. 1,2 14,800 204,092
- --------------------------------------------------------------------------------
Ditech Networks, Inc. 1,2 21,000 145,320
- --------------------------------------------------------------------------------
Dycom Industries, Inc. 1 7,700 162,624
- --------------------------------------------------------------------------------
EMS Technologies, Inc. 1 12,200 244,366
- --------------------------------------------------------------------------------
Extreme Networks, Inc. 1 53,100 222,489
- --------------------------------------------------------------------------------
Foundry Networks, Inc. 1 60,500 906,290
- --------------------------------------------------------------------------------
Harmonic, Inc. 1,2 35,000 254,450
- --------------------------------------------------------------------------------
Inter-Tel, Inc. 2 1,100 24,376
- --------------------------------------------------------------------------------
InterDigital Communications Corp. 1,2 74,700 2,506,185
- --------------------------------------------------------------------------------
Oplink Communications, Inc. 1,2 11,800 242,608

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT Continued
Packeteer, Inc. 1,2 2,400 $ 32,640
- --------------------------------------------------------------------------------
Performance Technologies, Inc. 1,2 8,300 49,717
- --------------------------------------------------------------------------------
Plantronics, Inc. 2 3,500 74,200
- --------------------------------------------------------------------------------
Polycom, Inc. 1 76,800 2,373,888
- --------------------------------------------------------------------------------
Redback Networks, Inc. 1 7,100 177,074
- --------------------------------------------------------------------------------
SafeNet, Inc. 1,2 6,600 158,004
- --------------------------------------------------------------------------------
Sonus Networks, Inc. 1 131,200 864,608
- --------------------------------------------------------------------------------
Stratex Networks, Inc. 1,2 9,900 47,817
- --------------------------------------------------------------------------------
Symmetricom, Inc. 1,2 5,400 48,168
- --------------------------------------------------------------------------------
Tekelec, Inc. 1,2 61,400 910,562
- --------------------------------------------------------------------------------
Tellabs, Inc. 1 45,800 469,908
- --------------------------------------------------------------------------------
UTStarcom, Inc. 1,2 217,300 1,901,375
- --------------------------------------------------------------------------------
ViaSat, Inc. 1,2 19,300 575,333
-----------------
21,962,022

- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--1.8%
Adaptec, Inc. 1,2 19,600 91,336
- --------------------------------------------------------------------------------
Brocade Communications
Systems, Inc. 1 300,300 2,465,463
- --------------------------------------------------------------------------------
Cray, Inc. 1,2 14,300 169,884
- --------------------------------------------------------------------------------
Diebold, Inc. 17,600 820,160
- --------------------------------------------------------------------------------
Electronics for Imaging, Inc. 1,2 36,400 967,512
- --------------------------------------------------------------------------------
Emulex Corp. 1 127,900 2,495,329
- --------------------------------------------------------------------------------
Hypercom Corp. 1,2 35,800 227,330
- --------------------------------------------------------------------------------
Imation Corp. 29,500 1,369,685
- --------------------------------------------------------------------------------
Komag, Inc. 1,2 40,500 1,534,140
- --------------------------------------------------------------------------------
Lexmark International, Inc., Cl. A 1 16,000 1,171,200
- --------------------------------------------------------------------------------
NCR Corp. 1 25,400 1,086,104
- --------------------------------------------------------------------------------
QLogic Corp. 1 29,800 653,216
- --------------------------------------------------------------------------------
Seagate Technology 4,272 113,208
-----------------
13,164,567

- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--3.5%
Acacia Research Corp. 1,2 18,700 250,206
- --------------------------------------------------------------------------------
Aeroflex, Inc. 1,2 19,600 229,712
- --------------------------------------------------------------------------------
Agilysys, Inc. 2 4,500 75,330
- --------------------------------------------------------------------------------
Avnet, Inc. 1 18,700 477,411
- --------------------------------------------------------------------------------
AVX Corp. 42,700 631,533
- --------------------------------------------------------------------------------
Bel Fuse, Inc., Cl. A 4,800 144,816
- --------------------------------------------------------------------------------
Benchmark Electronics, Inc. 1,2 19,500 475,020
- --------------------------------------------------------------------------------
CDW Corp. 9,700 682,104
- --------------------------------------------------------------------------------
Checkpoint Systems, Inc. 1 10,800 218,160
- --------------------------------------------------------------------------------
Cogent, Inc. 1,2 7,100 78,171
- --------------------------------------------------------------------------------
Cognex Corp. 2 24,100 574,062
- --------------------------------------------------------------------------------
CPI International, Inc. 1 7,000 105,000
- --------------------------------------------------------------------------------
CTS Corp. 2 21,000 329,700

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS Continued
Daktronics, Inc. 2 30,300 $ 1,116,555
- --------------------------------------------------------------------------------
Dolby Laboratories, Inc., Cl. A 1 18,900 586,278
- --------------------------------------------------------------------------------
DTS, Inc. 1,2 2,100 50,799
- --------------------------------------------------------------------------------
Excel Technology, Inc. 1 4,500 115,155
- --------------------------------------------------------------------------------
FLIR Systems, Inc. 1,2 12,800 407,424
- --------------------------------------------------------------------------------
Gerber Scientific, Inc. 1 15,400 193,424
- --------------------------------------------------------------------------------
Global Imaging Systems, Inc. 1 59,200 1,299,440
- --------------------------------------------------------------------------------
Ingram Micro, Inc., Cl. A 1 19,800 404,118
- --------------------------------------------------------------------------------
Insight Enterprises, Inc. 1 33,500 632,145
- --------------------------------------------------------------------------------
IPG Photonics Corp. 1,2 12,020 288,480
- --------------------------------------------------------------------------------
Itron, Inc. 1,2 34,600 1,793,664
- --------------------------------------------------------------------------------
Kemet Corp. 1 21,500 156,950
- --------------------------------------------------------------------------------
Littlefuse, Inc. 1 22,200 707,736
- --------------------------------------------------------------------------------
Methode Electronics, Inc., Cl. A 11,000 119,130
- --------------------------------------------------------------------------------
Mettler-Toledo International, Inc. 1 8,000 630,800
- --------------------------------------------------------------------------------
MTS Systems Corp. 2 19,200 741,504
- --------------------------------------------------------------------------------
Newport Corp. 1 27,400 574,030
- --------------------------------------------------------------------------------
OYO Geospace Corp. 1,2 1,500 87,135
- --------------------------------------------------------------------------------
Park Electrochemical Corp. 17,400 446,310
- --------------------------------------------------------------------------------
Paxar Corp. 1,2 9,800 225,988
- --------------------------------------------------------------------------------
PC Connection, Inc. 1,2 5,300 78,599
- --------------------------------------------------------------------------------
Planar Systems, Inc. 1,2 6,300 60,921
- --------------------------------------------------------------------------------
Plexus Corp. 1 71,000 1,695,480
- --------------------------------------------------------------------------------
RadiSys Corp. 1,2 17,100 285,057
- --------------------------------------------------------------------------------
Rofin-Sinar Technologies, Inc. 1,2 35,200 2,128,192
- --------------------------------------------------------------------------------
Rogers Corp. 1 27,000 1,597,050
- --------------------------------------------------------------------------------
Sanmina-SCI Corp. 1 56,400 194,580
- --------------------------------------------------------------------------------
ScanSource, Inc. 1,2 5,800 176,320
- --------------------------------------------------------------------------------
Solectron Corp. 1 77,000 247,940
- --------------------------------------------------------------------------------
Staktek Holdings, Inc. 1 1,100 5,665
- --------------------------------------------------------------------------------
SYNNEX Corp. 1 11,800 258,892
- --------------------------------------------------------------------------------
Tech Data Corp. 1 27,400 1,037,638
- --------------------------------------------------------------------------------
Technitrol, Inc. 35,700 852,873
- --------------------------------------------------------------------------------
Tektronix, Inc. 16,300 475,471
- --------------------------------------------------------------------------------
TTM Technologies, Inc. 1 35,800 405,614
- --------------------------------------------------------------------------------
Vishay Intertechnology, Inc. 1 51,700 700,018
- --------------------------------------------------------------------------------
Zygo Corp. 1,2 15,800 259,910
-----------------
25,308,510

- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--3.0%
24/7 Real Media, Inc. 1,2 25,100 227,155
- --------------------------------------------------------------------------------
Aquantive, Inc. 1,2 18,000 443,880
- --------------------------------------------------------------------------------
Art Technology Group, Inc. 1,2 46,900 109,277
- --------------------------------------------------------------------------------
CMGI, Inc. 1 112,100 150,214
- --------------------------------------------------------------------------------
CyberSource Corp. 1 2,200 24,244

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES Continued
Digital Insight Corp. 1 42,700 $ 1,643,523
- --------------------------------------------------------------------------------
Digital River, Inc. 1,2 18,400 1,026,536
- --------------------------------------------------------------------------------
Digitas, Inc. 1 71,000 952,110
- --------------------------------------------------------------------------------
EarthLink, Inc. 1 185,100 1,314,210
- --------------------------------------------------------------------------------
eCollege.com, Inc. 1,2 6,900 107,985
- --------------------------------------------------------------------------------
InfoSpace, Inc. 1,2 20,600 422,506
- --------------------------------------------------------------------------------
Internap Network Services Corp. 1,2 20,400 405,348
- --------------------------------------------------------------------------------
Interwoven, Inc. 1 30,000 440,100
- --------------------------------------------------------------------------------
j2 Global Communications, Inc. 1,2 62,000 1,689,500
- --------------------------------------------------------------------------------
Liquidity Services, Inc. 1 2,000 34,420
- --------------------------------------------------------------------------------
National Information Consortium,
Inc. 1 4,700 23,359
- --------------------------------------------------------------------------------
Open Text Corp. 1,2 35,800 726,740
- --------------------------------------------------------------------------------
RealNetworks, Inc. 1,2 126,500 1,383,910
- --------------------------------------------------------------------------------
Savvis, Inc. 1,2 26,446 944,387
- --------------------------------------------------------------------------------
Sohu.com, Inc. 1 46,300 1,111,200
- --------------------------------------------------------------------------------
SonicWALL, Inc. 1 51,000 429,420
- --------------------------------------------------------------------------------
TheStreet.com, Inc. 2 25,400 226,060
- --------------------------------------------------------------------------------
Travelzoo, Inc. 1,2 9,900 296,505
- --------------------------------------------------------------------------------
United Online, Inc. 148,000 1,965,440
- --------------------------------------------------------------------------------
ValueClick, Inc. 1 31,900 753,797
- --------------------------------------------------------------------------------
VeriSign, Inc. 1 33,400 803,270
- --------------------------------------------------------------------------------
Vignette Corp. 1 15,600 266,292
- --------------------------------------------------------------------------------
WebEx Communications, Inc. 1 51,400 1,793,346
- --------------------------------------------------------------------------------
webMethods, Inc. 1 51,700 380,512
- --------------------------------------------------------------------------------
Websense, Inc. 1,2 58,500 1,335,555
-----------------
21,430,801

- --------------------------------------------------------------------------------
IT SERVICES--3.0%
Acxiom Corp. 29,600 759,240
- --------------------------------------------------------------------------------
Affiliated Computer Services, Inc.,
Cl. A 1 6,600 322,344
- --------------------------------------------------------------------------------
BearingPoint, Inc. 1,2 7,700 60,599
- --------------------------------------------------------------------------------
BISYS Group, Inc. (The) 1 152,100 1,963,611
- --------------------------------------------------------------------------------
CACI International, Inc., Cl. A 1 3,000 169,500
- --------------------------------------------------------------------------------
Ceridian Corp. 1 25,400 710,692
- --------------------------------------------------------------------------------
CIBER, Inc. 1,2 21,000 142,380
- --------------------------------------------------------------------------------
Computer Sciences Corp. 1 19,100 1,019,367
- --------------------------------------------------------------------------------
Convergys Corp. 1 34,400 818,032
- --------------------------------------------------------------------------------
Covansys Corp. 1 27,100 621,945
- --------------------------------------------------------------------------------
CSG Systems International, Inc. 1 85,400 2,282,742
- --------------------------------------------------------------------------------
DST Systems, Inc. 1 12,800 801,664
- --------------------------------------------------------------------------------
Fiserv, Inc. 1 19,400 1,016,948
- --------------------------------------------------------------------------------
Forrester Research, Inc. 1 16,700 452,737
- --------------------------------------------------------------------------------
Gartner, Inc., Cl. A 1 51,500 1,019,185
- --------------------------------------------------------------------------------
Gevity HR, Inc. 2 6,600 156,354

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
IT SERVICES Continued
Hewitt Associates, Inc. 1 1,900 $ 48,925
- --------------------------------------------------------------------------------
Infocrossing, Inc. 1,2 3,200 52,160
- --------------------------------------------------------------------------------
infoUSA, Inc. 30,800 366,828
- --------------------------------------------------------------------------------
Integral Systems, Inc. 2 2,500 57,925
- --------------------------------------------------------------------------------
Isilon Systems, Inc. 1,2 4,600 126,960
- --------------------------------------------------------------------------------
Keane, Inc. 1,2 23,200 276,312
- --------------------------------------------------------------------------------
Lightbridge, Inc. 1 24,600 333,084
- --------------------------------------------------------------------------------
ManTech International Corp. 1 10,900 401,447
- --------------------------------------------------------------------------------
Maximus, Inc. 2 8,000 246,240
- --------------------------------------------------------------------------------
MPS Group, Inc. 1 146,900 2,083,042
- --------------------------------------------------------------------------------
NCI, Inc., Cl. A 1 13,100 200,299
- --------------------------------------------------------------------------------
Ness Technologies, Inc. 1 2,900 41,354
- --------------------------------------------------------------------------------
Perot Systems Corp., Cl. A 1,2 64,400 1,055,516
- --------------------------------------------------------------------------------
Sabre Holdings Corp. 31,200 994,968
- --------------------------------------------------------------------------------
SRA International, Inc., Cl. A 1 25,000 668,500
- --------------------------------------------------------------------------------
Startek, Inc. 2 4,400 59,576
- --------------------------------------------------------------------------------
Sykes Enterprises, Inc. 1 57,200 1,009,008
- --------------------------------------------------------------------------------
TNS, Inc. 1,2 400 7,700
- --------------------------------------------------------------------------------
Total System Services, Inc. 2 11,300 298,207
- --------------------------------------------------------------------------------
Tyler Technologies, Inc. 1,2 33,100 465,386
- --------------------------------------------------------------------------------
Unisys Corp. 1 36,300 284,592
- --------------------------------------------------------------------------------
VeriFone Holdings, Inc. 1 4,500 159,300
-----------------
21,554,669

- --------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES--0.1%
Dionex Corp. 1,2 11,500 652,165
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--5.0%
Actel Corp. 1,2 10,400 188,864
- --------------------------------------------------------------------------------
Advanced Analogic Technologies,
Inc. 1,2 1,100 5,929
- --------------------------------------------------------------------------------
Advanced Energy Industries, Inc. 1,2 50,400 951,048
- --------------------------------------------------------------------------------
Agere Systems, Inc. 1 56,400 1,081,188
- --------------------------------------------------------------------------------
Altera Corp. 1 54,200 1,066,656
- --------------------------------------------------------------------------------
AMIS Holdings, Inc. 1 25,900 273,763
- --------------------------------------------------------------------------------
Amkor Technology, Inc. 1,2 245,600 2,293,904
- --------------------------------------------------------------------------------
Applied Micro Circuits Corp. 1 245,300 873,268
- --------------------------------------------------------------------------------
Asyst Technologies, Inc. 1 50,500 369,155
- --------------------------------------------------------------------------------
Atheros Communications, Inc. 1,2 52,100 1,110,772
- --------------------------------------------------------------------------------
Atmel Corp. 1 93,200 563,860
- --------------------------------------------------------------------------------
ATMI, Inc. 1,2 34,300 1,047,179
- --------------------------------------------------------------------------------
Cirrus Logic, Inc. 1 40,700 280,016
- --------------------------------------------------------------------------------
Cohu, Inc. 2 12,800 258,048
- --------------------------------------------------------------------------------
Credence Systems Corp. 1,2 42,600 221,520
- --------------------------------------------------------------------------------
Cree, Inc. 1,2 9,700 168,004
- --------------------------------------------------------------------------------
Cymer, Inc. 1 54,500 2,395,275
- --------------------------------------------------------------------------------
Diodes, Inc. 1 18,600 659,928

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT Continued
DSP Group, Inc. 1,2 3,600 $ 78,120
- --------------------------------------------------------------------------------
Fairchild Semiconductor International,
Inc., Cl. A 1 24,200 406,802
- --------------------------------------------------------------------------------
FormFactor, Inc. 1 6,200 230,950
- --------------------------------------------------------------------------------
Hittite Microwave Corp. 1,2 37,000 1,195,840
- --------------------------------------------------------------------------------
Integrated Device Technology, Inc. 1 45,800 708,984
- --------------------------------------------------------------------------------
Intersil Corp., Cl. A 33,500 801,320
- --------------------------------------------------------------------------------
Intevac, Inc. 1,2 20,300 526,785
- --------------------------------------------------------------------------------
Kulicke & Soffa Industries, Inc. 1,2 47,600 399,840
- --------------------------------------------------------------------------------
Linear Technology Corp. 11,200 339,584
- --------------------------------------------------------------------------------
LSI Logic Corp. 1 93,600 842,400
- --------------------------------------------------------------------------------
LTX Corp. 1 74,900 419,440
- --------------------------------------------------------------------------------
Mattson Technology, Inc. 1 25,200 234,864
- --------------------------------------------------------------------------------
Micrel, Inc. 1,2 178,500 1,924,230
- --------------------------------------------------------------------------------
Microtune, Inc. 1,2 17,300 81,310
- --------------------------------------------------------------------------------
MKS Instruments, Inc. 1 54,700 1,235,126
- --------------------------------------------------------------------------------
National Semiconductor Corp. 46,300 1,051,010
- --------------------------------------------------------------------------------
Novellus Systems, Inc. 1 29,000 998,180
- --------------------------------------------------------------------------------
OmniVision Technologies, Inc. 1,2 115,100 1,571,115
- --------------------------------------------------------------------------------
PortalPlayer, Inc. 1 17,700 238,065
- --------------------------------------------------------------------------------
Power Integrations, Inc. 1,2 6,800 159,460
- --------------------------------------------------------------------------------
RF Micro Devices, Inc. 1,2 27,700 188,083
- --------------------------------------------------------------------------------
Semtech Corp. 1 37,500 490,125
- --------------------------------------------------------------------------------
Silicon Image, Inc. 1,2 139,400 1,773,168
- --------------------------------------------------------------------------------
Silicon Storage Technology, Inc. 1,2 32,000 144,320
- --------------------------------------------------------------------------------
SiRF Technology Holdings, Inc. 1 13,500 344,520
- --------------------------------------------------------------------------------
Supertex, Inc. 1,2 9,300 365,025
- --------------------------------------------------------------------------------
Techwell, Inc. 1,2 1,000 16,060
- --------------------------------------------------------------------------------
Teradyne, Inc. 1 54,700 818,312
- --------------------------------------------------------------------------------
Tessera Technologies, Inc. 1 30,200 1,218,268
- --------------------------------------------------------------------------------
Transmeta Corp. 1,2 32,200 35,742
- --------------------------------------------------------------------------------
Trident Microsystems, Inc. 1 3,200 58,176
- --------------------------------------------------------------------------------
TriQuint Semiconductor, Inc. 1,2 33,000 148,500
- --------------------------------------------------------------------------------
Varian Semiconductor Equipment
Associates, Inc. 1 19,700 896,744
- --------------------------------------------------------------------------------
Veeco Instruments, Inc. 1 17,500 327,775
- --------------------------------------------------------------------------------
Xilinx, Inc. 40,200 957,162
- --------------------------------------------------------------------------------
Zoran Corp. 1 65,300 952,074
-----------------
35,985,856

- --------------------------------------------------------------------------------
SOFTWARE--4.8%
Actuate Corp. 1 43,500 258,390
- --------------------------------------------------------------------------------
Advent Software, Inc. 1,2 28,600 1,009,294
- --------------------------------------------------------------------------------
Altiris, Inc. 1 15,700 398,466
- --------------------------------------------------------------------------------
Amdocs Ltd. 1 16,300 631,625
- --------------------------------------------------------------------------------
Ansoft Corp. 1,2 24,900 692,220

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
SOFTWARE Continued
Aspen Technology, Inc. 1,2 40,600 $ 447,412
- --------------------------------------------------------------------------------
Autodesk, Inc. 1 16,900 683,774
- --------------------------------------------------------------------------------
BEA Systems, Inc. 1 75,200 946,016
- --------------------------------------------------------------------------------
Blackbaud, Inc. 77,789 2,022,514
- --------------------------------------------------------------------------------
BMC Software, Inc. 1 39,800 1,281,560
- --------------------------------------------------------------------------------
Cadence Design Systems, Inc. 1 50,900 911,619
- --------------------------------------------------------------------------------
Check Point Software
Technologies Ltd. 1 14,700 322,224
- --------------------------------------------------------------------------------
Cognos, Inc. 1,2 13,500 573,210
- --------------------------------------------------------------------------------
Compuware Corp. 1 99,600 829,668
- --------------------------------------------------------------------------------
Double-Take Software, Inc. 1 10,600 136,528
- --------------------------------------------------------------------------------
ePlus, inc. 1 100 1,045
- --------------------------------------------------------------------------------
Fair Isaac Corp. 27,600 1,121,940
- --------------------------------------------------------------------------------
Hyperion Solutions Corp. 1 21,400 769,116
- --------------------------------------------------------------------------------
i2 Technoloogies, Inc. 1,2 9,700 221,354
- --------------------------------------------------------------------------------
Interactive Intelligence, Inc. 1 15,700 351,994
- --------------------------------------------------------------------------------
Intuit, Inc. 1 13,400 408,834
- --------------------------------------------------------------------------------
JDA Software Group, Inc. 1 16,100 221,697
- --------------------------------------------------------------------------------
Kronos, Inc. 1,2 21,600 793,584
- --------------------------------------------------------------------------------
Lawson Software, Inc. 1,2 93,000 687,270
- --------------------------------------------------------------------------------
Magma Design Automation, Inc. 1,2 7,500 66,975
- --------------------------------------------------------------------------------
Manhattan Associates, Inc. 1,2 41,000 1,233,280
- --------------------------------------------------------------------------------
MapInfo Corp. 1,2 9,400 122,670
- --------------------------------------------------------------------------------
McAfee, Inc. 1 31,700 899,646
- --------------------------------------------------------------------------------
Mentor Graphics Corp. 1,2 135,200 2,437,656
- --------------------------------------------------------------------------------
MICROS Systems, Inc. 1 27,100 1,428,170
- --------------------------------------------------------------------------------
MicroStrategy, Inc., Cl. A 1,2 19,100 2,177,591
- --------------------------------------------------------------------------------
Net 1 UEPS Technologies, Inc. 1,2 7,200 212,832
- --------------------------------------------------------------------------------
Novell, Inc. 1 83,100 515,220
- --------------------------------------------------------------------------------
Open Solutions, Inc. 1,2 7,900 297,356
- --------------------------------------------------------------------------------
OPNET Technologies, Inc. 1,2 4,100 59,245
- --------------------------------------------------------------------------------
Parametric Technology Corp. 1 8,300 149,566
- --------------------------------------------------------------------------------
Progress Software Corp. 1,2 3,400 94,962
- --------------------------------------------------------------------------------
Quality Systems, Inc. 2 21,800 812,486
- --------------------------------------------------------------------------------
Quest Software, Inc. 1 76,000 1,113,400
- --------------------------------------------------------------------------------
Sonic Solutions, Inc. 1,2 9,600 156,480
- --------------------------------------------------------------------------------
SPSS, Inc. 1,2 14,700 442,029
- --------------------------------------------------------------------------------
Sybase, Inc. 1 39,200 968,240
- --------------------------------------------------------------------------------
Synchronoss Technologies, Inc. 1 1,800 24,696
- --------------------------------------------------------------------------------
Synopsys, Inc. 1 42,100 1,125,333
- --------------------------------------------------------------------------------
The9 Ltd., ADR 1 3,300 106,326
- --------------------------------------------------------------------------------
TIBCO Software, Inc. 1 196,000 1,850,240
- --------------------------------------------------------------------------------
Transaction Systems Architects,
Inc., Cl. A 1 29,200 951,044
- --------------------------------------------------------------------------------
Ultimate Software Group, Inc.
(The) 1,2 6,000 139,560

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
SOFTWARE Continued
VA Software Corp. 1,2 60,500 $ 304,315
- --------------------------------------------------------------------------------
Vasco Data Security
International, Inc. 1,2 14,200 168,270
- --------------------------------------------------------------------------------
Verint Systems, Inc. 1,2 8,600 294,808
- --------------------------------------------------------------------------------
Wind River Systems, Inc. 1 50,900 521,725
-----------------
34,395,475

- --------------------------------------------------------------------------------
MATERIALS--8.8%
- --------------------------------------------------------------------------------
CHEMICALS--4.0%
Albemarle Corp. 11,800 847,240
- --------------------------------------------------------------------------------
Arch Chemicals, Inc. 2 16,700 556,277
- --------------------------------------------------------------------------------
Ashland, Inc. 13,100 906,258
- --------------------------------------------------------------------------------
Cabot Corp. 1,800 78,426
- --------------------------------------------------------------------------------
CF Industries Holdings, Inc. 65,400 1,676,856
- --------------------------------------------------------------------------------
Eastman Chemical Co. 2,900 171,999
- --------------------------------------------------------------------------------
FMC Corp. 8,300 635,365
- --------------------------------------------------------------------------------
Fuller (H.B.) Co. 86,700 2,238,594
- --------------------------------------------------------------------------------
Georgia Gulf Corp. 22,400 432,544
- --------------------------------------------------------------------------------
Hercules, Inc. 1 138,300 2,670,573
- --------------------------------------------------------------------------------
Innophos Holdings, Inc. 1 21,000 308,280
- --------------------------------------------------------------------------------
Innospec, Inc. 700 32,585
- --------------------------------------------------------------------------------
Koppers Holdings, Inc. 4,300 112,101
- --------------------------------------------------------------------------------
Landec Corp. 1,2 1,800 19,368
- --------------------------------------------------------------------------------
Lubrizol Corp. (The) 12,500 626,625
- --------------------------------------------------------------------------------
Lyondell Chemical Co. 35,600 910,292
- --------------------------------------------------------------------------------
MacDermid, Inc. 13,300 453,530
- --------------------------------------------------------------------------------
NewMarket Corp. 35,700 2,108,085
- --------------------------------------------------------------------------------
Olin Corp. 40,800 674,016
- --------------------------------------------------------------------------------
OM Group, Inc. 1 49,500 2,241,360
- --------------------------------------------------------------------------------
Pioneer Cos., Inc. 1 12,600 361,116
- --------------------------------------------------------------------------------
PolyOne Corp. 1 167,500 1,256,250
- --------------------------------------------------------------------------------
Rockwood Holdings, Inc. 1 17,500 442,050
- --------------------------------------------------------------------------------
Rohm & Haas Co. 2,700 138,024
- --------------------------------------------------------------------------------
Schulman (A.), Inc. 2 15,700 349,325
- --------------------------------------------------------------------------------
Sensient Technologies Corp. 66,400 1,633,440
- --------------------------------------------------------------------------------
Spartech Corp. 76,000 1,992,720
- --------------------------------------------------------------------------------
Stepan Co. 4,300 136,181
- --------------------------------------------------------------------------------
Terra Industries, Inc. 1,2 116,700 1,398,066
- --------------------------------------------------------------------------------
Tronox, Inc., Cl. A 2 20,600 329,394
- --------------------------------------------------------------------------------
Valspar Corp. (The) 20,900 577,676
- --------------------------------------------------------------------------------
W.R. Grace & Co. 1,2 127,500 2,524,500
-----------------
28,839,116

- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.6%
Eagle Materials, Inc. 49,500 2,139,885
- --------------------------------------------------------------------------------
Headwaters, Inc. 1,2 70,500 1,689,180

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS Continued
U.S. Concrete, Inc. 1,2 30,100 $ 214,312
-----------------
4,043,377

- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING--0.9%
AEP Industries, Inc. 1 4,300 229,233
- --------------------------------------------------------------------------------
Caraustar Industries, Inc. 1,2 4,500 36,405
- --------------------------------------------------------------------------------
Chesapeake Corp. 4,300 73,186
- --------------------------------------------------------------------------------
Graphic Packaging Corp. 1 24,900 107,817
- --------------------------------------------------------------------------------
Greif, Inc., Cl. A 23,800 2,817,920
- --------------------------------------------------------------------------------
Myers Industries, Inc. 18,200 285,012
- --------------------------------------------------------------------------------
Packaging Corp. of America 13,000 287,300
- --------------------------------------------------------------------------------
Pactiv Corp. 1 34,700 1,238,443
- --------------------------------------------------------------------------------
Rock-Tenn Co., Cl. A 2 30,200 818,722
- --------------------------------------------------------------------------------
Silgan Holdings, Inc. 18,700 821,304
- --------------------------------------------------------------------------------
Sonoco Products Co. 3,000 114,180
-----------------
6,829,522

- --------------------------------------------------------------------------------
METALS & MINING--3.0%
A. M. Castle & Co. 2 10,600 269,770
- --------------------------------------------------------------------------------
AK Steel Holding Corp. 1,2 154,000 2,602,600
- --------------------------------------------------------------------------------
Amerigo Resources Ltd. 66,000 122,814
- --------------------------------------------------------------------------------
Brush Engineered Materials, Inc. 1 8,800 297,176
- --------------------------------------------------------------------------------
Carpenter Technology Corp. 8,600 881,672
- --------------------------------------------------------------------------------
Century Aluminum Co. 1,2 37,700 1,683,305
- --------------------------------------------------------------------------------
Chaparral Steel Co. 58,300 2,580,941
- --------------------------------------------------------------------------------
Cleveland-Cliffs, Inc. 2 58,100 2,814,364
- --------------------------------------------------------------------------------
Commercial Metals Co. 5,700 147,060
- --------------------------------------------------------------------------------
Compass Minerals International,
Inc. 2 24,500 773,220
- --------------------------------------------------------------------------------
Dynatec Corp. 1 32,000 58,449
- --------------------------------------------------------------------------------
FNX Mining Co., Inc. 1 3,100 48,568
- --------------------------------------------------------------------------------
Gibraltar Industries, Inc. 2 15,400 362,054
- --------------------------------------------------------------------------------
Inmet Mining Corp. 7,700 412,089
- --------------------------------------------------------------------------------
LionOre Mining International Ltd. 1 24,300 276,101
- --------------------------------------------------------------------------------
Meridian Gold, Inc. 1 900 25,029
- --------------------------------------------------------------------------------
Metal Management, Inc. 20,200 764,570
- --------------------------------------------------------------------------------
Olympic Steel, Inc. 7,400 164,502
- --------------------------------------------------------------------------------
Oregon Steel Mills, Inc. 1 39,200 2,446,472
- --------------------------------------------------------------------------------
Quanex Corp. 2 62,923 2,176,507
- --------------------------------------------------------------------------------
RTI International Metals, Inc. 1,2 5,100 398,922
- --------------------------------------------------------------------------------
Ryerson, Inc. 2 1,200 30,108
- --------------------------------------------------------------------------------
Schnitzer Steel Industries, Inc. 2 9,000 357,300
- --------------------------------------------------------------------------------
Steel Dynamics, Inc. 22,200 720,390
- --------------------------------------------------------------------------------
Steel Technologies, Inc. 2 4,100 71,955
- --------------------------------------------------------------------------------
United States Steel Corp. 14,100 1,031,274
-----------------
21,517,212

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.3%
Bowater, Inc. 2 54,800 $ 1,233,000
- --------------------------------------------------------------------------------
Buckeye Technologies, Inc. 1,2 11,800 141,364
- --------------------------------------------------------------------------------
Louisiana-Pacific Corp. 26,200 564,086
- --------------------------------------------------------------------------------
Neenah Paper, Inc. 2 7,600 268,432
- --------------------------------------------------------------------------------
Schweitzer-Mauduit International,
Inc. 4,900 127,645
-----------------
2,334,527

- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--1.6%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.2%
Alaska Communications Systems
Group, Inc. 2 28,500 432,915
- --------------------------------------------------------------------------------
Broadwing Corp. 1 8,500 132,770
- --------------------------------------------------------------------------------
Cbeyond, Inc. 1,2 36,200 1,107,358
- --------------------------------------------------------------------------------
CenturyTel, Inc. 24,800 1,082,768
- --------------------------------------------------------------------------------
Cincinnati Bell, Inc. 1 380,000 1,736,600
- --------------------------------------------------------------------------------
Citizens Communications Co. 46,700 671,079
- --------------------------------------------------------------------------------
Cogent Communications Group,
Inc. 1 23,700 384,414
- --------------------------------------------------------------------------------
Commonwealth Telephone
Enterprises, Inc. 900 37,674
- --------------------------------------------------------------------------------
Consolidated Communications
Holdings, Inc. 13,600 284,240
- --------------------------------------------------------------------------------
CT Communications, Inc. 2 11,600 265,872
- --------------------------------------------------------------------------------
Embarq Corp. 17,900 940,824
- --------------------------------------------------------------------------------
FairPoint Communications, Inc. 2 22,300 422,585
- --------------------------------------------------------------------------------
General Communication, Inc.,
Cl. A 1,2 35,100 552,123
- --------------------------------------------------------------------------------
Golden Telecom, Inc. 2 7,800 365,352
- --------------------------------------------------------------------------------
Iowa Telecommunications
Services, Inc. 2 15,000 295,650
- --------------------------------------------------------------------------------
North Pittsburgh Systems, Inc. 2 6,700 161,738
-----------------
8,873,962

- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.4%
Dobson Communications Corp.,
Cl. A 1 140,000 1,219,400
- --------------------------------------------------------------------------------
FiberTower Corp. 1,2 30,600 179,928
- --------------------------------------------------------------------------------
Syniverse Holdings, Inc. 1 1,700 25,483
- --------------------------------------------------------------------------------
Telephone & Data Systems, Inc. 16,900 918,177
- --------------------------------------------------------------------------------
USA Mobility, Inc. 2 9,800 219,226
-----------------
2,562,214

- --------------------------------------------------------------------------------
UTILITIES--1.7%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.6%
Central Vermont Public Service
Corp. 1,800 42,390
- --------------------------------------------------------------------------------
Cleco Corp. 2 23,700 597,951

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES Continued
El Paso Electric Co. 1 11,300 $ 275,381
- --------------------------------------------------------------------------------
IDACORP, Inc. 2 26,900 1,039,685
- --------------------------------------------------------------------------------
Otter Tail Corp. 2 4,800 149,568
- --------------------------------------------------------------------------------
Reliant Energy, Inc. 1 17,300 245,833
- --------------------------------------------------------------------------------
UIL Holdings Corp. 2 24,166 1,019,564
- --------------------------------------------------------------------------------
UniSource Energy Corp. 26,700 975,351
-----------------
4,345,723

- --------------------------------------------------------------------------------
ENERGY TRADERS--0.0%
Canadian Hydro Developers, Inc. 1 14,000 71,432
- --------------------------------------------------------------------------------
GAS UTILITIES--0.6%
Cascade Natural Gas Corp. 1,200 31,104
- --------------------------------------------------------------------------------
Laclede Group, Inc. (The) 2 15,300 535,959
- --------------------------------------------------------------------------------
New Jersey Resources Corp. 2 22,400 1,088,192
- --------------------------------------------------------------------------------
Northwest Natural Gas Co. 300 12,732
- --------------------------------------------------------------------------------
ONEOK, Inc. 16,600 715,792
- --------------------------------------------------------------------------------
Peoples Energy Corp. 2 18,200 811,174
- --------------------------------------------------------------------------------
Southwest Gas Corp. 2 21,600 828,792
- --------------------------------------------------------------------------------
UGI Corp. 7,600 207,328
-----------------
4,231,073

- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.5%
Avista Corp. 2 77,100 1,951,395
- --------------------------------------------------------------------------------
CenterPoint Energy, Inc. 48,100 797,498
- --------------------------------------------------------------------------------
CH Energy Group, Inc. 2 8,100 427,680
- --------------------------------------------------------------------------------
CMS Energy Corp. 1 21,100 352,370
-----------------
3,528,943

-----------------
Total Common Stocks
(Cost $624,669,945) 715,198,037

- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.0%
- --------------------------------------------------------------------------------
Simon Property Group, Inc., 6%
Cv., Non-Vtg. (Cost $3,213) 60 4,884

- --------------------------------------------------------------------------------
MONEY MARKET FUND--1.0%
- --------------------------------------------------------------------------------
Oppenheimer Institutional
Money Market Fund,
Cl. E, 5.25% 5,6 (Cost $7,142,041) 7,142,041 7,142,041
- --------------------------------------------------------------------------------
Total Investments, at Value
(excluding Investments Purchased
with Cash Collateral from Securities
Loaned) (Cost $631,815,199) 722,344,962

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM
SECURITIES LOANED--23.1% 7
- --------------------------------------------------------------------------------
ASSET BACKED FLOATING NOTE--1.5%
Citigroup Mortgage Loan Trust,
Inc., Series 2006-HE1,
Cl. A1, 5.41%, 1/25/07 $ 1,717,090 $ 1,717,090
- --------------------------------------------------------------------------------
Countrywide Asset-Backed
Certificates, Series 2005-17,
Cl. 4AV1, 5.46%, 1/25/07 1,338,136 1,338,136
- --------------------------------------------------------------------------------
Countrywide Asset-Backed
Certificates, Series 2006-2,
Cl. 2A1, 5.42%, 1/25/07 1,656,970 1,656,970
- --------------------------------------------------------------------------------
GSAA Home Equity Trust,
Series 2005-15, Cl. 2A1, 5.44%,
1/25/07 1,239,628 1,239,628
- --------------------------------------------------------------------------------
Specialty Underwriting &
Residential Finance Trust,
Series 2006 BC1, Cl. A2A, 5.43%,
1/25/07 7 1,778,986 1,778,986
- --------------------------------------------------------------------------------
Structured Asset Investment
Loan Trust, Series 2005-11,
Cl. A4, 5.44%, 1/25/07 963,512 963,512
- --------------------------------------------------------------------------------
Whitehawk CDO Funding
Corp., 5.41%, 3/15/07 2,250,000 2,250,000
-----------------
10,944,322

- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--14.2%
Undivided interest of 1.92% in joint repurchase
agreement (Principal Amount/Value
$4,100,000,000, with a maturity value of
$4,102,437,222) with Nomura Securities, 5.35%,
dated 12/29/06, to be repurchased at $78,793,494
on 1/2/07, collateralized by U.S. Agency
Mortgages, 0.00%-22.12%,
3/15/14-5/1/46, with a value
of $4,182,000,000 8 78,746,683 78,746,683
- --------------------------------------------------------------------------------
Undivided interest of 4.60% in joint repurchase
agreement (Principal Amount/Value
$500,000,000, with a maturity value of
$500,299,028) with Greenwich Capital, 5.3825%,
dated 12/29/06, to be repurchased at $23,013,755
on 1/2/07, collateralized by AAA Asset-Backed
Securities, 0.00%-6%,
1/25/08-1/6/46, with a value
of $519,930,042 23,000,000 23,000,000
-----------------
101,746,683

- --------------------------------------------------------------------------------
MASTER FLOATING NOTE--0.4%
CDC Financial Products, Inc.,
5.36%, 1/2/07 3,000,000 3,000,000
- --------------------------------------------------------------------------------
MEDIUM-TERM FLOATING NOTE--5.9%
American Express Credit Corp.,
5.36%, 1/16/07 2,000,000 2,000,000

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIUM-TERM FLOATING NOTE Continued
Bear Stearns, 5.37%, 1/2/07 $ 3,000,000 $ 3,000,000
- --------------------------------------------------------------------------------
Beta Finance, Inc., 5.37%, 1/2/07 2,999,459 2,999,459
- --------------------------------------------------------------------------------
CC USA, Inc., 5.37%, 1/2/07 3,000,000 3,000,000
- --------------------------------------------------------------------------------
CC USA, Inc., 5.37%, 1/2/07 1,000,000 1,000,000
- --------------------------------------------------------------------------------
Citigroup Funding, Inc., 5.36%, 1/2/07 5,000,000 5,000,000
- --------------------------------------------------------------------------------
Dorada Finance, Inc., 5.37%, 1/2/07 3,500,000 3,500,000
- --------------------------------------------------------------------------------
Goldman Sachs Group, Inc.,
5.47%, 1/2/07 3,000,000 3,000,000
- --------------------------------------------------------------------------------
HSBC Finance Corp., 5.34%, 1/8/07 2,000,000 2,000,000
- --------------------------------------------------------------------------------
K2 (USA) LLC, 5.39%, 1/2/07 2,999,061 2,999,061
- --------------------------------------------------------------------------------
LINKS Finance LLC, 5.37%, 1/2/07 3,000,142 3,000,142
- --------------------------------------------------------------------------------
MBIA Global Funding LLC,
5.36%, 1/30/07 2,000,000 2,000,000
- --------------------------------------------------------------------------------
MBIA Global Funding LLC,
5.37%, 1/2/07 2,500,000 2,500,000
- --------------------------------------------------------------------------------
Sigma Finance, Inc., 5.37%, 1/2/07 3,000,000 3,000,000
- --------------------------------------------------------------------------------
Tango Finance Corp., 5.38%, 1/2/07 3,499,125 3,499,125
-----------------
42,497,787

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
YANKEE FLOATING CERTIFICATE OF DEPOSIT--1.1%
Natexis Banques Populaires
NY, 5.37%, 1/2/07 $ 2,000,000 $ 2,000,000
- --------------------------------------------------------------------------------
Natexis Banques Populaires
NY, 5.39%, 1/2/07 1,999,758 1,999,758
- --------------------------------------------------------------------------------
Nordea Bank New York, 5.32%,
1/2/07 3,699,883 3,699,883
-----------------
7,699,641

Total Investments Purchased with
Cash Collateral from Securities
Loaned (Cost $165,888,433) 165,888,433
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $797,703,632) 123.7% 888,233,395
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (23.7) (170,397,944)
--------------------------------
NET ASSETS 100.0% $ 717,835,451
================================

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. Partial or fully-loaned security. See Note 7 of accompanying Notes.

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 $221,114 or 0.03% of the Fund's net assets
as of December 31, 2006.

4. Illiquid or restricted security. The aggregate value of illiquid or
restricted securities as of December 31, 2006 was $126,960, which represents
0.02% of the Fund's net assets, all of which is considered restricted. See Note
6 of accompanying Notes.

5. Represents ownership of an affiliated fund, at or during the period ended
December 31, 2006. Transactions during the period in which the issuer was an
affiliate are as follows:

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25%* -- 49,711,289 42,569,248 7,142,041

VALUE DIVIDEND
SEE NOTE 1 INCOME
- -------------------------------------------------------------------------------------------------------------------------------

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25%* $ 7,142,041 $84,497

* The money market fund and the Fund are affiliated by having the same
investment advisor.

6. Rate shown is the 7-day yield as of December 31, 2006.

7. The security/securities have 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
accompanying Notes.

8. The Fund may have elements of risk due to concentrated investments. Such
concentrations may subject the Fund to additional risks.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF ASSETS AND LIABILITIES December 31, 2006
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------------
Investments, at value (including cost and market value of $101,746,683 in repurchase agreements)--
see accompanying statement of investments:
Unaffiliated companies (cost $790,561,591) $ 881,091,354
Affiliated companies (cost $7,142,041) 7,142,041
--------------
888,233,395
- -------------------------------------------------------------------------------------------------------------------
Cash 481,602
- -------------------------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency contracts 30
- -------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 10,234,380
Shares of beneficial interest sold 1,989,099
Interest and dividends 655,020
Other 12,007
--------------
Total assets 901,605,533

- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned 165,888,433
- -------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 16,169,120
Shares of beneficial interest redeemed 1,263,840
Distribution and service plan fees 374,390
Shareholder communications 41,139
Trustees' compensation 7,260
Transfer and shareholder servicing agent fees 1,767
Other 24,133
--------------
Total liabilities 183,770,082

- -------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 717,835,451
==============

- -------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 37,782
- -------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 601,079,483
- -------------------------------------------------------------------------------------------------------------------
Accumulated net investment income 1,540,319
- -------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 24,648,095
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities denominated
in foreign currencies 90,529,772
--------------
NET ASSETS $ 717,835,451
==============

- -------------------------------------------------------------------------------------------------------------------
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
$81,404,868 and 4,251,978 shares of beneficial interest outstanding) $ 19.15
- -------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share (based on net assets of
$636,430,583 and 33,529,593 shares of beneficial interest outstanding) $ 18.98

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF OPERATIONS For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $10,357) $ 5,647,264
Affiliated companies 84,497
- -------------------------------------------------------------------------------------------------------------------
Portfolio lending fees 560,760
- -------------------------------------------------------------------------------------------------------------------
Interest 409,735
--------------
Total investment income 6,702,256

- -------------------------------------------------------------------------------------------------------------------
EXPENSES
- -------------------------------------------------------------------------------------------------------------------
Management fees 3,908,014
- -------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares 1,194,997
- -------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares 10,045
Service shares 10,406
- -------------------------------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares 11,486
Service shares 89,217
- -------------------------------------------------------------------------------------------------------------------
Trustees' compensation 9,329
- -------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 4,965
- -------------------------------------------------------------------------------------------------------------------
Administration service fees 1,500
- -------------------------------------------------------------------------------------------------------------------
Other 52,702
--------------
Total expenses 5,292,661
Less waivers and reimbursements of expenses (1,600)
--------------
Net expenses 5,291,061

- -------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 1,411,195

- -------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- -------------------------------------------------------------------------------------------------------------------
Net realized gain on:
Investments 26,949,295
Foreign currency transactions 99,797
--------------
Net realized gain 27,049,092
- -------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 41,359,148
Translation of assets and liabilities denominated in foreign currencies (147,027)
--------------
Net change in unrealized appreciation 41,212,121

- -------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 69,672,408
==============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2006 2005
- -------------------------------------------------------------------------------------------------------------

OPERATIONS
- -------------------------------------------------------------------------------------------------------------
Net investment income $ 1,411,195 $ 128,062
- -------------------------------------------------------------------------------------------------------------
Net realized gain 27,049,092 13,592,611
- -------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 41,212,121 14,125,091
-------------------------------
Net increase in net assets resulting from operations 69,672,408 27,845,764

- -------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares (79,081) --
Service shares (90,296) --
-------------------------------
(169,377) --
- -------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Non-Service shares (1,560,912) (1,015,976)
Service shares (11,399,106) (4,826,305)
-------------------------------
(12,960,018) (5,842,281)

- -------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Non-Service shares 29,898,135 3,420,313
Service shares 271,706,391 122,016,957
-------------------------------
301,604,526 125,437,270

- -------------------------------------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------------------------------------
Total increase 358,147,539 147,440,753
- -------------------------------------------------------------------------------------------------------------
Beginning of period 359,687,912 212,247,159
-------------------------------
End of period (including accumulated net investment income of $1,540,319
and $126,247, respectively) $ 717,835,451 $ 359,687,912
===============================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------

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. Voluntary waiver of affiliated funds management fees less than 0.01%.

5. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.77%

6. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 1.00%

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, 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 Fund's investment
advisor is OppenheimerFunds, Inc. (the Manager).

The following is a summary of significant accounting policies consistently
followed by the Fund.

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 TAX PURPOSES
----------------------------------------------------------------------
$ 2,803,309 $ 25,285,267 $ -- $ 88,636,871

1. During the fiscal year ended December 31, 2006, the Fund did not utilize any
capital loss carryforward.

2. During the fiscal year ended December 31, 2005, the Fund did not utilize any
capital loss carryforward.

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

INCREASE REDUCTION
TO ACCUMULATED TO ACCUMULATED NET
INCREASE NET INVESTMENT REALIZED GAIN
TO PAID-IN CAPITAL INCOME ON INVESTMENTS 3
--------------------------------------------------------
$ 1,905,501 $ 172,254 $ 2,077,755

3. $1,905,501, including $1,803,685 of long-term capital gain, was distributed
in connection with Fund share redemptions.

The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005 was as follows:

YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------------------------------------------------
Distributions paid from:
Ordinary income $ 848,573 $ 5,842,281
Long-term capital gain 12,280,822 --
---------------------------------
Total $ 13,129,395 $ 5,842,281
=================================

Federal tax cost of securities $ 799,596,502
Federal tax cost of other investments (5,323)
--------------
Total federal tax cost $ 799,591,179
==============

Gross unrealized appreciation $ 99,133,172
Gross unrealized depreciation (10,496,301)
--------------
Net unrealized appreciation $ 88,636,871
==============

- --------------------------------------------------------------------------------
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, 2006 YEAR ENDED DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold 2,252,265 $ 40,943,154 951,013 $ 15,158,198
Dividends and/or distributions reinvested 91,722 1,639,993 65,759 1,015,976
Redeemed (700,330) (12,685,012) (815,388) (12,753,861)
------------------------------------------------------------
Net increase 1,643,657 $ 29,898,135 201,384 $ 3,420,313
============================================================

- --------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold 17,621,426 $ 317,270,866 9,011,249 $ 144,257,571
Dividends and/or distributions reinvested 639,766 11,362,246 313,963 4,826,305
Redeemed (3,189,608) (56,926,721) (1,735,515) (27,066,919)
------------------------------------------------------------
Net increase 15,071,584 $ 271,706,391 7,589,697 $ 122,016,957
============================================================

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and money market funds, for the year ended December
31, 2006, were as follows:

PURCHASES SALES
-----------------------------------------------------
Investment securities $ 880,209,397 $590,073,802

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

FEE SCHEDULE
-------------------------------
Up to $200 million 0.75%
Next $200 million 0.72
Next $200 million 0.69
Next $200 million 0.66
Over $800 million 0.60

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued

ADMINISTRATION SERVICE FEES. The Fund pays the Manager a fee of $1,500 per year
for preparing and filing the Fund's tax returns.

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

As of December 31, 2006, the Fund had outstanding foreign currency contracts as
follows:

CONTRACT
EXPIRATION AMOUNT VALUATION AS OF UNREALIZED
CONTRACT DESCRIPTION DATE (000s) DECEMBER 31, 2006 APPRECIATION
- -------------------------------------------------------------------------------
CONTRACTS TO SELL
Canadian Dollar (CAD) 1/2/07 6CAD $5,323 $30

- --------------------------------------------------------------------------------
6. ILLIQUID OR RESTRICTED SECURITIES

As of December 31, 2006, 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 10% 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.
Securities that are illiquid or restricted are marked with the applicable
footnote on the Statement of Investments. Information concerning restricted
securities is as follows:

ACQUISITION VALUATION AS OF UNREALIZED
SECURITY DATES COST DECEMBER 31, 2006 APPRECIATION
- --------------------------------------------------------------------------------
Mission Oil & Gas, Inc. 1/18/05 $ 34,507 $ 69,425 $ 34,918
Tusk Energy Corp. 11/15/04 38,148 57,535 19,387
------------------------------------------
$ 72,655 $ 126,960 $ 54,305
==========================================

- --------------------------------------------------------------------------------
7. SECURITIES LENDING

- --------------------------------------------------------------------------------
8. RECENT ACCOUNTING PRONOUNCEMENTS

- --------------------------------------------------------------------------------
8. RECENT ACCOUNTING PRONOUNCEMENTS Continued

the adoption of SFAS No. 157 will materially impact the financial statement
amounts; however, additional disclosures may be required about the inputs used
to develop the measurements and the effect of certain of the measurements on
changes in net assets for the period.

- --------------------------------------------------------------------------------
9. LITIGATION

19 | OPPENHEIMER MIDCAP FUND/VA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
OPPENHEIMER MIDCAP FUND/VA:

We have audited the accompanying statement of assets and liabilities of
Oppenheimer MidCap Fund/VA (the "Fund"), formerly Aggressive Growth Fund/VA, a
series of Oppenheimer Variable Account Funds, including the statement of
investments, as of December 31, 2006, 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.

DELOITTE & TOUCHE LLP

Denver, Colorado
February 8, 2007

STATEMENT OF INVESTMENTS December 31, 2006
- --------------------------------------------------------------------------------

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--98.1%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--13.3%
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--2.3%
International Game Technology 270,100 $ 12,478,620
- --------------------------------------------------------------------------------
Panera Bread Co., Cl. A 1 224,400 12,546,204
---------------
25,024,824

- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.4%
Harman International Industries, Inc. 47,100 4,705,761
- --------------------------------------------------------------------------------
INTERNET & CATALOG RETAIL--1.1%
Coldwater Creek, Inc. 1 488,100 11,968,212
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--5.6%
O'Reilly Automotive, Inc. 1 1,051,124 33,699,035
- --------------------------------------------------------------------------------
Tiffany & Co. 475,700 18,666,468
- --------------------------------------------------------------------------------
Tractor Supply Co. 1 203,100 9,080,601
---------------
61,446,104

- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--3.9%
Coach, Inc. 1 289,400 12,432,624
- --------------------------------------------------------------------------------
Polo Ralph Lauren Corp. 402,900 31,289,214
---------------
43,721,838

- --------------------------------------------------------------------------------
CONSUMER STAPLES--1.7%
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.7%
Whole Foods Market, Inc. 396,800 18,621,824
- --------------------------------------------------------------------------------
ENERGY--3.2%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--1.2%
Smith International, Inc. 305,700 12,555,099
- --------------------------------------------------------------------------------
OIL & GAS--2.0%
Murphy Oil Corp. 240,800 12,244,680
- --------------------------------------------------------------------------------
XTO Energy, Inc. 210,399 9,899,273
---------------
22,143,953

- --------------------------------------------------------------------------------
FINANCIALS--22.3%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--6.9%
Affiliated Managers Group, Inc. 1 210,800 22,161,404
- --------------------------------------------------------------------------------
Greenhill & Co., Inc. 259,800 19,173,240
- --------------------------------------------------------------------------------
Investors Financial Services Corp. 288,600 12,314,562
- --------------------------------------------------------------------------------
Legg Mason, Inc. 239,100 22,726,455
---------------
76,375,661

- --------------------------------------------------------------------------------
COMMERCIAL BANKS--5.6%
Commerce Bancorp, Inc. 952,200 33,584,094
- --------------------------------------------------------------------------------
East West Bancorp, Inc. 321,600 11,391,072
- --------------------------------------------------------------------------------
Marshall & Ilsley Corp. 345,700 16,631,627
---------------
61,606,793

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--1.8%
Chicago Mercantile Exchange (The) 38,000 $ 19,370,500
- --------------------------------------------------------------------------------
INSURANCE--5.4%
AMBAC Financial Group, Inc. 191,300 17,039,091
- --------------------------------------------------------------------------------
Brown & Brown, Inc. 714,700 20,161,687
- --------------------------------------------------------------------------------
Philadelphia Consolidated Holding Co. 1 513,500 22,881,560
---------------
60,082,338

- --------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT--2.6%
CB Richard Ellis Group, Inc., Cl. A 1 847,820 28,147,624
- --------------------------------------------------------------------------------
HEALTH CARE--16.9%
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--9.5%
Bard (C.R.), Inc. 423,500 35,137,795
- --------------------------------------------------------------------------------
Gen-Probe, Inc. 1 109,500 5,734,515
- --------------------------------------------------------------------------------
IDEXX Laboratories, Inc. 1 137,500 10,903,750
- --------------------------------------------------------------------------------
Intuitive Surgical, Inc. 1 75,200 7,211,680
- --------------------------------------------------------------------------------
ResMed, Inc. 1 395,800 19,481,276
- --------------------------------------------------------------------------------
Varian Medical Systems, Inc. 1 547,300 26,035,061
---------------
104,504,077

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--3.5%
Coventry Health Care, Inc. 1 593,275 29,693,414
- --------------------------------------------------------------------------------
Schein (Henry), Inc. 1 181,400 8,884,972
---------------
38,578,386

- --------------------------------------------------------------------------------
HEALTH CARE TECHNOLOGY--1.6%
Cerner Corp. 1 399,200 18,163,600
- --------------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES--2.3%
Covance, Inc. 1 421,600 24,836,456
- --------------------------------------------------------------------------------
INDUSTRIALS--13.2%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--3.1%
Rockwell Collins, Inc. 532,600 33,708,254
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--2.0%
C.H. Robinson Worldwide, Inc. 279,600 11,432,844
- --------------------------------------------------------------------------------
Expeditors International of
Washington, Inc. 273,800 11,088,900
---------------
22,521,744

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--4.7%
Corporate Executive Board Co. (The) 254,800 22,345,960
- --------------------------------------------------------------------------------
Stericycle, Inc. 1 389,800 29,429,900
---------------
51,775,860

- --------------------------------------------------------------------------------
MACHINERY--1.6%
Donaldson Co., Inc. 510,700 17,726,397
- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--1.8%
Fastenal Co. 543,400 19,497,192

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--24.5%
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.0%
Trimble Navigation Ltd. 1 212,900 $ 10,800,417
- --------------------------------------------------------------------------------
IT SERVICES--10.2%
Alliance Data Systems Corp. 1 579,600 36,207,612
- --------------------------------------------------------------------------------
Cognizant Technology Solutions Corp. 1 336,300 25,948,908
- --------------------------------------------------------------------------------
Global Payments, Inc. 620,000 28,706,000
- --------------------------------------------------------------------------------
SRA International, Inc., Cl. A 1 274,700 7,345,478
- --------------------------------------------------------------------------------
VeriFone Holdings, Inc. 1 390,500 13,823,700
---------------
112,031,698

- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--3.3%
FormFactor, Inc. 1 371,500 13,838,375
- --------------------------------------------------------------------------------
Microchip Technology, Inc. 703,400 23,001,180
---------------
36,839,555

- --------------------------------------------------------------------------------
SOFTWARE--10.0%
Adobe Systems, Inc. 1 564,300 23,204,016
- --------------------------------------------------------------------------------
Amdocs Ltd. 1 628,000 24,335,000
- --------------------------------------------------------------------------------
Citrix Systems, Inc. 1 452,900 12,250,945
- --------------------------------------------------------------------------------
FactSet Research Systems, Inc. 430,850 24,334,408
- --------------------------------------------------------------------------------
Intuit, Inc. 1 843,300 25,729,083
---------------
109,853,452

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
MATERIALS--2.3%
- --------------------------------------------------------------------------------
CHEMICALS--2.3%
Ecolab, Inc. 570,700 $ 25,795,640
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.7%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.7%
NeuStar, Inc., Cl. A 1 252,700 8,197,588
---------------
Total Common Stocks
(Cost $813,692,823) 1,080,600,847

- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.0%
- --------------------------------------------------------------------------------
Blaze Network Products, Inc., 8% Cv.,
Series D 1,2,3 (Cost $7,346,317) 1,147,862 2,586

- --------------------------------------------------------------------------------
MONEY MARKET FUND--1.8%
- --------------------------------------------------------------------------------
Oppenheimer Institutional Money
Market Fund, Cl. E, 5.25% 3,4
(Cost $19,997,273) 19,997,273 19,997,273

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $841,036,413) 99.9% 1,100,600,706
- --------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.1 1,339,250
------------------------------
NET ASSETS 100.0% $1,101,939,956
==============================

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, 2006 was $2,586, which represents less
than 0.01% of the Fund's net assets, all of which is considered restricted. See
Note 5 of accompanying Notes.

3. 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, 2006. Transactions during the period in
which the issuer was an affiliate are as follows:

Blaze Network Products, Inc., 8% Cv., Series D 1,147,862 -- -- 1,147,862
Oppenheimer Institutional Money Market Fund, Cl. E, 5.25% * -- 53,045,644 33,048,371 19,997,273

VALUE DIVIDEND
SEE NOTE 1 INCOME
- ---------------------------------------------------------------------------------------------------------------------------------

Blaze Network Products, Inc., 8% Cv., Series D $ 2,586 $ --
Oppenheimer Institutional Money Market Fund, Cl. E, 5.25% * 19,997,273 140,372
---------------------------------
$19,999,859 $ 140,372
=================================

* The money market fund and the Fund are affiliated by having the same
investment advisor.

4. Rate shown is the 7-day yield as of December 31, 2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF ASSETS AND LIABILITIES December 31, 2006
- --------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $813,692,823) $ 1,080,600,847
Affiliated companies (cost $27,343,590) 19,999,859
----------------
1,100,600,706
- -------------------------------------------------------------------------------------------------------------------
Cash 11,650
- -------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 2,241,653
Dividends 392,955
Shares of beneficial interest sold 317,239
Other 32,018
----------------
Total assets 1,103,596,221

- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of beneficial interest redeemed 1,473,001
Shareholder communications 89,507
Distribution and service plan fees 29,734
Trustees' compensation 23,075
Transfer and shareholder servicing agent fees 1,745
Other 39,203
----------------
Total liabilities 1,656,265

- -------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 1,101,939,956
================

- -------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 21,681
- -------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 1,491,459,911
- -------------------------------------------------------------------------------------------------------------------
Accumulated net investment loss (23,075)
- -------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (649,082,854)
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 259,564,293
----------------
NET ASSETS $ 1,101,939,956
================

- -------------------------------------------------------------------------------------------------------------------
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 $1,054,808,536 and 20,742,140 shares of beneficial interest outstanding) $ 50.85
- -------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $47,131,420 and 939,068 shares of beneficial interest outstanding) $ 50.19

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF OPERATIONS For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -------------------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies $ 6,871,657
Affiliated companies 140,372
- -------------------------------------------------------------------------------------------------------------------
Interest 656,764
----------------
Total investment income 7,668,793

- -------------------------------------------------------------------------------------------------------------------
EXPENSES
- -------------------------------------------------------------------------------------------------------------------
Management fees 7,923,282
- -------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees -- Service shares 110,612
- -------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares 10,150
Service shares 9,994
- -------------------------------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares 161,039
Service shares 6,577
- -------------------------------------------------------------------------------------------------------------------
Trustees' compensation 21,796
- -------------------------------------------------------------------------------------------------------------------
Administration service fees 1,500
- -------------------------------------------------------------------------------------------------------------------
Other 68,097
----------------
Total expenses 8,313,047
Less waivers and reimbursements of expenses (2,708)
----------------
Net expenses 8,310,339

- -------------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (641,546)

- -------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 37,937,815
================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2006 2005
- ------------------------------------------------------------------------------------------------------------------------------------

OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss $ (641,546) $ (3,256,397)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gain 123,157,163 16,088,109
- ------------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (84,577,802) 126,872,800
-----------------------------------
Net increase in net assets resulting from operations 37,937,815 139,704,512

- ------------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial interest transactions:
Non-Service shares (210,102,500) (117,803,338)
Service shares 9,672,618 8,921,013
-----------------------------------
(200,429,882) (108,882,325)

- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) (162,492,067) 30,822,187
- ------------------------------------------------------------------------------------------------------------------------------------
Beginning of period 1,264,432,023 1,233,609,836
-----------------------------------
End of period (including accumulated net investment loss of $23,075 and $19,505, respectively) $ 1,101,939,956 $ 1,264,432,023
===================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

PER SHARE OPERATING DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 49.39 $ 43.97 $ 36.71 $ 29.23 $ 40.72
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.02) 1 (.12) 1 (.15) 1 (.15) (.10)
Net realized and unrealized gain (loss) 1.48 5.54 7.41 7.63 (11.16)
--------------------------------------------------------------------------------
Total from investment operations 1.46 5.42 7.26 7.48 (11.26)
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income -- -- -- -- (.23)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 50.85 $ 49.39 $ 43.97 $ 36.71 $ 29.23
================================================================================

- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 2.96% 12.33% 19.78% 25.59% (27.79)%
- ----------------------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 1,054,809 $ 1,227,881 $ 1,209,459 $ 1,113,743 $ 979,919
- ----------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 1,135,831 $ 1,177,979 $ 1,124,874 $ 1,041,584 $ 1,240,435
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment loss (0.04)% (0.26)% (0.39)% (0.43)% (0.29)%
Total expenses 0.69% 4,5 0.69% 6 0.69% 6 0.70% 6 0.68% 6
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 56% 32% 53% 154% 54%

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.69%

5. Voluntary waiver of management fees less than 0.01%.

6. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------

PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 48.87 $ 43.64 $ 36.54 $ 29.13 $ 40.70
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.16) 1 (.25) 1 (.27) 1 -- 2 .16
Net realized and unrealized gain (loss) 1.48 5.48 7.37 7.41 (11.53)
-------------------------------------------------------------------------------
Total from investment operations 1.32 5.23 7.10 7.41 (11.37)
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income -- -- -- -- (.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 50.19 $ 48.87 $ 43.64 $ 36.54 $ 29.13
===============================================================================

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.97%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer MidCap Fund/VA (the Fund), formerly Oppenheimer Aggressive Growth
Fund/VA, is a separate series of Oppenheimer Variable Account Funds, 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 Fund's investment
advisor is OppenheimerFunds, Inc. (the Manager).

The following is a summary of significant accounting policies consistently
followed by the Fund.

NET UNREALIZED
APPRECIATION
BASED ON COST OF
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED SECURITIES AND OTHER
NET INVESTMENT LONG-TERM LOSS INVESTMENTS FOR FEDERAL
INCOME GAIN CARRYFORWARD 1,2,3 INCOME TAX PURPOSES
- --------------------------------------------------------------------------------
$-- $-- $648,795,754 $259,277,184

1. As of December 31, 2006, the Fund had $648,795,754 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, 2006,
details of the capital loss carryforwards were as follows:

EXPIRING
----------------------------
2009 $ 418,570,932
2010 230,224,822
-------------
Total $ 648,795,754
=============

2. During the fiscal year ended December 31, 2006, the Fund utilized
$104,242,991 of capital loss carryforward to offset capital gains realized in
that fiscal year.

3. During the fiscal year ended December 31, 2005, the Fund utilized $24,465,493
of capital loss carryforward to offset capital gains realized in that fiscal
year.

REDUCTION TO
REDUCTION TO ACCUMULATED
PAID-IN CAPITAL INVESTMENT LOSS
-----------------------------------------------
$637,976 $637,976

No distributions were paid during the years ended December 31, 2006 and December
31, 2005.

Federal tax cost of securities $ 841,323,522
==============

Gross unrealized appreciation $ 278,397,342
Gross unrealized depreciation (19,120,158)
--------------
Net unrealized appreciation $ 259,277,184
==============
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

TRUSTEES' COMPENSATION. The Board of Trustees has adopted a compensation
deferral 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.

- --------------------------------------------------------------------------------
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, 2006 YEAR ENDED DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------
NON-SERVICE SHARES
Sold 1,908,858 $ 96,341,176 2,464,320 $ 113,044,647
Redeemed (6,030,134) (306,443,676) (5,107,185) (230,847,985)
------------------------------------------------------------
Net decrease (4,121,276) $(210,102,500) (2,642,865) $(117,803,338)
============================================================

- --------------------------------------------------------------------------------
SERVICE SHARES
Sold 330,109 $ 16,552,889 298,427 $ 13,509,067
Redeemed (138,912) (6,880,271) (103,986) (4,588,054)
------------------------------------------------------------
Net increase 191,197 $ 9,672,618 194,441 $ 8,921,013
============================================================

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and money market funds, for the year ended December
31, 2006, were as follows:

PURCHASES SALES
-----------------------------------------------------------------
Investment securities $659,164,230 $867,380,315

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

FEE SCHEDULE
------------------------------------------
Up to $200 million 0.75%
Next $200 million 0.72
Next $200 million 0.69
Next $200 million 0.66
Next $700 million 0.60
Over $1.5 billion 0.58

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued

- --------------------------------------------------------------------------------
5. ILLIQUID OR RESTRICTED SECURITIES

ACQUISITION VALUATION AS OF UNREALIZED
SECURITY DATE COST DECEMBER 31, 2006 DEPRECIATION
- -------------------------------------------------------------------------------------------------------------------

Blaze Network Products, Inc., 8% Cv., Series D 10/17/00 $ 7,346,317 $ 2,586 $ 7,343,731

- --------------------------------------------------------------------------------
6. RECENT ACCOUNTING PRONOUNCEMENTS

- --------------------------------------------------------------------------------
7. LITIGATION

16 | OPPENHEIMER MONEY FUND/VA

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 (the "Fund"), a series of Oppenheimer Variable Account
Funds, including the statement of investments, as of December 31, 2006, 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.

DELOITTE & TOUCHE LLP

Denver, Colorado
February 8, 2007

STATEMENT OF INVESTMENTS December 31, 2006
- --------------------------------------------------------------------------------

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT--15.8%
Bank of Nova Scotia, 5.28%, 1/8/07 $2,000,000 $ 2,000,000
- --------------------------------------------------------------------------------
Barclays Bank plc, New York:
5.32%, 1/18/07 2,000,000 2,000,000
5.32%, 2/15/07 1,000,000 1,000,000
- --------------------------------------------------------------------------------
BNP Paribas, New York, 5.32%, 2/12/07 2,000,000 2,000,000
- --------------------------------------------------------------------------------
Chase Bank USA, N.A., 5.27%, 1/16/07 1,000,000 1,000,000
- --------------------------------------------------------------------------------
Citibank NA:
5.32%, 2/8/07 2,000,000 2,000,000
5.325%, 3/28/07 4,000,000 4,000,000
- --------------------------------------------------------------------------------
Deutsche Bank, New York, 5.40%,
12/12/07 1,000,000 1,000,000
- --------------------------------------------------------------------------------
Lloyds TSB Bank plc, New York, 5.29%,
1/23/07 1,500,000 1,500,000
- --------------------------------------------------------------------------------
M&I Marshall & Ilsley Bank, 5.31%,
1/10/07 2,000,000 2,000,000
- --------------------------------------------------------------------------------
Royal Bank of Canada, New York,
5.30%, 2/5/07 1,000,000 1,000,000
- --------------------------------------------------------------------------------
Svenska Handelsbanken NY, 5.32%,
3/19/07 1,000,000 1,000,000
- --------------------------------------------------------------------------------
Toronto Dominion Bank, New York:
5.305%, 1/12/07 2,000,000 1,999,980
5.32%, 3/16/07 1,500,000 1,500,000
- --------------------------------------------------------------------------------
Washington Mutual Bank FA:
5.30%, 1/16/07 1,000,000 1,000,000
5.32%, 2/15/07 2,000,000 2,000,000
-------------
Total Certificates of Deposit (Cost $26,999,980) 26,999,980

- --------------------------------------------------------------------------------
DIRECT BANK OBLIGATIONS--16.8%
- --------------------------------------------------------------------------------
Bank of America NA, 5.32%, 2/16/07 1,000,000 1,000,000
- --------------------------------------------------------------------------------
Canadian Imperial Holdings, Inc.,
5.26%, 1/24/07 1,000,000 996,643
- --------------------------------------------------------------------------------
Danske Corp., 5.25%, 1/8/07 1 1,000,000 998,979
- --------------------------------------------------------------------------------
Dexia Delaware LLC, 5.24%, 3/13/07 1,000,000 989,666
- --------------------------------------------------------------------------------
Fortis Funding LLC, 5.25%, 1/29/07 1 1,000,000 995,917
- --------------------------------------------------------------------------------
Governor & Co. of the Bank of Ireland:
5.24%, 2/28/07 1 2,000,000 1,983,116
5.25%, 1/22/07 1 1,700,000 1,694,794
- --------------------------------------------------------------------------------
HBOS Treasury Services:
5.245%, 2/1/07 2,000,000 1,990,958
5.25%, 2/14/07 1,500,000 1,490,375
5.255%, 1/26/07 1,500,000 1,494,526
- --------------------------------------------------------------------------------
Nationwide Building Society:
5.22%, 3/12/07 1 2,000,000 1,979,700
5.23%, 2/12/07 1 1,500,000 1,490,848
- --------------------------------------------------------------------------------
Rabobank USA Financial Corp.,
5.24%, 1/10/07 1,000,000 998,691
- --------------------------------------------------------------------------------
Santander Central Hispano Finance
(Delaware), Inc.:
5.25%, 1/16/07 1,000,000 997,813
5.26%, 1/5/07 2,500,000 2,498,539

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
DIRECT BANK OBLIGATIONS Continued
Societe Generale North America, Inc.,
5.16%, 4/5/07 $2,000,000 $ 1,973,053
- --------------------------------------------------------------------------------
St. George Bank Ltd., 5.25%, 1/10/07 1 1,000,000 998,688
- --------------------------------------------------------------------------------
Swedbank Mortgage AB, 5.25%, 2/2/07 1,300,000 1,293,933
- --------------------------------------------------------------------------------
Wachovia Corp., 5.43%, 2/6/07 1,000,000 1,000,099
- --------------------------------------------------------------------------------
Westpac Banking Corp., 5.25%, 1/24/07 1 2,000,000 1,993,292
-------------
Total Direct Bank Obligations
(Cost $28,859,630) 28,859,630

- --------------------------------------------------------------------------------
LETTERS OF CREDIT--2.3%
- --------------------------------------------------------------------------------
Fortis Bank SA/NV, guaranteeing
commercial paper of ICICI Bank Ltd.,
5.27%, 2/9/07 2,000,000 1,988,571
- --------------------------------------------------------------------------------
Suntrust Bank, guaranteeing
commercial paper of NATC
California LLC, 5.27%, 1/12/07 2,000,000 1,996,779
-------------
Total Letters of Credit (Cost $3,985,350) 3,985,350

- --------------------------------------------------------------------------------
SHORT-TERM NOTES--64.8%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.2%
Montgomery, AL Industrial
Development Board, Revenue Bonds,
Industrial Bristol Project, Series B,
5.70%, 2/1/07 2 400,000 400,000
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--21.6%
Barton Capital Corp., 5.26%, 1/19/07 1 2,800,000 2,792,636
- --------------------------------------------------------------------------------
Capital Auto Receivables Asset Trust
2006-SN1A, 5.32%, 9/20/07 2 970,969 970,969
- --------------------------------------------------------------------------------
Chesham Finance LLC:
5.27%, 1/5/07 2,000,000 1,998,829
5.28%, 2/20/07 1,000,000 992,667
- --------------------------------------------------------------------------------
Concord Minutemen Capital Co. LLC,
5.26%, 2/23/07 1 1,000,000 992,256
- --------------------------------------------------------------------------------
Fairway Finance Corp., 5.27%, 1/17/07 1 3,400,000 3,392,036
- --------------------------------------------------------------------------------
FCAR Owner Trust I, 5.27%, 3/23/07 2,600,000 2,569,171
- --------------------------------------------------------------------------------
Gotham Funding Corp., 5.30%, 1/3/07 1 1,000,000 999,706
- --------------------------------------------------------------------------------
GOVCO, Inc., 5.26%, 1/16/07 1 2,000,000 1,995,617
- --------------------------------------------------------------------------------
Grampian Funding LLC, 5.27%, 3/22/07 1 2,000,000 1,976,578
- --------------------------------------------------------------------------------
Legacy Capital LLC:
5.19%, 4/10/07 2,000,000 1,971,455
5.265%, 1/26/07 2,000,000 1,992,688
- --------------------------------------------------------------------------------
Lexington Parker Capital Co. LLC,
5.27%, 1/19/07 1 2,000,000 1,994,730
- --------------------------------------------------------------------------------
New Center Asset Trust:
5.25%, 1/29/07 2,000,000 1,991,833
5.27%, 1/31/07 2,000,000 1,991,225
- --------------------------------------------------------------------------------
Perry Global Funding LLC, Series A,
5.25%, 3/12/07 1 2,000,000 1,979,583
- --------------------------------------------------------------------------------
Sheffield Receivables Corp., 5.27%,
1/4/07 1 3,000,000 2,998,684

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
Victory Receivables Corp., 5.30%,
1/9/07 1 $2,500,000 $ 2,497,056
- --------------------------------------------------------------------------------
Yorktown Capital LLC, 5.29%, 1/19/07 1 1,000,000 997,355
-------------
37,095,074
- --------------------------------------------------------------------------------
AUTOMOBILES--1.1%
Ande Chevrolet Olds, Inc., Series 2004,
5.50%, 2/1/07 2 1,935,000 1,935,000
- --------------------------------------------------------------------------------
CAPITAL MARKETS--6.4%
Banc of America Securities LLC, 5.32%,
1/5/07 2 5,000,000 5,000,000
- --------------------------------------------------------------------------------
Bear Stearns Cos., Inc., 5.25%, 2/16/07 1,000,000 993,292
- --------------------------------------------------------------------------------
Goldman Sachs Group, Inc., 5.40%,
4/6/07 2,3 2,000,000 2,000,000
- --------------------------------------------------------------------------------
Lehman Brothers, Inc., 5.50%, 1/2/07 2 1,000,000 1,000,000
- --------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., Series C,
5.50%, 10/19/07 2 2,000,000 2,002,397
-------------
10,995,689
- --------------------------------------------------------------------------------
CHEMICALS--0.6%
BASF AG, 5.26%, 1/25/07 1 1,000,000 996,497
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--2.0%
Bank of America Corp., 5.25%, 3/15/07 1,500,000 1,484,031
- --------------------------------------------------------------------------------
HSBC USA, Inc., 5.25%, 4/3/07 2,000,000 1,973,167
-------------
3,457,198
- --------------------------------------------------------------------------------
COMMERCIAL FINANCE--2.3%
Countrywide Financial Corp.:
5.30%, 1/4/07 1,000,000 999,558
5.35%, 1/3/07 2,900,000 2,899,130
-------------
3,898,688
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--4.1%
General Electric Capital Services,
5.25%, 1/25/07 2,000,000 1,993,000
- --------------------------------------------------------------------------------
Greenwich Capital Holdings, Inc.,
5.53%, 2/15/07 2 2,000,000 2,000,000
- --------------------------------------------------------------------------------
HSBC Finance Corp.:
5.24%, 3/9/07 1,000,000 990,248
5.25%, 1/26/07 2,000,000 1,992,708
-------------
6,975,956
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--1.3%
Alta Mira LLC, Series 2004, 5.45%,
1/1/07 2 2,250,000 2,250,000
- --------------------------------------------------------------------------------
INSURANCE--6.7%
ING America Insurance Holdings, Inc.,
5.25%, 1/22/07 2,000,000 1,993,875
- --------------------------------------------------------------------------------
Jackson National Life Global Funding,
Series 2004-6, 5.42%, 1/16/07 2,3 2,500,000 2,500,000
- --------------------------------------------------------------------------------
Metropolitan Life Global Funding I,
Series 2003-5, 5.44%, 1/16/07 2,3 4,000,000 4,000,000

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
INSURANCE Continued
Prudential Insurance Co. of America,
5.38%, 2/1/07 2 $3,000,000 $ 3,000,000
-------------
11,493,875
- --------------------------------------------------------------------------------
LEASING & FACTORING--4.1%
American Honda Finance Corp.:
5.336%, 9/26/07 2,4 2,000,000 2,000,000
5.345%, 8/8/07 2,4 2,000,000 2,000,000
5.346%, 10/30/07 2,4 1,000,000 999,989
- --------------------------------------------------------------------------------
Toyota Motor Credit Corp., 5.25%,
2/9/07 2,000,000 1,988,636
-------------
6,988,625
- --------------------------------------------------------------------------------
MUNICIPAL--0.4%
Hayward, CA Multifamily Housing
Revenue Bonds, Lord Tennyson Apts.,
5.65%, 1/2/07 2 710,000 710,000
- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--1.2%
Procter & Gamble Co. International
Funding, 5.25%, 1/11/07 1 1,000,000 998,542
- --------------------------------------------------------------------------------
Reckitt Benckiser plc, 5.27%, 2/9/07 1 1,000,000 994,291
-------------
1,992,833
- --------------------------------------------------------------------------------
SPECIAL PURPOSE FINANCIAL--12.8%
Blue Spice LLC, 5.30%, 1/2/07 1 3,000,000 2,999,559
- --------------------------------------------------------------------------------
Cooperative Assn. of Tractor Dealers,
Inc., Series B:
5.26%, 2/27/07 1,175,000 1,165,214
5.28%, 1/5/07 1,015,000 1,014,405
- --------------------------------------------------------------------------------
LINKS Finance LLC, 5.32%, 12/20/07 2,4 1,000,000 999,810
- --------------------------------------------------------------------------------
Parkland (USA) LLC, 5.33%, 12/12/07 2,4 1,000,000 999,811
- --------------------------------------------------------------------------------
Premier Asset Collateralized Entity
LLC 1, 5.28%, 3/27/07 4 1,900,000 1,876,313
- --------------------------------------------------------------------------------
RACERS Trust, Series 2004-6-MM,
5.37%, 1/22/07 2 1,000,000 1,000,000
- --------------------------------------------------------------------------------
Sigma Finance, Inc., 5.25%, 2/22/07 5,000,000 4,962,083
- --------------------------------------------------------------------------------
Ticonderoga Funding LLC, 5.30%,
1/24/07 2,000,000 1,993,224
- --------------------------------------------------------------------------------
Union Hamilton Special Purpose
Funding LLC, 5.36%, 3/28/07 2,4 2,000,000 2,000,000
- --------------------------------------------------------------------------------
ZAIS Leveraged Loan Fund, Series
2006-1A 1, 5.43%, 3/1/07 2,3 3,000,000 3,000,000
-------------
22,010,419
-------------
Total Short-Term Notes (Cost $111,199,854) 111,199,854
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $171,044,814) 99.7% 171,044,814
- --------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.3 475,882
---------------------------
NET ASSETS 100.0% $171,520,696
===========================

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. Security issued in an exempt transaction without registration under the
Securities Act of 1933. Such securities amount to $40,740,460, or 23.75% of the
Fund's net assets, and have been determined to be liquid pursuant to guidelines
adopted by the Board of Trustees.

2. Represents the current interest rate for a variable or increasing rate
security.

3. Illiquid security. The aggregate value of illiquid securities as of December
31, 2006 was $11,500,000, which represents 6.70% of the Fund's net assets. See
Note 4 of accompanying Notes.

4. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $10,875,923 or 6.34% of the Fund's net
assets as of December 31, 2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

8 | OPPENHEIMER MONEY FUND/VA

STATEMENT OF ASSETS AND LIABILITIES December 31, 2006
- --------------------------------------------------------------------------------

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

ASSETS
- ------------------------------------------------------------------------------------------------------
Investments, at value (cost $171,044,814)--see accompanying statement of investments $171,044,814
- ------------------------------------------------------------------------------------------------------
Cash 236,769
- ------------------------------------------------------------------------------------------------------
Receivables and other assets:
Shares of beneficial interest sold 421,308
Interest 343,832
Other 8,185
-------------
Total assets 172,054,908

- ------------------------------------------------------------------------------------------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Dividends 320,194
Shares of beneficial interest redeemed 198,992
Trustees' compensation 5,342
Transfer and shareholder servicing agent fees 874
Other 8,810
-------------
Total liabilities 534,212

- ------------------------------------------------------------------------------------------------------
NET ASSETS $171,520,696

- ------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 171,492
- ------------------------------------------------------------------------------------------------------
Additional paid-in capital 171,346,624
- ------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 2,580
-------------
NET ASSETS--applicable to 171,492,028 shares of beneficial interest outstanding $171,520,696
=============

- ------------------------------------------------------------------------------------------------------
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, 2006
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Interest $8,724,019

- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Management fees 770,054
- --------------------------------------------------------------------------------
Shareholder communications 20,088
- --------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 10,016
- --------------------------------------------------------------------------------
Trustees' compensation 5,071
- --------------------------------------------------------------------------------
Administration service fees 1,500
- --------------------------------------------------------------------------------
Custodian fees and expenses 925
- --------------------------------------------------------------------------------
Other 26,854
-----------
Total expenses 834,508

- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 7,889,511

- --------------------------------------------------------------------------------
NET REALIZED GAIN ON INVESTMENTS 3,420

- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $7,892,931
===========

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2006 2005
- --------------------------------------------------------------------------------------------------------------------------

OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income $ 7,889,511 $ 5,228,375
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain 3,420 6,036
---------------------------------
Net increase in net assets resulting from operations 7,892,931 5,234,411

- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (7,889,609) (5,228,277)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain (6,674) --

- --------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- --------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from beneficial interest transactions (1,637,470) (23,347,439)

- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
Total decrease (1,640,822) (23,341,305)
- --------------------------------------------------------------------------------------------------------------------------
Beginning of period 173,161,518 196,502,823
---------------------------------
End of period (including accumulated net investment income of $98 for the year ended
December 31, 2005) $ 171,520,696 $ 173,161,518
=================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------

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 .05 1 .03 1 .01 1 .01 .01
- -----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.05) (.03) (.01) (.01) (.01)
Distributions from net realized gain -- 2 -- -- -- -- 2
---------------------------------------------------------------------
Total dividends and/or distributions to shareholders (.05) (.03) (.01) (.01) (.01)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======================================================================

- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $171,521 $173,162 $196,503 $237,613 $379,969
- -----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $171,118 $186,453 $218,243 $316,096 $386,457
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 4.61% 2.80% 0.97% 0.80% 1.46%
Total expenses 0.49% 0.48% 5 0.48% 5 0.47% 5 0.47% 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%.

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, 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 Fund'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. As permitted under Rule 2a-7 of the Investment Company Act
of 1940, portfolio securities are valued on the basis of amortized cost, which
approximates market value. If amortized cost is determined not to approximate
market value, the fair value of the portfolio securities will be determined
under procedures approved by the Fund's Board of Trustees.

UNDISTRIBUTED NET UNDISTRIBUTED ACCUMULATED
INVESTMENT INCOME LONG-TERM GAINS LOSS CARRYFORWARD 1,2
---------------------------------------------------------------------
$375,255 $-- $--

1. During the fiscal year ended December 31, 2006, the Fund did not utilize any
capital loss carryforward.

2. During the fiscal year ended December 31, 2005, the Fund utilized $202 of
capital loss carryforward to offset capital gains realized in that fiscal year.

The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005 was as follows:

YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
---------------------------------------------------------------------
Distributions paid from:
Ordinary income $7,896,283 $5,228,277
---------------------------------------------------------------------

13 | OPPENHEIMER MONEY FUND/VA

NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date. 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.

- --------------------------------------------------------------------------------
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, 2006 YEAR ENDED DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------

Sold 102,552,229 $ 102,552,229 126,305,556 $ 126,305,556
Dividends and/or distributions reinvested 7,809,321 7,809,321 5,103,537 5,103,537
Redeemed (111,999,020) (111,999,020) (154,754,850) (154,756,532)
-----------------------------------------------------------------
Net decrease (1,637,470) $ (1,637,470) (23,345,757) $ (23,347,439)
=================================================================

- --------------------------------------------------------------------------------
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

FEE SCHEDULE
--------------------------------
Up to $500 million 0.450%
Next $500 million 0.425
Next $500 million 0.400
Over $1.5 billion 0.375

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.

- --------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS 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, 2006, 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. Securities that are
illiquid are marked with the applicable footnote on the Statement of
Investments.

- --------------------------------------------------------------------------------
5. RECENT ACCOUNTING PRONOUNCEMENTS

- --------------------------------------------------------------------------------
6. LITIGATION

- --------------------------------------------------------------------------------
6. LITIGATION Continued

57 | OPPENHEIMER STRATEGIC BOND FUND/VA

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 (the "Fund"), a series of Oppenheimer
Variable Account Funds, including the statement of investments, as of December
31, 2006, 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.

DELOITTE & TOUCHE LLP

Denver, Colorado
February 8, 2007

STATEMENT OF INVESTMENTS December 31, 2006
- --------------------------------------------------------------------------------

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--1.4%
- --------------------------------------------------------------------------------
Ace Securities Corp. Home
Equity Loan Trust, Asset-Backed
Pass-Through Certificates,
Series 2005-HE7, Cl. A2B,
5.53%, 11/25/35 1 $ 420,000 $ 420,412
- --------------------------------------------------------------------------------
Aesop Funding II LLC,
Automobile
Asset-Backed Certificates,
Series 2005-1A, Cl. A2,
5.41%, 4/20/08 1 200,000 200,200
- --------------------------------------------------------------------------------
Argent Securities Trust 2004-W8,
Asset-Backed Pass-Through
Certificates,
Series 2004-W8, Cl. A2,
5.83%, 5/25/34 1 1,960,000 1,966,993
- --------------------------------------------------------------------------------
Argent Securities Trust 2006-M3,
Asset-Backed Pass-Through
Certificates,
Series 2006-M3,
Cl. A2B, 5.42%, 9/25/36 1,2 530,000 530,339
- --------------------------------------------------------------------------------
Argent Securities Trust 2006-W5,
Asset-Backed Pass-Through
Certificates,
Series 2006-W5, Cl. A2B,
5.45%, 5/26/36 1 810,000 810,618
- --------------------------------------------------------------------------------
BMW Vehicle Owner Trust
2006-A, Automobile
Asset-Backed Securities,
Series 2006-A, Cl. A2,
5.30%, 5/26/09 1,000,000 1,000,730
- --------------------------------------------------------------------------------
Capital Auto Receivables
Asset Trust 2004-2, Automobile
Asset-Backed Securities,
Series 2004-2, Cl. A3, 3.58%,
1/15/09 740,000 732,000
- --------------------------------------------------------------------------------
Centex Home Equity Loan
Trust 2005-D, Asset-Backed
Certificates,
Series 2005-D, Cl. AF1,
5.04%, 10/25/35 282,231 281,261
- --------------------------------------------------------------------------------
Centex Home Equity Loan Trust
2006-A, Asset-Backed
Certificates,
Series 2006-A, Cl. AV2,
5.45%, 5/16/36 1 1,000,000 1,000,773
- --------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust
2006-WFH3, Asset-Backed
Pass-Through Certificates,
Series 2006-WFH3, Cl. A2,
5.45%, 10/31/36 1 620,000 620,000

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Consumer Credit Reference
Index Securities Program,
Credit Card Asset-Backed
Certificates,
Series 2002-B, Cl. FX,
10.421%, 3/22/07 3 $ 500,000 $ 503,779
- --------------------------------------------------------------------------------
CWABS Asset-Backed
Certificates Trust 2005-10,
Asset-Backed Certificates,
Series 2005-10, Cl. AF1,
5.51%, 2/25/36 1 305,771 306,006
- --------------------------------------------------------------------------------
CWABS Asset-Backed
Certificates Trust 2005-16,
Asset-Backed Certificates,
Series 2005-16, Cl. 2AF2,
5.382%, 5/25/36 1 300,000 299,006
- --------------------------------------------------------------------------------
CWABS Asset-Backed
Certificates Trust 2005-17,
Asset-Backed Certificates:
Series 2005-17, Cl. 1AF1,
5.55%, 5/25/36 1 348,396 348,790
Series 2005-17, Cl. 1AF2,
5.363%, 5/25/36 1 200,000 199,285
- --------------------------------------------------------------------------------
CWABS Asset-Backed
Certificates Trust 2006-25,
Asset-Backed Certificates,
Series 2006-25, Cl. 2A2,
5.44%, 12/25/29 1 1,050,000 1,050,735
- --------------------------------------------------------------------------------
DaimlerChrysler Auto Trust,
Automobile Loan Pass-Through
Certificates,
Series 2006-C, Cl. A2,
5.33%, 5/8/09 1,760,000 1,758,750
- --------------------------------------------------------------------------------
Embarcadero Aircraft
Securitization Trust, Airplane
Receivable Nts.,
Series 2000-A, Cl. B, 8/15/25 2,4,18 1,820,063 18,201
- --------------------------------------------------------------------------------
First Franklin Mortgage Loan
Asset-Backed Certificates,
Home Equity Receivables,
Series 2005-FF3, Cl. A1,
5.43%, 4/25/35 1 596,995 597,422
- --------------------------------------------------------------------------------
First Franklin Mortgage Loan
Trust 2005-FF10, Mtg.
Pass-Through Certificates,
Series 2005-FF10, Cl. A3,
5.56%, 11/25/35 1 1,170,000 1,171,159
- --------------------------------------------------------------------------------
First Franklin Mortgage Loan
Trust 2006-FF10, Mtg.
Pass-Through Certificates,
Series 2006-FF10, Cl. A3,
5.41%, 7/25/36 1 840,000 840,537

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

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
First Franklin Mortgage Loan
Trust 2006-FF5, Mtg.
Pass-Through Certificates,
Series 2006-FF5, Cl. 2A1,
5.40%, 5/15/36 1 $ 424,516 $ 424,811
- --------------------------------------------------------------------------------
First Franklin Mortgage Loan
Trust 2006-FF9, Mtg.
Pass-Through Certificates,
Series 2006-FF9, Cl. 2A2,
5.43%, 7/7/36 1 430,000 430,275
- --------------------------------------------------------------------------------
Ford Credit Auto Owner Trust,
Automobile Loan Pass-Through
Certificates,
Series 2005-A, Cl. A3,
3.48%, 11/17/08 299,057 297,381
- --------------------------------------------------------------------------------
GS Auto Loan Trust,
Automobile Loan
Asset-Backed Securities,
Series 2005-1, Cl. A2,
4.32%, 5/15/08 299,290 299,247
- --------------------------------------------------------------------------------
Household Home Equity Loan
Trust, Home Equity Loan
Pass-Through Certificates:
Series 2005-3, Cl. A1,
5.61%, 1/20/35 1 384,717 385,341
Series 2006-4, Cl. A2V,
5.46%, 3/20/36 1,2 390,000 390,000
- --------------------------------------------------------------------------------
Lehman XS Trust, Mtg.
Pass-Through Certificates:
Series 2005-10, Cl. 2A3B,
5.55%, 1/25/36 435,630 432,260
Series 2005-2, Cl. 2A1B,
5.18%, 8/25/35 1 381,548 380,713
Series 2005-4, Cl. 2A1B,
5.17%, 10/25/35 344,511 343,071
- --------------------------------------------------------------------------------
Mastr Asset Backed Securities
Trust 2006-WMC3, Mtg.
Pass-Through Certificates,
Series 2006-WMC3, Cl. A3,
5.42%, 8/25/36 1,2 1,310,000 1,310,837
- --------------------------------------------------------------------------------
Morgan Stanley ABS Capital I,
Mtg. Pass-Through Certificates,
Series 2005-WMC6, Cl. A2B,
5.61%, 7/25/35 1 480,000 480,924
- --------------------------------------------------------------------------------
NC Finance Trust, CMO
Pass-Through Certificates,
Series 1999-I, Cl. ECFD,
1.762%, 1/25/29 2 66,744 14,016
- --------------------------------------------------------------------------------
Nissan Auto Receivables Owner
Trust, Automobile
Receivable Nts.,
Series 2005-C, Cl. A2,
3.99%, 1/15/08 303,013 302,871

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES Continued
- --------------------------------------------------------------------------------
Option One Mortgage Loan
Trust, Asset-Backed Certificates,
Series 2006-2, Cl. 2A2,
5.45%, 7/1/36 1 $ 1,420,000 $ 1,421,107
- --------------------------------------------------------------------------------
Popular ABS Mortgage
Pass-Through Trust 2004-5,
Mtg. Pass-Through Certificates,
Series 2004-5, Cl. AF2,
3.735%, 11/10/34 1 13,582 13,542
- --------------------------------------------------------------------------------
Popular ABS Mortgage
Pass-Through Trust 2005-1,
Mtg. Pass-Through Certificates,
Series 2005-1, Cl. AF2,
3.914%, 5/25/35 1 46,498 46,340
- --------------------------------------------------------------------------------
Popular ABS Mortgage
Pass-Through Trust 2005-2,
Mtg. Pass-Through Certificates,
Series 2005-2, Cl. AF2,
4.415%, 4/25/35 1 240,000 237,740
- --------------------------------------------------------------------------------
Popular ABS Mortgage
Pass-Through Trust 2005-6,
Mtg. Pass-Through Certificates,
Series 2005-6, Cl. A3,
5.68%, 1/25/36 1 320,000 319,132
- --------------------------------------------------------------------------------
RAMP Series 2004-RS7 Trust, Mtg.
Asset-Backed Pass-Through
Certificates, Series 2004-RS7,
Cl. AI32, 4.45%, 7/25/28 459,496 456,292
- --------------------------------------------------------------------------------
RAMP Series 2006-RS4 Trust, Mtg.
Asset-Backed Pass-Through
Certificates, Series 2006-RS4,
Cl. A1, 5.43%, 7/25/36 1 449,187 449,505
- --------------------------------------------------------------------------------
RASC Series 2006-KS7 Trust,
Home Equity Mtg. Asset-Backed
Pass-Through Certificates,
Series 2006-KS7, Cl. A2,
5.42%, 9/25/36 1 1,070,000 1,070,684
- --------------------------------------------------------------------------------
Start CLO Ltd., Asset-Backed
Credit Linked Securities,
Series 2006-3A, Cl. F,
5.353%, 6/7/11 1,2 950,000 950,000
- --------------------------------------------------------------------------------
Structured Asset Investment
Loan Trust, Mtg. Pass-Through
Certificates, Series 2006-2,
Cl. A1, 5.41%, 4/25/36 1 1,482,241 1,483,265
- --------------------------------------------------------------------------------
Structured Asset Securities Corp.,
Mtg. Pass-Through Certificates:
Series 2003-25XS, Cl. A4,
4.51%, 8/25/33 22,275 22,136
Series 2005-4XS, Cl. 3A1,
5.18%, 3/26/35 392,218 391,263

- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS--16.7%
- --------------------------------------------------------------------------------
Banc of America Commercial
Mortgage, Inc., Commercial
Mtg. Pass-Through Certificates:
Series 2005-3, Cl. A2,
4.501%, 7/10/43 690,000 674,361
Series 2006-5, Cl. A2,
5.348%, 10/10/11 1,700,000 1,703,652
- --------------------------------------------------------------------------------
Banc of America Funding Corp.,
CMO Pass-Through Certificates,
Series 2004-2, Cl. 2A1,
6.50%, 7/20/32 459,951 466,213
- --------------------------------------------------------------------------------
Banc of America Mortgage
Securities, Inc., CMO
Pass-Through Certificates:
Series 2004-8, Cl. 5A1,
6.50%, 5/25/32 398,262 401,871
Series 2005-E, Cl. 2A2,
4.975%, 6/25/35 1 38,327 38,262
- --------------------------------------------------------------------------------
ChaseFlex Trust 2006-2,
Multiclass Mtg. Pass-Through
Certificates,
Series 2006-2,
Cl. A1B, 5.607%, 8/25/08 1,2 708,359 709,103
- --------------------------------------------------------------------------------
Citigroup Mortgage Loan Trust
2006-WF1, Asset-Backed
Pass-Through Certificates,
Series 2006-WF1, Cl. A2B,
5.536%, 3/1/36 260,000 259,216
- --------------------------------------------------------------------------------
Countrywide Alternative Loan
Trust, CMO,
Series 2005-J1, Cl. 3A1,
6.50%, 8/25/32 1,145,796 1,158,328
- --------------------------------------------------------------------------------
Deutsche Alt-A Securities
Mortgage Loan Trust, Mtg.
Pass-Through Certificates:
Series 2006-AB2, Cl. A7,
5.961%, 6/25/36 1,345,912 1,343,462
Series 2006-AB3, Cl. A7,
6.36%, 4/25/08 421,142 421,260
Series 2006-AB4, Cl. A1A,
6.005%, 10/25/36 1,667,037 1,667,167

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp.:
4.50%, 12/1/18-7/1/19 $ 4,534,307 $ 4,380,732
5%, 9/1/33 3,756,939 3,632,585
6%, 5/1/18-10/1/29 4,915,001 4,979,050
6.50%, 3/1/18-6/1/35 8,496,654 8,708,187
7%, 3/1/31-10/1/31 592,234 609,375
7.50%, 4/1/36 1,877,215 1,960,215
11%, 11/1/14 20,696 21,608
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., CMO Gtd. Multiclass
Mtg. Participation Certificates:
Series 1897, Cl. K, 7%, 9/15/26 2,569,401 2,678,004
Series 2191, Cl. MF,
5.95%, 12/17/27 1 100,798 100,948
Series 2410, Cl. PF,
6.33%, 2/15/32 1 1,615,963 1,655,504
Series 2435, Cl. EQ,
6%, 5/15/31 2,100,000 2,114,116
Series 2453, Cl. BD,
6%, 5/15/17 367,631 372,798
Series 2641, Cl. CE,
3.50%, 9/15/25 1,200,359 1,170,411
Series 2727, Cl. UA,
3.50%, 10/15/22 702,655 689,495
Series 2736, Cl. DB,
3.30%, 11/15/26 5,213,047 5,045,541
Series 2777, Cl. PJ,
4%, 5/15/24 730,157 719,602
Series 2934, Cl. NA,
5%, 4/15/24 1,840,635 1,832,586
Series 3105, Cl. BD,
5.50%, 1/15/26 1,500,000 1,492,964
Series 3138, Cl. PA,
5.50%, 2/15/27 4,030,430 4,042,302
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., CMO Gtd. Real Estate
Mtg. Investment Conduit
Multiclass Pass-Through
Certificates:
Series 1360, Cl. PZ,
7.50%, 9/15/22 2,233,713 2,321,193
Series 1674, Cl. Z,
6.75%, 2/15/24 1,627,745 1,683,554
Series 2002-66, Cl. FG,
6.35%, 9/25/32 1 2,744,974 2,788,550
Series 2002-84, Cl. FB,
6.35%, 12/25/32 1 2,744,975 2,828,142
Series 2003-11, Cl. FA,
6.35%, 9/25/32 1 2,744,884 2,829,451
Series 2006-11, Cl. PS,
5.06%, 3/25/36 1 894,731 888,617
Series 2043, Cl. ZP,
6.50%, 4/15/28 1,127,450 1,152,505
Series 2055, Cl. ZM,
6.50%, 5/15/28 203,286 206,488

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., CMO Gtd. Real Estate
Mtg. Investment Conduit
Multiclass Pass-Through
Certificates: Continued
Series 2080, Cl. Z,
6.50%, 8/15/28 $ 128,529 $ 130,606
Series 2106, Cl. FG,
5.80%, 12/15/28 1 2,846,826 2,882,527
Series 2116, Cl. ZA,
6%, 1/15/29 1,113,025 1,127,912
Series 2135, Cl. OH,
6.50%, 3/15/29 1,677,878 1,719,603
Series 2173, Cl. Z,
6.50%, 7/15/29 947,614 972,069
Series 2195, Cl. LH,
6.50%, 10/15/29 1,245,322 1,270,617
Series 2326, Cl. ZP,
6.50%, 6/15/31 211,910 216,629
Series 2368, Cl. PR,
6.50%, 10/15/31 822,587 842,075
Series 2387, Cl. PD,
6%, 4/15/30 73,499 73,557
Series 2461, Cl. PZ,
6.50%, 6/15/32 1,552,910 1,618,030
Series 2500, Cl. FD,
5.85%, 3/15/32 1 64,857 65,517
Series 2526, Cl. FE,
5.75%, 6/15/29 1 92,360 93,379
Series 2551, Cl. FD,
5.75%, 1/15/33 1 71,999 72,693
Series 2583, Cl. KA,
5.50%, 3/15/22 128,605 128,466
Series 2939, Cl. PE,
5%, 2/15/35 1,585,000 1,483,053
Series 3025, Cl. SJ,
5.133%, 8/15/35 1 1,133,456 1,139,524
Series 3153, Cl. FJ,
5.73%, 5/15/36 1 514,615 516,785
Series 2464, Cl. FI,
6.32%, 2/15/32 1 639,517 654,482
Series 2470, Cl. LF,
6.32%, 2/15/32 1 654,453 672,427
Series 2471, Cl. FD,
6.32%, 3/15/32 1 1,188,602 1,219,995
- --------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp., CMO
Interest-Only Stripped
Mtg.-Backed Security,
Series 2437, Cl. SB,
8.008%, 4/15/32 5 6,360,255 478,576
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., CMO Pass-Through
Participation Certificates,
Series 151, Cl. F, 9%, 5/15/21 58,974 58,848

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage
Corp., Interest-Only Stripped
Mtg.-Backed Security:
Series 177, Cl. IO,
10.487%, 7/1/26 5 $ 240,609 $ 55,023
Series 192, Cl. IO,
11.788%, 2/1/28 5 62,323 13,797
Series 200, Cl. IO,
10.548%, 1/1/29 5 74,531 15,849
Series 2003-118, Cl. S,
7.949%, 12/25/33 5 1,529,972 189,163
Series 2003-13, Cl. IO,
9.458%, 3/25/33 5 1,399,362 313,006
Series 2003-26, Cl. IO,
7.812%, 4/25/33 5 1,127,903 249,470
Series 2005-87, Cl. SE,
5.217%, 10/25/35 5 14,906,359 485,835
Series 2005-87, Cl. SG,
9.386%, 10/25/35 5 4,001,505 219,044
Series 205, Cl. IO,
8.018%, 9/1/29 5 317,601 69,095
Series 2074, Cl. S,
(0.812)%, 7/17/28 5 82,234 8,353
Series 2079, Cl. S,
(2.102)%, 7/17/28 5 130,890 14,191
Series 208, Cl. IO,
(17.635)%, 6/1/30 5 370,617 77,902
Series 2177, Cl. S,
4.623%, 8/15/29 5 3,913,135 345,911
Series 2526, Cl. SE,
(0.586)%, 6/15/29 5 172,672 8,643
Series 2920, Cl. S,
(4.295)%, 1/15/35 5 1,446,867 67,429
Series 3000, Cl. SE,
(5.292)%, 7/15/25 5 1,638,251 57,650
- --------------------------------------------------------------------------------
Federal National Mortgage Assn.:
4.50%, 5/1/18-12/1/20 14,224,234 13,757,203
5%, 12/1/17-3/1/34 35,763,797 34,962,043
5%, 1/1/22-1/1/37 6 22,398,000 21,775,279
5.50%, 3/1/33-1/1/34 19,453,659 19,261,435
5.50%, 1/1/22-1/1/37 6 6,974,000 6,929,428
6%, 7/1/24-4/1/33 17,013,139 17,193,485
6%, 1/1/22 6 22,807,000 23,127,712
6.50%, 4/1/17-4/1/31 8,840,168 9,071,606
6.50%, 1/1/34-1/1/37 6 11,899,527 12,128,637
7%, 11/1/17-3/1/36 5,795,566 5,975,803
7.50%, 2/1/27-3/1/33 5,381,561 5,619,953
8.50%, 7/1/32 10,254 11,042
- --------------------------------------------------------------------------------
Federal National Mortgage
Assn., CMO Gtd. Real Estate
Mtg. Investment Conduit
Pass-Through Certificates:
Trust 2001-44, Cl. QC,
6%, 9/25/16 2,711,436 2,745,809
Trust 2001-50, Cl. NE,
6%, 8/25/30 40,248 40,234

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Federal National Mortgage
Assn., CMO Gtd. Real Estate
Mtg. Investment Conduit
Pass-Through Certificates:
Continued
Trust 2001-51, Cl. OD,
6.50%, 10/25/31 $ 626,875 $ 640,664
Trust 2001-69, Cl. PF,
6.32%, 12/25/31 1 1,260,000 1,287,186
Trust 2001-70, Cl. LR,
6%, 9/25/30 73,113 73,128
Trust 2001-72, Cl. NH,
6%, 4/25/30 15,091 15,119
Trust 2001-74, Cl. PD,
6%, 5/25/30 10,063 10,040
Trust 2001-80, Cl. ZB,
6%, 1/25/32 1,402,804 1,419,575
Trust 2001-82, Cl. ZA,
6.50%, 1/25/32 598,568 615,751
Trust 2002-12, Cl. PG,
6%, 3/25/17 1,129,271 1,143,996
Trust 2002-29, Cl. F,
6.32%, 4/25/32 1 692,926 713,452
Trust 2002-56, Cl. KW,
6%, 4/25/23 2,810,000 2,834,731
Trust 2002-64, Cl. FJ,
6.32%, 4/25/32 1 213,375 218,197
Trust 2002-77, Cl. WF,
5.75%, 12/18/32 1 105,693 106,496
Trust 2002-9, Cl. PC,
6%, 3/25/17 1,181,559 1,197,631
Trust 2002-9, Cl. PR,
6%, 3/25/17 1,446,762 1,466,442
Trust 2003-116, Cl. FA,
5.75%, 11/25/33 1 187,744 188,943
Trust 2003-17, Cl. EQ,
5.50%, 3/25/23 1,452,000 1,418,699
Trust 2003-23, Cl. EQ,
5.50%, 4/25/23 890,000 870,717
Trust 2003-81, Cl. PW,
4%, 3/25/25 1,470,266 1,444,227
Trust 2003-84, Cl. AJ,
3%, 4/25/13 1,956,826 1,916,220
Trust 2003-84, Cl. PW,
3%, 6/25/22 1,003,560 986,433
Trust 2004-101, Cl. BG,
5%, 1/25/20 630,000 614,509
Trust 2004-52, Cl. JR,
4.50%, 7/25/24 2,880,042 2,849,251
Trust 2005-100, Cl. BQ,
5.50%, 11/25/25 520,000 500,968
Trust 2005-109, Cl. AH,
5.50%, 12/25/25 2,160,000 2,094,389
Trust 2005-31, Cl. PB,
5.50%, 4/25/35 560,000 549,548
Trust 2005-71, Cl. DB,
4.50%, 8/25/25 480,000 443,175

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Federal National Mortgage
Assn., CMO Gtd. Real Estate
Mtg. Investment Conduit
Pass-Through Certificates:
Continued
Trust 2006-44, Cl. OA,
5.50%, 12/25/26 $ 2,220,000 $ 2,225,586
Trust 2006-46, Cl. SW,
4.583%, 6/25/36 1 1,525,923 1,484,674
Trust 2006-50, Cl. KS,
4.583%, 6/25/36 1 669,744 647,515
Trust 2006-50, Cl. SA,
4.583%, 6/25/36 1 457,598 442,628
Trust 2006-50, Cl. SK,
4.583%, 6/25/36 1 1,252,407 1,210,369
Trust 2006-57, Cl. PA,
5.50%, 8/25/27 2,717,704 2,721,422
- --------------------------------------------------------------------------------
Federal National Mortgage
Assn., CMO Gtd. Real Estate
Mtg. Investment Conduit
Pass-Through Certificates,
Interest-Only Stripped
Mtg.-Backed Security,
Trust 2002-52, Cl. SL,
(0.441)%, 9/25/32 5 89,604 8,470
- --------------------------------------------------------------------------------
Federal National Mortgage
Assn., Interest-Only Stripped
Mtg.-Backed Security:
Trust 2001-61, Cl. SH,
6.906%, 11/18/31 5 806,634 78,993
Trust 2001-63, Cl. SD,
0.309%, 12/18/31 5 182,297 16,840
Trust 2001-68, Cl. SC,
(0.081)%, 11/25/31 5 127,569 12,004
Trust 2001-81, Cl. S,
(0.046)%, 1/25/32 5 154,648 14,522
Trust 2002-28, Cl. SA,
(0.809)%, 4/25/32 5 89,173 7,809
Trust 2002-38, Cl. IO,
(4.343)%, 4/25/32 5 453,280 24,829
Trust 2002-48, Cl. S,
(0.427)%, 7/25/32 5 143,804 13,301
Trust 2002-56, Cl. SN,
0.567%, 7/25/32 5 197,605 18,692
Trust 2002-77, Cl. IS,
0.581%, 12/18/32 5 772,255 65,619
Trust 2002-77, Cl. SH,
0.153%, 12/18/32 5 195,289 18,019
Trust 2002-9, Cl. MS,
(0.456)%, 3/25/32 5 190,116 18,319
Trust 2003-33, Cl. SP,
9.233%, 5/25/33 5 1,271,335 159,237
Trust 2003-4, Cl. S,
6.753%, 2/25/33 5 394,053 41,385
Trust 2005-40, Cl. SA,
(3.22)%, 5/25/35 5 4,123,023 201,789

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Federal National Mortgage
Assn., Interest-Only Stripped
Mtg.-Backed Security: Continued
Trust 2005-40, Cl. SB,
(1.908)%, 5/25/35 5 $ 989,660 $ 43,512
Trust 2005-71, Cl. SA,
3.302%, 8/25/25 5 1,035,087 60,215
Trust 2005-83, Cl. SL,
7.334%, 10/25/35 5 5,633,976 300,905
Trust 2006-119, Cl. MS,
8.197%, 12/25/36 5 3,055,324 168,157
Trust 2006-33, Cl. SP,
11.645%, 5/25/36 5 3,466,140 302,486
Trust 2006-34, Cl. SK,
11.144%, 5/25/36 5 6,271,053 557,143
Trust 214, Cl. 2,
14.872%, 3/1/23 5 1,006,657 212,332
Trust 221, Cl. 2,
10.445%, 5/1/23 5 109,566 24,945
Trust 240, Cl. 2,
19.219%, 9/1/23 5 203,613 45,680
Trust 254, Cl. 2,
3.621%, 1/1/24 5 1,661,322 391,746
Trust 2682, Cl. TQ,
13.248%, 10/15/33 5 1,521,031 83,835
Trust 2981, Cl. BS,
13.29%, 5/15/35 5 2,911,498 136,931
Trust 301, Cl. 2,
3.81%, 4/1/29 5 442,443 94,452
Trust 313, Cl. 2,
(14.41)%, 6/1/31 5 484,272 109,362
Trust 319, Cl. 2,
8.837%, 2/1/32 5 145,030 33,364
Trust 321, Cl. 2,
9.624%, 4/1/32 5 644,879 148,281
Trust 324, Cl. 2,
4.072%, 7/1/32 5 1,130,155 251,459
Trust 329, Cl. 2,
7.822%, 1/1/33 5 3,488,504 810,024
Trust 334, Cl. 12,
5.324%, 2/1/33 5 2,082,536 437,597
Trust 340, Cl. 2,
7.032%, 9/1/33 5 976,396 235,478
Trust 342, Cl. 2,
8.94%, 9/1/33 5 7,705,641 1,750,977
Trust 344, Cl. 2,
6.092%, 12/1/33 5 3,695,377 837,993
Trust 346, Cl. 2,
11.437%, 12/1/33 5 4,874,927 1,126,416
Trust 362, Cl. 12,
5.437%, 8/1/35 5 1,500,728 316,835
Trust 362, Cl. 13,
5.445%, 8/1/35 5 896,171 189,636
- --------------------------------------------------------------------------------
Federal National Mortgage
Assn., Principal-Only Stripped
Mtg.-Backed Security, Trust
340, Cl. 1, 5.532%, 9/1/33 7 976,396 713,556

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
Ford Credit Auto Owner Trust,
Automobile Loan Pass-Through
Certificates,
Series 2005-C, Cl. A2,
4.24%, 3/15/08 $ 161,676 $ 161,623
- --------------------------------------------------------------------------------
GE Capital Commercial
Mortgage Corp., Commercial
Mtg. Obligations:
Series 2004-C3, Cl. A2,
4.433%, 7/10/39 390,000 382,958
Series 2005-C3, Cl. A2,
4.853%, 7/10/45 430,000 425,193
- --------------------------------------------------------------------------------
GMAC Commercial Mortgage
Securities, Inc., Commercial
Mtg. Pass-Through Certificates:
Series 1997-C1, Cl. A3,
6.869%, 7/15/29 111,442 111,870
Series 1998-C1, Cl. F, 7.09%,
5/15/30 1 1,567,000 1,645,037
- --------------------------------------------------------------------------------
Government National
Mortgage Assn.:
5.125%, 11/20/25 1 10,589 10,736
7%, 3/15/28-7/15/28 492,278 508,876
7.50%, 2/15/27 51,288 53,644
8%, 11/15/25-5/15/26 123,292 130,667
- --------------------------------------------------------------------------------
Government National
Mortgage Assn., CMO,
Series 2001-62, Cl. KZ,
6.50%, 12/16/31 2,576,189 2,659,821
- --------------------------------------------------------------------------------
Government National
Mortgage Assn., CMO Gtd.
Real Estate Mtg. Investment
Conduit Pass-Through
Certificates,
Series 1999-32, Cl. ZB,
8%, 9/16/29 1,800,430 1,940,478
- --------------------------------------------------------------------------------
Government National
Mortgage Assn., Interest-Only
Stripped Mtg.-Backed Security:
Series 1998-19, Cl. SB,
(1.815)%, 7/16/28 5 260,159 27,614
Series 1998-6, Cl. SA,
(0.581)%, 3/16/28 5 163,221 15,998
Series 2001-21, Cl. SB,
(5.039)%, 1/16/27 5 1,257,592 84,854
Series 2006-47, Cl. SA,
14.403%, 8/16/36 5 2,460,381 127,276
- --------------------------------------------------------------------------------
Greenwich Capital Commercial
Funding Corp., Commercial
Mtg. Pass-Through Certificates:
Series 2005-GG3, Cl. A2,
4.305%, 8/10/42 500,000 487,066
Series 2005-GG5, Cl. A2,
5.117%, 4/10/37 1,725,000 1,719,944

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MORTGAGE-BACKED OBLIGATIONS Continued
- --------------------------------------------------------------------------------
GS Mortgage Securities
Corp. II, Commercial Mtg.
Obligations,
Series 2006-GG8, Cl. A2,
5.479%, 11/10/39 1 $ 1,702,000 $ 1,716,705
- --------------------------------------------------------------------------------
JP Morgan Mortgage Trust,
CMO Pass-Through
Certificates,
Series 2005-S2, Cl. 3A1,
6.712%, 2/25/32 1 2,192,535 2,213,932
- --------------------------------------------------------------------------------
JPMorgan Chase Commercial
Mortgage Securities Corp.,
Commercial Mtg. Pass-Through
Certificates:
Series 2005-LDP2, Cl. A2,
4.575%, 7/15/42 160,000 156,756
Series 2005-LDP4, Cl. A2,
4.79%, 10/15/42 2,225,000 2,192,640
- --------------------------------------------------------------------------------
LB-UBS Commercial Mortgage
Trust, Commercial Mtg.
Pass-Through Certificates,
Series 2005-C5, Cl. A2,
4.885%, 9/15/30 520,000 515,313
- --------------------------------------------------------------------------------
Mastr Alternative Loan Trust,
CMO Pass-Through Certificates:
Series 2004-6, Cl. 10A1,
6%, 7/25/34 570,957 568,445
Series 2004-9, Cl. A3,
4.70%, 8/25/34 1 354,364 351,555
- --------------------------------------------------------------------------------
Morgan Stanley Capital I Trust,
Commercial Mtg. Pass-Through
Certificates, Series 1997-XL1,
Cl. G, 7.695%, 10/3/30 390,000 348,446
- --------------------------------------------------------------------------------
Prudential Mortgage Capital
Co. II LLC, Commercial Mtg.
Pass-Through Certificates,
Series PRU-HTG 2000-C1,
Cl. A2, 7.306%, 10/6/15 556,000 598,889
- --------------------------------------------------------------------------------
RALI Series 2006-QS13 Trust, Mtg.
Asset-Backed Pass-Through
Certificates,
Series 2006-QS13, Cl. 1A8,
6%, 9/25/36 1,949,886 1,948,150
- --------------------------------------------------------------------------------
RALI Series 2006-QS5 Trust, Mtg.
Asset-Backed Pass-Through
Certificates,
Series 2006-QS5, Cl. 2A2,
6%, 4/25/08 1,603,354 1,600,477

- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--6.7%
- --------------------------------------------------------------------------------
Fannie Mae Unsec. Nts.,
3.579%, 1/31/07 8 3,482,000 3,467,226
- --------------------------------------------------------------------------------
Federal Home Loan
Mortgage Corp. Unsec. Nts.:
4.125%, 7/12/10 2,066,000 2,014,955
4.875%, 2/17/09 1,000,000 997,828
5.25%, 7/18/11 9 18,720,000 18,963,023
- --------------------------------------------------------------------------------
Federal National Mortgage
Assn. Unsec. Nts.:
4%, 2/28/07 965,000 963,246
4.25%, 7/15/07 2,198,000 2,186,658
4.75%, 12/15/10 9 1,715,000 1,705,557
5%, 10/15/11 10,11 9,300,000 9,330,420
6%, 5/15/11 9,12 9,860,000 10,276,388
7.25%, 1/15/10 5,077,000 5,405,071
- --------------------------------------------------------------------------------
Resolution Funding Corp.
Bonds, Residual Funding
STRIPS, 5.155%, 1/15/21 8,9 5,667,000 2,798,971
- --------------------------------------------------------------------------------
U.S. Treasury Bills,
5.14%, 5/10/07 9,12 62,855,000 61,775,151

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS Continued
- --------------------------------------------------------------------------------
U.S. Treasury Bonds:
4.50%, 2/15/36 9 $ 50,000 $ 47,563
STRIPS, 4.201%, 2/15/11 8,9 900,000 745,844
STRIPS, 4.808%, 2/15/16 8 4,491,000 2,921,373
- --------------------------------------------------------------------------------
U.S. Treasury Inflationary
Index Bonds, 2.50%, 7/15/16 9,13 9,935,000 10,005,887
----------------

Total U.S. Government Obligations
(Cost $133,730,436) 133,605,161

- --------------------------------------------------------------------------------
FOREIGN GOVERNMENT OBLIGATIONS--21.3%
- --------------------------------------------------------------------------------
ARGENTINA--1.7%
Argentina (Republic of) Bonds:
2%, 9/30/14 2 [ARP] 1,802,000 646,191
5.589%, 8/3/12 1 10,639,500 10,034,753
Series V, 7%, 3/28/11 19,768,000 19,577,736
Series VII, 7%, 9/12/13 1,875,000 1,836,563
- --------------------------------------------------------------------------------
Buenos Aires (Province of)
Bonds, Bonos de Consolidacion
de Deudas,
Series PBA1, 4/1/07 2,4 [ARP] 6,736 3,011
- --------------------------------------------------------------------------------
Central Bank of
Argentina Bonds,
2%, 2/4/18 2 [ARP] 2,261,760 1,192,696
- --------------------------------------------------------------------------------
Neuquen (Province Del)
Sr. Sec. Nts., 8.656%, 10/18/14 2 1,635,000 1,696,313
----------------
34,987,263

- --------------------------------------------------------------------------------
AUSTRALIA--0.7%
New South Wales Treasury
Corp. Gtd. Bonds,
8%, 3/1/08 [AUD] 17,930,000 14,402,056
- --------------------------------------------------------------------------------
BELGIUM--0.6%
Belgium (Kingdom of) Bonds,
Series 44, 5%, 3/28/35 [EUR] 2,310,000 3,480,475
- --------------------------------------------------------------------------------
Belgium (Kingdom of)
Treasury Bills,
3.605%, 5/10/07 8 [EUR] 6,035,000 7,866,914
----------------
11,347,389

- --------------------------------------------------------------------------------
BRAZIL--2.2%
Brazil (Federal Republic of)
Bonds:
6%, 1/17/17 6,390,000 6,316,515
8%, 1/15/18 11,415,000 12,722,018
8.75%, 2/4/25 5,360,000 6,633,000
8.875%, 10/14/19 8,885,000 10,861,913
10.50%, 7/14/14 6,288,000 7,970,040
- --------------------------------------------------------------------------------
Brazil (Federal Republic of) Nts.,
7.875%, 3/7/15 130,000 145,145
----------------
44,648,631

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
BULGARIA--0.1%
Bulgaria (Republic of) Bonds:
8.25%, 1/15/15 $ 740,000 $ 881,525
8.25%, 1/15/15 3 710,000 845,788
----------------
1,727,313

- --------------------------------------------------------------------------------
CANADA--0.7%
Canada (Government of) Nts.,
4%, 9/1/10 [CAD] 16,085,000 13,801,251
- --------------------------------------------------------------------------------
COLOMBIA--1.5%
Colombia (Republic of) Bonds:
7.375%, 9/18/37 6,456,000 6,946,656
10.75%, 1/15/13 1,390,000 1,727,075
12%, 10/22/15 [COP] 26,687,000,000 14,045,368
- --------------------------------------------------------------------------------
Colombia (Republic of) Nts.:
8.25%, 12/22/14 933,000 1,063,620
11.75%, 3/1/10 [COP] 2,617,240,000 1,262,501
- --------------------------------------------------------------------------------
Colombia (Republic of)
Unsec. Bonds,
8.125%, 5/21/24 4,720,000 5,475,200
----------------
30,520,420

- --------------------------------------------------------------------------------
COSTA RICA--0.1%
Costa Rica (Republic of)
Unsec. Bonds,
9.995%, 8/1/20 1,323,000 1,693,440
- --------------------------------------------------------------------------------
DENMARK--0.1%
Denmark (Kingdom of) Bonds:
4%, 11/15/10 [DKK] 5,050,000 896,208
4%, 11/15/15 [DKK] 3,730,000 664,695
7%, 11/10/24 [DKK] 1,360,000 331,044
- --------------------------------------------------------------------------------
Denmark (Kingdom of) Nts.,
4%, 8/15/08 [DKK] 5,380,000 954,510
----------------
2,846,457

- --------------------------------------------------------------------------------
DOMINICAN REPUBLIC--0.0%
Dominican Republic
Unsec. Unsub. Nts.,
9.50%, 9/27/11 3 439,140 474,051
- --------------------------------------------------------------------------------
EL SALVADOR--0.1%
El Salvador (Republic of) Bonds:
7.625%, 9/21/34 3 590,000 683,810
7.65%, 6/15/35 3 1,265,000 1,438,938
----------------
2,122,748

- --------------------------------------------------------------------------------
FRANCE--1.3%
France (Government of)
Bonds,
3.25%, 4/25/16 [EUR] 9,840,000 12,255,804
- --------------------------------------------------------------------------------
France (Government of)
Obligations Assimilables
du Tresor Bonds,
4%, 4/25/55 [EUR] 6,320,000 8,233,311

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
FRANCE Continued
France (Government of)
Treasury Bills, 3.564%,
5/10/07 8 [EUR] 4,885,000 $ 6,366,750
----------------
26,855,865

- --------------------------------------------------------------------------------
GERMANY--1.6%
Germany (Federal Republic of)
Bonds,
Series 05, 4%, 1/4/37 [EUR] 8,970,000 11,749,628
- --------------------------------------------------------------------------------
Germany (Federal Republic of)
Treasury Bills, Series 0906,
3.366%, 3/14/07 8 [EUR] 15,390,000 20,178,666
----------------
31,928,294

- --------------------------------------------------------------------------------
GREECE--0.4%
Greece (Republic of) Bonds,
4.60%, 5/20/13 [EUR] 5,345,000 7,250,340
- --------------------------------------------------------------------------------
GUATEMALA--0.0%
Guatemala (Republic of) Nts.:
10.25%, 11/8/11 2 250,000 296,000
10.25%, 11/8/11 2 95,000 112,480
----------------
408,480

- --------------------------------------------------------------------------------
INDONESIA--0.3%
Indonesia (Republic of) Nts.:
6.75%, 3/10/14 3 3,740,000 3,922,325
7.25%, 4/20/15 3 200,000 216,500
- --------------------------------------------------------------------------------
Indonesia (Republic of)
Unsec. Nts.,
8.50%, 10/12/35 3 2,070,000 2,574,563
----------------
6,713,388

- --------------------------------------------------------------------------------
ISRAEL--0.4%
Israel (State of) Bonds,
Series 2682, 7.50%, 3/31/14 [ILS] 27,593,000 7,286,538
- --------------------------------------------------------------------------------
ITALY--0.9%
Italy (Republic of) Nts.,
Certificati di Credito del Tesoro,
3.40%, 7/1/09 1 [EUR] 14,270,000 18,933,109
- --------------------------------------------------------------------------------
JAPAN--0.8%
Japan (Government of) Bonds:
10 yr.,
Series 268, 1.50%, 3/20/15 [JPY] 587,000,000 4,912,836
Series 7, 0.80%, 3/10/16 [JPY] 1,272,919,000 10,375,458
----------------
15,288,294

- --------------------------------------------------------------------------------
MALAYSIA--0.3%
Johor Corp. Malaysia
(Government of) Bonds,
Series P3, 1%, 7/31/12 2 [MYR] 7,980,000 2,510,714
- --------------------------------------------------------------------------------
Malaysia (Government of)
Bonds,
Series 2/05, 4.72%, 9/30/15 2 [MYR] 8,950,000 2,707,071
----------------
5,217,785

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MEXICO--0.6%
United Mexican States Bonds:
Series M20, 10%,
12/5/24 1 [MXN] 45,000,000 $ 5,181,477
Series M30, 10%,
11/20/36 [MXN] 36,660,000 4,413,096
- --------------------------------------------------------------------------------
United Mexican States Nts.,
7.50%, 1/14/12 2,335,000 2,564,998
----------------
12,159,571

- --------------------------------------------------------------------------------
NIGERIA--0.2%
Nigeria (Federal Republic of)
Promissory Nts.,
Series RC, 5.092%, 1/5/10 152,474 141,793
- --------------------------------------------------------------------------------
Nigeria (Federal Republic of)
Treasury Bonds:
Series 5Y13, 12.99%,
9/29/11 [NGN] 142,800,000 1,187,690
Series 7Y16, 11.99%,
12/22/13 6 [NGN] 236,500,000 1,836,180
Series 7YR, 12.74%,
10/27/13 [NGN] 80,300,000 661,945
----------------
3,827,608

- --------------------------------------------------------------------------------
PANAMA--0.4%
Panama (Republic of) Bonds:
6.70%, 1/26/36 2,816,000 2,942,720
7.25%, 3/15/15 3,700,000 4,023,750
9.375%, 4/1/29 655,000 877,700
----------------
7,844,170

- --------------------------------------------------------------------------------
PERU--1.2%
Peru (Republic of) Bonds:
7.84%, 8/12/20 [PEN] 37,670,000 13,291,948
8.20%, 8/12/26 [PEN] 5,945,000 2,181,284
8.375%, 5/3/16 290,000 345,825
9.91%, 5/5/15 [PEN] 8,101,000 3,145,678
Series 7, 8.60%, 8/12/17 [PEN] 3,450,000 1,270,441
Series 8-1, 12.25%, 8/10/11 [PEN] 1,427,000 559,496
- --------------------------------------------------------------------------------
Peru (Republic of) Past Due
Interest Bonds,
Series 20 yr., 5%, 3/7/17 1 1,323,160 1,319,852
- --------------------------------------------------------------------------------
Peru (Republic of) Sr. Nts.,
4.533%, 2/28/16 8 630,186 364,714
- --------------------------------------------------------------------------------
Peru (Republic of) Unsec.
Unsub. Bonds,
8.75%, 11/21/33 640,000 844,800
----------------
23,324,038

- --------------------------------------------------------------------------------
PHILIPPINES--0.7%
Philippines (Republic of the)
Bonds,
9.50%, 2/2/30 2,390,000 3,190,650
- --------------------------------------------------------------------------------
Philippines (Republic of the)
Unsec. Bonds:
7.75%, 1/14/31 5,762,000 6,568,680

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
PHILIPPINES Continued
Philippines (Republic of the)
Unsec. Bonds: Continued
9%, 2/15/13 $ 3,855,000 $ 4,471,800
----------------
14,231,130

- --------------------------------------------------------------------------------
POLAND--0.4%
Poland (Republic of) Bonds:
Series 0K0807, 4.243%,
8/12/07 8 [PLZ] 1,200,000 402,111
Series DS1013, 5%, 10/24/13 [PLZ] 11,340,000 3,886,859
Series WS0922, 5.75%,
9/23/22 [PLZ] 1,000,000 360,133
Series 0511, 4.25%, 5/24/11 [PLZ] 8,605,000 2,879,917
----------------
7,529,020

- --------------------------------------------------------------------------------
RUSSIA--0.1%
Russian Ministry of
Finance Debs.,
Series VII, 3%, 5/14/11 1,510,000 1,363,606
- --------------------------------------------------------------------------------
SPAIN--0.7%
Spain (Government of) Bonds,
3.80%, 1/31/17 [EUR] 3,385,000 4,393,239
- --------------------------------------------------------------------------------
Spain (Government of)
Treasury Bills,
3.694%, 10/19/07 8 [EUR] 6,785,000 8,692,386
----------------
13,085,625

- --------------------------------------------------------------------------------
TURKEY--1.1%
Turkey (Republic of) Bonds,
7%, 9/26/16 9,220,000 9,415,925
- --------------------------------------------------------------------------------
Turkey (Republic of) Nts.:
7.25%, 3/15/15 2,215,000 2,300,831
9.50%, 1/15/14 770,000 900,900
11%, 1/14/13 1,730,000 2,127,900
20.605%, 7/16/08 8 [TRY] 13,225,000 6,925,565
----------------
21,671,121

- --------------------------------------------------------------------------------
UKRAINE--0.2%
Ukraine (Government of)
Bonds, 7.65%, 6/11/13 3,739,000 4,061,489
- --------------------------------------------------------------------------------
UNITED KINGDOM--1.1%
United Kingdom Treasury Bonds,
5%, 3/7/08 [GBP] 3,270,000 6,388,002
- --------------------------------------------------------------------------------
United Kingdom Treasury Bonds,
6%, 12/7/28 [GBP] 4,220,000 10,095,718
- --------------------------------------------------------------------------------
United Kingdom Treasury Nts.,
4%, 3/7/09 [GBP] 3,335,000 6,374,066
----------------
22,857,786

- --------------------------------------------------------------------------------
URUGUAY--0.8%
Uruguay (Oriental Republic of)
Bonds, 7.625%, 3/21/36 6,270,000 6,928,350

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
URUGUAY Continued
Uruguay (Oriental Republic of)
Unsec. Bonds:
5%, 9/14/18 [UYU] 54,110,000 $ 2,443,417
8%, 11/18/22 5,650,000 6,441,000
----------------
15,812,767
----------------
Total Foreign Government
Obligations
(Cost $406,681,420) 426,221,043

- --------------------------------------------------------------------------------
LOAN PARTICIPATIONS--0.4%
- --------------------------------------------------------------------------------
Credit Suisse First Boston
International Export-Import
Bank of Ukraine Loan
Participation Nts., 8.40%, 2/9/16 1,740,000 1,783,500
- --------------------------------------------------------------------------------
Dali Capital plc/Bank of
Moscow Loan Participation
Nts., Series 28, Tranche 1, 7.25%,
11/25/09 [RUR] 100,800,000 3,828,987
- --------------------------------------------------------------------------------
Dali Capital SA (ROSBANK)
Loan Participation Nts., Series 23,
Tranche 1, 8%, 9/30/09 [RUR] 49,400,000 1,942,411
- --------------------------------------------------------------------------------
Reachcom Public Ltd.
Renaissance Consumer Finance
Bank of Russia Loan
Participation Nts.,
10.50%, 7/27/07 2 [RUR] 20,000,000 759,720
----------------
Total Loan Participations
(Cost $8,150,424) 8,314,618

- --------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES--24.4%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--6.9%
- --------------------------------------------------------------------------------
AUTO COMPONENTS--0.4%
Collins & Aikman
Floorcoverings, Inc.,
9.75% Sr. Sub. Nts.,
Series B, 2/15/10 700,000 719,250
- --------------------------------------------------------------------------------
Goodyear Tire & Rubber
Co. (The):
7.857% Nts., 8/15/11 1,125,000 1,136,250
9% Sr. Unsec. Nts., 7/1/15 1,045,000 1,099,863
- --------------------------------------------------------------------------------
Stoneridge, Inc.,
11.50% Sr. Nts., 5/1/12 1,200,000 1,242,000
- --------------------------------------------------------------------------------
Tenneco Automotive, Inc.:
8.625% Sr. Unsec. Sub. Nts.,
11/15/14 900,000 922,500
10.25% Sr. Sec. Nts.,
Series B, 7/15/13 650,000 715,000
- --------------------------------------------------------------------------------
United Components, Inc.,
9.375% Sr. Sub. Nts., 6/15/13 200,000 208,000
- --------------------------------------------------------------------------------
Visteon Corp.:
7% Sr. Unsec. Nts., 3/10/14 1,125,000 990,000
8.25% Sr. Unsec. Nts., 8/1/10 1,700,000 1,666,000
----------------
8,698,863

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
AUTOMOBILES--0.6%
Ford Motor Co.,
7.45% Bonds, 7/16/31 $ 800,000 $ 632,000
- --------------------------------------------------------------------------------
Ford Motor Credit Co.,
7.375% Nts., 10/28/09 4,400,000 4,412,135
- --------------------------------------------------------------------------------
General Motors
Acceptance Corp.:
6.875% Nts., 9/15/11 4,720,000 4,846,114
8% Bonds, 11/1/31 2,480,000 2,855,474
----------------
12,745,723

- --------------------------------------------------------------------------------
DISTRIBUTORS--0.0%
SGS International, Inc.,
12% Sr. Unsec. Sub. Nts., 12/15/13 580,000 606,100
- --------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES--0.1%
Education Management
LLC/Education
Management Corp.,
10.25% Sr. Sub. Nts., 6/1/16 3 1,140,000 1,211,250
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--1.7%
American Casino &
Entertainment Properties LLC,
7.85% Sr. Sec. Nts., 2/1/12 500,000 513,125
- --------------------------------------------------------------------------------
Aztar Corp., 9% Sr. Unsec.
Sub. Nts., 8/15/11 850,000 892,500
- --------------------------------------------------------------------------------
Boyd Gaming Corp., 8.75%
Sr. Sub. Nts., 4/15/12 500,000 525,000
- --------------------------------------------------------------------------------
Buffets, Inc., 12.50% Sr. Unsec.
Nts., 11/1/14 3 185,000 187,313
- --------------------------------------------------------------------------------
CCM Merger, Inc., 8% Unsec.
Nts., 8/1/13 3 1,040,000 1,021,800
- --------------------------------------------------------------------------------
Domino's, Inc., 8.25% Sr. Unsec.
Sub. Nts., 7/1/11 1,047,000 1,090,189
- --------------------------------------------------------------------------------
French Lick Resorts &
Casino LLC,
10.75% First Mtg. Nts., 4/15/14 3 1,460,000 1,372,400
- --------------------------------------------------------------------------------
Gaylord Entertainment Co.,
8% Sr. Nts., 11/15/13 900,000 938,250
- --------------------------------------------------------------------------------
Greektown Holdings, Inc.,
10.75% Sr. Nts., 12/1/13 3 1,335,000 1,401,750
- --------------------------------------------------------------------------------
Isle of Capri Casinos, Inc.:
7% Sr. Unsec. Sub. Nts., 3/1/14 2,100,000 2,100,000
9% Sr. Sub. Nts., 3/15/12 500,000 525,000
- --------------------------------------------------------------------------------
Mandalay Resort Group,
10.25% Sr. Unsec. Sub. Nts.,
Series B, 8/1/07 650,000 668,688
- --------------------------------------------------------------------------------
MGM Mirage, Inc.:
6.75% Sr. Unsec. Nts., 4/1/13 650,000 638,625
8.375% Sr. Unsec. Sub. Nts., 2/1/11 2,300,000 2,397,750
9.75% Sr. Unsec. Sub. Nts., 6/1/07 350,000 356,125
- --------------------------------------------------------------------------------
Mohegan Tribal Gaming Authority:
6.125% Sr. Unsec. Sub. Nts., 2/15/13 225,000 224,438

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE Continued
- --------------------------------------------------------------------------------
Mohegan Tribal
Gaming Authority: Continued
6.375% Sr. Sub. Nts., 7/15/09 $ 250,000 $ 251,250
6.875% Sr. Unsec. Sub. Nts.,
2/15/15 515,000 518,863
7.125% Sr. Unsec. Sub. Nts.,
8/15/14 500,000 509,375
8% Sr. Sub. Nts., 4/1/12 1,200,000 1,255,500
- --------------------------------------------------------------------------------
NCL Corp., 10.625% Sr. Unsub.
Nts., 7/15/14 800,000 804,000
- --------------------------------------------------------------------------------
Park Place Entertainment Corp.:
7.875% Sr. Sub. Nts., 3/15/10 800,000 838,000
9.375% Sr. Unsec. Sub. Nts.,
2/15/07 800,000 803,000
- --------------------------------------------------------------------------------
Penn National Gaming, Inc.:
6.75% Sr. Unsec. Sub. Nts., 3/1/15 230,000 226,550
6.875% Sr. Sub. Nts., 12/1/11 500,000 506,250
- --------------------------------------------------------------------------------
Pinnacle Entertainment, Inc.,
8.25% Sr. Unsec. Sub. Nts.,
3/15/12 1,900,000 1,928,500
- --------------------------------------------------------------------------------
Pokagon Gaming Authority,
10.375% Sr. Nts., 6/15/14 3 525,000 577,500
- --------------------------------------------------------------------------------
Premier Cruise Ltd., 11% Sr. Nts.,
3/15/08 2,4,18 250,000 --
- --------------------------------------------------------------------------------
Six Flags, Inc.:
8.875% Sr. Unsec. Nts., 2/1/10 574,000 558,215
9.625% Sr. Nts., 6/1/14 669,000 623,843
9.75% Sr. Nts., 4/15/13 400,000 377,500
- --------------------------------------------------------------------------------
Station Casinos, Inc.:
6.50% Sr. Unsec. Sub. Nts., 2/1/14 2,203,000 1,968,931
6.875% Sr. Unsec. Sub. Nts.,
3/1/16 235,000 212,088
- --------------------------------------------------------------------------------
Trump Entertainment
Resorts, Inc., 8.50% Sec. Nts.,
6/1/15 3,100,000 3,100,000
- --------------------------------------------------------------------------------
Universal City Development
Partners Ltd.,
11.75% Sr. Nts., 4/1/10 500,000 538,125
- --------------------------------------------------------------------------------
Vail Resorts, Inc.,
6.75% Sr. Sub. Nts., 2/15/14 1,100,000 1,105,500
- --------------------------------------------------------------------------------
Wynn Las Vegas LLC/Wynn
Las Vegas Capital Corp.,
6.625% Nts., 12/1/14 2,274,000 2,271,158
----------------
33,827,101

- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES--0.2%
Beazer Homes USA, Inc.,
8.375% Sr. Nts., 4/15/12 400,000 413,000
- --------------------------------------------------------------------------------
D.R. Horton, Inc.,
9.75% Sr. Sub. Nts., 9/15/10 400,000 441,703
- --------------------------------------------------------------------------------
K. Hovnanian Enterprises, Inc.,
7.75% Sr. Unsec. Sub. Nts., 5/15/13 300,000 300,750

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
HOUSEHOLD DURABLES Continued
KB Home:
8.625% Sr. Sub. Nts., 12/15/08 $ 250,000 $ 261,004
9.50% Sr. Unsec. Sub. Nts.,
2/15/11 400,000 412,500
- --------------------------------------------------------------------------------
Sealy Mattress Co., 8.25% Sr.
Sub. Nts., 6/15/14 450,000 472,500
- --------------------------------------------------------------------------------
Standard Pacific Corp., 9.25%
Sr. Sub. Nts., 4/15/12 200,000 205,500
- --------------------------------------------------------------------------------
WCI Communities, Inc., 9.125%
Sr. Sub. Nts., 5/1/12 800,000 766,000
- --------------------------------------------------------------------------------
William Lyon Homes, Inc.,
10.75% Sr. Nts., 4/1/13 900,000 861,750
----------------
4,134,707

- --------------------------------------------------------------------------------
LEISURE EQUIPMENT & PRODUCTS--0.1%
Leslie's Poolmart, Inc.,
7.75% Sr. Unsec. Nts., 2/1/13 825,000 825,000
- --------------------------------------------------------------------------------
Steinway Musical
Instruments, Inc.,
7% Sr. Nts., 3/1/14 3 785,000 771,263
----------------
1,596,263

- --------------------------------------------------------------------------------
MEDIA--3.1%
Adelphia Communications Corp.:
7.875% Sr. Unsec. Nts., 5/1/09 4,18 350,000 317,625
10.25% Sr. Unsec. Sub. Nts.,
6/15/11 4,18 200,000 191,000
10.875% Sr. Unsec. Nts., 10/1/10 4,18 400,000 369,000
- --------------------------------------------------------------------------------
Allbritton Communications Co.,
7.75% Sr. Unsec. Sub. Nts.,
12/15/12 1,100,000 1,116,500
- --------------------------------------------------------------------------------
AMC Entertainment, Inc.:
8% Sr. Unsec. Sub. Nts., 3/1/14 650,000 648,375
9.50% Sr. Unsec. Sub. Nts., 2/1/11 360,000 363,150
- --------------------------------------------------------------------------------
American Media
Operations, Inc.:
8.875% Sr. Unsec. Sub. Nts.,
1/15/11 150,000 137,625
10.25% Sr. Unsec. Sub. Nts.,
Series B, 5/1/09 1,250,000 1,214,063
- --------------------------------------------------------------------------------
Block Communications, Inc.,
8.25% Sr. Nts., 12/15/15 3 405,000 406,013
- --------------------------------------------------------------------------------
Charter Communications
Holdings II LLC/Charter
Communications Holdings II
Capital Corp.:
10.25% Sr. Unsec. Nts., 9/15/10 1,100,000 1,156,375
10.25% Sr. Unsec. Nts.,
Series B, 9/15/10 1,735,000 1,819,581

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
Charter Communications
Operating LLC/Charter
Communications Operating
Capital Corp.,
8.375% Sr. Nts., Second Lien,
4/30/14 3 $ 2,653,000 $ 2,782,334
- --------------------------------------------------------------------------------
Cinemark USA, Inc.,
9% Sr. Unsec. Sub. Nts., 2/1/13 900,000 958,500
- --------------------------------------------------------------------------------
Cinemark, Inc.,
0%/9.75% Sr. Unsec. Disc. Nts.,
3/15/14 15 1,500,000 1,295,625
- --------------------------------------------------------------------------------
CSC Holdings, Inc.:
7.625% Sr. Unsec. Debs., 7/15/18 1,000,000 978,750
7.625% Sr. Unsec. Unsub. Nts.,
Series B, 4/1/11 1,106,000 1,132,268
- --------------------------------------------------------------------------------
Dex Media East LLC/Dex
Media East Finance Co.,
9.875% Sr. Unsec. Nts., 11/15/09 200,000 210,000
- --------------------------------------------------------------------------------
Dex Media West LLC/Dex
Media West Finance Co.:
8.50% Sr. Nts., 8/15/10 300,000 313,125
9.875% Sr. Sub. Nts., 8/15/13 586,000 641,670
- --------------------------------------------------------------------------------
Dex Media, Inc.:
0%/9% Unsec.
Disc. Nts., 11/15/13 15 300,000 269,250
0%/9% Unsec. Disc. Nts.,
11/15/13 15 400,000 359,000
8% Unsec. Nts., 11/15/13 3,575,000 3,700,125
- --------------------------------------------------------------------------------
DirecTV Holdings
LLC/DirecTV Financing Co., Inc.:
6.375% Sr. Unsec. Nts., 6/15/15 450,000 433,688
8.375% Sr. Unsec. Nts., 3/15/13 1,100,000 1,149,500
- --------------------------------------------------------------------------------
EchoStar DBS Corp.:
6.625% Sr. Unsec. Nts., 10/1/14 1,427,000 1,394,893
7% Sr. Unsec. Nts., 10/1/13 535,000 537,006
7.125% Sr. Unsec. Nts., 2/1/16 1,400,000 1,407,000
- --------------------------------------------------------------------------------
Granite Broadcasting Corp.,
9.75% Sr. Sec. Nts., 12/1/10 359,000 350,923
- --------------------------------------------------------------------------------
Idearc, Inc., 8% Sr. Nts., 11/15/16 2 1,930,000 1,958,950
- --------------------------------------------------------------------------------
Lamar Media Corp.,
6.625% Sr. Unsec. Sub. Nts.,
8/15/15 1,275,000 1,270,219
- --------------------------------------------------------------------------------
Lin Television Corp.,
6.50% Sr. Sub. Nts., 5/15/13 550,000 526,625
- --------------------------------------------------------------------------------
Marquee Holdings, Inc.,
0%/12% Sr. Disc. Nts., 8/15/14 15 1,600,000 1,350,000
- --------------------------------------------------------------------------------
Mediacom Broadband LLC,
8.50% Sr. Nts., 10/15/15 3 1,220,000 1,241,350
- --------------------------------------------------------------------------------
Mediacom Broadband
LLC/Mediacom Broadband
Corp.,
8.50% Sr. Nts., 10/15/15 280,000 284,900

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MEDIA Continued
Mediacom LLC/Mediacom
Capital Corp.,
9.50% Sr. Unsec. Nts., 1/15/13 $ 969,000 $ 1,002,915
- --------------------------------------------------------------------------------
MediaNews Group, Inc.:
6.375% Sr. Sub. Nts., 4/1/14 1,300,000 1,124,500
6.875% Sr. Unsec. Sub. Nts.,
10/1/13 700,000 637,000
- --------------------------------------------------------------------------------
Nielsen Finance LLC/Nielsen
Finance Co.:
0%/12.50% Sr. Sub. Disc. Nts.,
8/1/16 3,15 1,725,000 1,196,719
10% Sr. Nts., 8/1/14 3 2,195,000 2,389,806
- --------------------------------------------------------------------------------
NTL Cable plc, 9.125% Sr. Nts.,
8/15/16 355,000 376,744
- --------------------------------------------------------------------------------
Paxson Communications Corp.,
11.624% Sr. Sec. Nts., 1/15/13 1,3 760,000 773,300
- --------------------------------------------------------------------------------
PRIMEDIA, Inc.:
8% Sr. Nts., 5/15/13 900,000 875,250
8.875% Sr. Unsec. Nts., 5/15/11 319,000 326,975
- --------------------------------------------------------------------------------
Quebecor World Capital Corp.,
8.75% Sr. Nts., 3/15/16 3 315,000 303,188
- --------------------------------------------------------------------------------
R.H. Donnelley Corp.:
6.875% Sr. Disc. Nts.,
Series A-1, 1/15/13 2,730,000 2,631,038
6.875% Sr. Disc. Nts.,
Series A-2, 1/15/13 1,865,000 1,797,394
6.875% Sr. Nts., 1/15/13 1,300,000 1,252,875
8.875% Sr. Unsec. Nts.,
Series A-3, 1/15/16 3,540,000 3,734,700
- --------------------------------------------------------------------------------
R.H. Donnelley Financial Corp. I,
10.875% Sr. Sub. Nts., 12/15/12 3 400,000 438,000
- --------------------------------------------------------------------------------
Radio One, Inc.,
8.875% Sr. Unsec. Sub. Nts.,
Series B, 7/1/11 600,000 622,500
- --------------------------------------------------------------------------------
Rainbow National Services LLC,
8.75% Sr. Nts., 9/1/12 3 900,000 950,625
- --------------------------------------------------------------------------------
Shaw Communications, Inc.,
8.54% Debs., 9/30/27 [CAD] 340,000 309,716
- --------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc.:
8% Sr. Unsec. Sub. Nts., 3/15/12 2,775,000 2,879,063
8.75% Sr. Sub. Nts., 12/15/11 300,000 313,875
- --------------------------------------------------------------------------------
Sirius Satellite Radio, Inc.,
9.625% Sr. Unsec. Nts., 8/1/13 390,000 385,613
- --------------------------------------------------------------------------------
Vertis, Inc.:
9.75% Sr. Sec. Nts., 4/1/09 700,000 724,500
10.875% Sr. Unsec. Nts.,
Series B, 6/15/09 800,000 808,000
- --------------------------------------------------------------------------------
Warner Music Group,
7.375% Sr. Sub. Bonds, 4/15/14 500,000 497,500
- --------------------------------------------------------------------------------
WMG Holdings Corp.,
0%/9.50% Sr. Disc. Nts., 12/15/14 15 2,057,000 1,655,885
- --------------------------------------------------------------------------------
XM Satellite Radio Holdings, Inc.,
9.75% Sr. Unsec. Nts., 5/1/14 930,000 934,650
----------------
61,227,339

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
MULTILINE RETAIL--0.3%
Bon-Ton Stores, Inc. (The),
10.25% Sr. Unsec. Unsub. Nts.,
3/15/14 $ 1,980,000 $ 2,034,450
- --------------------------------------------------------------------------------
Neiman Marcus Group,
Inc. (The):
9% Sr. Unsec. Nts., 10/15/15 2,020,000 2,214,425
10.375% Sr. Unsec. Sub. Nts.,
10/15/15 660,000 737,550
----------------
4,986,425

- --------------------------------------------------------------------------------
SPECIALTY RETAIL--0.2%
Asbury Automotive Group, Inc.,
9% Sr. Sub. Nts., 6/15/12 300,000 315,000
- --------------------------------------------------------------------------------
Atlantic Broadband Finance LLC,
9.375% Sr. Unsec. Sub. Nts.,
1/15/14 250,000 254,063
- --------------------------------------------------------------------------------
Boise Cascade LLC,
7.125% Sr. Unsec. Sub. Nts.,
10/15/14 1,308,000 1,272,030
- --------------------------------------------------------------------------------
Gamestop Corp.,
8% Sr. Unsec. Nts., 10/1/12 300,000 315,000
- --------------------------------------------------------------------------------
Linens 'N Things, Inc.,
10.999% Sr. Sec. Nts., 1/15/14 1 1,480,000 1,443,000
- --------------------------------------------------------------------------------
Rent-A-Center, Inc.,
7.50% Sr. Unsec. Sub. Nts.,
Series B, 5/1/10 550,000 554,125
----------------
4,153,218

- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--0.2%
Invista, Inc., 9.25% Sr. Nts., 5/1/12 3 1,067,000 1,149,693
- --------------------------------------------------------------------------------
Levi Strauss & Co.,
9.75% Sr. Unsec. Unsub. Nts.,
1/15/15 1,919,000 2,077,318
- --------------------------------------------------------------------------------
Oxford Industries, Inc.,
8.875% Sr. Nts., 6/1/11 2 250,000 259,375
- --------------------------------------------------------------------------------
Quiksilver, Inc.,
6.875% Sr. Unsec. Nts., 4/15/15 610,000 602,375
----------------
4,088,761

- --------------------------------------------------------------------------------
CONSUMER STAPLES--1.1%
- --------------------------------------------------------------------------------
BEVERAGES--0.1%
Constellation Brands, Inc.:
7.25% Sr. Nts., 9/1/16 685,000 707,263
8.125% Sr. Sub. Nts., 1/15/12 300,000 313,500
----------------
1,020,763

- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--0.5%
Albertson's, Inc.,
8% Sr. Unsec. Debs., 5/1/31 1,238,000 1,261,966
- --------------------------------------------------------------------------------
Delhaize America, Inc.,
9% Unsub. Debs., 4/15/31 3,798,000 4,528,374

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING Continued
Jean Coutu Group (PJC),
Inc. (The), 8.50% Sr. Sub. Nts.,
8/1/14 $ 1,600,000 $ 1,618,000
- --------------------------------------------------------------------------------
Real Time Data Co.,
11% Disc. Nts., 5/31/09 2,4,16,18 142,981 --
- --------------------------------------------------------------------------------
Rite Aid Corp.:
8.125% Sr. Sec. Nts., 5/1/10 450,000 461,813
9.50% Sr. Sec. Nts., 2/15/11 700,000 735,875
- --------------------------------------------------------------------------------
Supervalu, Inc.,
7.50% Sr. Nts., 11/15/14 945,000 990,078
----------------
9,596,106

- --------------------------------------------------------------------------------
FOOD PRODUCTS--0.2%
Del Monte Corp.:
6.75% Sr. Unsec. Sub. Nts.,
2/15/15 180,000 179,100
8.625% Sr. Sub. Nts., 12/15/12 400,000 424,000
- --------------------------------------------------------------------------------
Dole Food Co., Inc.:
8.625% Sr. Nts., 5/1/09 306,000 305,618
8.875% Sr. Unsec. Nts., 3/15/11 71,000 70,290
- --------------------------------------------------------------------------------
Hines Nurseries, Inc.,
10.25% Sr. Unsec. Sub. Nts.,
10/1/11 1,300,000 1,137,500
- --------------------------------------------------------------------------------
MHP SA,
10.25% Sr. Sec. Sub. Bonds,
11/30/11 2 1,360,000 1,397,400
- --------------------------------------------------------------------------------
Smithfield Foods, Inc.:
7% Sr. Nts., 8/1/11 300,000 304,500
7.625% Sr. Unsec. Sub. Nts.,
2/15/08 400,000 408,000
----------------
4,226,408

- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.1%
Church & Dwight Co., Inc.,
6% Sr. Unsec. Sub. Nts., 12/15/12 350,000 343,875
- --------------------------------------------------------------------------------
Nutro Products, Inc.,
10.75% Sr. Sub. Nts., 4/15/14 3 370,000 406,075
- --------------------------------------------------------------------------------
Spectrum Brands, Inc.,
7.375% Sr. Unsec. Sub. Nts., 2/1/15 900,000 783,000
----------------
1,532,950

- --------------------------------------------------------------------------------
PERSONAL PRODUCTS--0.1%
Elizabeth Arden, Inc.,
7.75% Sr. Unsec. Sub. Nts.,
1/15/14 1,175,000 1,189,688
- --------------------------------------------------------------------------------
Playtex Products, Inc.:
8% Sr. Sec. Nts., 3/1/11 500,000 525,000
9.375% Sr. Unsec. Sub. Nts.,
6/1/11 740,000 775,150
- --------------------------------------------------------------------------------
Sally Holdings LLC:
9.25% Sr. Nts., 11/15/14 2 240,000 246,600
10.50% Sr. Sub. Nts., 11/15/16 2 240,000 246,000
----------------
2,982,438

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
TOBACCO--0.1%
Reynolds American, Inc.,
7.25% Sr. Sec. Nts., 6/1/13 $ 1,805,000 $ 1,885,315
- --------------------------------------------------------------------------------
ENERGY--2.6%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--0.1%
Basic Energy Services, Inc.,
7.125% Sr. Unsec. Nts., 4/15/16 335,000 331,650
- --------------------------------------------------------------------------------
Hanover Compressor Co.,
8.625% Sr. Unsec. Sub. Nts.,
12/15/10 800,000 840,000
- --------------------------------------------------------------------------------
Hanover Equipment Trust,
8.50% Sr. Sec. Nts.,
Series A, 9/1/08 221,000 224,868
- --------------------------------------------------------------------------------
PHI, Inc., 7.125% Sr. Unsec. Nts.,
4/15/13 400,000 389,000
- --------------------------------------------------------------------------------
RathGibson, Inc.,
11.25% Sr. Unsec. Nts., 2/15/14 300,000 319,500
- --------------------------------------------------------------------------------
Universal Compression, Inc.,
7.25% Sr. Unsec. Sub. Nts.,
5/15/10 400,000 404,000
----------------
2,509,018

- --------------------------------------------------------------------------------
OIL & GAS--2.5%
Arch Western Finance LLC,
6.75% Sr. Nts., 7/1/13 700,000 698,250
- --------------------------------------------------------------------------------
Atlas Pipeline Partners LP,
8.125% Sr. Unsec. Nts., 12/15/15 290,000 299,425
- --------------------------------------------------------------------------------
Berry Petroleum Co.,
8.25% Sr. Sub. Nts., 11/1/16 370,000 372,313
- --------------------------------------------------------------------------------
Chesapeake Energy Corp.:
6.375% Sr. Unsec. Nts., 6/15/15 250,000 248,750
6.875% Sr. Unsec. Nts., 1/15/16 1,822,000 1,847,053
7.50% Sr. Nts., 6/15/14 300,000 313,125
- --------------------------------------------------------------------------------
Clayton Williams Energy, Inc.,
7.75% Sr. Unsec. Nts., 8/1/13 85,000 78,838
- --------------------------------------------------------------------------------
Compton Petroleum
Finance Corp.,
7.625% Sr. Nts., 12/1/13 1,310,000 1,270,700
- --------------------------------------------------------------------------------
Copano Energy LLC,
8.125% Sr. Unsec. Nts., 3/1/16 180,000 187,200
- --------------------------------------------------------------------------------
El Paso Corp.,
7.875% Sr. Unsec. Nts., 6/15/12 2 2,784,000 2,999,760
- --------------------------------------------------------------------------------
El Paso Energy Corp.,
7.625% Nts., 7/15/11 200,000 213,000
- --------------------------------------------------------------------------------
El Paso Production
Holding Co.,
7.75% Sr. Unsec. Nts., 6/1/13 1,319,000 1,386,599
- --------------------------------------------------------------------------------
Forest Oil Corp.,
7.75% Sr. Nts., 5/1/14 300,000 306,750
- --------------------------------------------------------------------------------
Foundation PA Coal Co.,
7.25% Sr. Unsec. Nts., 8/1/14 550,000 562,375
- --------------------------------------------------------------------------------
Frontier Oil Corp.,
6.625% Sr. Unsec. Nts., 10/1/11 700,000 701,750

20 | OPPENHEIMER STRATEGIC BOND FUND/VA

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
OIL & GAS Continued
Gaz Capital SA,
8.625% Sr. Unsec. Nts., 4/28/34 3 $ 3,555,000 $ 4,577,063
- --------------------------------------------------------------------------------
Inergy LP/Inergy
Finance Corp.,
8.25% Sr. Unsec. Nts., 3/1/16 880,000 928,400
- --------------------------------------------------------------------------------
Massey Energy Co.:
6.625% Sr. Nts., 11/15/10 200,000 201,000
6.875% Sr. Unsec. Nts., 12/15/13 285,000 269,325
- --------------------------------------------------------------------------------
National Gas Co.,
6.05% Nts., 1/15/36 3 1,510,000 1,480,248
- --------------------------------------------------------------------------------
Newfield Exploration Co.,
6.625% Sr. Unsec. Sub. Nts.,
9/1/14 1,900,000 1,909,500
- --------------------------------------------------------------------------------
Pacific Energy Partners
LP/Pacific Energy Finance Corp.,
6.25% Sr. Unsec. Nts., 9/15/15 100,000 97,926
- --------------------------------------------------------------------------------
Peabody Energy Corp.,
6.875% Sr. Unsec. Nts.,
Series B, 3/15/13 700,000 721,000
- --------------------------------------------------------------------------------
Pemex Project
Funding Master Trust:
7.375% Unsec. Unsub. Nts.,
12/15/14 740,000 816,590
8.50% Unsub. Nts., 2/15/08 420,000 433,125
9.125% Unsec. Unsub. Nts.,
10/13/10 610,000 685,640
- --------------------------------------------------------------------------------
Petroleum Export Ltd.
Cayman SPV,
5.265% Sr. Nts., Cl. A3, 6/15/11 3 3,521,812 3,429,249
- --------------------------------------------------------------------------------
Pogo Producing Co.,
7.875% Sr. Unsec. Sub. Nts.,
5/1/13 365,000 372,300
- --------------------------------------------------------------------------------
Premcor Refining Group, Inc.,
9.50% Sr. Nts., 2/1/13 835,000 902,094
- --------------------------------------------------------------------------------
Quicksilver Resources, Inc.,
7.125% Sr. Sub. Nts., 4/1/16 1,340,000 1,316,550
- --------------------------------------------------------------------------------
Range Resources Corp.:
6.375% Sr. Sub. Nts., 3/15/15 430,000 421,400
7.375% Sr. Sub. Nts., 7/15/13 200,000 206,000
7.50% Sr. Sub. Nts., 5/15/16 1,505,000 1,550,150
- --------------------------------------------------------------------------------
Sabine Pass LNG LP:
7.25% Sr. Sec. Nts., 11/30/13 2 1,335,000 1,328,325
7.50% Sr. Sec. Nts., 11/30/16 2 2,770,000 2,763,075
- --------------------------------------------------------------------------------
Southern Natural Gas Co.:
7.35% Nts., 2/15/31 500,000 552,873
8% Sr. Unsub. Nts., 3/1/32 300,000 352,050
- --------------------------------------------------------------------------------
Stone Energy Corp.,
6.75% Sr. Unsec. Sub. Nts.,
12/15/14 1,020,000 979,200
- --------------------------------------------------------------------------------
Targa Resources, Inc.,
8.50% Sr. Nts., 11/1/13 3 525,000 531,563
- --------------------------------------------------------------------------------
Tengizchevroil LLP,
6.124% Nts., 11/15/14 3 2,123,000 2,128,308

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
OIL & GAS Continued
Tennessee Gas Pipeline Co.,
7.50% Bonds, 4/1/17 $ 1,567,000 $ 1,717,647
- --------------------------------------------------------------------------------
Tesoro Corp.:
6.25% Sr. Unsec. Nts., 11/1/12 405,000 405,000
6.625% Sr. Unsec. Nts., 11/1/15 905,000 902,738
- --------------------------------------------------------------------------------
Transcontinental Gas
Pipe Line Corp.,
6.40% Sr. Unsec. Unsub. Nts.,
4/15/16 470,000 477,050
- --------------------------------------------------------------------------------
Whiting Petroleum Corp.,
7.25% Sr. Sub. Nts., 5/1/12 1,500,000 1,511,250
- --------------------------------------------------------------------------------
Williams Cos., Inc. (The):
7.125% Nts., 9/1/11 900,000 940,500
7.625% Nts., 7/15/19 928,000 997,600
8.75% Unsec. Nts., 3/15/32 1,619,000 1,837,565
----------------
49,228,192

- --------------------------------------------------------------------------------
FINANCIALS--2.7%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--0.9%
Berry Plastics Holding Corp.:
8.875% Sr. Sec. Nts., 9/15/14 3 600,000 612,000
9.235% Sr. Sec. Nts., 9/15/14 1,3 600,000 610,500
- --------------------------------------------------------------------------------
E*TRADE Financial Corp.:
7.375% Sr. Unsec. Nts., 9/15/13 1,146,000 1,197,570
8% Sr. Nts., 6/15/11 410,000 430,500
- --------------------------------------------------------------------------------
HBOS Treasury Services plc:
4.375% Sr. Sec. Nts., 7/13/16 [EUR] 5,910,000 7,941,502
4.50% Sr. Sec. Nts., 7/13/21 [EUR] 5,530,000 7,502,893
----------------
18,294,965

- --------------------------------------------------------------------------------
COMMERCIAL BANKS--0.9%
Banco BMG SA,
9.15% Nts., 1/15/16 3 2,980,000 3,027,680
- --------------------------------------------------------------------------------
Banco de Credito del Peru,
6.95% Sub. Nts., 11/7/21 1,2 1,345,000 1,345,000
- --------------------------------------------------------------------------------
Bank Plus Corp.,
12% Sr. Nts., 7/18/07 2 7,000 7,298
- --------------------------------------------------------------------------------
HSBC Bank plc:
11.601% Sr. Unsec. Nts., 1/12/10 8 2,510,000 1,405,600
12.278% Sr. Unsec. Nts., 3/9/09 8 1,960,000 1,234,800
9.751% Sr. Unsec. Nts., 7/8/09 8 1,960,000 1,293,600
- --------------------------------------------------------------------------------
Inter-American
Development Bank:
6.26% Nts., 12/8/09 1 [BRR] 920,000 424,040
7.889% Nts., 1/25/12 1 [COP] 971,928,577 468,846
- --------------------------------------------------------------------------------
Ongko International
Finance Co. BV,
10.50% Sec. Nts., 3/29/10 2,4,18 90,000 --
- --------------------------------------------------------------------------------
RSHB Capital SA/OJSC
Russian Agricultural Bank,
7.175% Nts., 5/16/13 3 3,110,000 3,284,938

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
COMMERCIAL BANKS Continued
Salisbury International
Investments Ltd.,
9.524% Sec. Nts.,
Series 2006-003, Tranche E,
7/20/11 1,2 $ 1,100,000 $ 1,100,000
- --------------------------------------------------------------------------------
UBS Luxembourg SA,
6.23% Sub. Nts., 2/11/15 1 2,500,000 2,544,525
- --------------------------------------------------------------------------------
VTB Capital SA,
6.25% Sr. Nts., 6/30/35 3 1,870,000 1,912,075
----------------
18,048,402

- --------------------------------------------------------------------------------
CONSUMER FINANCE--0.0%
Ace Cash Express, Inc.,
10.25% Sr. Nts., 10/1/14 3 250,000 254,375
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--0.6%
AAC Group Holding Corp.,
0%/10.25% Sr. Unsec. Disc.
Nts., 10/1/12 15 100,000 88,000
- --------------------------------------------------------------------------------
Affinia Group, Inc.,
9% Sr. Unsec. Sub. Nts., 11/30/14 60,000 59,100
- --------------------------------------------------------------------------------
Autopistas del Nordeste
Cayman Ltd., 9.39% Nts.,
1/15/26 2 3,791,898 3,924,615
- --------------------------------------------------------------------------------
Cloverie plc, 9.615% Sec. Nts.,
Series 2005-93, 12/20/10 1,2 1,100,000 1,108,800
- --------------------------------------------------------------------------------
Depfa ACS Bank,
3.50% Sec. Nts., 3/16/11 [EUR] 2,090,000 2,697,729
- --------------------------------------------------------------------------------
Halyk Savings Bank
Kazakhstan Europe BV,
7.75% Nts., 5/13/13 3 1,625,000 1,722,500
- --------------------------------------------------------------------------------
JSG Funding plc,
7.75% Sr. Unsec. Sub. Nts.,
4/1/15 2 330,000 318,450
- --------------------------------------------------------------------------------
Nell AF Sarl,
8.375% Sr. Nts., 8/15/15 3 850,000 877,625
- --------------------------------------------------------------------------------
Tiers-BSP, 0%/8.60%
Collateralized Trust, Cl. A,
6/15/97 15 2,695,000 1,138,638
- --------------------------------------------------------------------------------
Universal City Florida:
8.375% Sr. Unsec. Nts., 5/1/10 130,000 133,900
10.121% Sr. Unsec. Nts., 5/1/10 1 130,000 134,875
----------------
12,204,232

- --------------------------------------------------------------------------------
REAL ESTATE--0.2%
Felcor Lodging LP,
8.50% Sr. Nts., 6/1/11 1 925,000 989,750
- --------------------------------------------------------------------------------
Host Hotels & Resorts LP,
6.875% Sr. Nts., 11/1/14 3 375,000 381,563
- --------------------------------------------------------------------------------
Host Marriott LP:
6.375% Sr. Nts., Series O, 3/15/15 730,000 723,613
6.75% Sr. Nts., Series Q, 6/1/16 500,000 503,125

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
REAL ESTATE Continued
Host Marriott LP: Continued
Ventas Realty LP/Ventas
Capital Corp., 6.75% Sr. Nts.,
4/1/17 $ 450,000 $ 466,875
----------------
3,064,926

- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--0.1%
Banco Hipotecario SA,
9.75% Sr. Unsec. Nts., 4/27/16 2 2,340,000 2,258,100
- --------------------------------------------------------------------------------
BankUnited Capital Trust,
10.25% Capital Securities,
12/31/26 2 100,000 105,750
----------------
2,363,850

- --------------------------------------------------------------------------------
HEALTH CARE--1.0%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--0.0%
Angiotech Pharmaceuticals,
Inc., 7.75% Sr. Sub. Nts., 4/1/14 3 325,000 284,375
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--0.0%
Inverness Medical
Innovations, Inc.,
8.75% Sr. Sub. Nts., 2/15/12 650,000 679,250
- --------------------------------------------------------------------------------
Universal Hospital
Services, Inc.,
10.125% Sr. Unsec. Nts., 11/1/11 300,000 321,750
----------------
1,001,000

- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.0%
AmeriPath, Inc.,
10.50% Sr. Unsec. Sub. Nts.,
4/1/13 300,000 326,250
- --------------------------------------------------------------------------------
Community Health
Systems, Inc.,
6.50% Sr. Unsec. Sub. Nts.,
12/15/12 400,000 396,000
- --------------------------------------------------------------------------------
DaVita, Inc.:
6.625% Sr. Unsec. Nts., 3/15/13 465,000 468,488
7.25% Sr. Unsec. Sub. Nts., 3/15/15 1,975,000 2,024,375
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust II, 7.875% Nts.,
2/1/08 900,000 918,000
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust III,
7.375% Nts., 2/1/08 2 [DEM] 25,000 17,337
- --------------------------------------------------------------------------------
Fresenius Medical Care
Capital Trust IV,
7.875% Trust Preferred
Securities, 6/15/11 2 600,000 631,500
- --------------------------------------------------------------------------------
Genesis HealthCare Corp.,
8% Sr. Sub. Nts., 10/15/13 200,000 209,500
- --------------------------------------------------------------------------------
HCA, Inc.:
6.25% Nts., 2/15/13 100,000 88,750
6.30% Sr. Unsec. Nts., 10/1/12 1,719,000 1,577,183

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES Continued
HCA, Inc.: Continued
6.375% Nts., 1/15/15 $ 1,671,000 $ 1,420,350
8.75% Sr. Nts., 9/1/10 200,000 209,000
9.125% Sr. Sec. Nts., 11/15/14 3 320,000 342,800
9.25% Sr. Sec. Nts., 11/15/16 3 320,000 343,600
9.625% Sr. Sec. Nts., 11/15/16 3,16 800,000 862,000
- --------------------------------------------------------------------------------
HEALTHSOUTH Corp.,
10.75% Sr. Nts., 6/15/16 3 875,000 946,094
- --------------------------------------------------------------------------------
Omnicare, Inc.:
6.75% Sr. Sub. Nts., 12/15/13 230,000 228,275
6.875% Sr. Sub. Nts., 12/15/15 285,000 282,863
- --------------------------------------------------------------------------------
Psychiatric Solutions, Inc.,
7.75% Sr. Unsec. Sub. Nts.,
7/15/15 220,000 220,550
- --------------------------------------------------------------------------------
Select Medical Corp.,
7.625% Sr. Unsec. Sub. Nts.,
2/1/15 2,250,000 1,878,750
- --------------------------------------------------------------------------------
Tenet Healthcare Corp.:
6.375% Sr. Nts., 12/1/11 1,282,000 1,179,440
7.375% Nts., 2/1/13 119,000 109,926
9.875% Sr. Nts., 7/1/14 1,932,000 1,975,470
- --------------------------------------------------------------------------------
Triad Hospitals, Inc.,
7% Sr. Sub. Nts., 11/15/13 465,000 470,231
- --------------------------------------------------------------------------------
US Oncology, Inc.:
9% Sr. Unsec. Nts., 8/15/12 2 300,000 318,000
10.75% Sr. Unsec. Sub. Nts.,
8/15/14 300,000 333,000
- --------------------------------------------------------------------------------
Vanguard Health
Holding Co. I LLC,
0%/11.25% Sr. Disc. Nts., 10/1/15 15 2,000,000 1,550,000
----------------
19,327,732

- --------------------------------------------------------------------------------
PHARMACEUTICALS--0.0%
Valeant Pharmaceuticals
International, Inc.,
7% Sr. Nts., 12/15/11 2 350,000 337,750
- --------------------------------------------------------------------------------
INDUSTRIALS--2.0%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.3%
Alliant Techsystems, Inc.,
6.75% Sr. Sub. Nts., 4/1/16 1,335,000 1,338,338
- --------------------------------------------------------------------------------
BE Aerospace, Inc.,
8.875% Sr. Unsec. Sub. Nts.,
5/1/11 219,000 227,760
- --------------------------------------------------------------------------------
Bombardier, Inc.,
8% Sr. Nts., 11/15/14 2 400,000 411,720
- --------------------------------------------------------------------------------
DRS Technologies, Inc.:
6.625% Sr. Nts., 2/1/16 970,000 982,125
7.625% Sr. Sub. Nts., 2/1/18 205,000 212,175
- --------------------------------------------------------------------------------
L-3 Communications Corp.:
5.875% Sr. Sub. Nts., 1/15/15 583,000 565,510
6.125% Sr. Unsec. Sub. Nts., 1/15/14 400,000 393,000
6.375% Sr. Unsec. Sub. Nts.,
Series B, 10/15/15 515,000 512,425

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE Continued
L-3 Communications Corp.:
Continued
7.625% Sr. Sub. Nts., 6/15/12 $ 500,000 $ 520,000
- --------------------------------------------------------------------------------
TRW Automotive, Inc.:
9.375% Sr. Nts., 2/15/13 223,000 240,283
11% Sr. Sub. Nts., 2/15/13 194,000 213,643
----------------
5,616,979

- --------------------------------------------------------------------------------
AIRLINES--0.0%
ATA Holdings Corp.,
13% Sr. Unsec. Nts., 2/1/09 2,4,18 735,000 --
- --------------------------------------------------------------------------------
BUILDING PRODUCTS--0.2%
Associated Materials, Inc.,
9.75% Sr. Sub. Nts., 4/15/12 200,000 207,000
- --------------------------------------------------------------------------------
Dayton Superior Corp.,
13% Sr. Unsec. Sub. Nts.,
6/15/09 200,000 206,000
- --------------------------------------------------------------------------------
Goodman Global
Holding Co., Inc.,
7.875% Sr. Unsec. Sub. Nts.,
12/15/12 770,000 760,375
- --------------------------------------------------------------------------------
Jacuzzi Brands, Inc.,
9.625% Sr. Sec. Nts., 7/1/10 1,011,000 1,079,243
- --------------------------------------------------------------------------------
Nortek, Inc.,
8.50% Sr. Unsec. Unsub. Nts.,
9/1/14 1,250,000 1,231,250
----------------
3,483,868

- --------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--0.2%
Allied Waste North America, Inc.:
7.25% Sr. Nts., 3/15/15 180,000 181,125
7.375% Sr. Sec. Nts.,
Series B, 4/15/14 1,300,000 1,300,000
9.25% Sr. Sec. Debs.,
Series B, 9/1/12 434,000 463,295
- --------------------------------------------------------------------------------
Cenveo Corp.,
7.875% Sr. Sub. Nts., 12/1/13 1,500,000 1,447,500
- --------------------------------------------------------------------------------
Corrections Corp. of America:
6.25% Sr. Unsec. Sub. Nts., 3/15/13 460,000 458,275
7.50% Sr. Nts., 5/1/11 200,000 207,000
- --------------------------------------------------------------------------------
FTI Consulting, Inc.,
7.75% Sr. Unsec. Nts., 10/1/16 3 535,000 557,738
- --------------------------------------------------------------------------------
Mobile Services Group, Inc.,
9.75% Sr. Nts., 8/1/14 3 120,000 126,000
- --------------------------------------------------------------------------------
MSW Energy Holdings II
LLC/MSW Energy Finance
Co. II, Inc.,
7.375% Sr. Sec. Nts.,
Series B, 9/1/10 350,000 358,750
- --------------------------------------------------------------------------------
MSW Energy Holdings
LLC/MSW Energy
Finance Co., Inc.,
8.50% Sr. Sec. Nts., 9/1/10 200,000 209,000
----------------
5,308,683

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING--0.4%
IIRSA Norte Finance Ltd.,
8.75% Sr. Nts., 5/30/24 2 $ 6,797,719 $ 8,004,314
- --------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.1%
Belden & Blake Corp.,
8.75% Sec. Nts., 7/15/12 325,000 334,750
- --------------------------------------------------------------------------------
Eletropaulo Metropolitana SA,
19.125% Nts., 6/28/10 2 [BRR] 1,115,000 592,336
- --------------------------------------------------------------------------------
General Cable Corp.,
9.50% Sr. Nts., 11/15/10 600,000 639,000
- --------------------------------------------------------------------------------
UCAR Finance, Inc.,
10.25% Sr. Nts., 2/15/12 300,000 317,625
----------------
1,883,711

- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--0.1%
Covalence Specialty
Materials Corp.,
10.25% Sr. Sub. Nts., 3/1/16 3 1,280,000 1,177,600
- --------------------------------------------------------------------------------
Great Lakes Dredge
& Dock Co.,
7.75% Sr. Unsec. Sub. Nts.,
12/15/13 120,000 117,600
----------------
1,295,200

- --------------------------------------------------------------------------------
MACHINERY--0.2%
Case New Holland, Inc.:
7.125% Sr. Unsec. Nts., 3/1/14 500,000 510,000
9.25% Sr. Nts., 8/1/11 200,000 212,750
- --------------------------------------------------------------------------------
Douglas Dynamics LLC,
7.75% Sr. Nts., 1/15/12 3 700,000 661,500
- --------------------------------------------------------------------------------
Greenbrier Cos., Inc.,
8.375% Sr. Unsec. Nts., 5/15/15 380,000 388,550
- --------------------------------------------------------------------------------
Manitowoc Co., Inc. (The),
10.50% Sr. Sub. Nts., 8/1/12 325,000 350,594
- --------------------------------------------------------------------------------
Milacron Escrow Corp.,
11.50% Sr. Sec. Nts., 5/15/11 2 700,000 668,500
- --------------------------------------------------------------------------------
Trinity Industries, Inc.,
6.50% Sr. Nts., 3/15/14 300,000 296,250
- --------------------------------------------------------------------------------
Wolverine Tube, Inc.,
7.375% Sr. Nts., 8/1/08 3 950,000 755,250
----------------
3,843,394

- --------------------------------------------------------------------------------
ROAD & RAIL--0.2%
Avis Budget Car Rental
LLC/Avis Budget Finance, Inc.:
7.75% Sr. Nts., 5/15/16 3 335,000 324,113
7.874% Sr. Nts., 5/15/14 1,3 135,000 130,950
- --------------------------------------------------------------------------------
Hertz Corp.:
8.875% Sr. Nts., 1/1/14 3 610,000 642,025
10.50% Sr. Sub. Nts., 1/1/16 3 1,135,000 1,254,175
- --------------------------------------------------------------------------------
Kansas City Southern
Railway Co. (The),
7.50% Sr. Nts., 6/15/09 400,000 405,500

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ROAD & RAIL Continued
Stena AB:
7% Sr. Unsec. Nts., 12/1/16 2 $ 150,000 $ 143,250
7.50% Sr. Unsec. Nts., 11/1/13 387,000 384,098
9.625% Sr. Nts., 12/1/12 2 750,000 802,500
- --------------------------------------------------------------------------------
TDS Investor Corp.,
11.875% Sr. Sub. Nts., 9/1/16 3 1,000,000 1,030,000
----------------
5,116,611

- --------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS--0.3%
Ashtead Capital, Inc.,
9% Nts., 8/15/16 3 385,000 413,875
- --------------------------------------------------------------------------------
H&E Equipment Services, Inc.,
8.375% Sr. Unsec. Nts., 7/15/16 420,000 442,050
- --------------------------------------------------------------------------------
Interline Brands, Inc.,
8.125% Sr. Sub. Nts., 6/15/14 570,000 588,525
- --------------------------------------------------------------------------------
United Rentals, Inc.,
7% Sr. Sub. Nts., 2/15/14 4,000,000 3,945,000
----------------
5,389,450

- --------------------------------------------------------------------------------
TRANSPORTATION INFRASTRUCTURE--0.0%
Horizon Lines LLC,
9% Nts., 11/1/12 236,000 248,980
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--1.2%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.2%
Loral Skynet Corp.,
14% Sr. Sec. Nts., 11/21/15 2,16 116,000 133,690
- --------------------------------------------------------------------------------
Lucent Technologies, Inc.,
6.45% Unsec. Debs., 3/15/29 3,160,000 2,930,900
- --------------------------------------------------------------------------------
Nortel Networks Ltd.,
9.624% Sr. Nts., 7/15/11 1,3 383,000 405,501
- --------------------------------------------------------------------------------
Orion Network Systems, Inc.,
12.50% Sr. Unsub. Disc. Nts.,
1/15/07 4,18 675,000 7
----------------
3,470,098

- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.0%
Seagate Technology
HDD Holdings:
6.375% Sr. Nts., 10/1/11 750,000 753,750
6.80% Sr. Nts., 10/1/16 225,000 227,250
----------------
981,000

- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.2%
Flextronics International Ltd.,
6.25% Sr. Sub. Nts., 11/15/14 2,021,000 1,960,370
- --------------------------------------------------------------------------------
RBS Global & Rexnord Corp.:
9.50% Sr. Nts., 8/1/14 3 585,000 611,325
11.75% Sr. Sub. Nts., 8/1/16 3 930,000 976,500
- --------------------------------------------------------------------------------
Sanmina-SCI Corp.:
6.75% Unsec. Sub. Nts., 3/1/13 380,000 351,500
8.125% Sr. Sub. Nts., 3/1/16 745,000 724,513

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS
Continued
Solectron Global Finance Ltd.,
8% Sr. Unsec. Sub. Nts., 3/15/16 $ 425,000 $ 432,438
----------------
5,056,646

- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--0.0%
Exodus Communications, Inc.,
10.75% Sr. Nts., 12/15/09 2,4,18 [EUR] 338,620 --
- --------------------------------------------------------------------------------
NorthPoint Communications
Group, Inc.,
12.875% Nts., 2/15/10 2,4,18 200,173 --
- --------------------------------------------------------------------------------
PSINet, Inc., 10.50% Sr.
Unsec. Nts., 12/1/06 2,4,18 [EUR] 100,000 --
----------------
--

- --------------------------------------------------------------------------------
IT SERVICES--0.3%
DI Finance/DynCorp
International LLC,
9.50% Sr. Unsec. Sub. Nts.,
Series B, 2/15/13 607,000 646,455
- --------------------------------------------------------------------------------
iPayment Holdings, Inc.,
9.75% Sr. Unsec. Sub. Nts.,
5/15/14 415,000 428,488
- --------------------------------------------------------------------------------
Iron Mountain, Inc.,
7.75% Sr. Sub. Nts., 1/15/15 400,000 410,000
- --------------------------------------------------------------------------------
SunGard Data Systems, Inc.:
9.125% Sr. Unsec. Nts., 8/15/13 1,535,000 1,619,425
10.25% Sr. Unsec. Sub. Nts.,
8/15/15 2,035,000 2,182,538
----------------
5,286,906

- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--0.5%
Advanced Micro Devices, Inc.,
7.75% Sr. Unsec. Nts., 11/1/12 1,758,000 1,828,320
- --------------------------------------------------------------------------------
Amkor Technology, Inc.:
7.75% Sr. Nts., 5/15/13 2,050,000 1,893,688
9.25% Sr. Unsec. Nts., 6/1/16 300,000 295,500
- --------------------------------------------------------------------------------
Conexant Systems, Inc.,
9.126% Sr. Sec. Nts., 11/15/10 1,2 400,000 408,000
- --------------------------------------------------------------------------------
Freescale Semiconductor, Inc.:
8.875% Sr. Nts., 12/15/14 3 1,215,000 1,216,519
9.125% Sr. Nts., 12/15/14 3 2,025,000 2,022,469
10.125% Sr. Sub. Nts., 12/15/16 3 1,620,000 1,630,125
- --------------------------------------------------------------------------------
NXP BV,
7.875% Sr. Sec. Bonds, 10/15/14 3 385,000 399,919
----------------
9,694,540

- --------------------------------------------------------------------------------
MATERIALS--2.9%
- --------------------------------------------------------------------------------
CHEMICALS--0.5%
BCP Crystal US Holdings Corp.,
9.625% Sr. Sub. Nts., 6/15/14 813,000 902,430

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
CHEMICALS Continued
Crystal US Holdings 3
LLC/Crystal US Sub 3 Corp.,
0%/10.50% Sr. Unsec. Disc. Nts.,
Series B, 10/1/14 15 $ 570,000 $ 493,050
- --------------------------------------------------------------------------------
Equistar Chemicals
LP/Equistar Funding Corp.:
8.75% Sr. Unsec. Nts., 2/15/09 550,000 578,875
10.125% Sr. Unsec. Nts., 9/1/08 19,000 20,283
10.625% Sr. Unsec. Nts., 5/1/11 600,000 642,000
- --------------------------------------------------------------------------------
Georgia Gulf Corp.,
10.75% Sr. Sub. Nts., 10/15/16 1,220,000 1,177,300
- --------------------------------------------------------------------------------
Huntsman International LLC:
7.875% Sr. Unsec. Sub. Nts.,
11/13/14 3 375,000 379,688
8.375% Sr. Sub. Nts., 1/1/15 1,3 790,000 788,025
- --------------------------------------------------------------------------------
Huntsman LLC:
11.50% Sr. Unsec. Nts., 7/15/12 1 198,000 224,235
11.625% Sr. Unsec. Nts., 10/15/10 13,000 14,268
- --------------------------------------------------------------------------------
Ineos Group Holdings plc,
8.50% Nts., 2/15/16 3 1,230,000 1,180,800
- --------------------------------------------------------------------------------
Innophos, Inc.,
8.875% Sr. Unsec. Sub. Nts.,
8/15/14 250,000 255,000
- --------------------------------------------------------------------------------
KI Holdings, Inc.,
0%/9.875% Sr. Unsec.
Sub. Disc. Nts., 11/15/14 15 350,000 281,750
- --------------------------------------------------------------------------------
Lyondell Chemical Co.:
8% Sr. Unsec. Nts., 9/15/14 1,125,000 1,172,813
8.25% Sr. Unsec. Nts., 9/15/16 600,000 633,000
10.50% Sr. Sec. Nts., 6/1/13 600,000 663,000
- --------------------------------------------------------------------------------
Mosaic Global Holdings, Inc.:
7.375% Sr. Nts., 12/1/14 3 325,000 335,156
7.625% Sr. Nts., 12/1/16 3 325,000 338,406
- --------------------------------------------------------------------------------
Rockwood Specialties
Group, Inc.,
7.50% Sr. Sub. Nts., 11/15/14 200,000 202,500
- --------------------------------------------------------------------------------
Tronox Worldwide
LLC/Tronox Finance Corp.,
9.50% Sr. Unsec. Nts., 12/1/12 237,000 250,628
----------------
10,533,207

- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--0.3%
C10 Capital SPV Ltd.,
6.722% Unsec. Perpetual Debs. 2,17 5,470,000 5,453,371
- --------------------------------------------------------------------------------
NTK Holdings, Inc.,
0%/10.75% Sr. Disc. Nts., 3/1/14 15 1,225,000 863,625
----------------
6,316,996

- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING--0.8%
Ball Corp., 6.625% Sr. Nts., 3/15/18 1,035,000 1,032,413
- --------------------------------------------------------------------------------
Crown Americas, Inc.,
7.75% Sr. Nts., 11/15/15 1,435,000 1,495,988

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
CONTAINERS & PACKAGING Continued
Graham Packaging Co., Inc.:
8.50% Sr. Unsec. Nts., 10/15/12 $ 200,000 $ 203,000
9.875% Sr. Unsec. Sub. Nts.,
10/15/14 1,800,000 1,827,000
- --------------------------------------------------------------------------------
Graphic Packaging
International Corp.:
8.50% Sr. Nts., 8/15/11 800,000 832,000
9.50% Sr. Sub. Nts., 8/15/13 1,050,000 1,113,000
- --------------------------------------------------------------------------------
Jefferson Smurfit Corp.:
7.50% Sr. Unsec. Unsub. Nts.,
6/1/13 300,000 283,500
8.25% Sr. Unsec. Nts., 10/1/12 1,450,000 1,421,000
- --------------------------------------------------------------------------------
MDP Acquisitions plc,
9.625% Sr. Nts., 10/1/12 400,000 426,000
- --------------------------------------------------------------------------------
Owens-Brockway
Glass Container, Inc.:
7.75% Sr. Sec. Nts., 5/15/11 450,000 464,625
8.25% Sr. Unsec. Nts., 5/15/13 1,719,000 1,785,611
8.75% Sr. Sec. Nts., 11/15/12 928,000 988,320
8.875% Sr. Sec. Nts., 2/15/09 176,000 180,840
- --------------------------------------------------------------------------------
Pliant Corp.,
11.85% Sr. Sec. Nts., 6/15/09 4,16 403,615 442,463
- --------------------------------------------------------------------------------
Solo Cup Co.,
8.50% Sr. Sub. Nts., 2/15/14 1,675,000 1,457,250
- --------------------------------------------------------------------------------
Stone Container Corp.:
8.375% Sr. Nts., 7/1/12 470,000 462,950
9.75% Sr. Unsec. Nts., 2/1/11 516,000 534,705
- --------------------------------------------------------------------------------
Tekni-Plex, Inc.,
10.875% Sr. Sec. Nts., 8/15/12 3 125,000 141,250
- --------------------------------------------------------------------------------
TriMas Corp.,
9.875% Sr. Unsec. Sub. Nts., 6/15/12 1,300,000 1,264,250
----------------
16,356,165

- --------------------------------------------------------------------------------
METALS & MINING--1.0%
AK Steel Corp.:
7.75% Sr. Unsec. Nts., 6/15/12 1,019,000 1,031,738
7.875% Sr. Unsec. Nts., 2/15/09 100,000 100,500
- --------------------------------------------------------------------------------
Alrosa Finance SA:
8.875% Nts., 11/17/14 3 11,230,000 13,040,838
8.875% Nts., 11/17/14 1,215,000 1,410,919
- --------------------------------------------------------------------------------
Century Aluminum Co.,
7.50% Sr. Unsec. Nts., 8/15/14 600,000 611,250
- --------------------------------------------------------------------------------
Gibraltar Industries, Inc.,
8% Sr. Unsec. Sub. Nts.,
Series B, 12/1/15 2 635,000 629,444
- --------------------------------------------------------------------------------
International Utility
Structures, Inc.,
13% Unsec. Sub. Nts., 2/1/08 2,4,18 71,000 --
- --------------------------------------------------------------------------------
Ispat Inland ULC,
9.75% Sr. Sec. Nts., 4/1/14 585,000 654,602
- --------------------------------------------------------------------------------
Koppers Industry, Inc.,
9.875% Sr. Sec. Nts., 10/15/13 204,000 222,870
- --------------------------------------------------------------------------------
Novelis, Inc.,
8.25% Sr. Nts., 2/15/15 1,3 1,575,000 1,531,688

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
METALS & MINING Continued
Steel Dynamics, Inc.,
9.50% Sr. Nts., 3/15/09 $ 200,000 $ 206,250
- --------------------------------------------------------------------------------
United States Steel Corp.,
9.75% Sr. Nts., 5/15/10 336,000 359,100
----------------
19,799,199

- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.3%
Abitibi-Consolidated Co.
of Canada,
8.375% Sr. Unsec. Sub. Nts.,
4/1/15 1,000,000 870,000
- --------------------------------------------------------------------------------
Abitibi-Consolidated, Inc.:
8.55% Nts., 8/1/10 600,000 573,000
8.85% Unsec. Bonds, 8/1/30 400,000 330,000
- --------------------------------------------------------------------------------
Appleton Papers, Inc.,
8.125% Sr. Nts., 6/15/11 190,000 194,750
- --------------------------------------------------------------------------------
Buckeye Technologies, Inc.,
8.50% Sr. Nts., 10/1/13 100,000 106,000
- --------------------------------------------------------------------------------
Catalyst Paper Corp.,
8.625% Sr. Unsec. Nts.,
Series D, 6/15/11 500,000 508,750
- --------------------------------------------------------------------------------
Domtar, Inc., 7.125% Nts.,
8/15/15 500,000 492,500
- --------------------------------------------------------------------------------
JSG Holding plc,
11.50% Sr. Nts., 10/1/15 2,16 [EUR] 168,790 232,837
- --------------------------------------------------------------------------------
Mercer International, Inc.,
9.25% Sr. Nts., 2/15/13 225,000 221,063
- --------------------------------------------------------------------------------
Norske Skog Canada Ltd.,
7.375% Sr. Unsec. Nts., 3/1/14 700,000 666,750
- --------------------------------------------------------------------------------
Verso Paper Holdings LLC/Verson Paper, Inc.:
9.121% Sr. Sec. Nts., 8/1/14 1,3 460,000 469,200
11.375% Sr. Sub. Nts., 8/1/16 3 460,000 485,300
----------------
5,150,150

- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--2.1%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.2%
Citizens Communications Co.,
6.25% Sr. Nts., 1/15/13 3 3,200,000 3,156,000
- --------------------------------------------------------------------------------
Intelsat Bermuda Ltd.,
11.25% Sr. Nts., 6/15/16 3 530,000 584,325
- --------------------------------------------------------------------------------
Intelsat Subsidiary Holding Co. Ltd.:
8.25% Sr. Nts., 1/15/13 1 1,000,000 1,020,000
8.625% Sr. Nts., 1/15/15 815,000 851,675
- --------------------------------------------------------------------------------
Level 3 Financing, Inc.,
9.25% Sr. Nts., 11/1/14 3 1,605,000 1,645,125
- --------------------------------------------------------------------------------
Nordic Telephone Co.
Holdings ApS,
8.875% Sr. Nts., 5/1/16 3 345,000 370,875
- --------------------------------------------------------------------------------
PanAmSat Corp.:
9% Sr. Nts., 6/15/16 3 900,000 957,375
9% Sr. Unsec. Nts., 8/15/14 1,350,000 1,432,688
- --------------------------------------------------------------------------------
Qwest Capital Funding, Inc.:
7.25% Unsec. Unsub. Nts., 2/15/11 2,100,000 2,155,125

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES
Continued
Qwest Capital Funding, Inc.:
Continued
7.90% Unsec. Nts., 8/15/10 $ 1,719,000 $ 1,798,504
- --------------------------------------------------------------------------------
Qwest Communications
International, Inc.,
7.25% Sr. Unsec. Sub. Nts.,
2/15/11 1 300,000 308,250
- --------------------------------------------------------------------------------
Qwest Corp.:
7.50% Sr. Unsec. Nts., 10/1/14 765,000 814,725
8.875% Unsec. Unsub. Nts.,
3/15/12 1 2,300,000 2,573,125
- --------------------------------------------------------------------------------
Telefonica del Peru SA,
8% Sr. Unsec. Bonds,
4/11/16 2 [PEN] 3,290,100 1,134,804
- --------------------------------------------------------------------------------
Teligent, Inc.,
11.50% Sr. Nts., 12/1/07 2,4,18 500,000 --
- --------------------------------------------------------------------------------
Time Warner Telecom
Holdings, Inc.,
9.25% Sr. Unsec. Unsub. Nts.,
2/15/14 1,700,000 1,825,375
- --------------------------------------------------------------------------------
Valor Telecommunications
Enterprises LLC,
7.75% Sr. Unsec. Sub. Nts.,
2/15/15 225,000 243,281
- --------------------------------------------------------------------------------
West Corp.:
9.50% Sr. Nts., 10/15/14 3 1,080,000 1,085,400
11% Sr. Sub. Nts., 10/15/16 3 470,000 477,050
- --------------------------------------------------------------------------------
Windstream Corp.:
8.125% Sr. Nts., 8/1/13 3 575,000 625,313
8.625% Sr. Nts., 8/1/16 3 875,000 962,500
- --------------------------------------------------------------------------------
Winstar Communications, Inc.,
12.75% Sr. Nts., 4/15/10 2,4,18 250,000 --
----------------
24,021,515

- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--0.9%
Alamosa Delaware, Inc.:
8.50% Sr. Nts., 1/31/12 2 700,000 742,088
11% Sr. Unsec. Nts., 7/31/10 2 19,000 20,534
- --------------------------------------------------------------------------------
American Cellular Corp.,
10% Sr. Nts., Series B, 8/1/11 1,120,000 1,190,000
- --------------------------------------------------------------------------------
American Tower Corp.:
7.125% Sr. Unsec. Nts., 10/15/12 250,000 258,125
7.50% Sr. Nts., 5/1/12 400,000 416,000
- --------------------------------------------------------------------------------
CellNet Data Systems, Inc.,
Sr. Unsec. Disc. Nts., 10/1/07 2,4,18 400,000 --
- --------------------------------------------------------------------------------
Centennial Cellular
Operating Co. LLC/Centennial
Communications Corp.,
10.125% Sr. Nts., 6/15/13 2,014,000 2,180,155
- --------------------------------------------------------------------------------
Centennial Communications
Corp., 10% Sr. Unsec. Nts., 1/1/13 200,000 213,750
- --------------------------------------------------------------------------------
Cricket Communications,
Inc., 9.375% Sr. Nts., 11/1/14 3 935,000 991,100

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES
Continued
Dobson Cellular Systems, Inc.,
8.375% Sr. Sec. Nts., 11/1/11 $ 280,000 $ 296,450
- --------------------------------------------------------------------------------
Dobson Communications Corp.:
8.875% Sr. Nts., 10/1/13 859,000 879,401
9.624% Sr. Unsec. Nts., 10/15/12 1 145,000 148,625
- --------------------------------------------------------------------------------
IWO Holdings, Inc.,
9.124% Sr. Sec. Nts., 1/15/12 1 110,000 112,750
- --------------------------------------------------------------------------------
Nextel Communications, Inc.,
7.375% Sr. Nts., Series D, 8/1/15 3,378,000 3,467,216
- --------------------------------------------------------------------------------
Nextel Partners, Inc.,
8.125% Sr. Nts., 7/1/11 500,000 523,125
- --------------------------------------------------------------------------------
Rogers Wireless, Inc.:
7.50% Sec. Nts., 3/15/15 882,000 961,380
8% Sr. Sub. Nts., 12/15/12 800,000 858,000
- --------------------------------------------------------------------------------
Rural Cellular Corp.:
9.75% Sr. Sub. Nts., 1/15/10 2,419,000 2,497,618
9.875% Sr. Nts., 2/1/10 1,400,000 1,496,250
- --------------------------------------------------------------------------------
UbiquiTel Operating Co.,
9.875% Sr. Nts., 3/1/11 600,000 651,000
- --------------------------------------------------------------------------------
US Unwired, Inc.,
10% Sr. Sec. Nts., 6/15/12 250,000 276,250
----------------
18,179,817

- --------------------------------------------------------------------------------
UTILITIES--1.9%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.9%
Edison Mission Energy:
7.50% Sr. Unsec. Nts., 6/15/13 360,000 378,000
7.75% Sr. Unsec. Nts., 6/15/16 500,000 532,500
- --------------------------------------------------------------------------------
Majapahit Holding BV:
7.25% Nts., 10/17/11 3 1,990,000 2,052,188
7.75% Nts., 10/17/16 3 1,835,000 1,951,981
- --------------------------------------------------------------------------------
Midwest Generation LLC,
8.75% Sr. Sec. Nts., 5/1/34 2,535,000 2,763,150
- --------------------------------------------------------------------------------
Mirant Americas Generation
LLC, Escrow Shares, 5/1/07 2 200,000 --
- --------------------------------------------------------------------------------
National Power Corp.:
5.875% Unsec. Unsub. Bonds,
12/19/16 [PHP] 109,600,000 2,281,155
6.875% Nts., 11/2/16 3 1,324,000 1,348,129
9.625% Unsec. Bonds, 5/15/28 2,270,000 2,761,192
- --------------------------------------------------------------------------------
Reliant Energy, Inc.:
6.75% Sr. Sec. Nts., 12/15/14 200,000 196,500
9.25% Sr. Sec. Nts., 7/15/10 769,000 811,295
9.50% Sr. Sec. Nts., 7/15/13 690,000 743,475
- --------------------------------------------------------------------------------
Sierra Pacific Resources,
6.75% Sr. Unsec. Nts., 8/15/17 1,777,000 1,751,784
----------------
17,571,349

- --------------------------------------------------------------------------------
ENERGY TRADERS--1.0%
AES Corp. (The),
8.75% Sr. Sec. Nts., 5/15/13 3 2,000,000 2,152,500

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
ENERGY TRADERS Continued
Aes Dominicana Energia
Finance SA,
11% Sr. Nts., 12/13/15 2 $ 2,313,000 $ 2,440,215
- --------------------------------------------------------------------------------
AES Panama SA,
6.35% Sr. Nts., 12/21/16 2 1,100,000 1,079,309
- --------------------------------------------------------------------------------
AES Red Oak LLC,
8.54% Sr. Sec. Bonds,
Series A, 11/30/19 406,525 444,129
- --------------------------------------------------------------------------------
Dynegy Holdings, Inc.:
6.875% Sr. Unsec. Unsub. Nts.,
4/1/11 621,000 624,105
8.375% Sr. Unsec. Nts., 5/1/16 1,360,000 1,434,800
8.75% Sr. Nts., 2/15/12 292,000 310,980
- --------------------------------------------------------------------------------
Mirant Americas
Generation LLC:
8.30% Sr. Unsec. Nts., 5/1/11 3,700,000 3,811,000
9.125% Sr. Unsec. Nts., 5/1/31 500,000 532,500
- --------------------------------------------------------------------------------
Mirant Mid-Atlantic LLC,
8.625% Sec. Pass-Through
Certificates,
Series A, 6/30/12 701,211 741,969
- --------------------------------------------------------------------------------
NRG Energy, Inc.:
7.375% Sr. Nts., 1/15/17 2,000,000 2,010,000
7.375% Sr. Nts., 2/1/16 3,615,000 3,642,113
----------------
19,223,620

- --------------------------------------------------------------------------------
GAS UTILITIES--0.0%
SEMCO Energy, Inc.,
7.125% Sr. Nts., 5/15/08 150,000 150,599
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.0%
CMS Energy Corp.:
7.50% Sr. Nts., 1/15/09 19,000 19,689
7.75% Sr. Nts., 8/1/10 200,000 212,000
8.50% Sr. Nts., 4/15/11 250,000 273,125
- --------------------------------------------------------------------------------
NorthWestern Corp.,
5.875% Sr. Sec. Nts., 11/1/14 90,000 88,514
----------------
593,328
----------------

Total Corporate Bonds
and Notes
(Cost $480,573,408) 488,014,872

SHARES
- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.1%
- --------------------------------------------------------------------------------
AmeriKing, Inc., 13% Cum. Sr.
Exchangeable, Non-Vtg. 2,16 4,253 --
- --------------------------------------------------------------------------------
Dobson Communications Corp.,
6% Cv., Series F (converts into
Dobson Communications Corp.,
Cl. A common stock), Non-Vtg. 3 608 116,356
- --------------------------------------------------------------------------------
Eagle-Picher Holdings, Inc.,
11.75% Cum. Exchangeable,
Series B, Non-Vtg. 2,18 5,000 --
- --------------------------------------------------------------------------------
ICG Holdings, Inc., 14.25%
Exchangeable, Non-Vtg. 2,16,18 151 --

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
PREFERRED STOCKS Continued
- --------------------------------------------------------------------------------
ION Media Networks, Inc.:
14.25% Cum., Non-Vtg. 2,16 124 $ 922,508
9.75% Cv., Series AI 2,16,18 1 6,109
- --------------------------------------------------------------------------------
Loral Skynet Corp.,
12% Cum., Series A, Non-Vtg. 2,16 1,027 212,589
- --------------------------------------------------------------------------------
Pennsylvania Real Estate
Investment Trust, 11% 2,000 108,600
- --------------------------------------------------------------------------------
PTV, Inc., 10% Cum.,
Series A, Non-Vtg. 7 26
- --------------------------------------------------------------------------------
Rural Cellular Corp.,
11.375% Cum.,
Series B, Non-Vtg. 2,16 228 285,570
- --------------------------------------------------------------------------------
Sovereign Real Estate
Investment Trust,
12% Non-Cum., Series A 2 4,600 716,450
----------------
Total Preferred Stocks (Cost $2,501,291) 2,368,208

- -------------------------------------------------------------------------------
COMMON STOCKS--0.2%
- --------------------------------------------------------------------------------
American Tower Corp. 18 11,276 420,369
- --------------------------------------------------------------------------------
ATA Holdings Corp. 2,18 2,168 32,520
- --------------------------------------------------------------------------------
Beverly Hills Bancorp, Inc. 6,273 52,003
- --------------------------------------------------------------------------------
Cebridge Connections
Holding LLC 2,18 3,734 --
- --------------------------------------------------------------------------------
Charles River Laboratories
International, Inc. 18 2,660 115,045
- --------------------------------------------------------------------------------
Chesapeake Energy Corp. 91 2,644
- --------------------------------------------------------------------------------
Citigroup, Inc. 55 3,064
- --------------------------------------------------------------------------------
Covad Communications
Group, Inc. 18 16,528 22,809
- --------------------------------------------------------------------------------
Dobson Communications
Corp., Cl. A 18 24,300 211,653
- --------------------------------------------------------------------------------
El Paso Corp. 25,800 394,224
- --------------------------------------------------------------------------------
Globix Corp. 18 6,880 29,928
- --------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 1,940 386,739
- --------------------------------------------------------------------------------
ICO Global Communication
Holdings Ltd. 18 6,016 27,493
- --------------------------------------------------------------------------------
Idearc, Inc. 18 46 1,318
- --------------------------------------------------------------------------------
iPCS, Inc. 18 8,733 483,459
- --------------------------------------------------------------------------------
Kaiser Aluminum Corp. 18 1,472 82,403
- --------------------------------------------------------------------------------
Leap Wireless International, Inc. 18 1,714 101,932
- --------------------------------------------------------------------------------
Liberty Global, Inc., Series A 18 3,059 89,170
- --------------------------------------------------------------------------------
Liberty Global, Inc., Series C 18 3,102 86,856
- --------------------------------------------------------------------------------
Loral Space &
Communications Ltd. 18 7,277 296,319
- --------------------------------------------------------------------------------
Mirant Corp. 18 1,133 35,769
- --------------------------------------------------------------------------------
NTL, Inc. 28,755 725,776
- --------------------------------------------------------------------------------
Orbital Sciences Corp. 18 745 13,738
- --------------------------------------------------------------------------------
Prandium, Inc. 2,18 24,165 242
- --------------------------------------------------------------------------------
Premier Holdings Ltd. 2,18 18,514 --

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS Continued
- --------------------------------------------------------------------------------
Star Gas Partners LP 18 187 $ 658
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. 2,18 720 9,180
- --------------------------------------------------------------------------------
TVMAX Holdings, Inc. 2,18 1,000 1,000
- --------------------------------------------------------------------------------
Verizon Communications, Inc. 935 34,819
- --------------------------------------------------------------------------------
Viatel Holding (Bermuda) Ltd. 2,18 2,251 11
- --------------------------------------------------------------------------------
Western Forest Products, Inc. 9,18 38,252 62,980
- --------------------------------------------------------------------------------
WRC Media Corp. 2,18 1,082 11
- --------------------------------------------------------------------------------
XO Holdings, Inc. 18 1,469 6,317
----------------
Total Common Stocks (Cost $3,325,250) 3,730,449

UNITS
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- --------------------------------------------------------------------------------
ATA Holdings Corp. Wts.,
Exp. 2/28/11 18 266 1,952
- --------------------------------------------------------------------------------
COLO.com, Inc. Wts.,
Exp. 3/15/10 2,18 400 --
- --------------------------------------------------------------------------------
Concentric Network Corp. Wts.,
Exp. 12/15/07 2,18 100 --
- --------------------------------------------------------------------------------
HF Holdings, Inc. Wts.,
Exp. 9/27/09 2,18 530 --
- --------------------------------------------------------------------------------
iPCS, Inc. Wts., Exp. 6/15/10 2,18 300 --
- --------------------------------------------------------------------------------
Long Distance International,
Inc. Wts., Exp. 4/13/08 2,18 200 --
- --------------------------------------------------------------------------------
Ntelos, Inc. Wts., Exp. 8/15/10 2,18 450 --
- --------------------------------------------------------------------------------
Pathmark Stores, Inc. Wts.,
Exp. 9/19/10 18 5,710 1,428
- --------------------------------------------------------------------------------
Sterling Chemicals, Inc. Wts.,
Exp. 12/19/08 18 1,174 12
- --------------------------------------------------------------------------------
Venezuela (Republic of) Oil
Linked Payment Obligation Wts.,
Exp. 4/15/20 2,18 2,300 76,475
- --------------------------------------------------------------------------------
Verado Holdings, Inc., Cl. B Wts.,
Exp. 4/15/08 18 175 114
- --------------------------------------------------------------------------------
XO Communications, Inc.:
Series A Wts., Exp. 1/16/10 18 2,946 2,062
Series B Wts., Exp. 1/16/10 18 2,209 950
Series C Wts., Exp. 1/16/10 2,18 2,209 486
----------------
Total Rights, Warrants
and Certificates (Cost $34,719) 83,479

PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
STRUCTURED NOTES--13.5%
- --------------------------------------------------------------------------------
Aiolos Ltd. Catastrophe
Linked Nts.,
8.214%, 4/8/09 1,3 [EUR] 800,000 1,042,994
- --------------------------------------------------------------------------------
Atlantic & Western Re Ltd.
Catastrophe Linked Nts.,
Series B, 15.375%, 11/15/10 1 1,550,000 1,485,481

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Barclays Capital, Russia
Federation Credit Linked Nts.,
5.16%, 8/18/08 8 [RUR] 270,000,000 $ 9,396,745
- --------------------------------------------------------------------------------
Calabash Re Ltd. Catastrophe
Linked Nts., Cl. A-1,
13.87%, 6/1/09 1,2 1,750,000 1,773,800
- --------------------------------------------------------------------------------
Cascadia Ltd. Catastrophe
Linked Nts.:
8.475%, 6/13/08 1,3 500,000 493,425
9.37%, 8/31/09 1 1,130,000 1,123,333
- --------------------------------------------------------------------------------
Cat-Mex Ltd. Catastrophe
Linked Nts., Cl. A,
7.726%, 5/19/09 1,2 1,950,000 1,951,853
- --------------------------------------------------------------------------------
Champlain Ltd. Catastrophe
Linked Nts., Series A,
18.12%, 1/7/09 1 940,000 931,564
- --------------------------------------------------------------------------------
Citigroup Global Markets
Holdings, Inc.:
Argentina (Republic of) Credit
Linked Nts.,
4%, 5/22/08 13 [ARP] 840,000 753,303
Argentina (Republic of)
Unsec. Credit Linked Nts.,
4%, 4/16/10 13 [ARP] 2,081,178 1,158,297
Brazil (Federal Republic of)
Credit Linked Nts.,
10%, 1/5/10 [BRR] 10,670,000 4,695,699
Brazil (Federal Republic of)
Unsec. Credit Linked Nts.,
10%, 1/5/10 [BRR] 2,927,000 1,353,859
Brazil (Federal Republic of)
Unsec. Credit Linked Nts.,
10%, 1/5/10 [BRR] 4,619,000 2,136,479
Brazil (Federal Republic of)
Unsec. Credit Linked Nts.,
14.809%, 1/5/10 8 [BRR] 2,480,096 815,013
Brazil (Federal Republic of)
Unsec. Credit Linked Nts.,
15.427%, 1/2/09 8 [BRR] 2,231,957 826,665
Brazil (Federal Republic of)
Unsec. Credit Linked Nts.,
15.728%, 1/3/08 8 [BRR] 1,948,615 811,715
Colombia (Republic of) Credit
Linked Bonds,
11%, 7/24/20 [COP] 1,060,000,000 553,653
Colombia (Republic of) Credit
Linked Nts., Series II,
15%, 4/27/12 [COP] 552,359,546 307,333
Colombia (Republic of) Unsec.
Credit Linked Nts., 15%,
4/27/12 [COP] 1,200,000,000 667,679
Colombia (Republic of) Unsec.
Credit Linked Nts.,
15%, 4/27/12 [COP] 1,034,000,000 575,317

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Colombia (Republic of) Unsec.
Credit Linked Nts.,
15%, 4/27/12 [COP] 927,000,000 $ 515,782
Dominican Republic Credit
Linked Nts.,
10.105%, 7/2/07 (linked to
Dominican Republic Treasury
Bills) 6,8 [DOP] 16,200,000 459,896
Dominican Republic
Credit Linked Nts.,
10.705%, 3/5/07 (linked to
Dominican Republic Treasury
Bills) 8 [DOP] 46,250,000 1,357,593
Dominican Republic Credit
Linked Nts.,
14.608%, 5/14/07 (linked to
Dominican Republic Treasury
Bills) 8 [DOP] 18,300,000 526,340
Dominican Republic Credit
Linked Nts., 16.15%, 3/12/07
(linked to Dominican Republic
Treasury Bills) 8 [DOP] 26,500,000 776,280
Dominican Republic Credit
Linked Nts., 17%, 3/12/07 [DOP] 21,900,000 661,773
Dominican Republic Credit
Linked Nts., 22%, 10/3/11 [DOP] 25,600,000 880,012
Dominican Republic Credit
Linked Nts.,
Series II, 15.603%, 4/23/07
(linked to Dominican
Republic Treasury Bills) 8 [DOP] 7,591,000 219,667
Dominican Republic Unsec.
Credit Linked Nts.,
11.648%, 9/24/07 (linked to
Dominican Republic Treasury
Bills) 8 [DOP] 65,700,000 1,806,092
Dominican Republic Unsec.
Credit Linked Nts.,
15.638%, 4/30/07 (linked to
Dominican Republic Treasury
Bills) 8 [DOP] 6,910,000 199,553
Dominican Republic Unsec.
Credit Linked Nts.,
Series II, 15.736%, 4/30/07
(linked to Dominican Republic
Treasury Bills) 8 [DOP] 15,150,000 437,516
Egypt (The Arab Republic of)
Credit Linked Nts.,
8.70%, 7/12/07 (linked to
Egyptian Treasury Bills) 2,8 [EGP] 7,610,000 1,266,168
Egypt (The Arab Republic of)
Credit Linked Nts.,
9.079%, 3/22/07 (linked to
Egyptian Treasury Bills) 2,8 [EGP] 5,200,000 890,972
Egypt (The Arab Republic of)
Unsec. Credit Linked Nts.,
8.50%, 2/16/08 [EGP] 4,450,000 790,540

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Egypt (The Arab Republic of)
Unsec. Credit Linked Nts.,
8.775%, 2/22/07 (linked to
Egyptian Treasury Bills) 2,8 [EGP] 7,350,000 $ 1,268,917
Nigeria (Federal Republic of)
Credit Linked Nts.,
12.474%, 7/22/07 8 [NGN] 219,970,000 1,612,373
Nigeria (Federal Republic of)
Credit Linked Nts.,
14.50%, 3/1/11 [NGN] 347,000,000 2,908,199
Nigeria (Federal Republic of)
Credit Linked Nts.,
Series II, 14.50%, 4/4/11 [NGN] 265,000,000 2,223,901
Rusfinans Bank Unsec. Credit
Linked Nts., 7.48%, 7/2/07 6 [RUR] 50,900,000 1,952,686
Russian Federation Credit
Linked Nts., 5.315%, 1/20/11 10,000,000 10,372,540
Ukraine Hryvnia Unsec.
Credit Linked Nts.,
11.94%, 1/4/10 [UAH] 880,000 189,745
Zambia (Republic of) Credit
Linked Nts.,
10.684%, 2/21/07 (linked to
Zambian Treasury Bills) 8 [ZMK] 3,160,000,000 704,243
Zambia (Republic of) Credit
Linked Nts.,
Series II, 10.745%, 2/21/07
(linked to Zambian
Treasury Bills) 8 [ZMK] 1,290,000,000 287,492
- --------------------------------------------------------------------------------
Credit Suisse First
Boston International:
EESRRU Total Return
Linked Nts., 8.25%, 6/22/10 [RUR] 93,500,000 3,691,981
Indonesia (Republic of)
Total Return Linked Nts.,
12%, 9/16/11 [IDR] 14,800,000,000 1,798,545
OAO Gazprom Credit
Linked Nts., 8.11%, 1/21/07 [RUR] 28,065,000 1,106,332
Rurail Total Return Linked Nts.,
6.67%, 1/22/09 [RUR] 49,210,000 1,871,160
South African Rand Interest
Bearing Linked Nts.,
Series FBi 43, 5.245%, 5/23/22 1 825,000 810,563
Turkey (Republic of) Credit
Linked Nts., Series EMG 59,
21.41%, 7/16/08 8 [TRY] 3,485,000 1,825,621
Ukraine (Republic of) Credit
Linked Nts., Series EMG 13,
11.94%, 12/30/09 [UAH] 2,195,000 483,899
- --------------------------------------------------------------------------------
Credit Suisse First Boston, Inc.
(Nassau Branch):
Turkey (Republic of) Credit
Linked Nts.,
Series 2, 20.853%, 7/16/08 8 [TRY] 6,270,000 3,284,545

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Credit Suisse First Boston, Inc.
(Nassau Branch): Continued
Ukraine (Republic of) Credit
Linked Nts.,
11.94%, 12/30/09 [UAH] 5,650,000 $ 1,245,573
Ukraine (Republic of) Credit
Linked Nts., Series EMG 11,
11.94%, 12/30/09 [UAH] 661,000 145,721
Ukraine (Republic of) Credit
Linked Nts., Series NPC 12,
11.94%, 12/30/09 [UAH] 4,170,000 919,299
- --------------------------------------------------------------------------------
Deutsche Bank AG:
Argentina (Republic of) Credit
Linked Nts., 4%, 12/21/11 [ARP] 2,990,000 2,556,182
Arrendadora Capita Corp. SA
de CV/Capita Corp. (The) de
Mexico SA de CV Credit Linked
Nts., 9.09%, 1/5/11 2 [MXN] 16,172,983 1,498,954
Arrendadora Capita Corp. SA
de CV/Capita Corp. (The) de
Mexico SA de CV Credit Linked
Nts., 9.65%, 1/5/11 2 [MXN] 10,691,738 994,649
Brazil Real Credit Linked Nts.,
13.882%, 3/3/10 8 [BRR] 4,580,760 1,790,066
Brazil Real Credit Linked Nts.,
6%, 8/18/10 [BRR] 2,065,000 1,468,214
Campania Total Return Linked
Nts., 4.211%, 7/30/10 1 [EUR] 5,200,000 6,807,947
Campania Total Return Linked
Nts., 4.248%, 7/30/10 1 [EUR] 5,050,000 6,688,225
Colombia (Republic of) Credit
Linked Nts., 13.50%, 9/15/14 [COP] 2,002,000,000 1,110,692
Egypt (The Arab Republic of)
Total Return Linked Nts.,
10.029%, 9/12/07 (linked to
Egyptian Treasury Bills) 2,8 [EGP] 11,720,000 1,909,675
Egypt (The Arab Republic of)
Total Return Linked Nts.,
9.096%, 2/1/07 (linked to
Egyptian Treasury Bills) 2,8 [EGP] 5,140,000 892,238
European Investment Bank,
Russian Federation Credit
Linked Nts., 5.502%, 1/19/10 8 705,000 610,883
Grupo TMM SA Credit Linked
Nts., 6%, 9/7/12 2 2,473,576 2,492,294
Halyk Bank of Kazakhstan Total
Return Linked Nts., Series I,
7.25%, 3/20/09 [KZT] 258,990,000 2,135,033
Indonesia (Republic of) Credit
Linked Nts., 9.50%, 6/22/15 820,000 787,856
Indonesia (Republic of) Credit
Linked Nts., Series III,
14.25%, 6/15/13 873,600 1,049,630
Nigeria (Federal Republic of)
Credit Linked Nts.,
12.50%, 2/24/09 [NGN] 67,900,000 564,498

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Deutsche Bank AG: Continued
Nigeria (Federal Republic of)
Credit Linked Nts.,
15%, 1/27/09 [NGN] 91,000,000 $ 802,185
OAO Gazprom I Credit Nts.,
9.22%, 10/20/07 790,000 827,067
OAO Gazprom II Credit Nts.,
8.97%, 4/20/07 790,000 812,231
Peru (Republic of) Credit Linked
Nts., 6.73%, 2/20/11 1 875,000 891,392
RosSelkhoz Bank Total Return
Linked Nts.,
6.926%, 2/22/08 8 [RUR] 57,640,000 2,022,737
Russian Federation Credit Linked
Nts., 0%, 12/2/09 8 [RUR] 19,221,000 763,532
Russian Federation Total Return
Linked Nts.,
Series II, 9%, 4/22/11 [RUR] 21,590,000 896,610
Russian Unified Energy Systems
Total Return Linked Nts.,
Series FSK3,
7.10%, 12/16/08 [RUR] 50,530,000 1,927,589
Sberbank Total Return
Linked Nts.,
6.588%,
2/27/08 8 [RUR] 76,860,000 2,699,100
Sberbank Total Return
Linked Nts.,
6.593%, 2/20/08 8 [RUR] 57,640,000 2,026,682
Ukraine (Republic of) 5 yr.
Credit Linked Nts.,
4.05%, 8/25/10 885,000 921,657
Ukraine (Republic of) 5.5 yr.
Credit Linked Nts.,
4.05%, 2/25/11 885,000 920,922
Ukraine (Republic of) 6 yr.
Credit Linked Nts.,
4.05%, 8/25/11 885,000 920,763
Ukraine (Republic of) 6.5 yr.
Credit Linked Nts.,
4.05%, 2/27/12 885,000 919,630
Ukraine (Republic of) 7 yr.
Credit Linked Nts.,
4.05%, 8/28/12 885,000 917,249
Ukraine (Republic of) Credit
Linked Nts.,
11.94%, 12/30/09 [UAH] 269,000 58,346
Ukraine (Republic of) Credit
Linked Nts.,
11.94%, 12/30/09 [UAH] 955,000 207,138
Ukraine (Republic of) Credit
Linked Nts.,
5.592%, 5/16/07 [UAH] 2,390,000 478,024
Ukraine (Republic of) Credit
Linked Nts.,
Series A, 5.592%, 5/16/07 [UAH] 2,390,000 478,024

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
United Mexican States BORHIS
Total Return Linked Nts.,
6.10%, 9/27/35 [MXN] 3,814,803 $ 1,484,151
United Mexican States
Credit Linked Nts.,
9.52%, 1/5/11 2 [MXN] 10,708,094 994,932
Videocon International Ltd.
Credit Linked Nts.,
6.26%, 12/29/09 2 1,630,000 1,638,427
- --------------------------------------------------------------------------------
Dow Jones CDX
High Yield Index:
8.25% Pass-Through
Certificates,
Series 4-T1, 6/29/10 2 12,061,200 12,543,648
8.375% Pass-Through
Certificates,
Series 7-T1, 12/29/11 2 10,350,000 10,582,875
- --------------------------------------------------------------------------------
Dresdner Bank AG,
Lukoil Credit Linked Nts.,
Series 3,7.04%, 12/8/11 [RUR] 34,190,000 1,298,741
- --------------------------------------------------------------------------------
Eurus Ltd.
Catastrophe Linked Nts.,
11.626%, 4/8/09 1,2 1,400,000 1,389,500
- --------------------------------------------------------------------------------
Fhu-Jin Ltd.
Catastrophe Linked Nts., Cl. B,
9.27%, 8/10/11 1,2 1,630,000 1,644,426
- --------------------------------------------------------------------------------
Foundation Re II Ltd.
Catastrophe Linked Nts.,
15.173%, 1/8/09 1,2 926,000 926,000
- --------------------------------------------------------------------------------
Foundation Re Ltd.
Catastrophe Linked Nts.,
9.473%, 11/24/08 1,3 1,000,000 943,180
- --------------------------------------------------------------------------------
Goldman Sachs Group,
Inc. (The), Russag Total
Return Linked Nts.,
7.25%, 12/23/09 6 [RUR] 50,540,000 1,919,812
- --------------------------------------------------------------------------------
Goldman Sachs International,
Russian Federation Total
Return Linked Nts.,
8%, 5/13/09 1 [RUR] 84,500,000 3,256,317
- --------------------------------------------------------------------------------
ING Bank NV, Ukraine
(Republic of) Credit Linked
Nts., Series 725, 11.89%,
12/30/09 2 [UAH] 4,689,000 1,016,988
- --------------------------------------------------------------------------------
JPMorgan Chase Bank:
Argentina (Republic of)
Credit Linked Nts.,
4%, 12/19/11 2 [ARP] 4,355,000 3,763,285
Brazil (Federal Republic of)
Credit Linked Nts.,
12.08%, 1/2/15 8 [BRR] 3,693,700 673,372
Brazil (Federal Republic of)
Credit Linked Nts.,
12.683%, 6/1/13 8 [BRR] 5,490,000 1,197,109

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
JPMorgan Chase Bank: Continued
Brazil (Federal Republic of)
Credit Linked Nts.,
15.326%, 1/2/15 8 [BRR] 10,948,600 $ 1,995,961
Brazil (Federal Republic of)
Credit Linked Nts.,
2.731%, 11/30/12 8 [ARP] 4,550,000 1,235,081
Brazil (Federal Republic of)
Credit Linked Nts.,
6%, 5/16/45 2 [BRR] 5,855,000 3,719,329
Brazil (Federal Republic of)
Credit Linked Nts.,
Series II, 13.553%, 1/2/15 8 [BRR] 8,035,000 1,464,803
Brazil (Federal Republic of)
Credit Linked Nts.,
Series III, 12.184%, 1/2/15 8 [BRR] 8,500,000 1,549,574
Colombia (Republic of) Credit
Linked Bonds,
10.19%, 1/5/16 8 [COP] 20,100,000,000 3,644,668
Colombia (Republic of) Credit
Linked Bonds, 10.218%,
10/31/16 2,8 [COP] 12,177,000,000 1,931,130
Colombia (Republic of) Credit
Linked Bonds, 11.198%,
8/3/20 8 [COP] 11,160,000,000 1,385,076
Colombia (Republic of) Credit
Linked Bonds, Series A,
10.218%, 10/31/16 2,8 [COP] 12,125,000,000 1,922,884
Peru (Republic of) Credit Linked
Nts., 8.115%, 9/2/15 8 [PEN] 3,470,000 596,250
Swaziland (Kingdom of) Credit
Linked Nts., 7.25%, 6/20/10 1,120,000 1,111,824
- --------------------------------------------------------------------------------
Lakeside Re Ltd. Catastrophe
Linked Nts., 11.865%, 12/31/09 1,3 2,000,000 2,000,000
- --------------------------------------------------------------------------------
Lehman Brothers Holdings,
Inc., High Yield Targeted
Return Index Securities,
Series 2006-1, 7.546%, 5/1/16 2,19 9,600,000 9,936,288
- --------------------------------------------------------------------------------
Lehman Brothers International,
Romania (Republic of) Total
Return Linked Nts., 7.90%,
2/9/10 (linked to Romanian
Treasury Bills) [RON] 821,400 368,929
- --------------------------------------------------------------------------------
Lehman Brothers Special
Financing, Inc.:
Romania (Republic of)
Total Return Linked Nts.,
6.50%, 3/10/10 (linked to
Romanian Treasury Bills) [RON] 2,228,300 940,198
Romania (Republic of) Total
Return Linked Nts.,
6.75%, 3/11/08 (linked to
Romanian Treasury Bills) [RON] 2,600,000 1,124,297
Romania (Republic of) Total
Return Linked Nts.,
7.25%, 4/18/10 (linked to
Romanian Treasury Bills) [RON] 213,000 91,952

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Lehman Brothers Special
Financing, Inc.: Continued
Romania (Republic of) Total
Return Linked Nts., 7.50%,
3/6/07 (linked to Romanian
Treasury Bills) [RON] 354,000 $ 156,744
Romania (Republic of) Total
Return Linked Nts., 7.75%,
4/18/08 (linked to Romanian
Treasury Bills) [RON] 199,000 87,691
Romania (Republic of) Total
Return Linked Nts., 7.75%,
4/18/08 (linked to Romanian
Treasury Bills) [RON] 512,000 225,616
Romania (Republic of) Total
Return Linked Nts., 7.90%,
2/12/08 (linked to Romanian
Treasury Bills) [RON] 1,885,100 844,192
- --------------------------------------------------------------------------------
Merrill Lynch, Colombia
(Republic of) Credit Linked Nts.,
10%, 11/17/16 [COP] 1,784,000,000 804,932
- --------------------------------------------------------------------------------
Merrill Lynch Global Markets &
Investment Banking Group Total
Return Linked Nts., 10.50%,
5/12/08 (linked to RCCF
Loan Participation
Nts.) 2 [RUR] 46,000,000 1,747,355
- --------------------------------------------------------------------------------
Morgan Stanley & Co.
International Ltd./Red Arrow
International Leasing plc:
Total Return Linked Nts.,
Series A, 8.375%, 6/30/12 2 [RUR] 33,845,308 1,329,359
Total Return Linked Nts.,
Series B, 11%, 6/30/12 2 [RUR] 27,965,555 1,089,717
- --------------------------------------------------------------------------------
Morgan Stanley Capital
Services, Inc.:
Bank Center Credit Total Return
Linked Nts.,7.52%, 6/6/08 [KZT] 482,000,000 3,838,228
Brazil (Federal Republic of) Sr.
Linked Nts., 14.40%, 8/4/16 [BRR] 5,793,682 3,233,778
Philippines (Republic of the)
Credit Linked Nts.,
10.24%, 9/20/15 2 10,300,000 12,195,200
Philippines (Republic of the)
Credit Linked Nts.,
8.619%, 9/20/15 2 1,230,000 1,396,173
Philippines (Republic of the)
Credit Linked Nts.,
8.22%, 6/20/16 1,2 1,360,000 1,423,104
United Mexican States Credit
Linked Nts., 5.64%, 11/20/15 2,000,000 2,029,600
Venezuela (Republic of) 10 yr.
Credit Linked Nts.,
7.85%, 11/20/15 1,885,000 2,052,577
Venezuela (Republic of) Credit
Linked Nts., 6.49%, 5/20/10 1,480,000 1,522,476

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
STRUCTURED NOTES Continued
- --------------------------------------------------------------------------------
Morgan Stanley Capital
Services, Inc.: Continued
Venezuela (Republic of) Credit
Linked Nts., 7.382%, 5/20/10 $ 1,900,000 $ 2,073,090
WTI Trading Ltd. Total Return
Linked Nts.,
Series A, 0%, 2/1/09 6,8 3,630,000 3,630,000
WTI Trading Ltd. Total Return
Linked Nts.,
Series B, 0%, 2/1/09 6,8 4,850,000 4,850,000
- --------------------------------------------------------------------------------
Osiris Capital plc Catastrophe
Linked Combined Mortality
Index Nts.,
Series D, 10.37%, 1/15/10 1,2 890,000 894,984
- --------------------------------------------------------------------------------
Residential Reinsurance Ltd.
Catastrophe Linked Nts.,
Series B, 13.819%, 6/6/08 1 1,300,000 1,186,445
- --------------------------------------------------------------------------------
Successor Cal Quake Parametric
Ltd. Catastrophe Linked Nts.,
Cl. A-I, 10.603%, 6/6/08 1,2 1,040,000 1,027,676
- --------------------------------------------------------------------------------
Successor Euro Wind Ltd.
Catastrophe Linked Nts.,
Series A-I, 22.853%, 6/6/08 1,3 1,450,000 1,469,068
- --------------------------------------------------------------------------------
Successor Japan Quake Ltd.
Catastrophe Linked Nts.,
Series A-I, 9.603%, 6/6/08 1,2 2,450,000 2,465,558
- --------------------------------------------------------------------------------
UBS AG:
Ghana (Republic of) Credit
Linked Nts.,
14.47%, 12/21/11 6 [GHC] 12,220,520,000 1,336,226
Israel (State of) Credit Linked
Nts., 7.50%, 4/5/14 [ILS] 4,792,700 1,389,347
- --------------------------------------------------------------------------------
VASCO Re 2006 Ltd.
Catastrophe Linked Nts.,
13.866%, 6/5/09 1,2 1,550,000 1,574,955
----------------
Total Structured Notes (Cost $256,767,956) 271,358,738

STRIKE
DATE PRICE CONTRACTS
- --------------------------------------------------------------------------------
OPTIONS PURCHASED--0.0%
- --------------------------------------------------------------------------------
Euro (EUR) Call 18 1/4/07 1.34USD 10,980,000 1,475
- --------------------------------------------------------------------------------
Euro (EUR) Call 18 3/5/07 1.33USD 19,070,000 198,061
- --------------------------------------------------------------------------------
New Turkish Lira
(TRY)/Japanese
Yen (JPY) Call 18 1/30/07 77.00TRY 6,610,000 339,049
----------------
Total Options Purchased (Cost $570,706) 538,585

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
MONEY MARKET FUND--17.4% 20
- --------------------------------------------------------------------------------
Oppenheimer Institutional
Money Market Fund, Cl. E,
5.25% 21,22
(Cost $349,023,806) 349,023,806 $ 349,023,806
- --------------------------------------------------------------------------------
Total Investments, at Value
(excluding Investments
Purchased with Cash
Collateral from
Securities Loaned)
(Cost $2,006,345,303) 2,045,366,044

PRINCIPAL
AMOUNT
- --------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED--4.1% 14
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--3.9%
Undivided interest of 0.67% in joint
repurchase agreement (Principal
Amount/Value $4,100,000,000, with a
maturity value of $4,102,437,222) with
Nomura Securities, 5.35%, dated 12/29/06,
to be repurchased at $27,646,282 on
1/2/07, collateralized by U.S. Agency
Mortgages, 0.00%-22.12%, 3/15/14-5/1/46,
with a value of $4,182,000,000 $ 27,629,858 27,629,858

PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
Undivided interest of 3.33% in joint
repurchase agreement (Principal
Amount/Value $1,500,000,000, with a
maturity value of 1,500,887,083 with Banc
of America Securities LLC, 5.3225%, dated
12/29/06, to be repurchased at $50,029,569
on 1/2/07, collateralized by U.S. Agency
Mortgages, 0.00%-6%, 8/1/34-11/15/36, with
a value of $1,530,000,000 $ 50,000,000 $ 50,000,000
----------------
77,629,858

- --------------------------------------------------------------------------------
YANKEE CERTIFICATE OF DEPOSIT FLOATING NOTE--0.2%
Natexis Banques Populaires NY,
5.34%, 1/2/07 4,000,000 4,000,000
----------------

Total Investments Purchased with
Cash Collateral from Securities Loaned
(Cost $81,629,858) 81,629,858
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS,
AT VALUE
(COST $2,087,975,161) 106.2% 2,126,995,902
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS
OF OTHER ASSETS (6.2) (124,176,379)
-----------------------------------

NET ASSETS 100.0% $ 2,002,819,523
===================================

FOOTNOTES TO STATEMENT OF INVESTMENTS

PRINCIPAL AMOUNT IS 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
EGP Egyptian Pounds
EUR Euro
GBP British Pound Sterling
GHC Ghanaian Cedi
IDR Indonesia Rupiah
ILS Israeli Shekel
JPY Japanese Yen
KZT Kazakhstan Tenge
MXN Mexican Nuevo Peso
MYR Malaysian Ringgit
NGN Nigeria Naira
PEN Peruvian New Sol
PHP Philippines Peso
PLZ Polish Zloty
RON New Romanian Leu
RUR Russian Ruble
TRY New Turkish Lira
UAH Ukraine Hryvnia
UYU Uruguay Peso
ZMK Zambian Kwacha

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, 2006 was $154,427,153, which represents
7.71% of the Fund's net assets, of which $242 is considered restricted. In
addition, the Fund has restricted currency of $350,631 which represesnts 0.02%
of the Fund's net assets. See Note 12 of accompanying Notes.

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 $114,299,508 or 5.71% of the Fund's net
assets as of December 31, 2006.

4. Issuer is in default. See Note 1 of accompanying Notes.

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 $12,294,268 or 0.61% of the Fund's net assets
as of December 31, 2006.

6. When-issued security or forward commitment to be delivered and settled after
December 31, 2006. See Note 1 of accompanying Notes.

7. 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 $713,556 or 0.04% of the Fund's net assets as of
December 31, 2006.

8. Zero coupon bond reflects effective yield on the date of purchase.

9. Partial or fully-loaned security. See Note 13 of accompanying Notes.

10. A sufficient amount of securities has been designated to cover outstanding
foreign currency contracts. See Note 5 of accompanying Notes.

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

Euro 19,070,000 3/5/07 $ 1.306 $ 141,118 $ 149,286
New Turkish Lira (TRY)/Japanese Yen (JPY) 6,610,000 1/30/07 65.000TRY 112,086 --
------------------------------
$ 253,204 $ 149,286
==============================

12. All or a portion of the security is held in collateralized accounts to cover
initial margin requirements on open futures contracts. The aggregate market
value of such securities is $7,371,675. See Note 6 of accompanying Notes.

13. Denotes an inflation-indexed security: coupon and principal are indexed to
the consumer price index.

15. Denotes a step bond: a zero coupon bond that converts to a fixed or variable
interest rate at a designated future date.

16. Interest or dividend is paid-in-kind, when applicable.

17. This bond has no contractual maturity date, is not redeemable and
contractually pays an indefinite stream of interest. Rate reported represents
the current interest rate for this variable rate security.

18. Non-income producing security.

19. Interest rate represents a weighted average rate comprised of the interest
rates of the underlying securities.

20. The Fund may have elements of risk due to concentrated investments. Such
concentrations may subject the Fund to additional risks.

21. Rate shown is the 7-day yield as of December 31, 2006.

22. Represents ownership of an affiliated fund, at or during the period ended
December 31, 2006. Transactions during the period in which the issuer was an
affiliate are as follows:

Oppenheimer Institutional Money
Market Fund, Cl. E, 5.25%* -- 593,190,594 244,166,788 349,023,806

VALUE DIVIDEND
SEE NOTE 1 INCOME
- ------------------------------------------------------------------------------------------------------------------------------

Oppenheimer Institutional Money Market Fund, Cl. E, 5.25%* $349,023,806 $3,924,658

* The money market fund and the Fund are affiliated by having the same
investment advisor.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

ASSETS
- --------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $1,738,951,355) $ 1,777,972,096
Affiliated companies (cost $349,023,806) 349,023,806
-----------------
2,126,995,902
- --------------------------------------------------------------------------------------------------
Cash 1,685,264
- --------------------------------------------------------------------------------------------------
Cash--foreign currencies (cost $328,857) 332,540
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on foreign currency contracts 7,334,177
- --------------------------------------------------------------------------------------------------
Unrealized appreciation on swap contracts 10,351,272
- --------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest, dividends and principal paydowns 22,694,611
Investments sold (including $13,407,188 sold on a when-issued basis or
forward commitment) 13,961,783
Shares of beneficial interest sold 5,313,256
Futures margins 199,499
Other 30,150
-----------------
Total assets 2,188,898,454

- --------------------------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------------------------
Options written, at value (premiums received $253,204)--see accompanying
statement of investments 149,286
- --------------------------------------------------------------------------------------------------
Return of collateral for securities loaned 81,629,858
- --------------------------------------------------------------------------------------------------
Unrealized depreciation on foreign currency contracts 3,072,693
- --------------------------------------------------------------------------------------------------
Unrealized depreciation on swap contracts 1,711,141
- --------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased (including $93,798,047 purchased on a when-issued basis
or forward commitment) 96,462,473
Closed foreign currency contracts 1,867,580
Distribution and service plan fees 805,189
Shares of beneficial interest redeemed 240,612
Shareholder communications 42,371
Trustees' compensation 19,926
Transfer and shareholder servicing agent fees 1,732
Other 76,070
-----------------
Total liabilities 186,078,931

- --------------------------------------------------------------------------------------------------
NET ASSETS $ 2,002,819,523
=================

- --------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 376,752
- --------------------------------------------------------------------------------------------------
Additional paid-in capital 1,895,447,976
- --------------------------------------------------------------------------------------------------
Accumulated net investment income 71,431,376
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (13,225,859)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and
liabilities denominated in foreign currencies 48,789,278
-----------------
NET ASSETS $ 2,002,819,523
=================

- --------------------------------------------------------------------------------------------------
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 $606,631,471 and 115,295,601 shares of beneficial
interest outstanding) $ 5.26
- --------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share
(based on net assets of $1,396,188,052 and 261,456,885 shares of beneficial
interest outstanding) $ 5.34

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF OPERATIONS For the Year Ended December 31, 2006
- --------------------------------------------------------------------------------

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

INVESTMENT INCOME
- --------------------------------------------------------------------------------------------------
Interest (net of foreign withholding taxes of $18,055) $ 84,901,358
- --------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $33,008) 776,901
Affiliated companies 3,924,658
- --------------------------------------------------------------------------------------------------
Fee income 249,146
- --------------------------------------------------------------------------------------------------
Portfolio lending fees 242,632
-----------------
Total investment income 90,094,695

- --------------------------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------------------------
Management fees 9,733,081
- --------------------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares 2,537,242
- --------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares 10,034
Service shares 10,057
- --------------------------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares 44,225
Service shares 82,056
- --------------------------------------------------------------------------------------------------
Custodian fees and expenses 74,937
- --------------------------------------------------------------------------------------------------
Trustees' compensation 22,282
- --------------------------------------------------------------------------------------------------
Administration service fees 1,500
- --------------------------------------------------------------------------------------------------
Other 92,894
-----------------
Total expenses 12,608,308
Less reduction to custodian expenses (5,883)
Less waivers and reimbursements of expenses (74,462)
-----------------
Net expenses 12,527,963

- --------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 77,566,732

- --------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments 12,252,328
Closing and expiration of option contracts written 152,431
Closing and expiration of swaption contracts 57,519
Closing and expiration of futures contracts 4,147,395
Foreign currency transactions (11,266,901)
Swap contracts (1,982,622)
-----------------
Net realized gain 3,360,150
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 14,128,572
Translation of assets and liabilities denominated in foreign currencies 18,593,974
Futures contracts (3,879,631)
Option contracts written 103,918
Swaption contracts (28,270)
Swap contracts 7,844,472
-----------------
Net change in unrealized appreciation 36,763,035

- --------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 117,689,917
=================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2006 2005
- ----------------------------------------------------------------------------------------------------------

OPERATIONS
- ----------------------------------------------------------------------------------------------------------
Net investment income $ 77,566,732 $ 44,032,240
- ----------------------------------------------------------------------------------------------------------
Net realized gain 3,360,150 14,763,560
- ----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 36,763,035 (33,428,041)
------------------------------------
Net increase in net assets resulting from operations 117,689,917 25,367,759

- ----------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ----------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares (23,204,298) (28,059,108)
Service shares (32,674,854) (12,131,395)
------------------------------------
(55,879,152) (40,190,503)

- ----------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from beneficial
interest transactions:
Non-Service shares 50,531,351 (62,203,962)
Service shares 694,229,148 415,654,659
------------------------------------
744,760,499 353,450,697

- ----------------------------------------------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------------------------------------------
Total increase 806,571,264 338,627,953
- ----------------------------------------------------------------------------------------------------------
Beginning of period 1,196,248,259 857,620,306
------------------------------------
End of period (including accumulated net investment income of
$71,431,376 and $53,188,525, respectively) $ 2,002,819,523 $ 1,196,248,259
====================================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

OPPENHEIMER STRATEGIC BOND FUND/VA
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.64%

5. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------

TOTAL RETURN, AT NET ASSET VALUE 2 7.23% 2.48% 8.43% 17.16% 7.03%
- -------------------------------------------------------------------------------------------------------------------------

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 0.89%

5. The portfolio turnover rate excludes purchase and sale transactions of To Be
Announced (TBA) mortgage-related securities as follows:

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, 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 Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).

The following is a summary of significant accounting policies consistently
followed by the Fund.

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

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 take place generally at least 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, 2006, the Fund had purchased
$93,798,047 of securities issued on a when-issued basis or forward commitment
and sold $13,407,188 of securities issued 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, 2006, securities with an
aggregate market value of $1,341,307, representing 0.07% of the Fund's net
assets, were in default.

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 TAX PURPOSES
----------------------------------------------------------------------------
$ 76,464,001 $ -- $ 13,919,075 $ 44,833,225

1. As of December 31, 2006, the Fund had $13,349,869 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, 2006,
details of the capital loss carryforwards were as follows:

EXPIRING
--------------------------
2009 $ 6,488,232
2010 6,861,637
-------------
Total $ 13,349,869
=============

2. As of December 31, 2006, the Fund had $535,577 of post-October losses
available to offset future realized capital gains, if any. Such losses, if
unutilized, will expire in 2015

3. The Fund had $33,629 of straddle losses which were deferred.

4. During the fiscal year ended December 31, 2006, the Fund utilized $3,873,854
of capital loss carryforward to offset capital gains realized in that fiscal
year.

5.During the fiscal year ended December 31, 2005, the Fund utilized $4,343,176
of capital loss carryforward to offset capital gains realized in that fiscal
year.
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

REDUCTION TO REDUCTION TO
ACCUMULATED ACCUMULATED NET
NET INVESTMENT REALIZED LOSS
INCOME ON INVESTMENTS
-------------------------------------
$ 3,444,729 $ 3,444,729

The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005 was as follows:

YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
-----------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 55,879,152 $ 40,190,503

Federal tax cost of securities $ 2,088,057,236
Federal tax cost of other investments 190,632,720
-----------------
Total federal tax cost $ 2,278,689,956
=================

Gross unrealized appreciation $ 65,438,497
Gross unrealized depreciation (20,605,272)
-----------------
Net unrealized appreciation $ 44,833,225
=================

- --------------------------------------------------------------------------------
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, 2006 YEAR ENDED DECEMBER 31, 2005
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold 21,634,226 $ 109,527,181 23,774,819 $ 120,696,837
Dividends and/or distributions reinvested 4,678,286 23,204,298 5,623,068 28,059,108
Redeemed (16,241,080) (82,200,128) (42,307,482) (210,959,907)
------------------------------------------------------------
Net increase (decrease) 10,071,432 $ 50,531,351 (12,909,595) $ (62,203,962)
============================================================

- --------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold 149,725,536 $ 769,804,954 80,659,335 $ 414,986,342
Dividends and/or distributions reinvested 6,483,106 32,674,854 2,388,070 12,131,395
Redeemed (21,471,021) (108,250,660) (2,226,542) (11,463,078)
------------------------------------------------------------
Net increase 134,737,621 $ 694,229,148 80,820,863 $ 415,654,659
============================================================

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and money market funds, for the year ended December
31, 2006, were as follows:

PURCHASES SALES
- -------------------------------------------------------------------------------------

Investment securities $ 1,333,193,618 $ 948,882,030
U.S. government and government agency obligations 73,322,262 79,934,105
To Be Announced (TBA) mortgage-related securities 742,785,501 749,719,239

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

FEE SCHEDULE
----------------------------
Up to $200 million 0.75%
Next $200 million 0.72
Next $200 million 0.69
Next $200 million 0.66
Next $200 million 0.60
Over $1 billion 0.50

- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS

As of December 31, 2006, the Fund had outstanding foreign currency contracts as
follows:

CONTRACT
EXPIRATION AMOUNT VALUATION AS OF UNREALIZED UNREALIZED
CONTRACT DESCRIPTION DATES (000S) DEC. 31, 2006 APPRECIATION DEPRECIATION
- ------------------------------------------------------------------------------------------------------------------

CONTRACTS TO PURCHASE
Argentine Peso (ARP) 1/19/07 22,500ARP $ 7,355,826 $ 14,880 $ --
Australian Dollar (AUD) 1/16/07 597AUD 471,028 2,383 --
Brazilian Real (BRR) 2/2/07-11/5/07 120,301BRR 58,803,056 4,216,496 --
British Pound Sterling (GBP) 1/10/07-1/16/07 6,425GBP 12,581,017 319,439 9,277
Canadian Dollar (CAD) 1/16/07 2,310CAD 1,981,838 -- 18,592
Chilean Peso (CLP) 2/20/07-3/28/07 3,574,000CLP 6,713,129 -- 60,249
Dominican Republic Peso (DOP) 1/10/07 15,454DOP 461,999 -- 1,385
Euro (EUR) 1/10/07-1/16/07 12,185EUR 16,096,581 35,609 51,293
Ghanaian Cedi (GHC) 1/8/07 12,428,269GHC 1,347,488 980 --
Hungarian Forint (HUF) 1/4/07 1,500,000HUF 7,873,689 178,224 --
Japanese Yen (JPY) 1/10/07-1/16/07 10,002,000JPY 84,166,242 -- 1,635,285
Malaysian Ringgit (MYR) 2/16/07-2/21/07 12,420MYR 3,528,903 95,833 --
Mexican Nuevo Peso (MXN) 2/23/07-2/27/07 187,690MXN 17,332,401 325,817 --
Norwegian Krone (NOK) 1/10/07 58,390NOK 9,369,148 154,094 74,810
Russian Ruble (RUR) 1/15/07-3/7/07 258,593RUR 9,823,655 -- 28,365
South African Rand (ZAR) 1/8/07 56,200ZAR 8,005,737 173,001 --
South Korean Won (KRW) 1/12/07-2/2/07 6,733,000KRW 7,243,279 107,430 --
Swiss Franc (CHF) 1/10/07-1/16/07 8,466CHF 6,954,831 42,842 60,180
Thailand Baht (THB) 1/17/07 204,000THB 5,722,703 288,500 --
Turkish Lira (TRY) 1/22/07 11,225TRY 7,861,448 98,654 --
---------------------------
6,054,182 1,939,436
---------------------------
CONTRACTS TO SELL
Australian Dollar (AUD) 1/10/07 12,810AUD 10,108,690 -- 446,000
British Pound Sterling (GBP) 2/7/07-3/27/07 3,860GBP 7,559,737 2,958 195,511
Canadian Dollar (CAD) 1/10/07-2/20/07 14,875CAD 12,759,874 567,357 --
Chinese Renminbi (Yuan) (CNY) 1/22/07 62,200CNY 7,997,060 -- 7,985
Czech Koruna (CZK) 1/22/07-12/21/07 261,460CZK 12,694,491 18,963 79,355
Euro (EUR) 2/7/07-5/21/07 18,640EUR 24,672,007 -- 326,868
Hong Kong Dollar (HKD) 12/19/07-12/21/07 77,690HKD 10,111,363 359 2,041
Indian Rupee (INR) 1/2/07 1,085INR 24,521 -- 154
Japanese Yen (JPY) 1/10/07-2/28/07 3,841,000JPY 32,452,086 616,853 --
New Taiwan Dollar (TWD) 1/4/07 242,000TWD 7,430,390 33,447 --
Swedish Krone (SEK) 1/10/07 41,250SEK 6,029,591 17,257 16,403
Swiss Franc (CHF) 1/22/07-12/21/07 19,150CHF 15,883,156 22,801 58,940
---------------------------
1,279,995 1,133,257
---------------------------
Total unrealized appreciation and depreciation $ 7,334,177 $ 3,072,693
===========================

- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS

- --------------------------------------------------------------------------------
6. FUTURES CONTRACTS Continued

As of December 31, 2006, the Fund had outstanding futures contracts as follows:

CONTRACTS TO PURCHASE
Amsterdam Exchange Index 1/19/07 15 $ 1,966,801 $ 51,296
Canada (Government of) Bonds, 10 yr. 3/21/07 50 4,880,161 (47,502)
DAX Index 3/16/07 33 7,244,819 127,132
Euro-Bundesobligation, 10 yr. 3/8/07 119 18,226,612 (442,375)
Euro-Schatz 3/8/07 454 62,006,613 (357,782)
Japan (Government of) Bonds, 10 yr. 3/9/07 6 6,758,540 (34,857)
Japan (Government of) Mini Bonds, 10 yr. 3/8/07 24 2,700,996 (17,818)
Nikkei 225 Index 3/8/07 5 725,600 32,592
OMXS30 Index 1/26/07 254 4,279,742 26,755
Standard & Poor's/MIB Index, 10 yr. 3/16/07 7 1,929,147 24,102
U.S. Long Bonds 3/21/07 1,354 150,886,375 (2,625,603)
U.S. Treasury Nts., 2 yr. 3/30/07 489 99,771,281 (561,823)
U.S. Treasury Nts., 10 yr. 3/21/07 712 76,517,750 (821,102)
United Kingdom Long Gilt 3/28/07 73 15,455,309 (185,242)
--------------
(4,832,227)
--------------

CONTRACTS TO SELL
Australia (Commonwealth of) Bonds, 10 yr. 3/15/07 28 2,230,837 40,922
CAC-40 10 Index 1/19/07 44 3,224,711 (63,701)
DAX Index 3/16/07 18 3,951,719 (69,363)
Euro-Bundesobligation 3/8/07 19 2,729,298 20,135
Euro-Bundesobligation, 10 yr. 3/8/07 28 4,288,615 75,210
FTSE 100 Index 3/16/07 59 7,180,780 (37,001)
FTSE/JSE Top 40 Index (The) 3/15/07 65 2,121,299 (58,522)
NASDAQ 100 Index E-Mini 3/16/07 187 6,638,500 4,299
Nikkei 225 Index 3/8/07 91 13,205,916 (760,428)
Standard & Poor's 500 E-Mini 3/16/07 517 36,924,140 (41,396)
U.S. Long Bonds 3/21/07 271 30,199,563 356,914
U.S. Treasury Nts., 2 yr. 3/30/07 381 77,735,906 185,882
U.S. Treasury Nts., 5 yr. 3/30/07 1,135 119,245,938 908,700
U.S. Treasury Nts., 10 yr. 3/21/07 764 82,106,125 1,101,608
--------------
1,663,259
--------------
$ (3,168,968)
==============

- --------------------------------------------------------------------------------
7. OPTION ACTIVITY

Written option activity for the year ended December 31, 2006 was as follows:

CALL OPTIONS PUT OPTIONS
-------------------------- -----------------------------
NUMBER OF AMOUNT OF NUMBER OF AMOUNT OF
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
- ---------------------------------------------------------------------------------------------------------

Options outstanding as of December 31, 2005 -- $ -- -- $ --
Options written 4,135,000 30,050 6,786,815,000 424,933
Options closed or expired (4,135,000) (30,050) (6,761,135,000) (171,729)
----------------------------------------------------------
Options outstanding as of December 31, 2006 -- $ -- 25,680,000 $ 253,204
==========================================================

- --------------------------------------------------------------------------------
8. CREDIT DEFAULT SWAP CONTRACTS

Information regarding such credit default swaps as of December 31, 2006 is as
follows:

NOTIONAL
AMOUNT ANNUAL
RECEIVED BY INTEREST
THE FUND UPON RATE PAID TERMINATION UNREALIZED
COUNTERPARTY REFERENCED DEBT OBLIGATION CREDIT EVENT BY THE FUND DATES DEPRECIATION
- ----------------------------------------------------------------------------------------------------------------

Citigroup Global
Markets Holdings, Inc.:
Republic of Hungary $ 2,300,000 0.40% 12/20/15 $ 7,246
Republic of Ukraine 365,000 1.08 11/20/09 1,521
- ----------------------------------------------------------------------------------------------------------------
Deutsche Bank AG:
Ford Motor Co. 2,035,000 3.05 12/20/08 12,353
Ford Motor Co. 2,545,000 3.30 12/20/08 47,272
Ford Motor Co. 1,650,000 3.65 12/20/08 43,064
General Motors Corp. 2,035,000 2.03 12/20/08 9,215
General Motors Corp. 1,650,000 2.55 12/20/08 26,263
Republic of Peru 1,900,000 1.71 12/20/16 40,350
Republic of Philippines 2,000,000 3.69 9/20/15 243,978
- ----------------------------------------------------------------------------------------------------------------
Goldman Sachs Capital
Markets LP General Motors Corp. 1,650,000 2.70 12/20/08 31,001
- ----------------------------------------------------------------------------------------------------------------
JPMorgan Chase Bank:
Ford Motor Co. 1,650,000 3.60 12/20/08 35,688
Russian Federation 730,000 2.40 10/9/13 81,164
- ----------------------------------------------------------------------------------------------------------------
Morgan Stanley Capital
Services, Inc.:
Ford Motor Co. 1,650,000 3.70 12/20/08 49,109
General Motors Corp. 1,650,000 2.70 12/20/08 32,752
General Motors Corp. 2,545,000 2.35 12/20/08 17,988
Republic of Colombia 1,080,000 3.70 8/20/15 157,321
Republic of Indonesia 1,600,000 1.68 3/20/11 46,465
Republic of Venezuela 1,480,000 2.20 5/20/10 67,038
Republic of Venezuela 1,885,000 3.48 11/20/15 199,073
-------------
$ 1,148,861
=============

Information regarding such credit default swaps as of December 31, 2006 is as
follows:

NOTIONAL
AMOUNT ANNUAL
PAID BY INTEREST UNREALIZED
THE FUND UPON RATE RECEIVED TERMINATION APPRECIATION
COUNTERPARTY REFERENCED DEBT OBLIGATION CREDIT EVENT BY THE FUND DATES (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------------

Deutsche Bank AG:
Ford Motor Co. $ 2,540,000 5.80% 12/20/16 $ 14,181
Ford Motor Co. 3,180,000 5.85 12/20/16 29,227
Ford Motor Co. 2,065,000 6.00 12/20/16 38,322
General Motors Corp. 2,035,000 4.68 12/20/16 7,935
General Motors Corp. 1,650,000 4.75 12/20/16 24,137
- --------------------------------------------------------------------------------------------------------------------
Goldman Sachs
Capital Markets LP General Motors Corp. 1,650,000 4.95 12/20/16 40,188
- --------------------------------------------------------------------------------------------------------------------
JPMorgan Chase Bank:
Ford Motor Co. 2,065,000 6.00 12/20/16 34,443
General Motors Corp. 2,545,000 4.75 12/20/16 19,880
Republic of Ukraine 336,000 1.92 8/20/11 8,594
- --------------------------------------------------------------------------------------------------------------------
Morgan Stanley
Capital Services, Inc.:
Ford Motor Co. 2,065,000 6.15 12/20/16 36,864
General Motors Corp. 1,650,000 4.90 12/20/16 53,699
Istanbul Bond Co. SA for
Finansbank 5,180,000 1.30 3/24/13 (34,083)
Republic of Indonesia 1,600,000 1.67 6/20/11 43,948
Republic of Turkey 1,145,000 2.75 11/20/16 30,314
- --------------------------------------------------------------------------------------------------------------------
UBS AG Republic of Indonesia 375,000 2.30 9/20/11 19,471
-----------
$ 367,120
===========

- --------------------------------------------------------------------------------
9.INTEREST RATE SWAP CONTRACTS

An interest rate swap is an agreement under which a set of future cash flows is
exchanged between two counterparties. Interest rate swaps involve the exchange
of rights to receive or commitments to pay interest. One cash flow stream will
typically be a floating rate payment based upon a specified index while the
other is typically a fixed rate. Payments under the swap are based on an agreed
upon principal amount but since this principal amount is not exchanged, it
represents neither an asset nor a liability to either counterparty, and is
referred to as notional. Interest rate swaps are marked to market daily using
different sources, including quotations from counterparties, pricing services,
brokers or market makers. The unrealized appreciation (depreciation) related to
the change in the valuation of the notional amount of the swap is combined with
the amount due to (owed by) the Fund at termination or settlement and disclosed
separately on the Statement of Assets and Liabilities. The net change in this
amount is included on the Statement of Operations. The Fund also records any
periodic payments received from (paid to) the counterparty, including at
termination, under such contracts as realized gain (loss) on the Statement of
Operations.

Swap agreements entail both interest rate risk and credit risk. There is a
risk, 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.

- --------------------------------------------------------------------------------
9. INTEREST RATE SWAP CONTRACTS Continued

As of December 31, 2006, the Fund had entered into the following interest rate
swap agreements:

UNREALIZED
NOTIONAL PAID BY RECEIVED BY TERMINATION APPRECIATION
SWAP COUNTERPARTY AMOUNT THE FUND THE FUND DATES (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------

Barclays Bank plc 41,700,000 MXN MXN TIIE 9.27% 7/17/26 $ 418,109
- ------------------------------------------------------------------------------------------------------------------------
Citigroup Global
Markets Holdings, Inc.:
1,260,000 PLZ Six-Month WIBO 5.52 3/24/10 21,262
2,016,000 PLZ Six-Month WIBO 5.55 3/25/10 34,485
73,200,000 TWD 2.320% TWD-telerate 6/27/11 (30,415)
- ------------------------------------------------------------------------------------------------------------------------
Credit Suisse First
Boston International 9,530,000 MXN 28-Day MXN TIIE 10.00 7/9/15 124,690
- ------------------------------------------------------------------------------------------------------------------------
Credit Suisse First
Boston, Inc. (Nassau Branch) 3,640,000 PLZ Six-Month WIBO 4.48 7/1/10 (17,143)
- ------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG 360,000,000 HUF 8.440 Six-Month 7/4/11 (453)
BUBOR
- ------------------------------------------------------------------------------------------------------------------------
Deutsche Bank AG, 5 yr. 73,400,000 INR 7.175 INR MIBOR-OIS
Compound 6/27/11 19,265
- ------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Capital Markets LP: MXN-TIIE
Floating
9,700,000 MXN Index Rate 9.33 9/16/26 115,658
8,790,000 BRR BZDI 12.92 1/2/14 65,962
8,740,000 BRR BZDI 12.67 1/4/10 23,736
2,630,000 BRR BZDI 12.84 1/2/14 17,006
4,390,000 BRR BZDI 12.87 1/2/14 30,109
8,750,000 BRR BZDI 12.71 1/4/10 26,937
5,710,000 BRR BZDI 12.73 1/2/14 28,736
26,250,000 BRR BZDI 12.61 1/4/10 57,469
7,990,000 MXN MXN TIIE 10.29 6/4/15 117,945
19,400,000 BRR BZDI 12.39 1/2/12 10,753
9,160,000 MXN MXN TIIE 10.22 1/30/15 129,367
21,000,000 BRR BZDI 14.55 1/4/10 653,404
6,355,197 BRR BZDI 17.18 1/2/08 188,784
4,710,000 MXN MXN TIIE 10.00 6/24/15 61,991
7,875,000 MXN MXN TIIE 10.43 5/29/15 122,952
7,875,000 MXN MXN TIIE 10.30 6/1/15 116,766
- ------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The):
22,300,000 MXN MXN TIIE 9.15 8/27/26 229,471
6,090,000 MXN MXN TIIE 9.41 8/31/20 71,220
4,100,000 MXN MXN TIIE 10.85 3/5/15 72,966
9,100,000 MXN MXN TIIE 10.70 5/8/15 155,324
18,300,000 MXN MXN TIIE 9.51 8/26/25 248,561
12,220,000 MXN MXN TIIE 9.50 8/28/25 164,818
25,560,000 BRR BZDI 14.89 1/4/10 579,970
33,400,000 MXN MXN TIIE 9.29 7/17/26 385,609
4,420,000 BRR BZDI 14.05 1/2/12 87,022
37,300,000 MXN MXN TIIE 8.70 2/5/16 208,010
23,010,000 MXN MXN TIIE 9.84 12/31/09 144,979

JPMorgan Chase Bank:
Three-Month
39,520,000 ZAR 8.290% JIBA 6/23/08 $ 59,495
19,400,000 BRR BZDI 12.38% 1/2/12 6,165
8,750,000 BRR BZDI 13.91 1/2/12 156,451
Three-Month
82,000,000 LIBOR 5.57 5/26/16 2,524,435
9,700,000 MXN MXN TIIE 9.76 8/17/15 112,124
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Special Financing, Inc.:
4,680,000 PLZ Six-Month WIBO 4.53 7/5/10 (19,474)
9,440,000 MXN 28-Day MXN TIIE 9.99 7/9/15 121,736
- -------------------------------------------------------------------------------------------------------------------------
Santander Central Hispano 4,420,000 BRR BZDI 14.00 1/3/12 82,131
---------------
$ 7,728,388
===============

Notional amount is reported in U.S. Dollars, except for those denoted in the
following currencies:

BRR Brazilian Real
HUF Hungarian Forint
INR Indian Rupee
MXN Mexican Nuevo Peso
PLZ Polish Zloty
TWD New Taiwan Dollar
ZAR South African Rand

Index abbreviations are as follows:

BUBOR Budapest Interbank Offered Rate
BZDI Brazil Interbank Deposit Rate
JIBA South Africa Johannesburg Interbank Agreed Rate
LIBOR London-Interbank Offered Rate
MXN TIIE Mexican Peso-Interbank Equilibrium Interest Rate
MIBOR-OIS Mid Market Interest Rate for French Franc/Austrian Schilling and
India Swap Composites-Overnight Indexed Swap
WIBO Poland Warsaw Interbank Offer Bid Rate

- --------------------------------------------------------------------------------
10. TOTAL RETURN SWAP CONTRACTS

A total return swap is an agreement under which a set of future cash flows
is exchanged between two counterparties. One cash flow stream will typically be
based on a reference interest rate or index and the other on the total return of
a reference asset such as a security, a basket of securities, or an index. The
total return includes appreciation or depreciation on the reference asset, plus
any interest or dividend payments. Payments under the swap are based on an
agreed upon principal amount but since this principal amount is not exchanged,
it represents neither an asset nor a liability to either counterparty, and is
referred to as notional. Total return swaps are marked to market daily using
different sources, including quotations from counterparties, pricing services,
brokers or market makers. The unrealized appreciation (depreciation) related to
the change in the valuation of the notional amount of the swap is combined with
the amount due to (owed by) the Fund at termination or settlement and disclosed
separately on the Statement of Assets and Liabilities. The net change in this
amount is included on the Statement of Operations. The Fund also records any
periodic payments received from (paid to) the counterparty, including at
termination, under such contracts as realized gain (loss) on the Statement of
Operations. The primary risks associated with total return swaps are credit
risks (if the counterparty fails to meet its obligations) and market risk (if
there is no liquid market for the agreement or unfavorable changes occur in the
reference asset). As of December 31, 2006, the Fund had entered into the
following total return swap agreements:

UNREALIZED
NOTIONAL PAID BY RECEIVED BY TERMINATION APPRECIATION
SWAP COUNTERPARTY AMOUNT/UNITS THE FUND THE FUND DATES (DEPRECIATION)
- -----------------------------------------------------------------------------------------------------------------------------------

Deutsche Bank AG:
$ 930,000 Six-Month LIBOR 5.25% 6/23/15 $ 160,429
1,620,000 Six-Month BBA LIBOR 5.46 5/13/15 334,417
- -----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs Group, Inc. (The):
920,000 Six-Month BBA LIBOR 5.10 1/14/15 186,412
920,000 Six-Month BBA LIBOR 5.08 1/20/15 204,898
- -----------------------------------------------------------------------------------------------------------------------------------
Goldman Sachs International:
If negative, the absolute If positive, the Total
value of the Total Return Return of the
of the BMU/BOVESPA 2/07 BMU/BOVESPA 2/07
96 Index. Index. 2/14/07 41,064

One-Month BBA LIBOR
USD minus spread plus,
if negative, the absolute If positive, the Total
value of the Total Return Return of a custom
191,315 of a custom equity basket. equity basket. 1/8/08 (339,010)

If positive, the absolute
value of the Total Return If negative, the Total
of the Swiss Market Index Return of the Swiss
26 3/07 Future. Index 3/07 Future. 3/19/07 (27,130)

If negative, the
If positive, the Total absolute value of the
Return of the Total Return
INDF/NSE NIFTY INDF/NSE NIFTY
218 Index 1/07 Future. Index 1/07 Future. 1/25/07 (66,687)

One-Month BBA LIBOR
USD and if negative the If positive the Total
absolute value of the Return of the MSCI
Total Return of the MSCI Daily Total Return
Daily Total Return Net Net Belgium USD
177 Belgium USD Market Index. Market Index. 10/8/07 83,114

One-Month BBA LIBOR USD
minus spread plus,
if negative, the absolute Total Return of a
value of the Total Return custom equity basket
46,046 of custom equity basket. if positive. 1/8/08 (27,885)
- -----------------------------------------------------------------------------------------------------------------------------------
If negative, the absolute
value of the Total Return If positive, the Total
Morgan Stanley & Co. of the KS200 12/06 Return of the KS200
International Ltd. 20 Future. 12/06 Future. 12/15/09 85,598

Morgan Stanley International:
If positive, the Total
One-Month BBA LIBOR Return of a custom
EUR and if negative the basket of securities
absolute value of the Total plus the dividends
Return of a custom basket from the basket of
56,713 of securities. securities. 10/9/07 $ 553,567

One-Month BBA LIBOR If positive, the Total
GBP and if negative Return of a custom
the absolute value basket of securities
of the Total Return plus the dividends
of a custom basket from the basket of
26,724 of securities. securities. 10/9/07 371,193

One-Month BBA LIBOR If positive, the Total
JPY and if negative Return of a custom
the absolute value basket of securities
of the Total Return plus the dividends
of a custom basket from the basket
6,682,225 of securities. of securities. 12/20/07 133,504
-----------
$ 1,693,484
===========

Abbreviations are as follows:

BBA LIBOR British Bankers' Association London-Interbank Offered Rate
BBA LIBOR EUR British Bankers' Association London-Interbank Offered Rate for
Euro
BBA LIBOR GBP British Bankers' Association London-Interbank Offered Rate for
British Pound Sterling
BBA LIBOR JPY British Bankers' Association London-Interbank Offered Rate for
Yen
BBA LIBOR USD British Bankers' Association London-Interbank Offered Rate for
United States Dollar
BMU/BOVESPA Bovespa Index that trades on the Sao Paulo Stock Exchange
INDF/NSE NIFTY Indian National Stock Exchange Nifty Index
KS200 Korean Stock Exchange Capitalization-weighted Index
LIBOR London-Interbank Offered Rate
MSCI Morgan Stanley Capital International

- --------------------------------------------------------------------------------
11. 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.

Written swaption activity for the year ended December 31, 2006 was as follows:

CALL SWAPTIONS
------------------------------
NOTIONAL AMOUNT OF
AMOUNT PREMIUMS
- ------------------------------------------------------------------------------
Swaptions outstanding as of December 31, 2005 $ 9,000,000 $ 36,900
Swaptions written 18,600,000 20,683
Swaptions closed or expired (27,600,000) (57,583)
------------------------------
Swaptions outstanding as of December 31, 2006 $ -- $ --
==============================

- --------------------------------------------------------------------------------
12. ILLIQUID OR RESTRICTED SECURITIES AND CURRENCY

UNREALIZED
ACQUISITION VALUATION AS OF APPRECIATION
SECURITY DATES COST DECEMBER 31, 2006 (DEPRECIATION)
- ------------------------------------------------------------------------------------

Prandium, Inc. 3/19/99-9/25/02 $ 284,000 $ 242 $ (283,758)
================================================

CURRENCY
Argentine Peso 9/18/06-12/22/06 $ 346,957 $ 350,631 $ 3,674
================================================

- --------------------------------------------------------------------------------
13. SECURITIES LENDING

- --------------------------------------------------------------------------------
14. RECENT ACCOUNTING PRONOUNCEMENTS

- --------------------------------------------------------------------------------
15. LITIGATION

20 | OPPENHEIMER VALUE FUND/VA

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 (the "Fund"), a series of Oppenheimer Variable Account
Funds, including the statement of investments, as of December 31, 2006, 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.

DELOITTE & TOUCHE LLP

Denver, Colorado
February 8, 2007

OPPENHEIMER VALUE FUND/VA

FUND PERFORMANCE DISCUSSION
- --------------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. Oppenheimer Value Fund/VA's
Non-Service shares generated solid returns but slightly trailed behind its
benchmark, the Russell 1000 Value Index. The Fund's performance was hindered by
holdings in the financials, information technology and telecommunications
sectors. Underperformance in these sectors more than offset outperformance in
the consumer staples, consumer discretionary, energy and utilities sectors.
Early in the reporting period, investors became concerned about what effects
rising interest rates and high-energy costs might have on future economic
growth. In this environment, many stock prices fell, particularly for small-cap
stocks. When inflation and economic concerns eased during the summer months, the
Fund enjoyed more healthy equity returns.

The Fund's best relative gains were achieved in the consumer staples,
consumer discretionary, energy and utilities areas. Consumer staples stocks
posted strong gains for the Fund. We scored successes with our holdings in
ConAgra Foods, Inc., the global retail food products firm. ConAgra's management
has effectively created a turnaround story by improving its execution on costs,
thereby increasing the company's stock price. The Fund also benefited by owning
Wal-Mart Stores, Inc. during a period when the stock performed well. Within
energy, the Fund benefited from its underweight position to a number of oil and
natural gas companies at a time when falling energy prices hurt stock returns.
In addition, our overweight position in Exxon Mobil Corp. also greatly aided
performance during the reporting period. Utilities stocks also added to the
Fund's relative performance, where AES Corp. and Reliant Energy, Inc. posted
especially positive gains due to generally higher utility valuations. Consumer
discretionary performance benefited from holdings in Liberty Global, Inc. and
Comcast, Inc. We sold our positions in AES and Comcast and took profits.

Most of the Fund's negative performance can be traced to its holdings in
three areas: financials, information technology, and telecommunications. An
underweighting and underperforming stocks detracted from the Fund's performance
in the financials sector. Capital One Financial Corp., a major detractor,
suffered due to fears about credit quality and consumer spending. However, one
bright spot was UBS AG, one of the Fund's largest holdings, which benefited from
robust asset gathering in its private wealth business. What's more, the company
is poised to experience meaningful operating leverage in Europe, where it has
invested a great deal of money to create a comprehensive client service
infrastructure.

An overweight position in information technology dragged on the Fund's
performance. Several holdings disappointed as technology stocks suffered during
the summer months. Novell, Inc., a provider of security software and other
business solutions, disappointed during the reporting period, where its
transition from its previous operating system, NETWARE, to its new system, OES,
has not gone as well as we had hoped. The stock has been punished and our
holdings there hurt the Fund's relative performance. Corning, Inc.
underperformed due to concerns over excessive inventory. The Fund's holdings in
Take-Two Interactive Software, Inc. hindered performance due to investors'
concerns over the company's expense management. However, we continued to believe
that Take-Two's earnings power is substantial in light of their video game
development talent. Compuware Corp. and Hutchinson Technology, Inc. also
detracted from the Fund's relative performance. We have since exited our
position in Compuware.

A significant portion of the Fund's negative performance in the
telecommunications area can be attributed to NOT owning AT&T, Inc. and BellSouth
Telecommunications, Inc. at a time when both companies performed well, and
instead choosing to invest in Sprint Nextel Corp. During the reporting period,
Sprint came under pressure due to its inability to attract enough subscribers as
well as a lack of progress addressing "churn," which is defined as a percentage
of customers that leave. Generally speaking, when churn levels increase,
profitability decreases. We sold our position in Sprint during the reporting
period.

As of the end of the reporting period, the Fund has relative underweight
positions in the energy, financials and telecommunications areas. Conversely,
the Fund's most significant relative overweight positions are within the
industrials and information technology areas. While we are not completely
satisfied with the relative returns generated by the Fund during the reporting
period, we would like to remind shareholders that our investment philosophy is
focused on long-term results rather than short-term performance. That said, we
remain confident in the earnings ability of the stocks in which we are invested.

COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow show the
performance of a hypothetical $10,000 investment in each share class of the Fund
held until December 31, 2006. In the case of Non-Service shares, performance is
measured from inception of the class on January 2, 2003. In the case of Service
shares, performance is measured from inception of the class on September 18,
2006. Performance information does not reflect charges that apply to separate
accounts investing in the Fund. If these charges were taken into account,
performance would be lower. The graphs assume that all dividends and capital
gains distributions were reinvested in additional shares.

The Fund's performance is compared to the performance of the Russell 1000
Value Index, an unmanaged index of equity securities of large capitalization
companies that is a measure of the large-cap value market. Index performance
reflects the reinvestment of income but does not consider the effect of
transaction costs, and none of the data in the graph shows the effect of taxes.
The Fund's performance reflects the effects of the Fund's business and operating
expenses. While index comparisons may be useful to provide a benchmark for the
Fund's performance, it must be noted that the Fund's investments are not limited
to the investments in the index.

NON-SERVICE SHARES

COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:

Oppenheimer Value Fund/VA (Non-Service)

Russell 1000 Value Index

[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]

Oppenheimer Value Fund/VA Russell 1000
(Non-Service) Value Index

01/02/2003 10,000 10,000
03/31/2003 9,230 9,514
06/30/2003 10,800 11,157
09/30/2003 11,250 11,387
12/31/2003 12,900 13,003
03/31/2004 13,152 13,397
06/30/2004 13,100 13,515
09/30/2004 13,194 13,723
12/31/2004 14,771 15,148
03/31/2005 14,795 15,161
06/30/2005 15,048 15,415
09/30/2005 15,759 16,014
12/31/2005 15,640 16,216
03/31/2006 16,117 17,178
06/30/2006 15,948 17,280
09/30/2006 16,803 18,355
12/31/2006 17,835 19,824

AVERAGE ANNUAL TOTAL RETURNS OF NON-SERVICE SHARES OF THE FUND AT 12/31/06

1-Year 14.03% 5-Year N/A Since Inception (1/2/03) 15.57%

SERVICE SHARES

COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:

Oppenheimer Value Fund/VA (Service)

Russell 1000 Value Index

Oppenheimer Value Fund/VA Russell 1000
Date (Service) Value Index

09/18/2006 10,000 10,000
09/30/2006 10,076 10,000
12/31/2006 10,681 10,800

[PLOT POINTS TO COME]

AVERAGE ANNUAL TOTAL RETURNS OF SERVICE SHARES OF THE FUND AT 12/31/06

Since Inception (9/18/06) 6.81%

THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE
DATA CURRENT TO THE MOST RECENT MONTH END, CALL US AT 1.800.981.2871. THE FUND'S
TOTAL RETURNS SHOULD NOT BE EXPECTED TO BE THE SAME AS THE RETURNS OF OTHER
FUNDS, WHETHER OR NOT BOTH FUNDS HAVE THE SAME PORTFOLIO MANAGERS AND/OR SIMILAR
NAMES. THE FUND'S TOTAL RETURNS DO NOT INCLUDE THE CHARGES ASSOCIATED WITH THE
SEPARATE ACCOUNT PRODUCTS THAT OFFER THIS FUND. SUCH PERFORMANCE WOULD HAVE BEEN
LOWER IF SUCH CHARGES WERE TAKEN INTO ACCOUNT.

5 | OPPENHEIMER VALUE FUND/VA

FUND EXPENSES
- --------------------------------------------------------------------------------

FUND EXPENSES. As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs, which may include redemption fees, if any; and (2) ongoing
costs, including management fees; distribution and service fees; and other Fund
expenses. These examples are intended to help you understand your ongoing costs
(in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.

The examples are based on an investment of $1,000.00 invested at the beginning
of the period and held for the entire 6-month period ended December 31, 2006.

ACTUAL EXPENSES. The "actual" lines of the table provide information about
actual account values and actual expenses. You may use the information on this
line for the class of shares you hold, together with the amount you invested, to
estimate the expense that you paid over the period. Simply divide your account
value by $1,000.00 (for example, an $8,600.00 account value divided by $1,000.00
= 8.60), then multiply the result by the number in the "actual" line under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES. The "hypothetical" lines of the
table provide information about hypothetical account values and hypothetical
expenses based on the Fund's actual expense ratio, and an assumed rate of return
of 5% per year before expenses, which is not the Fund's actual return. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may use this
information to compare the ongoing costs of investing in the Fund and other
funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any charges associated with the separate
accounts that offer this Fund. Therefore, the "hypothetical" lines of the table
are useful in comparing ongoing costs only, and will not help you determine the
relative total costs of owning different funds. In addition, if these separate
account charges were included, your costs would have been higher.

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

BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE 6 MONTHS ENDED
(7/1/06) (12/31/06) DECEMBER 31, 2006 1,2
- ---------------------------------------------------------------------------------------------

Non-Service shares Actual $ 1,000.00 $ 1,118.30 $ 13.64
- ---------------------------------------------------------------------------------------------
Non-Service shares Hypothetical 1,000.00 1,012.40 12.97

BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE THE PERIOD ENDED
(9/18/06) (12/31/06) DECEMBER 31, 2006 2,3
- ---------------------------------------------------------------------------------------------

Service shares Actual $ 1,000.00 $ 1,068.90 $ 8.85
- ---------------------------------------------------------------------------------------------
Service shares Hypothetical 1,000.00 1,010.69 14.70

Hypothetical assumes 5% annual return before expenses.

1. Actual expenses paid for Non-Service shares are equal to the Fund's
annualized expense ratio for that class, multiplied by the average account value
over the period, multiplied by 184/365 (to reflect the one-half year period).

2. Hypothetical expenses paid for all classes are equal to the Fund's annualized
expense ratio for that class, multiplied by the average account value over the
period, multiplied by 184/365 (to reflect the one-half year period).

3. Actual expenses paid for Service shares are equal to the Fund's annualized
expense ratio for that class, multiplied by the average account value over the
period, multiplied by 105/365 [to reflect the period from September 18, 2006
(inception of offering) to December 31, 2006].

Those annualized expense ratios, excluding affiliated fund indirect expenses,
based on the 6-month period ended December 31, 2006 for Non-Service shares, and
for the period from September 18, 2006 (inception of offering) to December 31,
2006 for Service shares are as follows:

CLASS EXPENSE RATIOS
- ------------------------------------
Non-Service shares 2.54%
- ------------------------------------
Service shares 2.88

The expense ratios reflect voluntary waivers or reimbursements of expenses by
the Fund's Manager that can be terminated at any time, without advance notice.
The "Financial Highlights" tables in the Fund's financial statements, included
in this report, also show the gross expense ratios, without such waivers or
reimbursements.

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

STATEMENT OF INVESTMENTS December 31, 2006
- --------------------------------------------------------------------------------

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--101.4%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--8.4%
- --------------------------------------------------------------------------------
MEDIA--8.0%
Liberty Global, Inc., Series A 1 1,707 $ 49,759
- --------------------------------------------------------------------------------
Liberty Global, Inc., Series C 1 5,448 152,544
- --------------------------------------------------------------------------------
News Corp., Inc., Cl. A 2,220 47,686
-----------------
249,989

- --------------------------------------------------------------------------------
SPECIALTY RETAIL--0.4%
Office Depot, Inc. 1 340 12,978
- --------------------------------------------------------------------------------
CONSUMER STAPLES--8.1%
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.0%
Walgreen Co. 700 32,123
- --------------------------------------------------------------------------------
FOOD PRODUCTS--1.9%
ConAgra Foods, Inc. 2,140 57,780
- --------------------------------------------------------------------------------
TOBACCO--5.2%
Altria Group, Inc. 1,880 161,342
- --------------------------------------------------------------------------------
ENERGY--9.1%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--1.0%
Schlumberger Ltd. 500 31,580
- --------------------------------------------------------------------------------
OIL & GAS--8.1%
BP plc, ADR 480 32,208
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 2,880 220,694
-----------------
252,902

- --------------------------------------------------------------------------------
FINANCIALS--31.2%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--7.5%
E*TRADE Financial Corp. 1 3,150 70,623
- --------------------------------------------------------------------------------
UBS AG 2,720 164,098
-----------------
234,721

- --------------------------------------------------------------------------------
COMMERCIAL BANKS--7.9%
Wachovia Corp. 2,850 162,308
- --------------------------------------------------------------------------------
Wells Fargo & Co. 2,300 81,788
-----------------
244,096

- --------------------------------------------------------------------------------
CONSUMER FINANCE--3.7%
Capital One Financial Corp. 1,050 80,661
- --------------------------------------------------------------------------------
SLM Corp. 700 34,139
-----------------
114,800

- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--2.9%
Bank of America Corp. 1,686 90,016
- --------------------------------------------------------------------------------
INSURANCE--6.6%
Everest Re Group Ltd. 1,410 138,335
- --------------------------------------------------------------------------------
Genworth Financial, Inc., Cl. A 1,100 37,631
- --------------------------------------------------------------------------------
Platinum Underwriters Holdings Ltd. 990 30,631
-----------------
206,597

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--2.6%
Countrywide Financial Corp. 830 $ 35,234
- --------------------------------------------------------------------------------
Freddie Mac 680 46,172
-----------------
81,406

- --------------------------------------------------------------------------------
HEALTH CARE--6.9%
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--3.3%
Medco Health Solutions, Inc. 1 700 37,408
- --------------------------------------------------------------------------------
WellPoint, Inc. 1 815 64,132
-----------------
101,540

- --------------------------------------------------------------------------------
PHARMACEUTICALS--3.6%
Abbott Laboratories 300 14,613
- --------------------------------------------------------------------------------
Novartis AG, ADR 570 32,741
- --------------------------------------------------------------------------------
Sanofi-Aventis SA, ADR 1,410 65,100
-----------------
112,454

- --------------------------------------------------------------------------------
INDUSTRIALS--15.2%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--8.2%
Alliant Techsystems, Inc. 1 300 23,457
- --------------------------------------------------------------------------------
KBR, Inc. 1 30 785
- --------------------------------------------------------------------------------
Rockwell Collins, Inc. 980 62,024
- --------------------------------------------------------------------------------
Spirit Aerosystems Holdings, Inc., Cl. A 1 280 9,372
- --------------------------------------------------------------------------------
United Technologies Corp. 2,545 159,113
-----------------
254,751

- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--5.4%
Siemens AG, Sponsored ADR 1,700 167,535
- --------------------------------------------------------------------------------
MACHINERY--1.6%
Navistar International Corp. 1 1,510 50,479
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--12.2%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--3.2%
Corning, Inc. 1 5,300 99,163
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--0.8%
Hutchinson Technology, Inc. 1 1,000 23,570
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--4.3%
Texas Instruments, Inc. 4,700 135,360
- --------------------------------------------------------------------------------
SOFTWARE--3.9%
Novell, Inc. 1 5,520 34,224
- --------------------------------------------------------------------------------
Synopsys, Inc. 1 1,100 29,403
- --------------------------------------------------------------------------------
Take-Two Interactive Software, Inc. 1 3,290 58,430
-----------------
122,057

- --------------------------------------------------------------------------------
MATERIALS--2.3%
- --------------------------------------------------------------------------------
CONSTRUCTION MATERIALS--2.3%
Martin Marietta Materials, Inc. 340 35,329
- --------------------------------------------------------------------------------
Vulcan Materials Co. 400 35,948
-----------------
71,277

VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--1.1%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--1.1%
Verizon Communications, Inc. 900 $ 33,516
- --------------------------------------------------------------------------------
UTILITIES--6.9%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--3.7%
Entergy Corp. 200 18,464
- --------------------------------------------------------------------------------
Exelon Corp. 1,300 80,457
- --------------------------------------------------------------------------------
Reliant Energy, Inc. 1 1,150 16,342
----------------
115,263

- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--3.2%
CMS Energy Corp. 1 2,140 35,738
- --------------------------------------------------------------------------------
PG&E Corp. 645 30,528
- --------------------------------------------------------------------------------
Sempra Energy 600 33,622
----------------
99,888
----------------
Total Common Stocks (Cost $2,732,372) 3,157,183

- --------------------------------------------------------------------------------
MONEY MARKET FUND--5.9%
- --------------------------------------------------------------------------------
Oppenheimer Institutional Money
Market Fund, Cl. E, 5.25% 2,3
(Cost $183,179) 183,179 183,179

- --------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $2,915,551) 107.3% 3,340,362
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF
OTHER ASSETS (7.3) (228,175)
--------------------------------
NET ASSETS 100.0% $ 3,112,187
================================

FOOTNOTES TO STATEMENT OF INVESTMENTS

1. Non-income producing security.

2. Rate shown is the 7-day yield as of December 31, 2006.

3. Represents ownership of an affiliated fund, at or during the period ended
December 31, 2006. Transactions during the period in which the issuer was an
affiliate are as follows:

SHARES SHARES
DECEMBER 31, GROSS GROSS DECEMBER 31,
2005 ADDITIONS REDUCTIONS 2006
- ----------------------------------------------------------------------------------------------

Oppenheimer Institutional Money Market
Fund, Cl. E, 5.25%* -- 574,139 390,960 183,179

VALUE DIVIDEND
SEE NOTE 1 INCOME
- ----------------------------------------------------------------------------------------------

Oppenheimer Institutional Money
Market Fund, Cl. E, 5.25%* $ 183,179 $ 1,963

* The money market fund and the Fund are affiliated by having the same
investment advisor.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

ASSETS
- -------------------------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $2,732,372) $ 3,157,183
Affiliated companies (cost $183,179) 183,179
----------------
3,340,362
- -------------------------------------------------------------------------------------------------------------------
Cash 10,036
- -------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Shares of beneficial interest sold 38,110
Investments sold 26,284
Dividends 3,083
Other 5,775
----------------
Total assets 3,423,650

- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Dividends 264,409
Investments purchased 22,012
Shareholder communications 7,094
Trustees' compensation 5,081
Distribution and service plan fees 183
Shares of beneficial interest redeemed 39
Other 12,645
----------------
Total liabilities 311,463

- -------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 3,112,187
================

- -------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 269
- -------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 2,611,750
- -------------------------------------------------------------------------------------------------------------------
Accumulated net investment loss (5,081)
- -------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 80,438
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 424,811
----------------
NET ASSETS $ 3,112,187
================

- -------------------------------------------------------------------------------------------------------------------
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
$2,657,487 and 229,559 shares of beneficial interest outstanding) $ 11.58
- -------------------------------------------------------------------------------------------------------------------
Service Shares:
Net asset value, redemption price per share and offering price per share (based on net assets of
$454,700 and 39,283 shares of beneficial interest outstanding) $ 11.57

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

INVESTMENT INCOME
- ----------------------------------------------------------------------------------
Dividends:
Unaffiliated companies (net of foreign withholding taxes of $715) $ 44,807
Affiliated companies 1,963
- ----------------------------------------------------------------------------------
Interest 4,324
---------------
Total investment income 51,094

- ----------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------
Management fees 20,780
- ----------------------------------------------------------------------------------
Distribution and service plan fees--Service shares 183
- ----------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Service shares 14
- ----------------------------------------------------------------------------------
Shareholder communications:
Non-Service shares 12,853
Service shares 1,007
- ----------------------------------------------------------------------------------
Legal, auditing and other professional fees 16,555
- ----------------------------------------------------------------------------------
Trustees' compensation 4,509
- ----------------------------------------------------------------------------------
Administration service fees 1,500
- ----------------------------------------------------------------------------------
Custodian fees and expenses 15
- ----------------------------------------------------------------------------------
Other 2,576
---------------
Total expenses 59,992
Less waivers and reimbursements of expenses (37)
---------------
Net expenses 59,955

- ----------------------------------------------------------------------------------
NET INVESTMENT LOSS (8,861)

- ----------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
- ----------------------------------------------------------------------------------
Net realized gain on investments 359,434
- ----------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 23,864

- ----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 374,437
===============

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

11 | OPPENHEIMER VALUE FUND/VA

STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2006 2005
- --------------------------------------------------------------------------------------------------------------------------

OPERATIONS
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (8,861) $ 4,332
- --------------------------------------------------------------------------------------------------------------------------
Net realized gain 359,434 444,863
- --------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 23,864 (281,841)
----------------------------
Net increase in net assets resulting from operations 374,437 167,354

- --------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- --------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Non-Service shares (1,194) (4,318)
Service shares -- --
----------------------------
(1,194) (4,318)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Non-Service shares (263,215) (415,306)
Service shares (37,589) --
----------------------------
(300,804) (415,306)

- --------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from beneficial interest transactions:
Non-Service shares -- --
Service shares 477,488 --
----------------------------
477,488 --

- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 549,927 (252,270)
- --------------------------------------------------------------------------------------------------------------------------
Beginning of period 2,562,260 2,814,530
----------------------------
End of period (including accumulated net investment loss of $5,081 and $1,456, respectively) $ 3,112,187 $ 2,562,260
============================

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

OPPENHEIMER VALUE FUND/VA
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

NON-SERVICE SHARES YEAR ENDED DECEMBER 31, 2006 2005 2004 2003 1
- ----------------------------------------------------------------------------------------------------------

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 2.14%

6. Voluntary waiver of management fees less than 0.01%.

7. Reduction to custodian expenses less than 0.01%.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

SERVICE SHARES PERIOD ENDED DECEMBER 31, 2006 1
- -----------------------------------------------------------------------------

1. For the period from September 18, 2006 (inception of offering) to December
31, 2006.

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. Expenses including indirect expenses from affiliated fund were as follows:

Year Ended December 31, 2006 2.89%

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, 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. Realization of current income is a secondary consideration. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager). As of December 31,
2006, 85% of the Fund's shares were owned by the Manager.

The following is a summary of significant accounting policies consistently
followed by the Fund.

NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued

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.

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
----------------------------------------------------------------------
$ 49,925 $ 30,970 $ 458 $ 424,811

1. The Fund had $458 of straddle losses which were deferred.

2. During the fiscal year ended December 31, 2006, the Fund did not utilize any
capital loss carryforward.

3. During the fiscal year ended December 31, 2005, the Fund did not utilize any
capital loss carryforward.

REDUCTION TO
REDUCTION TO ACCUMULATED NET
INCREASE TO PAID-IN ACCUMULATED NET REALIZED GAIN ON
CAPITAL INVESTMENT LOSS INVESTMENTS 4
----------------------------------------------------------------
$ 1,319 $ 6,430 $ 7,749

4. $1,319, including $505 of long-term capital gain, was distributed in
connection with Fund share redemptions.

The tax character of distributions paid during the years ended December 31, 2006
and December 31, 2005 was as follows:

YEAR ENDED YEAR ENDED
DECEMBER 31, 2006 DECEMBER 31, 2005
----------------------------------------------------------------
Distributions paid from:
Ordinary income $ 14,671 $ 103,467
Long-term capital gain 287,327 316,157
------------------------------
Total $ 301,998 $ 419,624
==============================

Federal tax cost of securities $ 2,915,551
============

Gross unrealized appreciation $ 457,438
Gross unrealized depreciation (32,627)
------------
Net unrealized appreciation $ 424,811
============

- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES 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, 2006 1 YEAR ENDED DECEMBER 31, 2005 2
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------

NON-SERVICE SHARES
Sold -- $ -- -- $ --
Dividends and/or distributions reinvested -- -- -- --
Redeemed -- -- -- --
--------------------------------------------------------------
Net increase (decrease) -- $ -- -- $ --
==============================================================

- ---------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold 41,097 $ 500,936 -- $ --
Dividends and/or distributions reinvested 3,229 37,589 -- --
Redeemed (5,043) (61,037) -- --
--------------------------------------------------------------
Net increase 39,283 $ 477,488 -- $ --
==============================================================

1. For the year ended December 31, 2006 for Non-Service Shares and for the
period from September 18, 2006 (inception of offering) to December 31, 2006 for
Service Shares.

2. There were no transactions of beneficial interest in the year ended December
31, 2005.

- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES

The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and money market funds, for the year ended December
31, 2006, were as follows:

PURCHASES SALES
--------------------------------------------------------------------
Investment securities $ 3,362,454 $ 3,520,004

- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES

FEE SCHEDULE
--------------------------
Up to $200 million 0.75%
Next $200 million 0.72
Next $200 million 0.69
Next $200 million 0.66
Over $800 million 0.60

- --------------------------------------------------------------------------------
5. RECENT ACCOUNTING PRONOUNCEMENTS

- --------------------------------------------------------------------------------
5. RECENT ACCOUNTING PRONOUNCEMENTS Continued

expense must be recorded in respect of any tax position that, in Management's
judgment, will not be fully realized. FIN 48 is effective for fiscal years
beginning after December 15, 2006. As of December 31, 2006, the Manager has
evaluated the implications of FIN 48 and does not currently anticipate a
material impact to the Fund's financial statements. The Manager will continue to
monitor the Fund's tax positions prospectively for potential future impacts.

- --------------------------------------------------------------------------------
6. LITIGATION

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 & Poor's Ratings Services ("Standard & 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 &
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 & 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 & 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 & 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 & 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 & 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 & 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 & Defense Industrial Conglomerates
Air Freight & Couriers Insurance
Airlines Internet & Catalog Retail
Asset Backed Securities Internet & Software & Services
Auto Components IT Services
Automobiles Leasing & Factoring
Beverages Leisure Equipment & Products
Biotechnology Machinery
Broker-Dealer Marine
Building Products Media
Capital Markets Metals & Mining
Chemicals Multiline Retail
Commercial Banks Multi-Utilities
Commercial Finance Municipal
Commercial Services & Supplies Office Electronics
Communications Equipment Oil & Gas
Computers & Peripherals Paper & Forest Products
Construction & Engineering Personal Products
Construction Materials Pharmaceuticals
Consulting & Services Real Estate
Consumer Finance Repurchase Agreements
Containers & Packaging Road & Rail
Distributors Semiconductor and Semiconductor Equipment
Diversified Financial Services Software
Diversified Telecommunication Special Purpose Financial
Services
Electric Utilities Specialty Retail
Electrical Equipment Textiles, Apparel & Luxury Goods
Electronic Equipment & Instruments Thrifts & Mortgage Finance
Energy Equipment & Services Tobacco
Food & Drug Retailing Trading Companies & 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 & Supplies U.S. Government Instrumentalities
Health Care Providers & Services U.S. Government Obligations
Hotels Restaurants & Leisure Water Utilities
Household Durables Wireless Transportation Services
Household Products

Appendix C

INDUSTRY CLASSIFICATIONS (all Funds except Oppenheimer Money Fund/VA)

Aerospace & Defense Household Products
Air Freight & Couriers Industrial Conglomerates
Airlines Insurance
Auto Components Internet & Catalog Retail
Automobiles Internet Software & Services
Beverages IT Services
Biotechnology Leisure Equipment & Products
Building Products Machinery
Chemicals Marine
Consumer Finance Media
Commercial Banks Metals & Mining
Commercial Services & Supplies Multiline Retail
Communications Equipment Multi-Utilities
Computers & Peripherals Office Electronics
Construction & Engineering Oil & Gas
Construction Materials Paper & Forest Products
Containers & Packaging Personal Products
Distributors Pharmaceuticals
Diversified Financial Services Real Estate
Diversified Telecommunication Road & Rail
Services
Electric Utilities Semiconductors and Semiconductor
Equipment
Electrical Equipment Software
Electronic Equipment & Instruments Specialty Retail
Energy Equipment & Services Textiles, Apparel & Luxury Goods
Food & Staples Retailing Thrifts & Mortgage Finance
Food Products Tobacco
Gas Utilities Trading Companies & Distributors
Health Care Equipment & Supplies Transportation Infrastructure
Health Care Providers & Services Water Utilities
Hotels Restaurants & Leisure Wireless Telecommunication Services
Household Durables

Appendix D

Major Shareholders. As of March 30, 2007 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 Allstate Allstate
(consisting of 11 separate Total Shares Allmerica Allstate Life Life
Funds) in the fund Allianz Financial Financial of NY Ins. Co.
Balanced Fund/VA 26,386,379.572 * * * * *
Non-Service Shares

Balanced Fund/VA 6,863,582.772 * 654,877.240 * 480,029.5012,649,324.479
Service Shares
9.54% 6.99% 38.60%
Capital Appreciation Fund/VA 37,466,512.586 * * * * *
Non-Service Shares

Capital Appreciation Fund/VA 11,335,077.973 * * * * 1,896,694.924
Service Shares
16.73%
Core Bond Fund/VA 33,366,325.340 * * * * *
Non-Service Shares

Core Bond Fund/VA 4,712,120.576 * * * 784,778.4093,792,044.576
Service Shares
16.65% 80.47%
Global Securities Fund/VA 65,122,001.196,937,395.630 * * * *
Non-Service Shares
10.65%
Global Securities Fund/VA 30,801,340.654 * * * * *
Service Shares

Global Securities Fund/VA 11,198,331.560 * * * * *
Class 3 shares

Global Securities Fund/VA 3,368,200.120 * * * * *
Class 4 shares

High Income Fund/VA 43,568,899.064,324,561.082 * * * *
Non-Service Shares
9.93%
High Income/VA 21,883,637.220 * 2,416,609.996 * 1,279,651.85,029,686.969
Service Shares
11.04% 5.85% 22.98%
Main Street Fund/VA 41,004,160.056,547,833.710 * * * *
Non-Service Shares
15.97%
Main Street Fund/VA 48,602,143.847 * * * * 4,810,959.892
Service Shares
9.90%
Main Street Small Cap Fund/VA 4,720,668.930 * * 245,690.341 * *
Non-Service Shares
5.20%
Main Street Small Cap Fund/VA 37,536,948.941 * * * * 2,933,068.662
Service Shares
7.81%
MidCap Fund/VA 19,944,361.644 * * * * *
Non-Service Shares

MidCap Fund/VA 934,071.231 * * * 79,040.414 434,452.451
Service Shares
8.46% 46.51%
Money Fund/VA 181,560,646.780 * * * * *
Non-Service Shares

Strategic Bond Fund/VA 121,428,811.020 * * * * *
Non-Service Shares

Strategic Bond Fund/VA 308,717,715.899 * * * * 25,828,598.880
Service Shares
8.37%
Value Fund/VA * * * * * *
Non-Service Shares

Value Fund/VA 117,162.262 * * * * *
Service Shares

Oppenheimer Variable Account Hartford
Funds Hartford Life
(consisting of 11 separate American Life Insurance
Funds) Express Cuna GE Annuity Co. IDS Life
Balanced Fund/VA * * 4,051,852.789 * * *
Non-Service Shares
15.36%
Balanced Fund/VA * * 2,735,870.995 * * *
Service Shares
39.86%
Capital Appreciation Fund/VA * * 2,734,624.301 * * *
Non-Service Shares
7.30%
Capital Appreciation Fund/VA 1,589,218.536 * * 850,522.800 1,824,599.406 *
Service Shares
14.02% 7.50% 16.10%
Core Bond Fund/VA * * 5,593,111.158 * * *
Non-Service Shares
16.76%
Core Bond Fund/VA * * * * * *
Service Shares

Global Securities Fund/VA * * * * * *
Non-Service Shares

Global Securities Fund/VA * * 3,824,043.23,969,730.277,077,989.85,292,058.188
Service Shares
12.42% 12.89% 22.98% 17.18%
Global Securities Fund/VA * * * * * *
Class 3 shares

Global Securities Fund/VA * * * * * *
Class 4 shares

High Income Fund/VA * 2,523,623.47,575,205.299 * * *
Non-Service Shares
5.79% 17.39%
High Income/VA * * * * * *
Service Shares

Main Street Fund/VA * * * * * *
Non-Service Shares

Main Street Fund/VA * * 3,754,943.684 * * *
Service Shares
7.73%
Main Street Small Cap Fund/VA * * * * * *
Non-Service Shares

Main Street Small Cap Fund/VA * * 2,258,164.53,158,867.277,720,707.66,588,835.061
Service Shares
6.02% 8.42% 20.57% 17.55%
MidCap Fund/VA * * 1,518,591.020 * * *
Non-Service Shares
7.61%
MidCap Fund/VA * * 112,027.602 * 79,184.998 *
Service Shares
11.99% 8.48%
Money Fund/VA * * * * * *
Non-Service Shares

Strategic Bond Fund/VA * * * * * *
Non-Service Shares

Strategic Bond Fund/VA 36,219,949.817 * * * * 215,438,368.881
Service Shares
11.73% 69.78%
Value Fund/VA * * * * * *
Non-Service Shares

Value Fund/VA * * * * * 91,561.289
Service Shares
78.15%

Oppenheimer Variable
Account Funds
(consisting of 11 Lincoln Mass Merrill Minnesota
separate Funds) ING Benefit Mutual Lynch Life Nationwide
Balanced Fund/VA * * 9,429,196.7042,282,873.974 * 9,327,394.579
Non-Service Shares
35.74% 8.65% 35.35%
Balanced Fund/VA * * * * * *
Service Shares

Capital Appreciation 97
Fund/VA
Non-Service Shares * * 15,169,642.379 * * 15,003,787.5
40.49% 40.05%
Capital Appreciation 1
Fund/VA
Service Shares * * * * * 2,038,926.45
17.99%
Core Bond Fund/VA * * 13,765,244.523 * * 12,081,171.579
Non-Service Shares
41.25% 36.21%
Core Bond Fund/VA * * * * * *
Service Shares

Global Securities Fund/VA * * 35,445,928.296 * * 18,018,362.840
Non-Service Shares
54.43% 27.67%
Global Securities Fund/VA * * * * * *
Service Shares

Global Securities Fund/VA * * * * * 11,198,331.560
Class 3 shares
100.00%
Global Securities Fund/VA * * * * * 3,368,200.120
Class 4 shares
100.00%
High Income Fund/VA * * 21,669,417.509 * * 2,719,916.842
Non-Service Shares
49.74% 6.24%
High Income/VA * * * * 5,638,037.415,449,461.450
Service Shares
25.76% 24.90%
Main Street Fund/VA * * 11,889,182.063 * * 16,731,586.643
Non-Service Shares
29.00% 40.80%
Main Street Fund/VA * * * * * 11,220,915.162
Service Shares
23.09%
Main Street Small Cap 2
Fund/VA
Non-Service Shares 1,272,230.904 * 782,751.823 * * 1,482,393.68
26.95% 16.58% 31.40%
Main Street Small Cap 1
Fund/VA
Service Shares * 4,083,363.654 * * * 5,078,602.72
10.88% 13.53%
MidCap Fund/VA * * 13,031,346.035 * * 4,568,162.806
Non-Service Shares
65.34% 22.90%
MidCap Fund/VA * 73,521.711 * * * *
Service Shares
7.87%
Money Fund/VA * * 145,911,327.611,835,126.360 * *
Non-Service Shares
80.37% 6.52%

Strategic Bond Fund/VA * * 102,441,949.528 * * *
Non-Service Shares
84.36%
Strategic Bond Fund/VA * * * * * *
Service Shares

Value Fund/VA * * * * * *
Non-Service Shares

Value Fund/VA * * * * * *
Service Shares

Oppenheimer Variable
Account Funds
(consisting of 11 SunLife IDS Life of
separate Funds) Protective Prudential Financial NY
Balanced Fund/VA * * * *
Non-Service Shares

Balanced Fund/VA * * * *
Service Shares

Capital Appreciation
Fund/VA
Non-Service Shares * * * *

Capital Appreciation
Fund/VA
Service Shares * * 1,029,272.618 *
9.08%
Core Bond Fund/VA * * * *
Non-Service Shares

Core Bond Fund/VA * * * *
Service Shares

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 2,109,038.339 * * *
Non-Service Shares
5.14%
Main Street Fund/VA * * 24,041,005.446 *
Service Shares
49.46%
Main Street Small Cap
Fund/VA
Non-Service Shares * * * *

Main Street Small Cap
Fund/VA
Service Shares * * * *

MidCap Fund/VA * * * *
Non-Service Shares

MidCap Fund/VA * 66,473.671 * *
Service Shares
7.12%
Money Fund/VA 23,627,318.720 * * *
Non-Service Shares
13.01%
Strategic Bond Fund/VA 12,842,544.009 * * *
Non-Service Shares
10.58%
Strategic Bond Fund/VA * * * *
Service Shares

Value Fund/VA * * * 25,600.973
Non-Service Shares
21.85%
Value Fund/VA * * * *
Service Shares

Oppenheimer Variable Account Funds

Internet Website:
www.oppenheimerfunds.com

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 & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202

Counsel to the Funds
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202

Counsel to the Independent Trustees
Bell, Boyd & Lloyd LLC
70 West Madison Street, Suite 3100
Chicago, Illinois 60602

1234
PXOVAF.001.0407

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