Registration No. 2-93177
File No. 811-04108
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |
☒ |
Pre-Effective Amendment No. |
□ |
Post-Effective Amendment No. 81 |
☒ |
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |
☒ |
OPPENHEIMER VARIABLE ACCOUNT FUNDS
(Exact Name of Registrant as Specified in Charter)
6803 South Tucson Way, Centennial, Colorado
80112-3924
(Address of Principal Executive Offices) (Zip Code)
(303) 768-3200
(Registrant’s Telephone Number, including Area Code)
Cynthia Lo Bessette, Esq.
OFI Global Asset Management, Inc.
225 Liberty Street, New York, New York 10281-1008
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
□ immediately upon filing pursuant to paragraph (b)
□ on ___________ pursuant to paragraph (b)
□ 60 days after filing pursuant to paragraph (a)(1)
☒ on April 28, 2017 pursuant to paragraph (a)(1)
□ 75 days after filing pursuant to paragraph (a)(2)
□ on
pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
□ This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Oppenheimer
Global Strategic Income Fund/VA
A series of Oppenheimer Variable
Account Funds
Prospectus dated April __, 2017
Oppenheimer Global Strategic Income
Fund/VA is a mutual fund that seeks total return.
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 which share class or classes you are eligible to purchase.
This prospectus contains important
information about the Fund’s objective, investment policies, strategies and risks. It also contains important information about how to buy and sell shares of the Fund and other account features. Please read this
prospectus carefully before you invest and keep it for future reference about your account.
Share Classes:
Non-Service Shares
Service Shares
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.
Investment Objective. The Fund seeks total return.
Fees and Expenses of the
Fund. This table describes the fees and expenses that you may pay if you buy and hold or redeem shares of the Fund. The accompanying prospectus of the
participating insurance company provides 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. The fees and expenses of those products are not charged by the Fund and are not reflected in this table. Expenses would be higher if those fees were included.
(fees paid directly from your
investment)
| Non-Service
| Service
|
|
Maximum Sales Charge (Load) imposed on purchases (as % of offering price)
| None
| None
|
|
|
Maximum Deferred Sales Charge (Load) (as % of the lower of original offering price or redemption proceeds)
| None
| None
|
|
Annual
Fund Operating Expenses (deducted from Fund assets):
(expenses
that you pay each year as a percentage of the value of your investment)
| Non-Service Shares | Service Shares | |
Management Fees1 | ___% | ___% | |
|
Distribution and/or Service
(12b-1) Fees | ___% | ___% | |
|
Acquired Fund Fees and Expenses | ___% | ___% | |
|
Other Expenses | ___% | ___% | |
|
Total Annual Fund Operating
Expenses | ___% | ___% | |
|
Fee Waiver and/or Expense Reimbursement2 | ___% | ___% | |
|
Total Annual Fund Operating
Expenses After Fee Waiver and/or Expense Reimbursement | ___% | ___% | |
1.
| “Management Fees” reflects the gross management fees paid to the Manager by the Fund during the Fund’s most recent fiscal year and the gross management fee of the Subsidiary during the Fund’s
most recent fiscal year.
|
2.
| After discussions with the Fund’s Board, the Manager has contractually agreed to waive fees and/or reimburse Fund expenses in an amount equal to the indirect management fees incurred through the Fund’s
investment in funds managed by the Manager or its affiliates. This fee waiver and/or expense reimbursement may not be amended or withdrawn for one year from the date of this prospectus, unless approved by the Board.
|
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 a class of shares of the Fund for the time periods indicated. The Example
also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although
your actual costs may be higher or lower, based on these assumptions your expenses would be as follows, whether or not you redeemed
your shares:
| 1 Year | 3 Years | 5 Years | 10 Years | |
Non-Service Shares | $__ | $__ | $__ | $__ | |
|
Service Shares | $__ | $__ | $__ | $__ |
|
Portfolio
Turnover. The Fund pays transaction costs, such as commissions,
when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher
transaction costs. These costs, which are not reflected in the annual fund operating expenses or in the example, affect the Fund’s
performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was __% of the average value of its
portfolio.
Principal
Investment Strategies. The Fund invests mainly in debt
securities in three market sectors: Foreign governments and issuers, U.S. government securities, and lower-grade, high-yield securities
of U.S. and foreign issuers (commonly referred to as “junk bonds”). A debt security is a security representing money
borrowed by the issuer that must be repaid. The terms of a debt security specify the amount of principal, the interest rate or
discount, and the time or times at which payments are due.
Under
normal market conditions, the Fund invests in each of the three market sectors. However, the Fund is not required to invest in
all three sectors at all times, 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 portfolio managers believe that it offers the best
investment opportunity. Under normal market conditions, the Fund will invest a substantial portion of its assets in a number of
different countries, including the U.S. The Fund is not required to allocate its investments in any set percentages in any particular
countries. The Fund may also invest in securities outside of these three market sectors, as further described in the prospectus
and the Fund’s Statement of Additional Information.
Oppenheimer Global Strategic Income Fund/VA | 1 |
The
Fund’s foreign investments may include debt securities issued by foreign governments or companies in both developed markets
and emerging markets. The Fund has no limitations regarding the range of maturities of the debt securities it can buy or the market
capitalization of the issuers of those securities.
The
Fund’s debt investments typically include: U.S. and foreign government bonds and notes, collateralized mortgage obligations
(CMOs) and other mortgage-related securities, domestic and foreign corporate debt obligations, “structured” notes,
“zero coupon” and “stripped” securities, participation interests in loans, investments in loan pools and
asset-backed securities. The Fund normally invests a substantial amount of its assets in lower-grade, high-yield debt securities,
and can do so without limit.
The
Fund can invest in investment grade or lower-grade, high-yield debt securities. “Investment grade” debt securities
are rated in one of the top four rating categories by nationally recognized statistical rating organizations such as Moody’s
Investors Service or S&P Global Ratings. The Fund may also invest in unrated securities, in which case the Fund’s Sub-Adviser,
OppenheimerFunds, Inc., may internally assign ratings to certain of those securities, after assessing their credit quality, in
investment-grade or below-investment-grade categories similar to those of nationally recognized statistical rating organizations.
There can be no assurance, nor is it intended, that the Sub-Adviser’s credit analysis is consistent or comparable with the
credit analysis process used by a nationally recognized statistical rating organization.
The
Fund may also use certain types of derivative instruments for investment purposes or for hedging, including: options, futures,
forward contracts, swaps, certain mortgage-related securities, “structured”notes, and event-linked bonds.
The
Fund actively manages foreign currency exposure to seek to reduce risk and enhance return. To do so, the Fund may invest in foreign
exchange derivatives, including forwards and options that reference foreign currencies, including currencies of developing and
emerging market countries.
The
portfolio managers analyze the overall investment opportunities and risks among the three market sectors in which the Fund invests
and seek to moderate the special risks of investing in lower-grade, high-yield debt instruments and foreign securities by building
a broadly diversified portfolio. The Fund’s diversification strategies are intended to help reduce share price volatility
while seeking current income. The portfolio managers currently focus on securities offering a balance of income and total return,
securities whose market prices tend to move in different directions (to seek overall portfolio diversification), and relative
values among the three market sectors in which the Fund invests. These factors may vary in particular cases and may change over
time.
The
Fund may sell securities that the portfolio managers believe are no longer favorable based on these factors.
The
Fund has established a Cayman Islands exempted company that is wholly-owned and controlled by the Fund (the “Subsidiary”).
The Fund may invest up to 25% of its total assets in the Subsidiary. The Subsidiary invests primarily in Regulation S securities.
Regulation S securities are securities of U.S. and non-U.S. issuers that are issued through private offerings without registration
with the Securities and Exchange Commission pursuant to Regulation S under the Securities Act of 1933. The Fund applies its investment
restrictions and compliance policies and procedures, on a look-through basis, to the Subsidiary. Since the Fund may invest a substantial
portion of its assets in the Subsidiary, which may hold certain of the investments described in this prospectus, the Fund may
be considered to be investing indirectly in those investments through its Subsidiary. Therefore, references in this prospectus
to investments by the Fund also may be deemed to include the Fund’s indirect investments through the Subsidiary.
Principal Risks. The price of the Fund’s shares can go up and down substantially. The value of the Fund’s investments may change because of broad changes in
the markets in which the Fund invests or because of poor investment selection, which could cause the Fund to underperform other funds with similar investment objectives. There is no assurance that the Fund will
achieve its investment objective. When you redeem your shares, they may be worth less than what you paid for them. These risks mean that you can lose money by investing in the Fund.
Risks of Investing in Debt
Securities. Debt securities may be subject to interest rate risk, duration risk, credit risk, credit spread risk, extension risk, reinvestment risk, prepayment risk and event risk. Interest rate risk
is the risk that when prevailing interest rates fall, the values of already-issued debt securities generally rise; and when prevailing interest rates rise, the values of already-issued debt securities generally fall,
and they may be worth less than the amount the Fund paid for them. When interest rates change, the values of longer-term debt securities usually change more than the values of shorter-term debt securities. Risks
associated with rising interest rates are heightened given that interest rates in the U.S. are at, or near, historic lows. Duration risk is the risk that longer-duration debt securities will be more volatile and more
likely to decline in price in a rising interest rate environment than shorter-duration debt securities. 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 an issuer fails to pay interest or repay principal, the Fund’s income or share value might be reduced. Adverse news about an issuer or a downgrade in an issuer’s credit
rating, for any reason, can also reduce the market value of the issuer’s securities. “Credit spread” is the difference in yield between securities that is due to differences in their credit quality.
There is a risk that credit spreads may increase when the market expects lower-grade bonds to default more frequently. Widening credit spreads may quickly reduce the market values of the Fund’s lower-rated and
unrated securities. Some unrated securities may not have an active trading market or may trade less actively than rated securities, which means that the Fund might have difficulty selling them promptly at an
acceptable price. Extension risk is the risk that an increase in interest rates could cause principal payments on a debt security to be repaid at a slower rate than expected. Extension risk is particularly prevalent
for a callable security where an increase in interest rates could result in the issuer of that security choosing not to redeem the security as anticipated on the security’s call date. Such a decision by the
issuer could have the effect of lengthening the debt security’s expected maturity, making it more vulnerable to interest rate risk and reducing its market
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| Oppenheimer Global Strategic Income Fund/VA
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value. Reinvestment risk is the risk that when
interest rates fall the Fund may be required to reinvest the proceeds from a security’s sale or redemption at a lower interest rate. Callable bonds are generally subject to greater reinvestment risk than
non-callable bonds. Prepayment risk is the risk that the issuer may redeem the security prior to the expected maturity or that borrowers may repay the loans that underlie these securities more quickly than expected,
thereby causing the issuer of the security to repay the principal prior to the expected maturity. The Fund may need to reinvest the proceeds at a lower interest rate, reducing its income. Event risk is the risk that
an issuer could be subject to an event, such as a buyout or debt restructuring, that interferes with its ability to make timely interest and principal payments and cause the value of its debt securities to fall.
Fixed-Income
Market Risks. The fixed-income securities market can be susceptible to increases in volatility
and decreases in liquidity. Liquidity may decline unpredictably in response to overall economic conditions or credit tightening.
During times of reduced market liquidity, the Fund may not be able to readily sell bonds at the prices at which they are carried
on the Fund’s books and could experience a loss. If the Fund needed to sell large blocks of bonds to meet shareholder redemption
requests or to raise cash, those sales could further reduce the bonds’ prices, particularly for lower-rated and unrated
securities. An unexpected increase in redemptions by Fund shareholders, which may be triggered by general market turmoil or an
increase in interest rates, could cause the Fund to sell its holdings at a loss or at undesirable prices.
Economic
and other market developments can adversely affect fixed-income securities markets in the United States, Europe and elsewhere.
At times, participants in debt securities markets may develop concerns about the ability of certain issuers of debt securities
to make timely principal and interest payments, or they may develop concerns about the ability of financial institutions that
make markets in certain debt securities to facilitate an orderly market. Those concerns may impact the market price or value of
those debt securities and may cause increased volatility in those debt securities or debt securities markets. Under some circumstances,
those concerns may cause reduced liquidity in certain debt securities markets, reducing the willingness of some lenders to extend
credit, and making it more difficult for borrowers to obtain financing on attractive terms (or at all). A lack of liquidity or
other adverse credit market conditions may hamper the Fund’s ability to sell the debt securities in which it invests or
to find and purchase suitable debt instruments.
Risks
of Below-Investment-Grade Securities. As compared to investment-grade debt securities, below-investment-grade
debt securities (also referred to as “junk” bonds), whether rated or unrated, may be subject to greater price fluctuations
and increased credit risk, as the issuer might not be able to pay interest and principal when due, especially during times of
weakening economic conditions or rising interest rates. Credit rating downgrades of a single issuer or related similar issuers
whose securities the Fund holds in significant amounts could substantially and unexpectedly increase the Fund’s exposure
to below-investment-grade securities and the risks associated with them, especially liquidity and default risk. The market for
below-investment-grade securities may be less liquid and therefore these securities may be harder to value or sell at an acceptable
price, especially during times of market volatility or decline.
Because
the Fund can invest without limit in below-investment-grade securities, the Fund’s credit risks are greater than those of
funds that buy only investment-grade securities. Credit rating downgrades of a single issuer or
related similar issuers whose securities the Fund holds in significant amounts could substantially and unexpectedly increase the
Fund’s exposure to below-investment-grade securities and the risks associated with them, especially liquidity and default
risk.
Risks
of Sovereign Debt. Sovereign debt instruments are subject to the risk that a governmental entity
may delay or refuse, or otherwise be unable, to pay interest or repay principal on its sovereign debt. If a governmental entity
defaults, it may ask for more time in which to pay or for further loans. There is no legal process for collecting sovereign debt
that a government does not pay nor are there bankruptcy proceedings through which all or part of such sovereign debt may be collected.
A restructuring or default of sovereign debt may also cause additional impacts to the financial markets, such as downgrades to
credit ratings, a flight to quality debt instruments, disruptions in common trading markets or unions, reduced liquidity, increased
volatility, and heightened financial sector, foreign securities and currency risk, among others.
Risks of Mortgage-Related
Securities. The Fund can buy interests in pools of residential or commercial mortgages in the form of “pass-through” mortgage securities. They may be issued or guaranteed by the U.S.
government, or its agencies and instrumentalities, or by private issuers. 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. Private-issuer mortgage-backed securities are also subject to interest rate risk, and the market for private-issuer mortgage-backed securities may be
volatile at times and may be less liquid than the markets for other types of securities. In addition, a substantial portion of the Fund’s assets may be subject to “forward roll” transactions (also
referred to as “mortgage dollar rolls”) at any given time, which subject the Fund to the risk that market value of the mortgage-related securities involved might decline, and that the counterparty might
default in its obligations.
Sector Allocation Risk. In allocating investments among its three principal market sectors, the Fund seeks to take advantage of the potential lack of performance correlation between those sectors. There is the
risk that the evaluations regarding the sectors’ relative performance may be incorrect and those sectors may all perform in a similar manner under certain market conditions.
Risks of Foreign Investing. Foreign securities are subject to special risks. Securities traded in foreign markets may be less liquid and more volatile than those traded in U.S. markets. Foreign issuers are usually
not subject to the same accounting and disclosure requirements that U.S. companies are subject to, which may make it difficult for the Fund to evaluate a foreign company’s operations or financial condition. A
change in the value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of investments denominated in that foreign currency and in the value of
Oppenheimer Global Strategic Income Fund/VA
| 3
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any income or distributions the Fund may
receive on those investments. The value of foreign investments may be affected by exchange control regulations, foreign taxes, higher transaction and other costs, delays in the settlement of transactions, changes in
economic or monetary policy in the United States or abroad, expropriation or nationalization of a company’s assets, or other political and economic factors. In addition, due to the inter-relationship of global
economies and financial markets, changes in political and economic factors in one country or region could adversely affect conditions in another country or region. Investments in foreign securities may also expose the
Fund to time-zone arbitrage risk. Foreign securities may trade on weekends or other days when the Fund does not price its shares. As a result, the value of the Fund’s net assets may change on days when you will
not be able to purchase or redeem the Fund’s shares. At times, the Fund may emphasize investments in a particular country or region and may be subject to greater risks from adverse events that occur in that
country or region. Foreign securities and foreign currencies held in foreign banks and securities depositories may be subject to only limited or no regulatory oversight.
Risks of
Developing and Emerging Markets. Investments in developing and emerging markets are subject to all the risks associated with foreign investing, however, these risks may be magnified in developing and
emerging markets. Developing or emerging market countries may have less well-developed securities markets and exchanges that may be substantially less liquid than those of more developed markets. Settlement procedures
in developing or emerging markets may differ from those of more established securities markets, and settlement delays may result in the inability to invest assets or to dispose of portfolio securities in a timely
manner. Securities prices in developing or emerging markets may be significantly more volatile than is the case in more developed nations of the world, and governments of developing or emerging market countries may
also be more unstable than the governments of more developed countries. Such countries’ economies may be more dependent on relatively few industries or investors that may be highly vulnerable to local and global
changes. Developing or emerging market countries also may be subject to social, political or economic instability. The value of developing or emerging market countries’ currencies may fluctuate more than the
currencies of countries with more mature markets. Investments in developing or emerging market countries may be subject to greater risks of government restrictions, including confiscatory taxation, expropriation or
nationalization of a company’s assets, restrictions on foreign ownership of local companies, restrictions on withdrawing assets from the country, protectionist measures, and practices such as share blocking. In
addition, the ability of foreign entities to participate in privatization programs of certain developing or emerging market countries may be limited by local law. Investments in securities of issuers in developing or
emerging market countries may be considered speculative.
Eurozone
Investment Risks. Certain of the regions in which the Fund invests, including
the European Union (EU), currently experience significant financial difficulties. Following the recent global economic crisis,
some of these countries have depended on, and may continue to be dependent on, the assistance from others such as the European
Central Bank (ECB) or other governments or institutions, and failure to implement reforms as a condition of assistance could have
a significant adverse effect on the value of investments in those and other European countries. In addition, countries that have
adopted the euro are subject to fiscal and monetary controls that could limit the ability to implement their own economic policies,
and could voluntarily abandon, or be forced out of, the euro. Such events could impact the market values of Eurozone and various
other securities and currencies, cause redenomination of certain securities into less valuable local currencies, and create more
volatile and illiquid markets. Additionally, the United Kingdom’s intended departure from the EU, commonly known as “Brexit,”
may have significant political and financial consequences for Eurozone markets, including greater market volatility and illiquidity,
currency fluctuations, deterioration in economic activity, a decrease in business confidence and an increased likelihood of a
recession in the United Kingdom.
Risks of Derivative
Investments. Derivatives may involve significant risks. Derivatives may be more volatile than other types of investments, may require the payment of premiums, may increase portfolio turnover, may be
illiquid, and may not perform as expected. Derivatives are subject to counterparty risk and the Fund may lose money on a derivative investment if the issuer or counterparty fails to pay the amount due. Some
derivatives have the potential for unlimited loss, regardless of the size of the Fund’s initial investment. As a result of these risks, the Fund could realize little or no income or lose money from its
investment, or a hedge might be unsuccessful. In addition, under new rules enacted and currently being implemented under financial reform legislation, certain over-the-counter derivatives are (or soon will be)
required to be executed on a regulated market and/or cleared through a clearinghouse. It is unclear how these regulatory changes will affect counterparty risk, and entering into a derivative transaction with a
clearinghouse may entail further risks and costs.
Risks
of Investments In The Fund’s Wholly-Owned Subsidiary. The Subsidiary is not registered
under the Investment Company Act of 1940 and is not subject to its investor protections (except as otherwise noted in this prospectus).
As an investor in the Subsidiary, the Fund does not have all of the protections offered to investors by the Investment Company
Act of 1940. However, the Subsidiary is wholly-owned and controlled by the Fund and managed by the Manager and the Sub-Adviser.
Therefore, the Fund’s ownership and control of the Subsidiary make it unlikely that the Subsidiary would take actions contrary
to the interests of the Fund or its shareholders. In addition, changes in the laws of the United States and/or the Cayman Islands
could result in the inability of the Fund and/or the Subsidiary to operate as described in this prospectus and the Statement of
Additional Information and could adversely affect the Fund. Changes in the laws of the United States and/or the Cayman Islands
could adversely affect the performance of the Fund and/or the Subsidiary. For example, the Cayman Islands currently does not impose
certain taxes on exempted companies like the Subsidiary, including income and capital gains tax, among others. If Cayman Islands
laws were changed to require such entities to pay Cayman Islands taxes, the investment returns of the Fund would likely decrease.
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| Oppenheimer Global Strategic Income Fund/VA
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Risks
of Investing in Regulation S Securities. Regulation S securities may be less liquid than
publicly traded securities and may not be subject to the disclosure and other investor protection requirements that would be
applicable if they were publicly traded. Accordingly, Regulation S securities may involve a high degree of business and
financial risk and may result in substantial losses. <R> </R>
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 other
investment plans offered through insurance company separate accounts of participating insurance companies. The Fund is designed primarily for investors seeking total return from a fund that invests in a variety of
domestic and foreign debt securities, including government and lower-grade debt 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 fixed-income securities and foreign securities. The Fund is not designed for investors needing an assured level of current income. The Fund is not a
complete investment program and may not be appropriate for all investors. You should carefully consider your own investment goals and risk tolerance before investing in the Fund.
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 provide some indication of the risks of investing in the Fund by showing changes in the Fund’s Non-Service Shares
performance from year to year and by showing how the Fund’s average annual returns for the periods of time shown in the
table, compare with those of broad measures of market performance. Charges imposed by the insurance accounts that invest in the
Fund are not included and the returns would be lower if they were. The Fund’s past investment performance is not necessarily
an indication of how the Fund will perform in the future. More recent performance information is available by calling the toll-free
number on the back of this prospectus and on the Fund’s website at: https://www.oppenheimerfunds.com/fund/GlobalStrategicIncomeFundVA
During
the period shown, the highest return before taxes for a calendar quarter was _____% (_____) and the lowest return before taxes
for a calendar quarter was _____% (_____).
The following table shows the
average annual total returns before taxes for each class of the Fund’s shares.
Average
Annual Total Returns for the periods ended December 31, 2016
| 1 Year | 5 Years | 10 Years | |
Non-Service Shares (inception
5/3/1993) | | | | |
|
Service Shares (inception 3/19/2001) | | | | |
|
Bloomberg Barclays U.S. Aggregate
Bond Index | | | | |
(reflects no deduction for
fees, expenses, or taxes) | | | | |
Investment Adviser. OFI Global Asset Management, Inc. (the “Manager”) is the Fund’s investment adviser. OppenheimerFunds, Inc. (the
“Sub-Adviser”) is its sub-adviser.
Portfolio
Managers. Michael Mata, the lead portfolio manager, has
been a Vice President and portfolio manager of the Fund since November 2014. Krishna Memani has been a Vice President and portfolio
manager of the Fund since April 2009. Ruta Ziverte has been a Vice President and portfolio manager of the Fund since January 2017.
Chris Kelly, CFA has been a Vice President and portfolio manager of the Fund since January 2017.
Purchase and Sale of Fund
Shares. 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. You may only submit instructions for buying or selling shares of the Fund
to your insurance company or its servicing agent, not directly to the Fund or its Transfer Agent. The accompanying prospectus of the participating insurance company provides information about how to select the Fund as
an investment option.
Taxes.
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,
any dividends and capital gains distributions will be taxable to the participating insurance company, if at all. However, those
payments may affect the tax basis of certain types of distributions from those accounts. Special tax rules apply to life insurance
companies, variable annuity contracts and variable life insurance contracts. For information on federal income taxation of a life
insurance company with respect to its receipt of distributions from the Fund and federal income taxation of owners of variable
annuity or variable life insurance contracts, see the accompanying prospectus for the applicable contract.
Payments to Broker-Dealers and
Other Financial Intermediaries. The Fund, the Sub-Adviser, or their related companies may make payments to financial intermediaries, including to insurance companies that offer shares
of the Fund as an investment option. These payments for the sale of Fund shares and related services may create a conflict of interest by influencing the intermediary and your salesperson to recommend the Fund over
another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
Oppenheimer Global Strategic Income Fund/VA
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More About Your
Investment
About the Fund’s
Investments
The allocation of the
Fund’s portfolio among different types of investments will vary over time and the Fund’s portfolio might not always include all of the different types of investments described below. The Statement of
Additional Information contains additional information about the Fund’s investment policies and risks.
The Fund’s Principal
Investment Strategies and Risks. The following strategies and types of investments are the ones that the Fund considers to be the most important in seeking to achieve its investment
objective and the following risks are those the Fund expects its portfolio to be subject to as a whole.
Debt Securities. The Fund may invest in debt securities, including, but not limited to: U.S. and foreign government bonds and notes, collateralized mortgage obligations and other mortgage-related
securities, asset-backed securities, participation interests in loans, investments in pooled investment entities (including those that invest in loans), “structured” notes, corporate debt obligations,
including below-investment-grade, high-yield domestic and foreign corporate debt obligations, and zero-coupon and stripped securities.
Debt securities may be subject
to the following risks:
■
| Interest Rate Risk. Interest rate risk is the risk that rising interest rates, or an expectation of rising interest rates in the near future, will cause the values of the Fund’s
investments in debt securities to decline. The values of debt securities usually change when prevailing interest rates change. When interest rates rise, the values of outstanding debt securities generally fall, and
those securities may sell at a discount from their face amount. When interest rates rise, the decrease in values of outstanding debt securities may not be offset by higher income from new investments. When interest
rates fall, the values of already-issued debt securities generally rise. Additionally, when interest rates fall, the Fund’s investments in new securities may be at lower yields and may reduce the Fund’s
income. The values of longer-term debt securities usually change more than the values of shorter-term debt securities when interest rates change; thus, interest rate risk is usually greater for securities with longer
maturities or durations. “Zero-coupon” or “stripped” securities may be particularly sensitive to interest rate changes. Risks associated with rising interest rates are heightened given that
interest rates in the U.S. are at, or near, historic lows. Interest rate changes may have different effects on the values of mortgage-related securities because of prepayment and extension risks.
|
■
| Duration Risk. Duration risk is the risk that longer-duration debt securities are more likely to decline in price than shorter-duration debt securities, in a rising interest-rate
environment. Duration is a measure of the price sensitivity of a debt security or portfolio to interest rate changes. “Effective duration” attempts to measure the expected percentage change in the value of
a bond or portfolio resulting from a change in prevailing interest rates. The change in the value of a bond or portfolio can be approximated by multiplying its duration by a change in interest rates. For example, if a
bond has an effective duration of three years, a 1% increase in general interest rates would be expected to cause the bond’s value to decline about 3% while a 1% decrease in general interest rates would be
expected to cause the bond’s value to increase 3%. The duration of a debt security may be equal to or shorter than the full maturity of a debt security.
|
■
| 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. U.S. government securities
generally have lower credit risks than securities issued by private issuers or certain foreign governments. If an issuer fails to pay interest, the Fund’s income might be reduced, and if an issuer fails to repay
principal, the value of the security might fall and the Fund could lose the amount of its investment in the security. The extent of this risk varies based on the terms of the particular security and the financial
condition of the issuer. A downgrade in an issuer’s credit rating or other adverse news about an issuer, for any reason, can reduce the market value of that issuer’s securities.
|
■
| Credit Spread Risk. Credit spread risk is the risk that credit spreads (i.e., the difference in yield between securities that is due to differences in their credit quality) may increase when
the market expects lower-grade bonds to default more frequently. Widening credit spreads may quickly reduce the market values of the Fund’s lower-rated and unrated securities. Some unrated securities may not
have an active trading market or may trade less actively than rated securities, which means that the Fund might have difficulty selling them promptly at an acceptable price.
|
■
| Extension Risk. Extension risk is the risk that, if interest rates rise rapidly, repayments of principal on certain debt securities may occur at a slower rate than expected, and the
expected maturity of those securities could lengthen as a result. Securities that are subject to extension risk generally have a greater potential for loss when prevailing interest rates rise, which could cause their
values to fall sharply. Extension risk is particularly prevalent for a callable security where an increase in interest rates could result in the issuer of that security choosing not to redeem the security as
anticipated on the security’s call date. Such a decision by the issuer could have the effect of lengthening the debt security’s expected maturity, making it more vulnerable to interest rate risk and
reducing its market value.
|
■
| Reinvestment Risk. Reinvestment risk is the risk that when interest rates fall, the Fund may be required to reinvest the proceeds from a security’s sale or redemption at a lower
interest rate. Callable bonds are generally subject to greater reinvestment risk than non-callable bonds.
|
6
| Oppenheimer Global Strategic Income Fund/VA
|
■
| Prepayment Risk. Certain fixed-income securities (in particular mortgage-related securities) are subject to the risk of unanticipated prepayment. Prepayment risk is the risk that, when
interest rates fall, the issuer will redeem the security prior to the security’s expected maturity, or that borrowers will repay the loans that underlie these fixed-income securities more quickly than expected,
thereby causing the issuer of the security to repay the principal prior to expected maturity. The Fund may need to reinvest the proceeds at a lower interest rate, reducing its income. Securities subject to prepayment
risk generally offer less potential for gains when prevailing interest rates fall. If the Fund buys those securities at a premium, accelerated prepayments on those securities could cause the Fund to lose a portion of
its principal investment. The impact of prepayments on the price of a security may be difficult to predict and may increase the security’s price volatility. Interest-only and principal-only securities are
especially sensitive to interest rate changes, which can affect not only their prices but can also change the income flows and repayment assumptions about those investments.
|
■
| Event Risk. If an issuer of debt securities is the subject of a buyout, debt restructuring, merger or recapitalization that increases its debt load, it could interfere with its
ability to make timely payments of interest and principal and cause the value of its debt securities to fall.
|
Fixed-Income Market Risks. The fixed-income securities market can be susceptible to unusual volatility and illiquidity. Volatility and illiquidity may be more pronounced in the case of lower-rated and unrated
securities. Liquidity can decline unpredictably in response to overall economic conditions or credit tightening. Increases in volatility and decreases in liquidity may be caused by a rise in interest rates (or the
expectation of a rise in interest rates), which are at or near historic lows in the U.S. and in other countries. During times of reduced market liquidity, the Fund may not be able to readily sell bonds at the prices
at which they are carried on the Fund’s books. If the Fund needed to sell large blocks of bonds to meet shareholder redemption requests or to raise cash, those sales could further reduce the bonds’ prices.
An unexpected increase in Fund redemption requests, which may be triggered by market turmoil or an increase in interest rates, could cause the Fund to sell its holdings at a loss or at undesirable prices. Similarly,
the prices of the Fund’s holdings could be adversely affected if an investment account managed similarly to the Fund was to experience significant redemptions and that account was required to sell its holdings
at an inopportune time. The liquidity of an issuer’s securities may decrease as result of a decline in an issuer’s credit rating, the occurrence of an event that causes counterparties to avoid transacting
with the issuer, or an increase in the issuer’s cash outflows. A lack of liquidity or other adverse credit market conditions may hamper the Fund’s ability to sell the debt securities in which it invests or
to find and purchase suitable debt instruments.
Economic and other market
developments can adversely affect fixed-income securities markets in the United States, Europe and elsewhere. At times, participants in debt securities markets may develop concerns about the ability of certain issuers
of debt securities to make timely principal and interest payments, or they may develop concerns about the ability of financial institutions that make markets in certain debt securities to facilitate an orderly market.
Those concerns may impact the market price or value of those debt securities and may cause increased volatility in those debt securities or debt securities markets, reducing the willingness of some lenders to extend
credit, and making it more difficult for borrowers to obtain financing on attractive terms (or at all). Under some circumstances, as was the case during the latter half of 2008 and early 2009, those concerns could
cause reduced liquidity in certain debt securities markets.
Following the financial crisis,
the Federal Reserve has sought to stabilize the economy by keeping the federal funds rate at or near zero percent. The Federal Reserve has also purchased large quantities of securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, pursuant to its monetary stimulus program known as “quantitative easing.” As the Federal Reserve tapers its securities purchases pursuant to quantitative
easing or raises the federal funds rate, there is a risk that interest rates may rise and cause fixed-income investors to move out of fixed-income securities, which may also increase redemptions in fixed-income mutual
funds.
In addition, although the
fixed-income securities markets have grown significantly in the last few decades, regulations and business practices have led some financial intermediaries to curtail their capacity to engage in trading (i.e.,
“market making”) activities for certain debt securities. As a result, dealer inventories of fixed-income securities, which provide an indication of the ability of financial intermediaries to make markets
in fixed-income securities, are at or near historic lows relative to market size. Because market makers help stabilize the market through their financial intermediary services, further reductions in dealer inventories
could have the potential to decrease liquidity and increase volatility in the fixed-income securities markets.
Credit
Quality. The Fund may invest in securities that are rated or unrated. “Investment-grade”
securities are those rated within the four highest rating categories by nationally recognized statistical rating organizations
such as Moody’s Investors Service (“Moody’s”) or S&P Global Ratings (“S&P”) (or, in
the case of unrated securities, determined by the investment adviser to be comparable to securities rated investment-grade). “Below-investment-grade”
securities are those that are rated below those categories, which are also referred to as “junk bonds.” While securities
rated within the fourth highest category by S&P (meaning BBB+, BBB or BBB-) or by Moody’s (meaning Baa1, Baa2 or Baa3)
are considered “investment-grade,” they have some speculative characteristics. If two or more nationally recognized
statistical rating organizations have assigned different ratings to a security, the investment adviser uses the highest rating
assigned.
Credit ratings evaluate the
expectation that scheduled interest and principal payments will be made in a timely manner. They do not reflect any judgment of market risk. Ratings and market value may change from time to time, positively or
negatively, to reflect new developments regarding the issuer. Rating organizations might not change their credit rating of an issuer in a timely manner to reflect events that could affect the issuer’s ability to
make timely payments on its obligations. In selecting securities for its portfolio and evaluating their income potential and credit risk, the Fund does not rely solely on ratings by rating organizations but evaluates
business, economic and other factors affecting issuers as well.
Oppenheimer Global Strategic Income Fund/VA
| 7
|
Many factors affect an issuer’s ability
to make timely payments, and the credit risk of a particular security may change over time. The investment adviser also may use its own research and analysis to assess those risks. If a bond is insured, it will
usually be rated by the rating organizations based on the financial strength of the insurer. The rating categories are described in an Appendix to the Statement of Additional Information.
Unrated Securities. Because the Fund purchases securities that are not rated by any nationally recognized statistical rating organization, the investment adviser may internally assign ratings to those
securities, after assessing their credit quality and other factors, in categories similar to those of nationally recognized statistical rating organizations. There can be no assurance, nor is it intended, that the
investment adviser’s credit analysis process is consistent or comparable with the credit analysis process used by a nationally recognized statistical rating organization. Unrated securities are considered
“investment-grade” or “below-investment-grade” if judged by the investment adviser to be comparable to rated investment-grade or below-investment-grade securities. The investment
adviser’s rating does not constitute a guarantee of the credit quality. In addition, some unrated securities may not have an active trading market or may trade less actively than rated securities, which means
that the Fund might have difficulty selling them promptly at an acceptable price.
In evaluating the credit quality
of a particular security, whether rated or unrated, the investment adviser will normally take into consideration a number of factors such as, if applicable, the financial resources of the issuer, the underlying source
of funds for debt service on a security, the issuer’s sensitivity to economic conditions and trends, any operating history of the facility financed by the obligation, the degree of community support for the
financed facility, the capabilities of the issuer’s management, and regulatory factors affecting the issuer or the particular facility.
A reduction in the rating of a
security after the Fund buys it will not require the Fund to dispose of the security. However, the investment adviser will evaluate such downgraded securities to determine whether to keep them in the Fund’s
portfolio.
Risks
of Sovereign Debt. Sovereign debt instruments are subject to the risk that a governmental entity
may delay, refuse, or otherwise be unable to pay interest or repay principal on its sovereign debt due, for example, to cash flow
problems, insufficient foreign currency reserves, political considerations, the relative size of the governmental entity’s
debt position in relation to the economy or the failure to put in place economic reforms required by the International Monetary
Fund or other multilateral agencies. If a governmental entity defaults, it may ask for more time in which to pay or for further
loans. There is no legal process for collecting sovereign debt that a government does not pay, and there are no bankruptcy proceedings
through which all or part of such sovereign debt may be collected. A restructuring or default of sovereign debt may also cause
additional impacts to the financial markets, such as downgrades to credit ratings, a flight to quality debt instruments, disruptions
in common trading markets or unions, reduced liquidity, increased volatility, and heightened financial sector, foreign securities
and currency risk, among others. Sovereign debt securities issued by certain “supra-national” entities, such as the
World Bank, are subject to the risk that the supra-national entity is unable to repay its borrowings and that the governmental
members of such supra-national entity are unable or unwilling to make capital contributions to enable the supra-national entity
to do so.
U.S. Government Securities. The Fund may invest in securities issued or guaranteed by the U.S. government or its agencies and instrumentalities. Some of those securities are directly issued by the U.S. Treasury and
are backed by the full faith and credit of the U.S. government. “Full faith and credit” means that the taxing power of the U.S. government is pledged to the payment of interest and repayment of principal
on a security.
Some securities issued by U.S.
government agencies, such as Government National Mortgage Association pass-through mortgage obligations (“Ginnie Maes”), are also backed by the full faith and credit of the U.S. government. Others are
supported by the right of the agency to borrow an amount from the U.S. government (for example, “Fannie Mae” bonds issued by the Federal National Mortgage Association and “Freddie Mac”
obligations issued by the Federal Home Loan Mortgage Corporation). Others are supported only by the credit of the agency (for example, obligations issued by the Federal Home Loan Banks). In September 2008, the Federal
Housing Finance Agency placed the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation into conservatorship. The U.S. Treasury also entered into a secured lending credit facility with those
companies and a preferred stock purchase agreement. Under the preferred stock purchase agreement, the Treasury ensures that each company maintains a positive net worth.
U.S.
Treasury Securities. Treasury securities are backed by the full faith and
credit of the U.S. government for payment of interest and repayment of principal and have relatively little credit risk. Some
of the securities that are issued directly by the U.S. Treasury are: Treasury bills (having maturities of one year or less when
issued), Treasury notes (having maturities of from one to ten years when issued), Treasury bonds (having maturities of more than
ten years when issued) and Treasury Inflation-Protection Securities (“TIPS”). While U.S. Treasury securities have
little credit risk, prior to their maturity they are subject to price fluctuations from changes in interest rates.
Mortgage-Related
Government Securities. Mortgage-related government securities include interests in pools of residential or commercial mortgages, in the form of “pass-through” mortgage securities.
They may be issued or guaranteed by the U.S. government or its agencies and instrumentalities. Mortgage-related U.S. government securities may be issued in different series, each having different interest rates and
maturities.
Mortgage-related securities that
are U.S. government securities have collateral to secure payment of interest and principal. 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 mortgage-related securities are determined, in part, by assumptions about the rate of payments of the underlying
mortgages and are subject to prepayment and extension risks.
8
| Oppenheimer Global Strategic Income Fund/VA
|
Private-Issuer
Securities. Investments in securities issued by private issuers (such as corporations, banks,
savings and loans, and other entities, including mortgage-related securities) are subject to greater credit risks than U.S. government
securities.
Mortgage-Related
Private Issuer Securities. Primarily these investments include multi-class debt or pass-through certificates secured by mortgage loans, which may be issued by banks, savings and loans, mortgage
bankers and other non-governmental issuers. Private-issuer mortgage-backed securities may include loans on residential or commercial properties.
Mortgage-related securities,
including collateralized mortgage obligations (“CMOs”), issued by private issuers are not U.S. government securities, which makes them subject to greater credit risks. Private issuer securities are subject
to the credit risks of both the issuers and the underlying borrowers, as well as to interest rate risks, although in some cases they may be supported by insurance or guarantees. The prices and yields of private issuer
mortgage-related securities are also subject to prepayment and extension risk. The market for private-issuer mortgage-backed securities may be volatile at times and may be less liquid than the markets for other types
of securities.
Asset-Backed
Securities. Asset-backed securities are fractional interests in pools of loans, receivables or
other assets. They are issued by trusts or other special purpose vehicles and are collateralized by the loans, receivables or
other assets that make up the pool. The trust or other issuer passes the income from the underlying asset pool to the investor.
Neither
the Fund nor its investment adviser selects the loans, receivables or other assets that are included in the pools or the collateral
backing those pools. Asset-backed securities are subject to interest rate risk and credit risk. 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. Certain asset-backed securities
are subject to prepayment and extension risks. Collateralized loan obligations are subject to the credit risk of the borrower
and the institution that creates the pool, as well as prepayment risks.
Forward Rolls. The Fund can enter into “forward roll” transactions (also referred to as “mortgage dollar rolls”) 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. The Fund will bear the risk that the market value of the securities might decline below the price at which
the Fund is obligated to repurchase them or that the counterparty might default in its obligations.
A substantial portion of the
Fund’s assets may be subject to forward roll transactions at any given time.
Zero-Coupon
and Stripped Securities. Some of the debt securities the Fund may invest in are zero-coupon or
stripped securities. They may be issued by the U.S. government or private issuers. Zero-coupon securities pay no interest prior
to their maturity date or another specified date in the future but are issued at a discount from their face value. Stripped securities
are the separate income or principal components of a debt security. One component might receive all the interest and the other
all the principal payments. The securities that are entitled to only the principal payments may be sold at a substantial discount
from the market value of the initial security.
Zero-coupon
and stripped securities are particularly sensitive to changes in interest rates and may be subject to greater price fluctuations
as a result of interest rate changes than interest bearing securities. The Fund may be required to pay a dividend of the imputed
income on a zero-coupon or principal-only security at a time when it has not actually received the income. The values of interest-only
and principal-only securities are also very sensitive to prepayments of underlying obligations. When prepayments tend to fall,
the timing of the cash flows to principal-only securities increases, making them more sensitive to interest rates. The market
for zero-coupon and stripped securities may be limited, making it difficult for the Fund to value them or dispose of its holdings
quickly at an acceptable price.
Stripped
Securities. “Stripped” securities are the separate income or principal components of a debt security, such as Treasury securities whose coupons have been stripped by a
Federal Reserve Bank. Some 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 payments, all the
principal payments or some proportional amount of interest and principal. Interest rate changes may cause greater fluctuations in the prices of stripped securities than in other debt securities of the same or similar
maturities. The market for these securities may be limited, making it difficult for the Fund to sell its holdings at an acceptable price. The Fund may be required to pay out the imputed income on a stripped security
as a dividend, at a time when it has not actually received the income.
Risks
of Below-Investment-Grade Securities. Below-investment-grade securities (also
referred to as “junk bonds”) generally have higher yields than investment-grade securities but also have higher risk
profiles. Below-investment-grade securities are considered to be speculative and entail greater risk with respect to the ability
of the issuer to timely repay principal and pay interest or dividends in accordance with the terms of the obligation and may have
more credit risk than investment-grade securities, especially during times of weakening economic conditions or rising interest
rates. These additional risks mean that the Fund may not receive the anticipated level of income from these securities, and the
Fund’s net asset value may be affected by declines in the value of below-investment-grade securities. The major risks of
below-investment-grade securities include:
■ | Prices of below-investment-grade securities may be subject to extreme price fluctuations, even under normal market conditions.
Adverse changes in an issuer’s industry and general economic conditions may have a greater impact on the prices of
below-investment-grade securities than on the prices of investment-grade securities. |
Oppenheimer Global Strategic Income Fund/VA | 9 |
■ | Below-investment-grade securities may be issued by less creditworthy issuers and may be more likely to default than investment-grade
securities. Issuers of below-investment-grade securities may have more outstanding debt relative to their assets than issuers
of investment-grade securities. Issuers of below-investment-grade securities may be unable to meet their interest or principal
payment obligations because of an economic downturn, specific issuer developments, or the unavailability of additional financing. |
■ | In the event of an issuer’s bankruptcy, claims of other creditors may have priority over the claims of the holders
of below-investment-grade securities. |
■ | Below-investment-grade securities may be less liquid than investment-grade securities, even under normal market conditions.
There are fewer dealers in the below-investment-grade securities market and there may be significant differences in the prices
quoted by the dealers. Because they are less liquid, judgment may play a greater role in valuing certain of the Fund’s
securities than is the case with securities trading in a more liquid market. |
■ | Below-investment-grade securities typically contain redemption provisions that permit the issuer of the securities containing
such provisions to redeem the securities at its discretion. If the issuer redeems below-investment-grade securities, the
Fund may have to invest the proceeds in securities with lower yields and may lose income. |
■ | Below-investment-grade securities markets may be more susceptible to real or perceived adverse credit, economic, or market
conditions than investment-grade securities. |
Price
Arbitrage. Because the Fund may invest in below-investment-grade bonds that may trade infrequently,
investors might 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”). If such price arbitrage were successful, it might interfere with the
efficient management of the Fund’s portfolio and the Fund may be required to sell securities at disadvantageous times or
prices to satisfy the liquidity requirements created by that activity. Successful price arbitrage might also dilute the value
of fund shares held by other shareholders.
Event-Linked
Securities. The Fund may invest in “event-linked” securities (including “catastrophe”
bonds and other insurance-linked securities) or in interests in trusts and other pooled entities that invest primarily or exclusively
in event-linked securities, including entities sponsored and/or advised by the investment adviser or an affiliate. Event-linked
securities 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 it 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, the Fund may lose all or a portion of its principal and additional interest.
Event-linked securities 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 securities 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 securities may
expose the Fund 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 the Fund may be forced to liquidate positions when it would not be advantageous to do so. Event-linked securities are typically rated by one or more nationally recognized
statistical rating organizations and the Fund will only invest in event-linked securities that meet the credit quality requirements for the Fund.
Foreign Investing. The Fund may buy debt securities of issuers that are organized under the laws of a foreign country or that have a substantial portion of their operations or assets in a foreign country or
countries, or that derive a substantial portion of their revenue or profits from businesses, investments or sales outside of the United States. The Fund may also invest in foreign securities that are represented in
the United States securities markets by American Depository Receipts (“ADRs”) or similar depository arrangements. The Fund’s foreign debt investments can be denominated in U.S. dollars or in foreign
currencies. Debt securities issued by a foreign government may not be supported by the “full faith and credit” of that government.
Risks of Foreign
Investing. Securities traded in foreign markets often involve special risks not present in U.S. investments that can increase the chances the Fund will lose money. Additional
information regarding certain of the risks associated with foreign investing is provided below.
■
| Foreign Market Risk. If there are fewer investors in a particular foreign market, securities traded in that market may be less liquid and more volatile than U.S. securities and more difficult to price. Foreign
markets may also be subject to delays in the settlement of transactions and difficulties in pricing securities. If the Fund is delayed in settling a purchase or sale transaction, it may not receive any return on the
invested assets or it may lose money if the value of the security declines. It may also be more expensive for the Fund to buy or sell securities in certain foreign markets than in the United States, which may increase
the Fund’s expense ratio.
|
■
| Foreign Economy Risk. Foreign economies may be more vulnerable to political or economic changes than the U.S. economy. They may be more concentrated in particular industries or may rely on particular resources
or trading partners to a greater extent. Certain foreign economies may be adversely affected by shortages of investment capital or by high rates of inflation. Changes in economic or monetary policy in the U.S. or
abroad may also have a greater impact on the economies of certain foreign countries.
|
10
| Oppenheimer Global Strategic Income Fund/VA
|
■
| Foreign Governmental and Regulatory Risks. Foreign companies may not be subject to the same accounting and disclosure requirements as U.S. companies. As a result there may be less accurate information available regarding a foreign
company’s operations and financial condition. Foreign companies may be subject to capital controls, nationalization, or confiscatory taxes. There may be less government regulation of foreign issuers, exchanges
and brokers than in the United States. Some countries also have restrictions that limit foreign ownership and may impose penalties for increases in the value of the Fund’s investment. The value of the
Fund’s foreign investments may be affected if it experiences difficulties in enforcing legal judgments in foreign courts.
|
■
| Foreign Currency Risk. A change in the 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. If the U.S. dollar
rises in value against a foreign currency, a security denominated in that currency will be worth less in U.S. dollars and if the U.S. dollar decreases in value against a foreign currency, a security denominated in
that currency will be worth more in U.S. dollars. The dollar value of foreign investments may also be affected by exchange controls. Foreign currency exchange transactions may impose additional costs on the Fund. The
Fund can also invest 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 derivatives linked to
that foreign currency. The investment adviser’s selection of foreign currency denominated investments may not perform as expected. Currency derivative investments may be particularly volatile and subject to
greater risks than other types of foreign-currency denominated investments.
|
■
| Foreign Custody Risk. There may be very limited regulatory oversight of certain foreign banks or securities depositories that hold foreign securities and foreign currency and the laws of certain countries may
limit the ability to recover such assets if a foreign bank or depository or their agents goes bankrupt. There may also be an increased risk of loss of portfolio securities.
|
■
| Time Zone Arbitrage. 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
differences in the values of foreign securities that might result from events that occur after the close of the foreign securities market on which a security is traded and before the close of the New York Stock
Exchange that day, when the Fund’s net asset value is calculated. If such time zone arbitrage were successful, it might dilute the interests of other shareholders. However, the Fund’s use of “fair
value pricing” under certain circumstances, to adjust the closing market prices of foreign securities to reflect what the investment adviser and the Board believe to be their fair value, may help deter those
activities.
|
■
| Globalization Risks. The growing inter-relationship of global economies and financial markets has increased the effect of conditions in one country or region on issuers of securities in a different country or
region. In particular, the adoption or prolongation of protectionist trade policies by one or more countries, changes in economic or monetary policy in the United States or abroad, or a slowdown in the U.S. economy,
could lead to a decrease in demand for products and reduced flows of capital and income to companies in other countries.
|
■
| Regional Focus. At times, the Fund might increase the relative emphasis of its investments in a particular region of the world. Securities of issuers in a region might be affected by changes in economic
conditions or by changes in government regulations, availability of basic resources or supplies, or other events that affect that region more than others. If the Fund has a greater emphasis on investments in a
particular region, it may be subject to greater risks from adverse events that occur in that region than a fund that invests in a different region or that is more geographically diversified. Political, social or
economic disruptions in the region may adversely affect the values of the Fund’s holdings.
|
Risks of
Developing and Emerging Markets. Investments in developing and emerging market countries are subject to all the risks associated with foreign investing, however, these risks may be magnified in
developing and emerging markets. Investments in securities of issuers in developing or emerging market countries may be considered speculative. Additional information regarding certain of the risks associated with
investing in developing and emerging markets is provided below.
■
| Less Developed Securities Markets. Developing or emerging market countries may have less well-developed securities markets and exchanges. Consequently they have lower trading volume than the securities markets of more
developed countries and may be substantially less liquid than those of more developed countries.
|
■
| Transaction Settlement. Settlement procedures in developing or emerging markets may differ from those of more established securities markets, and settlement delays may result in the inability to invest assets or
to dispose of portfolio securities in a timely manner. As a result there could be subsequent declines in the value of the portfolio security, a decrease in the level of liquidity of the portfolio or, if there is a
contract to sell the security, a possible liability to the purchaser.
|
■
| Price Volatility. Securities prices in developing or emerging markets may be significantly more volatile than is the case in more developed nations of the world, which may lead to greater difficulties in
pricing securities.
|
■
| Less Developed Governments and Economies. The governments of developing or emerging market countries may be more unstable than the governments of more developed countries. In addition, the economies of developing or emerging market
countries may be more dependent on relatively few industries or investors that may be highly vulnerable to local and global changes. Developing or emerging market countries may be subject to social, political, or
economic instability. Further, the value of the currency of a developing or emerging market country may fluctuate more than the currencies of countries with more mature markets.
|
Oppenheimer Global Strategic Income Fund/VA
| 11
|
■
| Government Restrictions. In certain developing or emerging market countries, government approval may be required for the repatriation of investment income, capital or the proceeds of sales of securities by foreign
investors. Other government restrictions may include confiscatory taxation, expropriation or nationalization of company assets, restrictions on foreign ownership of local companies, protectionist measures, and
practices such as share blocking.
|
■
| Privatization Programs. The governments in some developing or emerging market countries have been engaged in programs to sell all or part of their interests in government-owned or controlled enterprises. However,
in certain developing or emerging market countries, the ability of foreign entities to participate in privatization programs may be limited by local law. There can be no assurance that privatization programs will be
successful.
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Eurozone
Investment Risks. The European Union (EU) is an economic and political union of most western European countries and a growing number of eastern European countries. One of the key mandates
of the EU is the establishment and administration of a common single market, consisting of, among other things, a single currency and a common trade policy. In order to pursue this goal, member states established the
Economic and Monetary Union (EMU), which sets out different stages and commitments that member states need to follow to achieve greater economic and monetary policy coordination, including the adoption of a single
currency, the euro. Many member states have adopted the euro as their currency and, as a result, are subject to the monetary policies of the European Central Bank (ECB).
The
recent global economic crisis has caused severe financial difficulties for many EU countries, pushing some to the brink of insolvency
and causing others to experience recession, large public debt, restructuring of government debt, credit rating downgrades and
an overall weakening of banking and financial sectors. Some of those countries have depended on, and may continue to be dependent
on, the assistance from others such as the ECB, the International Monetary Fund, or other governments and institutions to address
those issues. Failure by one or more EU countries to implement reforms or attain a certain performance level imposed as a condition
of assistance, or an insufficient level of assistance, could deepen or prolong the economic downturn which could have a significant
adverse effect on the value of investments in those and other European countries. By adopting the euro as its currency, members
of the EMU are subject to fiscal and monetary controls that could limit to some degree the ability to implement their own economic
policies. Additionally, EMU member countries could voluntarily abandon the euro or involuntarily be forced out of the euro, including
by way of a partial or complete dissolution of the monetary union. The effects of such outcomes on the rest of the Eurozone and
global markets as a whole are unpredictable, but are likely to be negative, including adversely impacted market values of Eurozone
and various other securities and currencies, redenomination of certain securities into less valuable local currencies, and more
volatile and illiquid markets. Under such circumstances, investments denominated in euros or replacement currencies may be difficult
to value, the ability to operate an investment strategy in connection with euro-denominated securities may be significantly impaired
and the value of euro-denominated investments may decline significantly and unpredictably. Additionally, the United Kingdom’s
(“UK”) intended departure from the EU, known as “Brexit,” may have significant political and financial
consequences for Eurozone markets, including greater market volatility and illiquidity, currency fluctuations, deterioration in
economic activity, a decrease in business confidence and an increased likelihood of a recession in the UK. Uncertainty relating
to the withdrawal procedures and timeline may have adverse effects on asset valuations and the renegotiation of current trade
agreements, as well as an increase in financial regulation of UK banks. While the full impact of Brexit is unknown, market disruption
in the EU and globally may have a negative effect on the value of the Fund’s investments.
Derivative Investments. The Fund can invest in “derivative” instruments. A derivative is an instrument whose value depends on (or is derived from) the value of an underlying security, asset, interest
rate, index or currency. Derivatives may allow the Fund to increase or decrease its exposure to certain markets or risks.
The Fund may use derivatives to
seek to increase its investment return or for hedging purposes. The Fund is not required to use derivatives in seeking its investment objective or for hedging and might not do so.
Options,
futures, forward contracts, swaps, “structured” notes, certain mortgage-related securities and event-linked bonds
are some of the derivatives that the Fund may use. The Fund may also use other types of derivatives that are consistent with its
investment strategies or for hedging purposes.
“Structured”
Notes. “Structured” notes are specially-designed derivative debt instruments. The terms of the instrument may be determined or “structured” by the purchaser and the issuer
of the note. Payments of principal or interest on these notes may be linked to the value of an index (such as a currency or securities index), one or more securities, a commodity or the financial performance of one or
more obligors. The value of these notes will normally rise or fall in response to the changes in the performance of the underlying security, index, commodity or obligor.
Risks of
“Structured” Notes. Structured notes are subject to interest rate risk. They are also subject to credit risk with respect both to the issuer and, if applicable, to the underlying security or
obligor. If the underlying investment or index does not perform as anticipated, the structured note might pay less interest than the stated coupon payment or repay less principal upon maturity. The price of structured
notes may be very volatile and they may have a limited trading market, making it difficult to value them or sell them at an acceptable price. In some cases, the Fund may enter into agreements with an issuer of
structured notes to purchase a minimum amount of those notes over time.
In some cases, the Fund may
invest in structured notes that pay an amount based on a multiple of the relative change in value of the underlying investment or index. This type of note increases the potential for income but at a greater risk of
loss than a typical debt security of the same maturity and credit quality.
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Credit Default Swaps. A credit default swap enables an investor to buy or sell protection against a credit event with respect to an issuer, such as an issuer’s failure to make timely payments of interest
or principal on its debt obligations, bankruptcy or restructuring. A credit default swap may be embedded within a structured note or other derivative instrument.
Generally, if the Fund buys
credit protection using a credit default swap, the Fund will make fixed payments to the counterparty and if a credit event occurs with respect to the applicable issuer, the Fund will deliver the issuer’s
defaulted bonds underlying the swap to the swap counterparty and the counterparty will pay the Fund par for the bonds. If the Fund sells credit protection using a credit default swap, generally the Fund will receive
fixed payments from the counterparty and if a credit event occurs with respect to the applicable issuer, the Fund will pay the swap counterparty par for the issuer’s defaulted bonds and the swap counterparty
will deliver the bonds to the Fund. Alternatively, a credit default swap may be cash settled and the buyer of protection would receive the difference between the par value and the market value of the issuer’s
defaulted bonds from the seller of protection. If the credit default swap is on a basket of issuers, the notional value of the swap is reduced by the amount represented by that issuer, and the fixed payments are then
made on the reduced notional value.
Risks of Credit
Default Swaps. Credit default swaps are subject to credit risk of the underlying issuer and to counterparty credit risk. If the counterparty fails to meet its obligations, the Fund may
lose money. Credit default swaps are also subject to the risk that the Fund will not properly assess the risk of the underlying issuer. 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 the counterparty. 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.
Interest Rate Swaps. In an interest rate swap, the Fund and another party exchange the right to receive interest payments. For example, they might swap the right to receive floating rate payments based on a
reference rate for the right to receive fixed rate payments. An interest rate swap enables an investor to buy or sell protection against changes in an interest rate. An interest rate swap may be embedded within a
structured note or other derivative instrument.
Risks of
Interest Rate Swaps. Interest rate swaps are subject to interest rate risk and credit risk. An interest rate swap transaction could result in losses if the underlying asset or reference rate
does not perform as anticipated. Interest rate swaps are also subject to counterparty risk. If the counterparty fails to meet its obligations, the Fund may lose money.
Total Return Swaps. In a total return swap transaction, one party agrees to pay the other party an amount equal to the total return on a defined underlying asset or a non-asset reference during a specified
period of time. The underlying asset might be a security or asset or basket of securities or assets or a non-asset reference such as a securities or other type of index. In return, the other party would make periodic
payments based on a fixed or variable interest rate or on the total return from a different underlying asset or non-asset reference.
Risks of Total
Return Swaps. Total return swaps could result in losses if the underlying asset or reference does not perform as anticipated. Total return swaps can have the potential for unlimited
losses. They are also subject to counterparty risk. If the counterparty fails to meet its obligations, the Fund may lose money.
Volatility
Swap Contracts. Volatility is a measure of the magnitude of fluctuations in the value of a security,
currency, index or other financial instrument over a specified period of time. The Fund may enter into types of volatility swaps
to hedge the volatility of a particular security, currency, index or other financial instrument, or to seek to increase its investment
return. In volatility swaps, counterparties agree to buy or sell volatility at a specific level over a fixed period. For example,
to hedge the risk that the value of an asset held by the Fund may fluctuate significantly over the Fund’s period of investment,
the Fund might enter into a volatility swap pursuant to which it will receive a payment from the counterparty if the actual volatility
of the asset over a specified time period is greater than a volatility rate agreed at the outset of the swap. Alternatively, if
the investment adviser believes that a particular security, currency, index or other financial instrument will demonstrate more
(or less) volatility over a period than the market’s general expectation, to seek to increase investment return the Fund
might enter into a volatility swap pursuant to which it will receive a payment from the counterparty if the actual volatility
of that underlying instrument over the period is more (or less) than the volatility rate agreed at the outset of the swap.
Risks
of Volatility Swaps. Volatility swaps are subject to credit risks (if the
counterparty fails to meet its obligations), and the risk that the investment adviser is incorrect in its forecast of volatility
for the underlying security, currency, index or other financial instrument that is the subject of the swap. If the investment
adviser is incorrect in its forecast, the Fund would likely be required to make a payment to the counterparty under the swap.
Volatility swaps can have the potential for unlimited losses.
Currency Swaps. In a currency swap, the Fund and another party agree to exchange different currencies at contract inception that are equivalent to a notional value, or agree to exchange periodic payments
that are based on interest rates available in the respective currencies at contract inception. In an agreement to exchange currencies at contract inception, the contract also includes an agreement to reverse the
exchange of the same notional values of those currencies at contract termination. Other currency swap contracts may not provide for exchanging the different currencies at all, and only for exchanging interest cash
flows based on the notional value in the contract.
Risks of
Currency Swaps. Currency swaps entail both credit risk and liquidity risk. A loss may be sustained as a result of the insolvency or bankruptcy of the counterparty or the failure of the
counterparty to make required payments or otherwise comply with the terms of the agreement. It may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result
in losses to the Fund.
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Swap Transactions. Under financial reform legislation currently being implemented, certain types of swaps are (or soon will be) required to be executed on a regulated market and/or cleared through a
clearinghouse, which may affect counterparty risk and other risks faced by the Fund, and could result in increased margin requirements and costs for the Fund. Swap agreements are privately negotiated in the
over-the-counter market and may be entered into as a bilateral contract or may be centrally cleared. In a cleared swap, immediately following execution of the swap agreement, the swap agreement is submitted for
clearing to a clearing house, and the Fund faces the clearinghouse by means of an account with a futures commission merchant that is a member of the clearinghouse. Because the regulations regarding centrally cleared
swaps have not yet been fully implemented, the scope of potential risks, including risks relating to the use of clearinghouses and futures commission merchants, is unclear.
Foreign Currency Forwards and
Options. Foreign currency forward contracts are used to buy or sell foreign currency for future delivery at a fixed price. They are used to lock in the U.S. dollar price of a security denominated
in a foreign currency, or to protect against possible losses from changes in the relative value of the U.S. dollar against a foreign currency. Forward contracts involve the risk that anticipated currency movements
will not be accurately predicted, which could result in losses on those contracts and additional transaction costs. The use of forward contracts could reduce performance if there are unanticipated changes in currency
prices. Options on foreign currencies may be used to try to protect against declines in the U.S. dollar value of foreign securities the Fund owns and against increases in the dollar cost of foreign securities the Fund
anticipates buying. Options on foreign currencies are affected by the factors that influence foreign exchange rates and investments generally. The Fund’s ability to establish and close out positions on foreign
currency options is subject to the maintenance of a liquid secondary market, and there can be no assurance that a liquid secondary market will exist for a particular option at any specific time.
Risks of
Derivative Investments. Derivatives may be volatile and may involve significant risks. The underlying security, obligor or other instrument on which a derivative is based, or the derivative
itself, may not perform as expected. For some derivatives, it is possible to lose more than the amount invested in the derivative investment. In addition, some derivatives have the potential for unlimited loss,
regardless of the size of the Fund’s initial investment. Certain derivative investments held by the Fund may be illiquid, making it difficult to close out an unfavorable position. Derivative transactions may
require the payment of premiums and may increase portfolio turnover. Derivatives are subject to credit risk, since the Fund may lose money on a derivative investment if the issuer or counterparty fails to pay the
amount due. As a result of these risks, the Fund could realize little or no income or lose money from the investment, or the use of a derivative for hedging might be unsuccessful.
In addition, under financial
reform legislation currently being implemented, certain over-the-counter derivatives, including certain interest rate swaps and certain credit default swaps, are (or soon will be) required to be executed on a
regulated market and/or cleared through a clearinghouse, which may result in increased margin requirements and costs for the Fund. It is unclear how these regulatory changes will affect counterparty risk, and entering
into a derivative transaction that is cleared may entail further risks and costs, including the counterparty risk of the clearinghouse and the futures commission merchant through which the Fund accesses the
clearinghouse.
Hedging.
Hedging transactions are intended to reduce the risks of securities in the Fund’s portfolio.
At times, however, a hedging instrument’s value might not be correlated with the investment it is intended to hedge, and
the hedge might be unsuccessful. If the Fund uses a hedging instrument at the wrong time or judges market conditions incorrectly,
the strategy could reduce its return or create a loss.
Investments
in the Fund’s Wholly-Owned Subsidiary. The Fund may invest up to 25% of its total assets
in the Subsidiary. The Subsidiary invests primarily in Regulation S securities.
Investment
in the Subsidiary is expected to provide the Fund with exposure to Regulation S securities. Changes in the laws of the United
States and/or the Cayman Islands could result in the inability of the Fund and/or the Subsidiary to operate as described in this
prospectus and the Statement of Additional Information and could adversely affect the Fund. Changes in the laws of the United
States and/or the Cayman Islands could adversely affect the performance of the Fund and/or the Subsidiary. For example, the Cayman
Islands currently does not impose certain taxes on exempted companies like the Subsidiary, including income and capital gains
tax, among others. If Cayman Islands laws were changed to require such entities to pay Cayman Islands taxes, the investment returns
of the Fund would likely decrease. The Fund has received a private letter ruling from the Internal Revenue Service confirming
that income from the Fund’s investment in the Subsidiary constitutes “qualifying income” for purposes of qualifying
as a regulated investment company under Subchapter M.
Under
proposed regulations, the annual net profit realized by the Subsidiary and imputed for income tax purposes to the Fund will be
considered “qualifying income” only to the extent such net profit is currently and timely distributed to the Fund.
If such proposed regulations are finalized in their current form, the Fund generally expects that it would no longer be able to
rely on the private letter ruling described above and that it would employ other means of seeking to satisfy the “qualifying
income” requirements applicable to a regulated investment company. If the Fund were to fail to qualify as a regulated investment
company accorded special tax treatment in any taxable year, it would be subject to tax on its taxable income at corporate rates,
and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital
gains, would be taxable to shareholders as ordinary income, and the Fund could be required to pay substantial taxes, penalties
and interest and to make substantial distributions, in order to re-qualify for such special treatment.
Special Considerations of Senior
Loans and Other Loans. The Fund may invest in loans, and in particular, in floating rate loans (sometimes referred to as “adjustable rate loans”) that hold (or in the judgment of the investment
adviser, hold) a
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senior position in the capital structure of
U.S. and foreign corporations, partnerships or other business entities that, under normal circumstances, allow them to have priority of claim ahead of (or at least as high as) other obligations of a borrower in the
event of liquidation. These investments are referred to as “Senior Loans.”
Senior loans typically have
higher recoveries than other debt obligations that rank lower in the priority of payments for a particular debtor, because in most instances they take preference over those subordinated debt obligations, with respect
to payment of interest and principal, and over stock. However, the Fund is still subject to the risk that the borrower under a loan will default on scheduled interest or principal payments and that the assets of the
borrower to which the Fund has recourse will be insufficient to satisfy in full the payment obligations that the borrower has to the Fund. The risk of default will increase in the event of an economic downturn or, in
the case of a floating rate loan, a substantial increase in interest rates (because the cost of the borrower’s debt service will increase as the interest rate on its loan is upwardly adjusted). The Fund may own
a debt obligation of a borrower that becomes, or is about to become, insolvent. The Fund can also purchase debt obligations that are extended to a bankrupt entity (so called debtor-in-possession or ‘DIP’
financing) or debt obligations that are issued in connection with a restructuring of the borrower under bankruptcy laws.
In certain circumstances, loans
may not be deemed to be securities, and in the event of fraud or misrepresentation by a borrower or an arranger, lenders will not have the protection of the anti-fraud provisions of the federal securities laws, as
would be the case for bonds or stocks. Instead, in such cases, lenders generally rely on the contractual provisions in the loan agreement itself, and common-law fraud protections under applicable state law.
How the Fund Invests in
Loans. The Fund may invest in loans in one or more of three ways: the Fund may invest directly in a loan by acting as an original lender; the Fund may invest directly in a loan by purchasing a
loan by an assignment; or the Fund may invest indirectly in a loan by purchasing a participation interest in a loan. The Fund may also gain exposure to loans indirectly using certain derivative instruments, which is
described elsewhere in this prospectus.
Original Lender. The Fund can invest in loans, generally “at par” (a price for the loan equal approximately to 100% of the funded principal amount of the loan, minus any
original issue discount) as an original lender. When the Fund is an original lender, it is entitled to receive a return at the full interest rate for the loan.
Loan Assignments. The Fund may also purchase a loan by assignment. In a loan assignment, the Fund typically succeeds to the rights and obligations of the assigning lender under the loan
agreement and becomes a “lender” under the loan agreement, entitled to the same rights (including, but not limited to, enforcement or set-off rights) that are available to lenders generally. When the Fund
buys an assignment, it may be required to pay a fee, or cede a portion of the interest and fees that accrued prior to settlement of the assignment, to the lender selling the assignment. Occasionally, the selling
lender pays a fee to the assignee. If the Fund assigns a loan, it may be required to pass along to a buyer a portion of any interest and fees that the Fund would otherwise be entitled to. In addition, the Fund may be
required to pay a transfer fee to the lending agent.
Participation Interests. The Fund may invest in participation interests in loans. Participation interests represent an undivided fractional interest in a loan. They are typically purchased from
banks or dealers that have made the loan or have become members of the loan syndicate by purchasing the loan by assignment. When the Fund invests in a loan via a participation, the participation seller remains the
lender of record under the loan agreement, and the Fund typically becomes the beneficial owner of the loan, and is entitled to receive from the participation seller any payments or other property or distributions
received by the participation seller from or on behalf of the borrower of the loan. When the Fund buys a participation, it may be required to pay a fee, or cede a portion of the interest and fees that accrued prior to
settlement of the participation, to the lender selling the participation. Occasionally, the selling lender pays a fee to the participant. If the Fund sells a participation, it may be required to pass along to a buyer
a portion of any interest and fees that the Fund would otherwise be entitled to.
Recourse. When the Fund invests in loans as an original lender it will have direct recourse against the borrower in the event of a failure to pay scheduled principal or interest. When it purchases a
loan by assignment, it typically succeeds to whatever rights the assigning lender had under the loan agreement, and will therefore be entitled to the same rights (including, but not limited to, enforcement or set-off
rights) that are available to lenders generally. When the Fund buys a participation interest, it assumes the credit risk of the borrower and the counterparty risk of the lender selling the participation interest (and,
in certain circumstances, such lender’s credit risk), and the terms of the participation may not entitle the Fund to all rights of a direct lender under the loan (for example, with respect to consent, voting or
enforcement rights). Therefore, the Fund’s rights under a participation interest for a particular loan may be more limited than the rights of the original lender or an investor who acquires an assignment of that
loan. Where the Fund invests in a loan via a participation, the Fund generally will have no right of direct recourse against the borrower or ability to otherwise directly enforce the terms of the loan
agreement.
Investments
in Pooled Investment Entities that Invest in Loans. The Fund can also buy interests in trusts
and other pooled entities (including other investment companies) that invest primarily or exclusively in loan obligations, including
entities sponsored or advised by the Manager or an affiliate. The Fund will be subject to the pooled entity’s credit risks
as well as the credit risks of the underlying loans. The loans underlying these investments may include loans to foreign or U.S.
borrowers, may be collateralized or uncollateralized and may be rated investment-grade or below-investment-grade or may be unrated.
These investments are subject to the risk of default by the borrower, interest rate and prepayment risk, as well as credit risks
of the pooled entity that holds the loan obligations.
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Interest Rates and Floating or
Adjustable Rate Loans. The loans in which the Fund invests typically have floating or adjustable interest rates. For that reason, the Sub-Adviser expects that when interest rates change, the values of these
floating rate loans will fluctuate less than the values of fixed-rate debt securities, and that the net asset values of the Fund’s shares will fluctuate less than the shares of funds that invest mainly in
fixed-rate debt obligations. However, the interest rates of some floating rate loans adjust only periodically. Between the times that interest rates on floating rate loans adjust (which is most often quarterly, but
may be monthly, every six months, or some other period), the interest rates on those floating rate loans may not correlate to prevailing interest rates. That will affect the value of the loans and may cause the net
asset values of the Fund’s shares to fluctuate.
The base rate usually is a
benchmark that “floats” or changes to reflect current interest rates, such as:
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| the prime rate offered by one or more major U.S. banks (referred to as the “Prime Rate”), or
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| the London Inter-Bank Offered Rate (“LIBOR”).
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The applicable rate is defined
in the loan agreement. Borrowers tend to select the base lending rate that results in the lowest interest cost, and the benchmark selected by a borrower for its loans may change from time to time (but the benchmark
selected for a particular loan will remain the same for the life of that loan). If the benchmark interest rate on a floating rate loan changes, the rate payable to lenders under the floating rate loan will, in turn,
change at the next scheduled adjustment date. If the benchmark rate increases, the Fund would earn interest at a higher rate on that floating rate loan after the next scheduled adjustment date. If the benchmark rate
decreases, the Fund would earn interest at a lower rate on that floating rate loan after the next scheduled adjustment date.
The Fund may use interest rate
swap agreements and other hedging practices to mitigate fluctuations in value when the interest rate under the loan is periodically reset.
The Fund may invest in loans
having a fixed rate of interest; however, it is unlikely to do so because fixed rate loans are uncommon in the loan market generally.
Prepayment. The Fund has no limits as to the maturity of loans it may purchase. Senior Loans in general have a stated term of between five and seven years, and other types of loans in which the Fund
may invest may have shorter or longer maturities. Notwithstanding their stated maturity, loans may be prepaid prior to their stated terms for reasons including, but not limited to, high market demand for loans,
refinancing by the borrower, mandatory prepayment requirements or desire of the borrower to repay outstanding debt. If a borrower prepays a loan, the Fund will have to reinvest the proceeds in other loans or financial
assets that may pay lower rates of return. However, any prepayment and facility fees the Fund receives may help reduce any adverse impact on the Fund’s yield. Because the interest rates on floating rate loans
adjust periodically, the Sub-Adviser believes that the Fund should generally be able to reinvest prepayments in floating rate loans that have yields similar to those that have been prepaid.
Subordination. Senior loans typically hold the most senior position in a borrower’s capital structure. They may include loans that hold the most senior position alone, loans that hold an equal
ranking with other senior debt, or loans that are, in the judgment of the Sub-Adviser, in the category of senior debt of the borrower. Borrowers typically are required contractually to pay the holders of senior loans
before they pay the holders of subordinated debt and preferred or common shareholders and give the holders of senior secured loans a claim on some or all of the borrower’s assets that is senior to that of
subordinated debt, preferred stock and common stock of the borrower in the event that the borrower defaults or becomes bankrupt. Senior loans are subject to the risk that a court could subordinate a senior loan to
presently existing or future indebtedness or take other action detrimental to the holders of senior loans.
That senior position in the
borrower’s capital structure typically gives the holders of senior loans a claim on some or all of the borrower’s assets that is senior to that of subordinated debt, preferred stock and common stock of the
borrower in the event that the borrower defaults or becomes bankrupt. This means in the event the assets of the borrower are insufficient in value to satisfy all its creditors, senior debt will be satisfied in
priority to debt that is subordinate to senior debt.
Lien Position. Loans that are collateralized may have multiple lenders or other creditors that take different lien positions. While second lien loan positions generally are subject to similar risks as
those associated with investments in first lien loan positions, second lien loan positions have the additional risk that if the borrower defaults on its obligations under the loan and the loan creditors enforce their
security interest or if the borrower becomes bankrupt, the secured claims of the creditors in the first lien position will be satisfied prior to the secured claims of the creditors in the second lien position. If the
cash flow and assets of the borrower are insufficient to satisfy both the first lien loans and the second lien loans in full, the creditors in the second lien position may not be satisfied in full. If a loan has first
and second lien positions, typically the Fund will invest in the first lien position; however, it may invest in the second lien position. Second lien positions generally pay a higher margin than first lien positions
to compensate second lien creditors for the greater risk they assume.
Collateral. Loans may be fully collateralized with one or more of (1) working capital assets, such as accounts receivable and inventory, (2) tangible fixed assets, such as real property, buildings and
equipment, (3) intangible assets such as trademarks or patents, or (4) shares of stock of the borrower or its subsidiaries or affiliates. A loan agreement may or may not require the borrower to pledge additional
collateral to secure a loan if the value of the initial collateral declines, or if additional assets are acquired by the borrower. Collateral may consist of assets that may not be readily liquidated, and there is no
assurance that the liquidation of those assets would satisfy a borrower’s obligations under a loan in full. A borrower’s subsidiaries, affiliates, shareholders or owners may provide collateral in the form
of secured guarantees and/or security interests in assets that they own. However, the value of the collateral may decline after the Fund invests in the loan, particularly if the collateral consists of equity
securities of the borrower or its subsidiaries or affiliates.
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If a borrower defaults,
insolvency laws may limit the Fund’s access to the collateral, or the lenders may be unable to liquidate the collateral. A bankruptcy court might find that the lenders’ security interest or their
enforcement of their security under the loan to be invalid, or a bankruptcy court may require the borrower to use the collateral to pay other outstanding obligations prior to satisfying the lenders in full. If the
collateral consists of stock of the borrower or its subsidiaries, the stock may lose all of its value in the event of a bankruptcy, which would leave the Fund exposed to greater potential loss. In addition, in the
event of a borrower default on a collateralized loan, the Fund may receive assets other than cash or securities in full or partial satisfaction of the borrower’s obligation under the loan. Those assets may be
illiquid, and the Fund might not be able to realize the benefit of the assets for legal, practical or other reasons. The Fund might hold those assets until the Sub-Adviser determines it is appropriate to dispose of
them. If the collateral becomes illiquid or loses some or all of its value, the collateral may not be sufficient in value to compensate the Fund in full in the event of a default of scheduled interest or principal
payments.
The Fund can invest in loans
that are not secured by any specific collateral of the borrower. If the borrower is unable to pay interest or defaults in the payment of principal, there will be no collateral on which the Fund can foreclose.
Therefore, these loans present greater risks than collateralized loans because the recourse of the Fund to the borrower’s assets in the case of a default would be as a general unsecured creditor. The Fund
applies the same investment and credit standards to unsecured loans as to secured loans, except for collateral requirements.
Highly Leveraged Transactions and
Insolvent Borrowers. The Fund can invest in loans made in connection with highly leveraged transactions. These transactions may include operating loans, leveraged buyout loans, leveraged capitalization loans
and other types of acquisition financing. Those loans are subject to greater credit risks than other loans. Highly leveraged loans and loans in default also may be less liquid than other loans. If the Fund voluntarily
or involuntarily sold those types of loans, it might not receive the full value it expected.
The Fund can also invest in
loans of borrowers that are experiencing, or are likely to experience, financial difficulty. In addition, the Fund can invest in loans of borrowers that have filed for bankruptcy protection or that have had
involuntary bankruptcy petitions filed against them by creditors. Various laws enacted for the protection of debtors may apply to loans. A bankruptcy proceeding against a borrower could delay or limit the ability of
the Fund to collect the principal and interest payments on that borrower’s loans. If a lawsuit is brought by creditors of a borrower under a loan, a court or a trustee in bankruptcy could take certain actions
that would be adverse to the Fund.
Restrictive Loan Covenants. Borrowers must comply with various restrictive covenants typically contained in loan agreements. They may include restrictions on dividend payments and other distributions to stockholders,
provisions requiring the borrower to maintain specific financial ratios, and limits on total debt. They may include requirements that the borrower prepay the loan with any free cash flow. A break of a covenant that is
not waived by the agent bank (or the lenders) is normally an event of default that provides the agent bank or the lenders the right to call the outstanding amount on the loan. If a lender accelerates the repayment of
a loan because of the borrower’s violation of a restrictive covenant under the loan agreement, the borrower might default in payment of the loan.
Limited Secondary Market for
Loans. Due to restrictions on transfers in loan agreements and the nature of the private syndication of loans, some loans are not as easily purchased or sold as publicly-traded securities. As a
result, some loans are illiquid, which means that the Fund may be limited in its ability to sell those loans at an acceptable price when it wants to in order to generate cash, avoid losses or to meet repurchase
requests. The market for illiquid financial assets is more volatile than the market for liquid securities and it may be more difficult to obtain accurate valuations for the Fund’s investments.
Possible Limited Availability of
Loans. Direct investments in loans and, to a lesser degree, investments in participation interests in or assignments of loans may be limited. The limited availability may be due to a number of
factors. Direct lenders may allocate only a small number of loans to new investors, including the Fund. There may be fewer loans available for investment that meet the Fund’s credit standards, particularly in
times of economic downturns. Also, lenders or agents may have an incentive to market the less desirable loans to investors such as the Fund while retaining attractive loans for themselves. This would reduce the amount
of attractive investments for the Fund. If market demand for loans increases, the interest paid by loans that the Fund holds may decrease.
Delayed Settlement. Compared to securities and to certain other types of financial assets, purchases and sales of loans take relatively longer to settle. This is partly due to the nature of loans, which
require a written assignment agreement and various ancillary documents for each transfer, and frequently require discretionary consents from both the borrower and the administrative agent. In addition, dealers
frequently insist on matching their purchases and sales, which can lead to delays in the Fund’s settlement of a purchase or sale in circumstances where the dealer’s corresponding transaction with another
party is delayed. Dealers will also sometimes sell loans short, and hold their trades open for an indefinite period while waiting for a price movement or looking for inventory to purchase. This extended settlement
process can (i) increase the counterparty credit risk borne by the Fund; (ii) leave the Fund unable to timely vote, or otherwise act with respect to, loans it has agreed to purchase; (iii) delay the Fund from
realizing the proceeds of a sale of a loan; (iv) inhibit the Fund’s ability to re-sell a loan that it has agreed to purchase if conditions change (leaving the Fund more exposed to price fluctuations); (v)
prevent the Fund from timely collecting principal and interest payments; and (vi) expose the Fund to adverse tax or regulatory consequences. To the extent the extended loan settlement process gives rise to short-term
liquidity needs, such as the need to satisfy redemption requests, the Fund may hold cash, sell investments or temporarily borrow from banks or other lenders.
Oppenheimer Global Strategic Income Fund/VA
| 17
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Credit Quality Standards for
Loans. Rating organizations, such as S&P or Moody’s, rate debt obligations by rating the issuer, after evaluating the issuer’s financial soundness. Generally, the lower the
investment rating, the more risky the investment. Debt securities rated below “BBB-” by S&P or “Baa3” by Moody’s are commonly referred to as “high risk” securities or, in
the case of bonds, “junk bonds.” Loans rated “B” are below investment grade and are regarded by rating organizations as predominantly speculative with respect to the borrower’s ability to
repay interest and principal when due over a long period. While securities rated Baa by Moody’s or BBB by S&P are considered to be “investment grade,” they have some speculative characteristics.
The Fund may invest in loans that are rated both investment grade and below-investment grade by different rating organizations. An appendix to the Fund’s Statement of Additional Information includes the
definitions of the rating categories of the principal rating organizations.
Many loans are not rated by
rating organizations. The lack of a rating does not necessarily imply that a loan is of lesser investment quality.
While the Fund expects to have
access to financial and other information regarding the borrower that has been made available to the lenders under a loan, it may not have such information in connection with participation interests and certain loan
assignments. Additionally, the amount of public information available with respect to loans generally will be less extensive than what is available for exchange-listed or otherwise registered securities.
The Sub-Adviser will normally
seek to avoid receiving material, non-public information about the issuers of loans being considered for acquisition by the Fund or held in the Fund’s portfolio. The Sub-Adviser’s decision not to receive
material, non-public information under normal circumstances may place the Fund at a disadvantage relative to other investors in loans, and could adversely affect the Fund’s investment performance. In certain
cases, the Sub-Adviser may nevertheless receive material, non-public information regarding loans, and its ability to trade in such loans for the account of the Fund could potentially be limited by its possession of
such information. Such limitations on the Sub-Adviser’s ability to trade could have an adverse effect on the Fund by, for example, preventing the Fund from selling a loan that is experiencing a material decline
in value. In some instances, these trading restrictions could continue in effect for a substantial period of time.
Risks
of Investing in Regulation S Securities. Regulation S securities of U.S. and non-U.S. issuers
are offered through private offerings without registration with the SEC pursuant to Regulation S of the Securities Act of 1933.
Offerings of Regulation S securities may be conducted outside of the United States, and Regulation S securities may be relatively
less liquid as a result of legal or contractual restrictions on resale. Although Regulation S securities may be resold in privately
negotiated transactions, the price realized from these sales could be less than that originally paid by the Fund. Further, companies
whose securities are not publicly traded may not be subject to the disclosure and other investor protection requirements that
would be applicable if their securities were publicly traded. Accordingly, Regulation S securities may involve a high degree of
business and financial risk and may result in substantial losses.
Other Investment Strategies and
Risks. The Fund can also use the investment techniques and strategies described below. The Fund might not use all of these techniques or strategies or might
only use them from time to time.
Diversification and
Concentration. The Fund is a diversified fund. It attempts to reduce its exposure to the risks of individual securities by diversifying its investments across a broad number of different issuers. The
Fund will not concentrate its investments in issuers in any one industry. At times, however, the Fund may emphasize investments in some industries or sectors more than others. The prices of securities 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. The Securities and Exchange Commission has taken the position that investment of more than 25% of a fund’s total assets in issuers in the same industry constitutes concentration in that industry. That
limit does not apply to securities issued or guaranteed by the U.S. government or its agencies and instrumentalities; however, securities issued by any one foreign government are considered to be part of a single
“industry.” The Fund will consider, to the extent practicable, the concentration of the portfolio securities of any underlying investment companies in which it may invest when determining compliance with
its concentration policy.
Special Portfolio Diversification
Requirements. To enable a variable annuity or variable life insurance contract based on an insurance company separate account to qualify for favorable tax treatment under the Internal Revenue Code, the
underlying investments must follow special diversification requirements that limit the percentage of assets that can be invested in securities of particular issuers. The Fund’s investment program is managed to
meet those requirements, in addition to other diversification requirements under the Internal Revenue Code and the Investment Company Act of 1940 that apply to publicly-sold mutual funds.
Failure by the Fund to meet
those special requirements could cause earnings on a contract owner’s interest in an insurance company separate account to be taxable income. Those diversification requirements might also limit, to some degree,
the Fund’s investment decisions in a way that could reduce its performance.
Common Stock and Other Equity
Investments. Equity securities include common stock, preferred stock, rights, warrants and certain securities that are convertible into common stock. Equity investments may be exchange-traded or
over-the-counter securities.
The value of the Fund’s
portfolio may be affected by changes in the stock markets. Stocks and other equity securities fluctuate in price in response to changes to equity markets in general. Stock markets may experience significant
18
| Oppenheimer Global Strategic Income Fund/VA
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short-term volatility and may fall sharply at
times. Adverse events in any part of the equity or fixed-income markets may have unexpected negative effects on other market segments. Different stock markets may behave differently from each other and U.S. stock
markets may move in the opposite direction from one or more foreign stock markets.
The prices of equity securities
generally do not all move in the same direction at the same time. For example, “growth” stocks may perform well under circumstances in which “value” stocks in general have fallen. A variety of
factors can affect the price of a particular company’s stock. These factors may include, but are not limited to: poor earnings reports, a loss of customers, litigation against the company, general unfavorable
performance of the company’s sector or industry, or changes in government regulations affecting the company or its industry. To the extent that securities of a particular type are emphasized (for example foreign
stocks, stocks of small- or mid-cap companies, growth or value stocks, or stocks of companies in a particular industry) its share value may fluctuate more in response to events affecting the market for those types of
securities.
■
| Common stock represents an ownership interest in a company. It ranks below preferred stock and debt securities in claims for dividends and in claims for assets of the issuer in a liquidation or bankruptcy.
|
■
| Preferred stock has a set dividend rate and ranks ahead of common stocks and behind debt securities in claims for dividends and for assets of the issuer in a liquidation or bankruptcy. The dividends on preferred
stock may be cumulative (they remain a liability of the company until paid) or non-cumulative. The fixed dividend rate of preferred stocks may cause their prices to behave more like those of debt securities. If
prevailing interest rates rise, the fixed dividend on preferred stock may be less attractive, which may cause the price of preferred stock to decline.
|
■
| Warrants are options to purchase equity securities at specific prices that are valid for a specific period of time. Their prices do not necessarily move parallel to the prices of the underlying securities, and can
be more volatile than the price of the underlying securities. If the market price of the underlying security does not exceed the exercise price during the life of the warrant, the warrant will expire worthless and any
amount paid for the warrant will be lost. The market for warrants may be very limited and it may be difficult to sell a warrant promptly at an acceptable price. 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.
|
■
| Convertible securities can be converted into or exchanged for a set amount of common stock of an issuer within a particular period of time at a specified price or according to a price formula. Convertible debt
securities pay interest and convertible preferred stocks pay dividends until they mature or are converted, exchanged or redeemed. Some convertible debt securities may be considered “equity equivalents”
because of the feature that makes them convertible into common stock. The conversion feature of convertible securities generally causes the market value of convertible securities to increase when the value of the
underlying common stock increases, and to fall when the stock price falls. The market value of a convertible security reflects both its “investment value,” which is its expected income potential, and its
“conversion value,” which is its anticipated market value if it were converted. If its conversion value exceeds its investment value, the security will generally behave more like an equity security, in
which case its price will tend to fluctuate with the price of the underlying common stock or other security. If its investment value exceeds its conversion value, the security will generally behave more like a debt
security, in which case the security’s price will likely increase when interest rates fall and decrease when interest rates rise. Convertible securities may offer the Fund the ability to participate in stock
market movements while also seeking some current income. Convertible securities may provide more income than common stock but they generally provide less income than comparable non-convertible debt securities. Most
convertible securities will vary, to some extent, with changes in the price of the underlying common stock and are therefore subject to the risks of that stock. In addition, convertible securities may be subject to
the risk that the issuer will not be able to pay interest or dividends when due, and their market value may change based on changes in the issuer’s credit rating or the market’s perception of the
issuer’s creditworthiness. However, credit ratings of convertible securities generally have less impact on the value of the securities than they do for non-convertible debt securities. Some convertible preferred
stocks have a mandatory conversion feature or a call feature that allows the issuer to redeem the stock on or prior to a mandatory conversion date. Those features could diminish the potential for capital appreciation
on the investment.
|
<R> </R>
Municipal Securities. The Fund may invest in municipal securities. Municipal securities are fixed-income securities primarily issued by states, cities, counties and other governmental entities in the United
States to raise money for a variety of public or private purposes, including financing state or local governments, financing specific projects, or financing public facilities. The interest received from most municipal
bonds is exempt from federal, state or local income taxes in the municipalities where the bonds are issued, however the Fund can invest in municipal securities because the portfolio managers believe they offer
attractive yields relative to the yields and risks of other debt securities, rather than to seek tax-exempt interest income for distribution to shareholders.
Risks of
Investing in Municipal Securities. Municipal securities may be subject to interest rate risk and credit risk. The value of the Fund’s investment in municipal securities will be highly sensitive to
events affecting the fiscal stability of the states, municipalities, agencies, authorities and other instrumentalities that issue the municipal securities. In particular, economic, legislative, regulatory or political
developments affecting the ability of a state’s issuers to pay interest or repay principal may significantly affect the value of the Fund’s investments in these securities. These developments can include
or arise from, for example, insolvency of an issuer, uncertainties related to the tax status of municipal securities, tax base erosion, state constitutional limits on tax increases, budget deficits and other financial
difficulties, or changes in the credit ratings assigned to the state’s municipal issuers. Other occurrences, such as catastrophic natural disasters, can also adversely affect a state’s fiscal stability.
The recent national economic crisis, among other factors, has caused
Oppenheimer Global Strategic Income Fund/VA
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deterioration in the economies of many states,
resulting in an adverse impact on states’ spending, revenues and state budgets that has caused many states to operate under significant financial stress.
When-Issued and Delayed-Delivery
Transactions. The Fund may purchase securities on a “when-issued” basis and may purchase or sell such securities on a “delayed-delivery” basis. When-issued and delayed-delivery
securities are purchased at a price that is fixed at the time of the transaction, with payment and delivery of the security made at a later date. When purchasing securities in this manner, during the period between
purchase and settlement, the Fund makes no payment to the issuer (or seller) of the security and no interest accrues to the Fund from the investment.
The securities are subject to
changes in value from market fluctuations during the period until settlement and the value of the security on the delivery date may be more or less than the Fund paid. The Fund may lose money if the value of the
security declines below the purchase price.
Repurchase Agreements. In a repurchase transaction, a Fund buys a security and simultaneously sells it back to an approved institution 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 institutions 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 investment adviser from time to time. Repurchase agreements must be
fully collateralized. However, if the seller fails to pay the repurchase price on the delivery date, a Fund may incur costs in disposing of the collateral and may experience losses if there is any delay in its ability
to do so. If the default on the part of the seller is due to its bankruptcy, a Fund’s ability to liquidate the collateral may be delayed or limited.
Illiquid and Restricted
Securities. Investments that do not have an active trading market, or that have legal or contractual limitations on their resale, are generally referred to as “illiquid” securities.
Illiquid securities may be difficult to value or to sell promptly at an acceptable price or may require registration under applicable securities laws before they can be sold publicly. Securities that have limitations
on their resale are referred to as “restricted securities.” Certain restricted securities that are eligible for resale to qualified institutional purchasers may not be regarded as illiquid.
The Fund will not invest more
than 15% of its net assets in illiquid securities. The Fund’s holdings of illiquid securities are monitored on an ongoing basis to determine whether to sell any of those securities to maintain adequate
liquidity.
Distressed
Debt Securities. The Fund may invest in debt securities issued by companies that are involved
in reorganizations, financial restructurings or bankruptcy. Such distressed debt securities are speculative and involve substantial
risks in addition to the risks of investing in below-investment-grade debt securities. The Fund will generally not receive interest
payments on the distressed securities and may also incur costs to protect its investment. In addition, distressed securities involve
the substantial risk that principal will not be repaid. These securities may present a substantial risk of default or may be in
default at the time of investment. The Fund may incur additional expenses to the extent it is required to seek recovery upon a
default in the payment of principal of or interest on its portfolio holdings. In any reorganization or liquidation proceeding
relating to a portfolio company, the Fund may lose its entire investment or may be required to accept cash or securities with
a value less than its original investment. Distressed securities and any securities received in an exchange for such securities
may be subject to restrictions on resale.
Conflicts
of Interest. The investment activities of the Manager, the Sub-Adviser and their affiliates in
regard to other accounts they manage may present conflicts of interest that could disadvantage the Fund and its shareholders.
The Manager, the Sub-Adviser or their 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 fund or
account holding investment positions that are adverse to the Fund’s investment strategies or activities. Other funds or
accounts advised by the Manager, the Sub-Adviser or their 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, the same types of securities or
other investments as the Fund or invest in securities of the same issuers that have different, and possibly conflicting, characteristics.
The trading and other investment activities of those other funds or accounts may be 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, the Sub-Adviser or their affiliates and the Fund may experience losses during periods in which other accounts
they advise achieve gains. The Manager and the Sub-Adviser have adopted policies and procedures designed to address potential
conflicts of interest identified by the Manager and the Sub-Adviser. However, such policies and procedures may also limit the
Fund’s investment activities and affect its performance. For example, the investment activities of such funds or accounts
may result in the Manager’s, the Sub-Adviser’s, or their affiliates’ receipt of material non-public information
concerning certain securities, which could lead to restrictions in the trading of such securities or other investment activities
of the Fund or other funds or accounts managed by the Manager, the Sub-Adviser or their affiliates.
The Fund offers its shares to
separate accounts of different insurance companies, as an investment for their variable annuity contracts, variable life insurance policies and other investment products. 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.
Defaulted
Securities. The Fund may purchase defaulted securities if the investment adviser believes that
there is potential for resumption of income payments or realization of income on the sale of the securities or the collateral
or other
20 | Oppenheimer Global Strategic Income Fund/VA |
advantageous
developments appear likely in the near future. Notwithstanding the investment adviser’s belief about the resumption of income
payments or realization of income, the purchase of defaulted securities is highly speculative and involves a high degree of risk,
including the risk of a substantial or complete loss of the Fund’s investment.
Subordinated
Debt Obligations. The Fund can purchase fixed-rate and adjustable-rate subordinated debt obligations
issued by U.S. or foreign entities. 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. The Fund can invest a variable amount of its net assets in
investments, including subordinated debt obligations, rated below “B.” See “Credit Quality Standards for Senior
Loans” above. Subordinated debt obligations do not have the same level of priority as Senior Loans and accordingly involve
more risk than Senior Loans. If a borrower becomes insolvent, the borrower’s assets may be insufficient to meet its obligations
to the holders of its subordinated debt.
Investments
in Money Market Instruments. The Fund can invest its free cash balances in money market instruments
to provide liquidity or for defensive purposes. Money market instruments are short-term, U.S. dollar-denominated debt instruments
issued or guaranteed by domestic and foreign corporations and financial institutions, the U.S. government, its agencies and instrumentalities
and other entities. Money market instruments include certificates of deposit, commercial paper, repurchase agreements, treasury
bills, certain asset-backed securities and other short term debt obligations that have a final maturity, as defined under rules
under the Investment Company Act of 1940, of 397 days or less. They may have fixed, variable or floating interest rates. Money
market instruments are subject to certain risks, including the risk that an issuer of an obligation that the Fund holds might
have its credit rating downgraded or might default on its obligations, or that interest rates might rise sharply, causing the
value of the Fund’s investments to fall.
The
Fund may invest in money market instruments by investing in Class E shares of Oppenheimer Institutional Government Money Market
Fund. It may also invest in money market instruments directly, or in other affiliated or unaffiliated money market funds. The
Fund may invest in such other money market funds, such as Oppenheimer Institutional Government Money Market Fund, rather than
purchasing individual short-term investments. Oppenheimer Institutional Government Money Market Fund is a registered open-end
management investment company, regulated as a money market fund under the Investment Company Act of 1940, and is part of the Oppenheimer
family of funds. At the time of an investment, the Fund cannot always predict what will be the yield of the Oppenheimer Institutional
Government Money Market Fund, or any other money market fund it may hold, because of the wide variety of instruments that such
fund may hold in its portfolio. The return on those investments may, in some cases, be lower than the return that would have been
derived from other types of investments that would provide liquidity. As a shareholder, the Fund will be subject to its proportional
share of the expenses of any other money market fund it may hold, 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 to the Manager by
Oppenheimer Institutional Government Money Market Fund, or to any other similar affiliated money market fund of which the Fund
is a shareholder. If the Fund invests in an unaffiliated money market fund, the Manager will not waive a portion of the Fund’s
advisory fee representing the Fund’s share of the advisory fee paid by such unaffiliated fund to any unaffiliated manager.
Investments
in Other Investment Companies. The Fund can also invest in the securities of other investment
companies, which can include open-end funds, closed-end funds, unit investment trusts and business development companies subject
to the limits of the Investment Company Act of 1940. One reason the Fund might do so is to gain exposure to segments of the markets
represented by another fund, at times when the Fund might not be able to buy the particular type of securities directly. As a
shareholder of an investment company, the Fund would be subject to its ratable share of that investment company’s expenses,
including its advisory and administration expenses. The Fund does not intend to invest in other investment companies unless it
is believed that the potential benefits of the investment justify the expenses. The Fund’s investments in the securities
of other investment companies are subject to the limits that apply to those types of investments under the Investment Company
Act of 1940.
The
Fund may also invest in exchange traded funds (“ETFs”), which are subject to all the risks of investing in investment
companies as described above. Because ETFs are listed on national stock exchanges and are traded like stocks listed on an exchange,
shares of ETFs potentially may trade at a discount or a premium to their net asset value. Investments in ETFs are also subject
to brokerage and other trading costs, which could result in greater expenses to the Fund.
Temporary
Defensive and Interim Investments. For temporary defensive purposes in times of adverse or unstable
market, economic or political conditions, the Fund can invest up to 100% of its total assets in investments that may be inconsistent
with the Fund’s principal investment strategies. Generally, the Fund would invest in shares of Oppenheimer Institutional
Government Money Market Fund or in the types of money market instruments in which Oppenheimer Institutional Government Money Market
Fund invests or in other short-term U.S. government securities. The Fund might also hold these types of securities as interim
investments pending the investment of proceeds from the sale of Fund shares or the sale of Fund portfolio securities or to meet
anticipated redemptions of Fund shares. To the extent the Fund invests in these securities, it might not achieve its investment
objective.
Portfolio Turnover. A change in the securities held by the Fund is known as “portfolio turnover.” The Fund may engage in active and frequent trading to try to achieve its investment objective and
may have a portfolio turnover rate of over 100% annually. Increased portfolio turnover may result in higher brokerage fees or other transaction costs, which can reduce performance. The Financial Highlights table at
the end of this prospectus shows the Fund’s portfolio turnover rates during past fiscal years.
Changes To The Fund’s
Investment Policies. The Fund’s fundamental investment policies cannot be changed without the approval of a majority of the Fund’s outstanding voting shares,
however, the Fund’s Board can change
Oppenheimer Global Strategic Income Fund/VA
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non-fundamental policies without a shareholder
vote. Significant policy changes will be described in supplements to this prospectus. The Fund’s investment objective is not a fundamental policy and may be changed without shareholder approval. Investment
restrictions that are fundamental policies are listed in the Fund’s Statement of Additional Information. An investment policy is not fundamental unless this prospectus or the Statement of Additional Information
states that it is.
Portfolio Holdings. The Fund’s portfolio holdings are included in its semi-annual and annual reports that are distributed to its shareholders within 60 days after the
close of the applicable reporting period. The Fund also discloses its portfolio holdings in its Schedule of Investments on Form N-Q, which are public filings that are required to be made with the Securities and
Exchange Commission within 60 days after the end of the Fund’s first and third fiscal quarters. Therefore, the Fund’s portfolio holdings are made publicly available no later than 60 days after the end of
each of its fiscal quarters. In addition, the Fund’s portfolio holdings information, as of the end of each calendar month, may be posted and available on the Fund’s website no sooner than 30 days after the
end of each calendar month.
A description of the
Fund’s policies and procedures with respect to the disclosure of its portfolio holdings is available in the Fund’s Statement of Additional Information.
How the Fund is Managed
THE MANAGER AND THE
SUB-ADVISER. OFI Global Asset Management, Inc., the Manager, is a wholly-owned subsidiary of OppenheimerFunds, Inc. The Manager oversees the Fund’s investments
and its business operations. OppenheimerFunds, Inc., the Sub-Adviser, chooses the Fund’s investments and provides related advisory services. The Manager carries out its duties, subject to the policies
established by the Fund’s Board, under an investment advisory agreement with the Fund 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 Sub-Adviser has a sub-advisory agreement with the Manager and is paid by the Manager.
The Manager has been an
investment adviser since 2012. The Sub-Adviser has been an investment adviser since 1960. The Manager and the Sub-Adviser are located at 225 Liberty Street, New York, New York 10281-1008.
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, 0.50% of the next $4 billion, and 0.48% of average annual net assets over $5 billion, calculated on the daily
net assets of the Fund. Under the sub-advisory agreement, the Manager pays the Sub-Adviser a percentage of the net investment
advisory fee (after all applicable waivers) that it receives from the Fund as compensation for the provision of the investment
advisory services. The Fund’s advisory fee for the fiscal year ended December 31, 2016 was ___% of average annual net assets,
before any Subsidiary advisory fees or any applicable waivers.
The Manager also receives
advisory fees directly from the Fund’s wholly-owned Subsidiary. The Manager has voluntarily agreed to waive the management fee it receives from the Fund in an amount equal to the management fee it receives from
the Subsidiary. This waiver will continue to be in effect for so long as the Fund invests in the Subsidiary, and may not be terminated unless termination is approved by the Fund’s Board.
The Manager has voluntarily
agreed to waive fees and/or reimburse the Fund for certain expenses in order to limit “Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement” (excluding (i) interest, taxes,
dividends tied to short sales, brokerage commissions, and other expenditures which are capitalized in accordance with generally accepted accounting principles; (ii) expenses incurred directly or indirectly by the Fund
as a result of investments in other investment companies, wholly-owned subsidiaries and pooled investment vehicles; (iii) certain other expenses attributable to, and incurred as a result of, a Fund’s investments;
and (iv) other unusual and infrequent expenses (including litigation expenses) not incurred in the ordinary course of the Fund’s business) to annual rates of 0.75% Non-Service Shares and 1.00% for Service
Shares as calculated on the daily net assets of the Fund. This fee waiver and/or expense reimbursement may be amended or withdrawn at any time without prior notice to shareholders.
After discussions with the
Fund’s Board, the Manager has contractually agreed to waive fees and/or reimburse Fund expenses in an amount equal to the indirect management fees incurred through the Fund’s investments in funds managed
by the Manager or its affiliates. This fee waiver and/or expense reimbursement may not be amended or withdrawn for one year from the date of this prospectus, unless approved by the Board.
The
Fund’s other annual operating expenses may vary in future years. A discussion regarding the basis for the Board of Trustees’
approval of the Fund’s investment advisory arrangements is available in the Fund’s Annual Report to shareholders for
the year ended December 31, 2016.
Portfolio
Managers. The Fund’s portfolio is managed by Michael Mata, the lead portfolio manager,
Krishna Memani, Ruta Ziverte and Chris Kelly, CFA, who are primarily responsible for the day-to-day management of the Fund’s
investments. Mr. Mata has been a portfolio manager and Vice President of the Fund since November 2014. Mr. Memani has been a portfolio
manager and Vice President of the Fund since April 2009. Ms. Ziverte has been a portfolio manager and Vice President of the Fund
since January 2017. Mr. Kelly has been a portfolio manager and Vice President of the Fund since January 2017.
Mr. Mata has been a Senior Vice
President of the Sub-Adviser and the Head of Multi-Sector Fixed Income since July 2014. Mr. Mata was a portfolio manager with ING Investment Management and Head of Multi-Sector Fixed-Income from August
22
| Oppenheimer Global Strategic Income Fund/VA
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2004 to December 2013, managing the Global Bond
and Core Plus strategies and the macro and quantitative research teams, along with the emerging markets sovereign team. Mr. Mata was a Senior Vice President and Senior Risk Manager at Putnam Investments from March
2000 to August 2004, and a Vice President and Risk Manager for Fixed Income Trading at Lehman Brothers from September 1994 to March 2000.
Mr. Memani has been President of
the Sub-Adviser since January 2013, Executive Vice President of the Manager since January 2014 and Chief Investment Officer of the OppenheimerFunds advisory entities since January 2014. He was Chief Investment
Officer, Fixed Income of the Sub-Adviser from January 2013 to December 2013; Head of the Investment Grade Fixed Income Team of the Sub-Adviser from March 2009 to January 2014; Director of Fixed Income of the
Sub-Adviser from October 2010 through December 2012 and Senior Vice President of the Sub-Adviser from March 2009 through December 2012. He was also Senior Vice President of OFI Global Institutional, Inc. from April
2009 through December 2012. Mr. Memani was a Managing Director and Head of the U.S. and European Credit Analyst Team at Deutsche Bank Securities from June 2006 through January 2009. He was Chief Credit Strategist at
Credit Suisse Securities from August 2002 through March 2006 and Managing Director and Senior Portfolio Manager at Putnam Investments from September 1998 through June 2002. Mr. Memani is a portfolio manager and an
officer of other portfolios in the OppenheimerFunds complex.
Ms.
Ziverte has been a Senior Portfolio Manager for the Sub-Adviser’s Multi-Sector Fixed Income Team and a Vice President of
the Sub-Adviser since July 2015. Prior to joining the Sub-Adviser, she was Senior Vice President and high yield portfolio manager
at GE Asset Management from June 2009 to June 2015.
Mr.
Kelly has been a Senior Vice President of the Sub-Adviser since January 2016 and Portfolio Manager of the Sub-Adviser since March
2015. He was a Vice President of the Sub-Adviser from March 2015 through January 2016 and Co-Head of the Global Debt Team since
March 2015. Prior to joining the Sub-Adviser, Mr. Kelly was at BlackRock Inc., where he was Deputy Head of Emerging Markets Fixed
Income from June 2012 to January 2015. Mr. Kelly was also a portfolio manager and Deputy Chief Investment Officer of Emerging
Markets at Fisher Francis Trees and Watts, a BNP Paribas Investment Partner, from February 2008 to April 2012.
The Statement
of Additional Information provides additional information about portfolio manager compensation, other accounts managed and ownership of Fund shares.
ABOUT THE FUND’S
WHOLLY-OWNED SUBSIDIARY. The Subsidiary is an exempted company incorporated with limited liability under the laws of the Cayman Islands and is overseen by its own board of
directors. The Fund is the sole shareholder of the Subsidiary, and it is currently expected that shares of the Subsidiary will not be sold or offered to other investors.
The Manager is responsible for
the Subsidiary’s day-to-day business pursuant to an investment advisory agreement with the Subsidiary and the Sub-Adviser selects the Subsidiary’s investments pursuant to a sub-advisory agreement with the
Manager. Under these agreements, the Manager and Sub-Adviser provide the Subsidiary with the same type of management and sub-advisory services, under the same terms, as are provided to the Fund. The investment
advisory and sub-advisory agreements regarding the Subsidiary provide for their automatic termination upon the termination of the Fund’s Investment Advisory Agreement or Sub-Advisory Agreement, respectively. The
Subsidiary has also entered into separate contracts for the provision of custody, transfer agency, and audit services with the same service providers as those engaged by the Fund.
The Subsidiary is managed
pursuant to compliance policies and procedures that are the same, in all material respects, as those adopted by the Fund. As a result, in managing the Subsidiary’s portfolio, the Manager and Sub-Adviser are
subject to the same investment policies and restrictions that apply to the management of the Fund, and, in particular, to the requirements relating to portfolio leverage, liquidity, brokerage, and the timing and
method of the valuation of the Subsidiary’s portfolio investments and shares of the Subsidiary. The Fund’s Chief Compliance Officer oversees implementation of the Subsidiary’s policies and
procedures, and makes periodic reports to the Fund’s Board regarding the Subsidiary’s compliance with its policies and procedures.
The Fund pays the Manager a fee
for its services, and the Manager pays a sub-advisory fee to the Sub-Adviser. The Manager has contractually agreed to waive the management fee it receives from the Fund in an amount equal to the management fee paid to
the Manager by the Subsidiary. This undertaking will continue in effect for so long as the Fund invests in the Subsidiary, and may not be terminated by the Manager unless the Manager first obtains the prior approval
of the Fund’s Board of Trustees. The rate of the management fee paid directly or indirectly by the Fund, calculated by aggregating the fees paid to the Manager by the Fund (after the waiver described above) and
the Subsidiary, may not increase without the prior approval of the Board and a majority of the Fund’s shareholders. The Subsidiary also bears the fees and expenses incurred in connection with the custody,
transfer agency, and audit services that it receives. The Fund expects that the expenses borne by the Subsidiary will not be material in relation to the value of the Fund’s assets. It is also anticipated that
the Fund’s expenses will be reduced to a certain extent as a result of the payment of such expenses at the Subsidiary level. It is therefore expected that the Fund’s investment in the Subsidiary will not
result in the Fund’s paying duplicative fees for similar services provided to the Fund and Subsidiary.
The consolidated financial
statements of the Subsidiary and the Fund are included in the Fund’s Annual and Semi-Annual Reports provided to shareholders. Copies of the reports are provided without charge upon request as indicated on the
back cover of this prospectus. Please refer to the SAI for additional information about the organization and management of the Subsidiary.
Oppenheimer Global Strategic Income Fund/VA
| 23
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More About Your
Investment
How to Buy and Sell Shares
You may only submit instructions
for buying or selling shares of the Fund to your insurance company or its servicing agent, not directly to the Fund or its Transfer Agent. Information about your investment in the Fund can only be obtained from your participating insurance company or its servicing agent. The Fund’s Transfer Agent does not hold or have
access to those records.
What Classes of Shares Does the
Fund Offer? The Fund currently offers two different classes of shares. The different classes of shares represent investments in the same portfolio of securities, but
the classes are subject to different expenses and will usually have different share prices. The Service Shares are subject to a distribution and service plan. The expenses of that plan are described below. The
Non-Service Shares are not subject to a service and distribution plan.
The Price of Fund Shares. Fund shares are sold to participating insurance companies, and are redeemed, at their net asset value per share. The net asset value that applies to a
purchase order is the next one calculated after the insurance company (as the Fund’s designated agent to receive purchase orders) receives the order from its contract owner, in proper form. Fund shares are
redeemed at the next net asset value calculated after the insurance company (as the Fund’s designated agent to receive purchase orders) receives the order from its contract owner, in proper form. The
Fund’s Transfer Agent generally must receive the purchase or redemption order from the insurance company by 9:30 a.m. Eastern Time on the next regular business day.
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 participating insurance company’s prospectus may also include information regarding the time you must submit your purchase and redemption orders.
The sale and redemption price
for Fund shares will change from day to day because the value of the securities in its portfolio and its expenses fluctuate. The redemption price will normally differ for different classes of shares. The redemption
price of your shares may be more or less than their original cost.
Net
Asset Value. The Fund calculates the net asset value of each class of shares as of the close
of the New York Stock Exchange (“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.
The Fund determines the net
assets of each class of shares by subtracting the class-specific expenses and the amount of the Fund’s liabilities attributable to the share class from the market value of the Fund’s securities and other
assets attributable to the share class. The Fund’s “other assets” might include, for example, cash and interest or dividends from its portfolio securities that have been accrued but not yet
collected. The Fund’s securities are valued primarily on the basis of current market quotations.
The net asset value per share
for each share class is determined by dividing the net assets of the class by the number of outstanding shares of that class. The current net asset value per share of the Fund is available on our website at
www.oppenheimerfunds.com.
Fair Value
Pricing. If market quotations are not readily available or (in the Sub-Adviser’s judgment) do not accurately reflect the fair value of a security, or 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 value is calculated that day, an event occurs that the Sub-Adviser 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, that security may be valued by another
method that the Board believes would more accurately reflect the security’s fair value.
In determining whether current
market prices are readily available and reliable, the Sub-Adviser monitors the information it receives in the ordinary course of its investment management responsibilities. It seeks to identify significant events that
it believes, in good faith, will affect the market prices of the securities 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 Board has adopted valuation
procedures for the Fund and has delegated the day-to-day responsibility for fair value determinations to the Sub-Adviser’s “Valuation Committee.” Those determinations may include consideration of
recent transactions in comparable securities, information relating to the specific security, developments in the markets and their performance, and current valuations of foreign or U.S. indices. Fair value
determinations by the Sub-Adviser are subject to review, approval and ratification by the Board at its next scheduled meeting after the fair valuations are determined.
The Fund’s use of fair
value pricing procedures involves subjective judgments and it is possible that the fair value determined for a security may be materially different from the value that could be realized upon the sale of that security.
Accordingly, 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 approximately the same time at which the Fund determines its net asset value
per share.
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| Oppenheimer Global Strategic Income Fund/VA
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Pricing Foreign
Securities. The Fund may use fair value pricing more frequently for securities primarily traded on foreign exchanges. Because many foreign markets close hours before the Fund values
its foreign portfolio holdings, significant events, including broad market movements, may occur during that time that could potentially affect the values of foreign securities held by the Fund.
The Sub-Adviser believes that
foreign securities values may be affected by volatility that occurs in U.S. markets after the close of foreign securities markets. The Sub-Adviser’s fair valuation procedures therefore include a procedure
whereby foreign securities prices may be “fair valued” to take those factors into account.
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.
Pricing of the
Subsidiary. The valuation procedures described above for the Fund are the same used in valuing the Subsidiary’s portfolio investments and shares of the Subsidiary.
How Can You Buy Fund Shares?
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. That prospectus will indicate which share class you may be eligible to purchase.
Suspension of Share
Offering. The offering of Fund shares may be suspended during any period in which the determination of net asset value is suspended, and may be suspended by the Board at any time the Board believes
it is in the Fund’s best interest to do so.
How Can You Redeem Fund
Shares? Only the participating insurance companies that hold Fund shares in their separate accounts 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. The Fund normally sends payment by Federal Funds wire to the insurance company’s account on the
next business 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. Contract owners should refer to the withdrawal or surrender instructions in the accompanying prospectus of the participating insurance company.
Redemptions
“In-Kind.” Shares may be “redeemed in-kind” under certain circumstances (such as redemptions of substantial amounts of shares by shareholders that have consented to such in kind
redemptions). That means that the redemption proceeds will be paid to the participating insurance companies in securities from the Fund’s portfolio. If the Fund redeems shares in-kind, the insurance company
accounts may bear transaction costs and will bear market risks until such securities are converted into cash.
Redemption or
transfer requests will not be honored until the Transfer Agent receives all required documents in proper form. From time to time, the Transfer Agent, in its discretion, may waive certain of the requirements for
redemptions stated in this prospectus.
Frequent Purchase and Redemption
Limitations
The Board has adopted a policy
to discourage and seek to limit or eliminate frequent purchases or redemptions of shares of the Fund by shareholders or authorized broker-dealer representatives of shareholders, in order to prevent the negative
impacts, if any, that this activity may impose on other shareholders of the Fund. Negative impacts may include, without limitation, interference with portfolio management, increased taxes on portfolio securities,
diminishment of Fund performance due to the need to sell portfolio securities at less favorable prices, increases in portfolio and administrative transaction costs resulting from large volumes of frequent purchase or
redemption activity, and the possible dilution of Fund yields as a result of such activity. In addition, a Fund that invests in non-U.S. securities is subject to the risk that an investor may seek to take advantage of
a delay between the change in value of that Fund’s portfolio securities and the determination of the Fund’s net asset value as a result of different closing times of U.S. and non-U.S. markets by buying or
selling Fund shares at a price that does not reflect their true value. A similar risk exists for Funds that invest in securities of small capitalization companies, securities of issuers located in emerging markets or
high yield securities (junk bonds) that are thinly traded and therefore may have actual values that differ from their market prices. This short-term arbitrage activity can reduce the return received by long-term
shareholders. The Fund will seek to eliminate these opportunities by using fair value pricing, as described in “Fair Value Pricing” above.
There is no guarantee that this
policy, described below, will be sufficient to identify and prevent all frequent purchases or redemptions that may have negative impacts to the Fund. In addition, the implementation of the Fund’s policy involves
judgments that are inherently subjective and involve some selectivity in their application. The Fund, however, seeks to make judgments that are consistent with the interests of the Fund’s shareholders. No matter
how the Fund defines frequent purchases or redemptions, other purchases and sales of Fund shares may have adverse effects on the management of the Fund’s portfolio and its performance. Additionally, due to the
complexity and subjectivity involved in identifying certain frequent trading and the volume of Fund shareholder transactions, there can be no guarantee that the Fund will be able to identify violations of the policy
or to reduce or eliminate all detrimental effects of frequent purchases or redemptions.
The Fund may from time to time
use other methods that it believes are appropriate to deter market timing or other trading activity that may be detrimental to the Fund or its long-term shareholders.
Oppenheimer Global Strategic Income Fund/VA
| 25
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The Fund does not offer an
exchange privilege.
Right to Refuse Any Purchase
Orders. The Fund may refuse, or cancel as permitted by law, any purchase order in its discretion for any reason at any time, and is not obligated to provide notice before rejecting or canceling an
order.
Right to Terminate or Suspend
Account Privileges. The Fund may, in its discretion, limit or terminate trading activity by any person, group or account that it believes would be disruptive, even if the activity has not exceeded the policy
described in this prospectus. As part of the Fund’s policy to detect and deter frequent purchases and redemptions, the Fund may review and consider the history of frequent trading activity in all accounts in the
Oppenheimer funds known to be under common ownership or control. The Fund may send a written warning to a shareholder that it believes may be engaging in disruptive or excessive trading activity; however, the Fund
reserves the right to suspend or terminate the ability to purchase shares, with or without warning, for any account that the Fund determines, in the exercise of its discretion, has engaged in such trading
activity.
Monitoring the Policy. The Fund does not have the ability to directly monitor trading activity in the accounts of policy or contract owners (“contract owner accounts”) within the participating
insurance companies’ accounts. Participating insurance companies will generally enter into written agreements which require the participating insurance company to provide underlying shareholder or account data
at the Fund’s reasonable request. The Fund’s ability to monitor and deter excessive short-term trading in insurance company accounts ultimately depends on the capability and diligence of each participating
insurance company, under its agreement with the Fund, in monitoring and controlling the trading activity of the policy or contract owners in the insurance company’s accounts. Overall purchase and redemption
activity in contract owner accounts will be monitored to identify patterns that may suggest frequent trading by the underlying owners. Participating insurance companies will be permitted to apply the Fund’s
policy or their own frequent trading policy if the latter is more restrictive. In cases where a participating insurance company’s more restrictive policy is applied, the Fund will rely on the participating
insurance company to monitor frequent trading activity in accordance with its policy. The Fund may request individual account or transaction information, and based on the information and data it receives, will apply
its policy to review transactions that may constitute frequent purchase or exchange activity. The Fund may prohibit, in its sole discretion, purchases of Fund shares by a participating insurance company or by some or
all of its clients.
You should refer to the
prospectus for your insurance company variable annuity contract for specific information about the insurance company’s policies. Under certain circumstances, policy or contract owners may be required to transmit
purchase or redemption orders only by first class U.S. mail.
DISTRIBUTION AND SERVICE (12b-1)
PLANS
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 those
shares. Under the Plan, the Fund pays the Distributor quarterly at an annual rate of up to 0.25% of the daily net assets of the Fund’s Service Shares. Because these fees are paid out of the Fund’s assets
on an on-going basis, over time they will increase the operating expenses of the Service Shares and may cost you more than other types of fees or sales charges. As a result, the Service Shares may have lower
performance compared to the Fund’s shares that are not subject to a service fee
Use of Plan Fees: The Distributor currently uses all of those fees to compensate sponsor(s) of the insurance product for providing personal services and account maintenance for variable contract owners that
hold Service Shares.
Payments
to Financial Intermediaries and Service Providers. The Sub-Adviser and/or the Distributor, Transfer
Agent and/or Sub-Transfer Agent, at their discretion, may also make payments to broker-dealers, other financial intermediaries,
including the insurance companies that offer the Fund as an investment option, or to service providers for some or all of the
following services- distribution, promotional and marketing support, shareholder servicing, operational and recordkeeping, sub-accounting,
networking or administrative services.
The types of financial
intermediaries that may receive compensation for providing such services include, but are not limited to, broker-dealers, financial advisors, registered investment advisers, sponsors of fund
“supermarkets,” sponsors of fee-based advisory or wrap fee-based programs, sponsors of college and retirement savings programs, banks, trust companies, retirement plan or qualified tuition program
administrators, third party administrators, financial intermediaries that offer products that hold Fund shares, and insurance companies that offer variable annuity or variable life insurance products.
Payments for distribution or
promotional and marketing support are made out of the Sub-Adviser’s and/or the Distributor’s own resources and/or assets, including from the revenues or profits derived from the advisory fees the
Sub-Adviser receives from the Manager for sub-advisory services on behalf of the Fund. Such payments, which may be substantial, are paid to financial intermediaries who perform services for the Sub-Adviser, and/or the
Distributor, and are in addition to payments made pursuant to an applicable 12b-1 plan. Such payments are separate from any commissions the Distributor pays to financial intermediaries out of the sales charges paid by
investors.
Payments for
distribution-related expenses and asset retention items, paid by the Sub-Adviser or the Distributor, 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 similar fees. In some circumstances, revenue sharing payments may create
26
| Oppenheimer Global Strategic Income Fund/VA
|
an incentive for a financial intermediary or
its representatives to recommend or offer shares of the Fund or other Oppenheimer funds to its customers. These payments also may give a financial 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 financial intermediary receiving the payment or provide representatives of the Distributor with access to
representatives of the financial intermediary’s sales force, in some cases on a preferential basis over funds of competitors. Additionally, as firm support, the Sub-Adviser or Distributor may reimburse expenses,
including, but not limited to, educational seminars and “due diligence” or training meetings (to the extent permitted by applicable laws or the rules of the Financial Industry Regulatory Authority
(“FINRA”)) designed to increase sales representatives’ awareness about Oppenheimer funds, including travel and lodging expenditures. However, the Sub-Adviser or Distributor 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 financial intermediary, sales of Fund shares, the redemption rates on
accounts of clients of the financial intermediary or overall asset levels of Oppenheimer funds held for or by clients of the financial intermediary, the willingness of the financial intermediary to allow the
Distributor to provide educational and training support for the financial intermediary’s sales personnel relating to the Oppenheimer funds, the availability of the Oppenheimer funds on the financial
intermediary’s sales system, as well as the overall quality of the services provided by the financial intermediary. The Sub-Adviser 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 Sub-Adviser or Distributor sell more shares of the Oppenheimer funds or retain more
shares of the funds in their client accounts, the Sub-Adviser and Distributor benefit from the incremental management and other fees they receive with respect to those assets.
Payments may be made by the
Transfer Agent or Sub-Transfer Agent to financial intermediaries to compensate or reimburse them for services provided, such as sub-transfer agency services for shareholders or retirement plan participants, omnibus
accounting or sub-accounting, participation in networking arrangements, operational and recordkeeping and other administrative services. These payments are made out of the Transfer Agent’s or Sub-Transfer
Agent’s own resources and/or assets, including from the revenues or profits derived from the transfer agency fees the Transfer Agent receives from the Fund. Financial intermediaries that may receive these fees
for providing services may include, but are not limited to, retirement plan administrators, qualified tuition program sponsors, banks and trust companies, broker-dealers, and insurance companies that offer variable
annuity or variable life insurance products, and other financial intermediaries. These fees may be used by the financial intermediary to offset or reduce fees that would otherwise be paid directly to them by certain
account holders, such as retirement plans.
Payments made by the
Sub-Adviser, and/or the Distributor, the Transfer Agent and Sub-Transfer Agent are not reflected in the tables in the “Fees and Expenses of the Fund” section of this prospectus because they are not paid by
the Fund.
The Statement of Additional
Information contains more information about revenue sharing payments made by the Sub-Adviser and/or Distributor and operational and recordkeeping, networking and sub-accounting payments made by the Transfer Agent
and/or Sub-Transfer Agent. Your broker-dealer or other financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You should ask your financial intermediary for details about any such payments it receives from the Sub-Adviser, Distributor, Transfer Agent or Sub-Transfer Agent, or any
other fees or expenses it charges.
Dividends, Capital Gains and
Taxes
Dividends and Distributions. The Fund intends to declare and pay dividends annually from any net investment income. The Fund may also realize capital gains on the sale of portfolio securities, in which case it will
make distributions of any net short-term capital gains and it may make distributions out of any net long-term capital gains annually. The Fund may also make supplemental distributions of dividends and capital gains
following the end of its fiscal year. The Fund has no fixed dividend rate and cannot guarantee that it will pay any dividends or capital gains distributions in a particular year.
Dividends and distributions are
paid separately for each share class. Because of the higher expenses on Service Shares, the dividends and capital gains distributions paid on those shares will generally be lower than for other Fund shares.
Receiving Dividends and
Distributions. Any dividends and capital gains distributions will be automatically reinvested in additional Fund shares for the account of the participating insurance company, unless the insurance
company elects to have dividends or distributions paid in cash.
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
variable contract 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, provided certain requirements are met, any dividends from net investment income and distributions of net realized short-term and long-term capital gains will be
taxable, if at all, to the participating insurance company.
Oppenheimer Global Strategic Income Fund/VA
| 27
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The Fund has elected and intends
to qualify each year to be taxed as a regulated investment company under the Internal Revenue Code by satisfying certain income, asset diversification and income distribution requirements, but might not so qualify. In
each year that it qualifies as a regulated investment company, the Fund will not be subject to federal income taxes on its income that it distributes to shareholders.
This information is only a
summary of certain Federal income tax information about your investment. You are encouraged to consult your tax adviser about the effect of an investment in the Fund on your particular tax situation and about any
changes to the Internal Revenue Code that may occur from time to time. Additional information about the tax effects of investing in the Fund is contained in the Statement of Additional Information.
Consolidated Financial Highlights
The
Consolidated Financial Highlights Table is presented to help you understand the Fund’s financial performance __________.
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 __________, the Fund’s independent registered public accounting firm. __________'s
report, along with the Fund’s financial statements, are included in the annual report, which is available upon request.
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| Oppenheimer Global Strategic Income Fund/VA
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Statement of Additional
Information and Annual and Semi-Annual Reports. The Fund’s Statement of Additional Information and Annual and Semi-Annual Reports to shareholders provide additional information about the
Fund’s investments. The Annual Report includes a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during its last fiscal year. The
Fund’s Statement of Additional Information and audited financial statements included in its most recent Annual Report dated December 31, 2016, including the notes thereto and report of the independent registered
public accounting firm thereon, are incorporated by reference into (are legally considered part of) this prospectus.
How to Request More Information
You can request the above
documents, the notice explaining the Fund’s privacy policy, and other information about the Fund, without charge, by:
Telephone: | Call OppenheimerFunds Services
toll-free:
1.800.CALL OPP (1.800.988.8287) |
Mail: | Use the following address for regular mail:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270 |
| Use the following address for
courier or express mail:
OppenheimerFunds Services
12100 East Iliff Avenue
Suite 300
Aurora, Colorado 80014 |
Internet: | You may request documents, and
read or download certain documents at www.oppenheimerfunds.com |
Information about the Fund
including the Statement of Additional Information can be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1.202.551.8090. Reports and other information about the Fund are available on the EDGAR database on the SEC’s 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. 20549-1520.
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.: 811-04108
SP0265.001.0217
Oppenheimer Variable Account Funds
April
__, 2017
Statement of Additional
Information
This
document contains additional information about the Funds and the Trust, and supplements information in the Fund’s Prospectuses
dated April __, 2017 with respect to each Fund. The Statement of Additional Information (“SAI”) is not a prospectus.
It should be read together with the Funds’ Prospectuses and the Prospectus for the insurance products you have selected.
The Funds’ financial statements are incorporated by references into this SAI from each Fund’s most recent Annual Report.
Shares of the Fund are sold to provide benefits under the 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 SAI and the
Funds’ Prospectuses can also be viewed or downloaded online at the OppenheimerFunds internet website at www.oppenheimerfunds.com. They may also be obtained by writing to OppenheimerFunds Services, at P.O. Box
5270, Denver, Colorado 80217, or by calling OppenheimerFunds Services at the toll-free number shown below.
OPPENHEIMER VARIABLE ACCOUNT
FUNDS (the “Trust”) is an investment company consisting of 12 separate series (each a “Fund” or the “Funds”). Any reference to the term “Fund” or
“Funds” throughout this SAI refers to each Fund named below, unless otherwise indicated.
Oppenheimer
Capital Appreciation Fund/VA
|
Non-Service Shares
|
Service Shares
|
Oppenheimer
Conservative Balanced Fund/VA
|
Non-Service Shares
|
Service Shares
|
Oppenheimer
Core Bond Fund/VA
|
Non-Service Shares
|
Service Shares
|
Oppenheimer
Discovery Mid Cap Growth Fund/VA
|
Non-Service Shares
|
Service Shares
|
Oppenheimer
Equity Income Fund/VA
|
Non-Service Shares
|
Service Shares
|
Oppenheimer
Global Fund/VA
|
Non-Service Shares
|
Service Shares
|
Oppenheimer
Global Multi-Alternatives Fund/VA
|
Non-Service Shares
|
Service Shares
|
Oppenheimer
Global Strategic Income Fund/VA
|
Non-Service Shares
|
Service Shares
|
Oppenheimer
International Growth Fund/VA
|
Non-Service Shares
|
Service Shares
|
Oppenheimer
Main Street Fund®/VA
|
Non-Service Shares
|
Service Shares
|
Oppenheimer
Main Street Small Cap Fund®/VA
|
Non-Service Shares
|
Service Shares
|
Oppenheimer
Government Money Fund/VA
|
Non-Service Shares
|
Oppenheimer Variable Account Funds
6803 South Tucson Way, Centennial, Colorado
80112-3924
1.800.CALL OPP (255.5677)
Summary Prospectus
Capital Appreciation Fund/VA
Conservative Balanced Fund/VA
Core Bond Fund/VA
Discovery Mid Cap Growth Fund/VA
Equity Income Fund/VA
Global Fund/VA
Global Multi-Alternatives Fund/VA
Global Strategic Income Fund/VA
Government Money Fund/VA
International Growth Fund/VA
Main Street Fund/VA
Main Street Small Cap Fund/VA
Additional Information About the
Funds’ Investment Policies and Risks
OFI Global Asset Management,
Inc. (“OFI Global”), the Funds’ investment adviser, has retained OppenheimerFunds, Inc. (the “Sub-Adviser”) to choose the Funds’ investments and provide related advisory services to
the Funds. The portfolio managers, who are responsible for the day-to-day management of the Funds’ portfolios, are employed by the Sub-Adviser unless indicated otherwise. In this Statement of Additional
Information (“SAI”), references to the “Manager” mean OFI Global and the Sub-Adviser unless the context indicates otherwise or unless otherwise specified. Prior to January 1, 2013, all
references in this SAI to the “Sub-Adviser” refer to OppenheimerFunds, Inc. in its capacity as the Manager.
The investment objective, the
principal investment policies and the main risks of the Funds are described in their Prospectuses. This SAI contains supplemental information about those policies and risks and the types of securities that the
Funds’ Sub-Adviser can select for the Funds. Additional information is also provided about the strategies that the Funds may use to try to achieve their objectives.
The composition of the
Funds’ portfolios and the techniques and strategies that the Funds use in selecting portfolio securities will vary over time. The Funds are not required to use all of the investment techniques and strategies
described below in seeking their objectives. They may use some of the investment techniques and strategies only at some times or they may not use them at all.
The
Fund’s Main Investment Policies
In selecting securities for the
Funds’ portfolios, the Sub-Adviser and Sub-Sub-Advisers, where applicable, evaluate the merits of particular securities primarily through the exercise of their own investment analysis. That process may include,
among other things:
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| evaluation of the issuer’s historical operations,
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| prospects for the industry of which the issuer is part,
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| the issuer’s financial condition,
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| its pending product developments and business (and those of competitors),
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| the effect of general market and economic conditions on the issuer’s business, and
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| legislative proposals that might affect the issuer.
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The
Funds are categorized by the types of investments they make. Capital Appreciation Fund/VA, Discovery Mid Cap Growth Fund/VA, Equity
Income Fund/VA, Global Fund/VA, International Growth Fund/VA, Main Street Fund®/VA and Main Street Small Cap Fund®/VA
can be categorized as “Equity Funds.” Core Bond Fund/VA and Global Strategic Income Fund/VA can be categorized as
“Fixed Income Funds.” Global Multi-Alternatives Fund/VA can be categorized as an “Alternative Fund” because
it invests across a variety of alternative asset classes and investment strategies, including both equity and fixed income securities
within those asset classes, subject to the allocations determined from time to time by the Sub-Adviser. Conservative Balanced
Fund/VA, which is categorized as an “Other Fund,” shares 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. Government Money Fund/VA is categorized as a “Money Market Fund.”
In general, the discussion of
particular investments and strategies throughout this SAI 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 of the Funds. 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®/VA’s portfolio to equity securities is generally substantially larger than its allocation to fixed-income securities.
Government Money Fund/VA’s
investment policies are explained separately in this SAI, including a discussion of fundamental policies under “Investment Restrictions.” However, discussion in this SAI about repurchase agreements and
illiquid securities also applies to Government Money Fund/VA.
Fund
| Investment Category
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Oppenheimer Capital Appreciation Fund/VA
| Equity
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Oppenheimer Discovery Mid Cap Growth Fund/VA
| Equity
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Oppenheimer Equity Income Fund/VA
| Equity
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Oppenheimer Global Fund/VA
| Equity
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Oppenheimer International Growth Fund/VA
| Equity
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Oppenheimer Main Street Fund/VA
| Equity
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Oppenheimer Main Street Small Cap Fund/VA
| Equity
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Oppenheimer Core Bond Fund/VA
| Fixed-Income
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Oppenheimer Global Strategic Income Fund/VA
| Fixed-Income
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Oppenheimer Global Multi-Alternatives Fund/VA
| Alternative
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Oppenheimer Government Money Fund/VA
| Money Market
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Oppenheimer Conservative Balanced Fund/VA
| Other
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The full name of each Fund is
shown above and on the cover page. The word “Oppenheimer” is omitted from these names in the rest of this document to conserve space.
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 Sub-Adviser’s use of its investment strategies and its judgment of where the best market opportunities are to seek a Fund’s objective.
Main Street Small Cap Fund®/VA and Discovery Mid Cap Growth Fund/VA will invest primarily in securities of small- and mid-cap issuers, respectively;
however, for the other Equity Funds those investments may be limited to the extent the Sub-Adviser believes that such investments would be inconsistent with the Fund’s investment strategy.
While Global Multi-Alternatives
Fund/VA and Conservative Balanced Fund/VA do not primarily focus their investments in equity securities, they are expected to invest significantly in them.
Risks of Small-
and Mid-Cap Companies. Small- and mid-cap companies may be either established or newer companies, including “unseasoned” companies that have been in operation for less than three
years. While smaller companies might offer greater opportunities for gain than larger companies, they also may involve greater risk of loss. They may be more sensitive to changes in a company’s earnings
expectations and may experience more abrupt and erratic price movements. Smaller companies’ securities often trade in lower volumes and in many instances, are traded over-the-counter or on a regional securities
exchange, where the frequency and volume of trading is substantially less than is typical for securities of larger companies traded on national securities exchanges. Therefore, the securities of smaller companies may
be subject to wider price fluctuations and it might be harder for the Fund to dispose of its holdings at an acceptable price when it wants to sell them. Small- and mid-cap companies may not have established markets
for their products or services and may have fewer customers and product lines. They may have more limited access to financial resources and may not have the financial strength to sustain them through business
downturns or adverse market conditions. Since small- and mid-cap companies typically reinvest a high proportion of their earnings in their business, they may not pay dividends for some time, particularly if they are
newer companies. Smaller companies may have unseasoned management or less depth in management skill than larger, more established companies. They may be more reliant on the efforts of particular members of their
management team and management changes may pose a greater risk to the success of the business. Securities of small, unseasoned companies may be particularly volatile, especially in the short term, and may have very
limited liquidity. It may take a substantial period of time to realize a gain on an investment in a small- or mid-cap company, if any gain is realized at all.
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 Sub-Adviser 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 Sub-Adviser’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 Sub-Adviser 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.
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:
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| 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.
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| 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.
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| Dividend Yield is measured by dividing the annual dividend by the stock price per share.
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| 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.
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Convertible Securities. Convertible securities are debt securities or preferred stocks that are convertible into the issuer’s common stock or other equity securities. While many convertible securities are
considered to be mainly debt securities, certain convertible securities are regarded more as “equity equivalents” because of their conversion feature. The market value of a convertible security reflects
both its “investment value,” which is its expected income potential, and its “conversion value,” which is its anticipated market value if it were converted. If its investment value exceeds its
conversion value, the security will generally 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 its conversion
value exceeds its investment value, the security will generally behave more like an equity security. In that case, its price will tend to fluctuate with the price of the underlying common stock or other
security.
Convertible debt securities,
like other debt securities, are subject to credit risk and interest rate risk. Interest rate risk is the risk that when interest rates rise, the values of already-issued convertible debt securities generally fall.
When interest rates fall, however, the values of already-issued convertible debt securities generally rise. Credit risk is the risk that the issuer of a security might not make principal or interest payments on the
security when they are due. If the issuer fails to pay interest, the Fund’s income might be reduced, and if the issuer fails to pay interest or repay principal, the value of the security might fall. The credit
ratings of convertible securities generally have less impact on their price than the credit ratings of other debt securities. 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 an issuer’s bankruptcy or liquidation.
For convertible securities that
are considered to be “equity equivalents,” their credit quality generally has less impact on the security’s value than in the case of non-convertible debt securities. To determine whether convertible
securities should be regarded as “equity equivalents,” a number of factors may be considered, including:
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| whether the convertible security can be exchanged for a fixed number of shares of common stock of the issuer or is subject to a “cap” or a conversion formula or other type of limit;
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| whether the convertible security can be exchanged at a time determined by the investor rather than by the issuer;
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| whether the issuer of the convertible securities has restated its earnings per share on a fully diluted basis (that is, as if all of the issuer’s convertible securities were converted into common stock); and
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| the extent to which the convertible security may participate in any appreciation in the price of the issuer’s common stock.
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Convertible securities generally
sell at a premium over the value of the common stock into which they could be converted. If the Fund buys a convertible security at a premium, and the underlying common stock does not appreciate as expected, the Fund
might not realize a gain on the security or may experience a loss.
The conversion feature of
convertible securities generally causes the market value of convertible securities to increase when the value of the underlying common stock increases, and to fall when the stock price falls. However, convertible
securities generally do not have the same potential for capital appreciation as the underlying stock and may not experience the same decline when the price of the underlying common stock declines. Convertible
securities usually only decline to a level called their “investment value,” which is approximately the value of a similar non-convertible debt security.
Rights and Warrants. Rights and warrants may be purchased directly or may be acquired as part of other securities. Warrants are options to purchase equity securities at a specific price during a specific
period of time. The price of a warrant does not necessarily move parallel to the price of the underlying security and is generally more volatile than the
price of the underlying security. Rights are
similar to warrants, but normally have a shorter duration and are distributed directly by the issuer to its shareholders. The market for rights or warrants may be very limited and it may be difficult to sell them
promptly at an acceptable price. Rights and warrants have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer.
Investing in Cyclical
Opportunities. The Funds might seek to take advantage of short-term market movements or events affecting particular issuers or industries by investing in companies that are sensitive to changes in the
business cycle. For example, when the economy is expanding, companies in consumer durables and the technology sector might benefit. There is the risk that those securities might lose value if the business cycle
becomes unfavorable to that issuer or industry or if the portfolio manager’s expectations for favorable cyclical movement is not realized.
Investments
in Bonds and Other Debt Securities. The Fixed Income Funds in particular, Global Multi-Alternatives
Fund/VA and Conservative Balanced Fund/VA to a significant extent, and the Equity Funds to a lesser degree, can invest in bonds,
debentures and other debt securities.
A
Fund’s debt investments can include investment-grade and below-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 S&P Global Ratings (“S&P”) or Fitch, Inc. (“Fitch”) or that have
comparable ratings by another nationally recognized rating organization. In making investments in debt securities, the investment
adviser 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 investment adviser to be of comparable quality to bonds rated as investment grade by a
national statistical rating organization.
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| 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. “Zero-coupon” or “stripped”
securities may be particularly sensitive to interest rate changes. Risks associated with rising interest rates are heightened given that interest rates in the U.S. are at, or near, historic lows.
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| Duration Risk. Duration risk is the risk that longer-duration debt securities are more likely to decline in price than shorter-duration debt securities, in a rising interest-rate environment. Duration is
a measure of the price sensitivity of a debt security or portfolio to interest rate changes. “Effective duration” attempts to measure the expected percentage change in the value of a bond or portfolio
resulting from a change in prevailing interest rates. The change in the value of a bond or portfolio can be approximated by multiplying its duration by a change in interest rates. For example, if a bond has an
effective duration of three years, a 1% increase in general interest rates would be expected to cause the bond’s value to decline about 3% while a 1% decrease in general interest rates would be expected to cause
the bond’s value to increase 3%. The duration of a debt security may be equal to or shorter than the full maturity of a debt security.
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| 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 a Fund’s 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 a Fund’s Prospectus and in this SAI.
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| Credit Spread Risk. Credit spread risk is the risk that credit spreads (i.e., the difference in yield between securities that is due to differences in their credit quality) may increase when the market
expects lower-grade bonds to default more frequently. Widening credit spreads may quickly reduce the market values of a Fund’s lower-rated and unrated securities. Some unrated securities may not have an active
trading market or may trade less actively than rated securities, which means that a Fund might have difficulty selling them promptly at an acceptable price.
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| Extension Risk. If interest rates rise rapidly, repayments of principal on certain debt securities may occur at a slower rate than expected and the expected maturity of those securities could lengthen as
a result. Those securities generally have a greater potential for loss when prevailing interest rates rise, which could cause their value to fall sharply.
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| Reinvestment Risk. Reinvestment risk is the risk that when interest rates fall, a Fund may be required to reinvest the proceeds from a security’s sale or redemption at a lower interest rate. Callable
bonds are generally subject to greater reinvestment risk than non-callable bonds.
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| Prepayment Risk. Certain fixed-income securities (in particular mortgage-related securities) are subject to the risk of unanticipated prepayment. That is the risk that when interest rates fall, the issuer
will repay the security prior to the security’s expected maturity, or with respect to certain fixed-income securities, that borrowers will prepay the loans that underlie these securities more quickly than
expected, thereby causing the issuer of the security to repay the principal prior to the security’s expected maturity. A Fund may need to reinvest the proceeds at a lower interest rate, reducing its income.
Securities subject to prepayment risk generally offer less potential for gains when prevailing interest rates fall. If a Fund buys those securities at a premium, accelerated prepayments on those securities could
cause it to lose a portion of its principal investment represented by the premium. The impact of prepayments on the price of a security may be difficult to predict and may increase the security’s price
volatility. Interest-only and principal-only securities are especially sensitive to interest rate changes, which can affect not only their prices but can also change the income flows and prepayment assumptions about
those investments.
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| Event Risk. If an issuer of debt securities is the subject of a buyout, debt restructuring, merger or recapitalization that increases its debt load, it could interfere with its ability to make timely
payments of interest and principal and cause the value of its debt securities to fall.
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Fixed-Income Market Risks. The fixed-income securities market can be susceptible to unusual volatility and illiquidity. Volatility and illiquidity may be more pronounced in the case of lower-rated and unrated
securities. Liquidity can decline unpredictably in response to overall economic conditions or credit tightening. Increases in volatility and decreases in liquidity may be caused by a rise in interest rates (or the
expectation of a rise in interest rates), which are at or near historic lows in the U.S. and in other countries. During times of reduced market liquidity, the Fund may not be able to readily sell bonds at the prices
at which they are carried on the Fund’s books. If the Fund needed to sell large blocks of bonds to meet shareholder redemption requests or to raise cash, those sales could further reduce the bonds’ prices.
An unexpected increase in Fund redemption requests, which may be triggered by market turmoil or an increase in interest rates, could cause the Fund to sell its holdings at a loss or at undesirable prices. Similarly,
the prices of the Fund’s holdings could be adversely affected if an investment account managed similarly to the Fund was to experience significant redemptions and that account were required to sell its holdings
at an inopportune time. The liquidity of an issuer’s securities may decrease as result of a decline in an issuer’s credit rating, the occurrence of an event that causes counterparties to avoid transacting
with the issuer, or an increase in the issuer’s cash outflows. A lack of liquidity or other adverse credit market conditions may hamper the Fund’s ability to sell the debt securities in which it invests or
to find and purchase suitable debt instruments.
Economic and other market
developments can adversely affect fixed-income securities markets in the United States, Europe and elsewhere. At times, participants in debt securities markets may develop concerns about the ability of certain issuers
of debt securities to make timely principal and interest payments, or they may develop concerns about the ability of financial institutions that make markets in certain debt securities to facilitate an orderly market.
Those concerns may impact the market price or value of those debt securities and may cause increased volatility in those debt securities or debt securities markets. Under some circumstances, as was the case during the
latter half of 2008 and early 2009, those concerns may cause reduced liquidity in certain debt securities markets, reducing the willingness of some lenders to extend credit, and making it more difficult for borrowers
to obtain financing on attractive terms (or at all).
Following the financial crisis,
the Federal Reserve has sought to stabilize the economy by keeping the federal funds rate at or near zero percent. The Federal Reserve has also purchased large quantities of securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, pursuant to its monetary stimulus program known as “quantitative easing.” As the Federal Reserve tapers its securities purchases pursuant to quantitative
easing or raises the federal funds rate, there is a risk that interest rates may rise and cause fixed-income investors to move out of fixed-income securities, which may also increase redemptions in fixed-income mutual
funds.
In addition, although the
fixed-income securities markets have grown significantly in the last few decades, regulations and business practices have led some financial intermediaries to curtail their capacity to engage in trading (i.e.,
“market making”) activities for certain debt securities. As a result, dealer inventories of fixed-income securities, which provide an indication of the ability of financial intermediaries to make markets
in fixed-income securities, are at or near historic lows relative to market size. Because market makers help stabilize the market through their financial intermediary services, further reductions in dealer inventories
could have the potential to decrease liquidity and increase volatility in the fixed-income securities markets.
Preferred Stock. Preferred stock are equity securities that have a dividend rate payable from the company’s earnings. Their stated dividend rate causes preferred stock to have some characteristics of
debt securities. If interest rates rise, the fixed dividend on preferred stock may be less attractive and the price of those securities will likely decline. If interest rates fall, their price will likely
increase.
Preferred stock dividends may be
cumulative or non-cumulative, participating, or auction rate. “Cumulative” dividend provisions require that all, or a portion of, any unpaid dividends must be paid before the issuer can pay dividends on
its common stock. “Participating” preferred stock may be entitled to a larger dividend than the stated dividend in certain cases. “Auction rate” preferred stock has a dividend rate that is set
by a Dutch auction process.
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 fall.
Preferred stock do not
constitute a liability of the issuer and therefore do not offer the same degree of capital protection or assured income as debt securities. Preferred stock generally rank ahead of common stock and behind debt
securities in claims for dividends and for assets of the issuer in a liquidation or bankruptcy.
Risks of Below-Investment-Grade
Securities. Below-investment-grade securities (also referred to as “junk bonds”) are those rated below investment grade by S&P, Moody’s, Fitch or other nationally recognized
statistical rating organization or unrated securities the investment adviser believes are of comparable quality. The investment adviser continuously monitors the issuers of below-investment-grade securities held by a
Fund for their ability to make required principal and interest payments, as well as in an effort to control the liquidity of a Fund so that it can meet redemption requests. While below-investment-grade securities
generally may have a higher yield than securities rated in the investment-grade categories, they are subject to increased risks. Below-investment-grade securities are considered to be speculative with respect to the
ability of the issuer to timely repay principal and pay interest or dividends in accordance with the terms of the obligation and may have more credit risk than investment-grade securities, especially during times of
weakening economic conditions or rising interest rates. The risks of below-investment-grade securities include:
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| Prices of below-investment-grade securities are subject to extreme price fluctuations, even under normal market conditions. Negative economic developments may have a greater impact on the prices of
below-investment-grade securities than on those of investment-grade securities. In addition, the market values of below-investment-grade securities tend to reflect individual issuer developments to a greater extent
than do the market values of investment-grade securities, which react primarily to fluctuations in the general level of interest rates.
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| Below-investment-grade securities may be issued by less creditworthy issuers and may be more likely to default than investment-grade securities. The issuers of below-investment-grade securities may have more
outstanding debt relative to their assets than issuers of higher-grade securities. Below-investment-grade securities are vulnerable to adverse changes in the issuer’s industry and to general economic conditions.
If the issuer experiences financial stress, it may not be able to pay interest and principal payments in a timely manner. The issuer’s ability to pay its debt obligations also may be lessened by specific issuer
developments or the unavailability of additional financing. In the event of a default of an issuer of a below-investment-grade security, a Fund may incur expenses to the extent necessary to seek recovery or to
negotiate new terms.
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| Below-investment-grade securities are frequently ranked junior to claims by other creditors. If the issuer cannot meet its obligations, the senior obligations are generally paid off before the junior obligations,
which could limit a Fund’s ability to fully recover principal or to receive interest payments when senior securities are in default. As a result, investors in below-investment-grade securities have a lower
degree of protection with respect to principal and interest payments than do investors in investment-grade securities.
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| There may be less of a market for below-investment-grade securities and as a result they may be harder to sell at an acceptable price. Not all dealers maintain markets in all below-investment-grade securities. As a
result, there is no established retail secondary market for many of these securities. A Fund anticipates that such securities could be sold only to a limited number of dealers or institutional investors. To the extent
a secondary trading market does exist, it is generally not as liquid as the secondary market for investment-grade securities. The lack of a liquid secondary market may have an adverse impact on the market price of the
security. The lack of a liquid secondary market for certain securities may also make it more difficult for a Fund to obtain accurate market quotations for purposes of valuing its securities. Market quotations are
generally available on many below-investment-grade securities only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. In addition, the trading
volume for below-investment-grade securities is generally lower than that for investment-grade securities and the secondary markets could contract under adverse market or economic conditions independent of any
specific adverse changes in the condition of a particular issuer. Under certain economic and/or market conditions, a Fund may have difficulty disposing of certain below-investment-grade securities due to the limited
number of investors in that sector of the market. When the secondary market for below-investment-grade securities becomes more illiquid, or in the absence of readily available market quotations for such securities,
the relative lack of reliable objective data makes it more difficult to value a Fund’s securities and judgment plays a more important role in determining such valuations.
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| Below-investment-grade securities frequently have redemption features that permit an issuer to repurchase the security from a Fund before it matures. During times of falling interest rates, issuers of these
securities are likely to redeem or prepay the securities and finance them with securities with a lower interest rate. To the extent an issuer is able to refinance the securities, or otherwise redeem them; a Fund may
have to replace the securities with lower yielding securities, which could result in a lower return for a Fund.
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| Below-investment-grade securities markets may also react strongly to adverse news about an issuer or the economy, or to the perception or expectation of adverse news, whether or not
it is based on fundamental analysis. An increase in interest rates could severely disrupt the market for below-investment-grade securities. Additionally, below-investment-grade securities may be affected by
legislative and regulatory developments. These developments could adversely affect a Fund’s net asset value and investment practices, the secondary market for below-investment-grade securities, the financial
condition of issuers of these securities and the value and liquidity of outstanding below-investment-grade securities, especially in a thinly traded market.
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These
additional risks mean that a Fund may not receive the anticipated level of income from these securities, and a Fund’s net
asset value may be affected by declines in the value of below-investment-grade securities. Credit rating downgrades of a single
issuer or related similar issuers whose securities a Fund holds in significant amounts could substantially and unexpectedly increase
a Fund’s exposure to below-investment-grade securities and the risks associated with them, especially liquidity and default
risk.
While securities rated
“Baa” by Moody’s, “BBB” by S&P or Fitch, or the similar category by the investment adviser if an unrated security, are investment grade, they may be subject to special risks and have
some speculative characteristics.
Credit
Ratings of Debt Securities. Ratings by ratings organizations such as Moody’s Investors
Service, Inc. (“Moody’s”), S&P Global Ratings (“S&P”), and Fitch, Inc. (“Fitch”)
represent the respective rating agency’s opinions of the credit quality of the debt securities they undertake to rate. However,
their ratings are general opinions and are not guarantees of quality or indicative of market value risk. Debt securities that
have the same maturity, coupon and rating may have different yields, while other debt securities that have the same maturity and
coupon but different ratings may have the same yield. Ratings and market value may change from time to time, positively or negatively,
to reflect new developments regarding the issuer.
“Investment-grade”
securities are those rated within the four highest rating categories of S&P’s, Moody’s, Fitch or another nationally recognized statistical rating organization (or, in the case of unrated securities,
determined by the investment adviser to be comparable to securities rated investment-grade). While securities rated within the fourth highest category by S&P’s (meaning BBB+, BBB or BBB-) or by Moody’s
(meaning Baa1, Baa2 or Baa3) are considered “investment-grade,” they have some speculative characteristics. If two or more nationally recognized statistical rating organizations have assigned different
ratings to a security, the investment adviser uses the highest rating assigned.
Below-investment-grade
securities (also referred to as “junk bonds”) are those rated below investment grade by the S&P, Moody’s, Fitch or other nationally recognized statistical rating organization or unrated
securities the investment adviser believes are of comparable quality.
After a Fund buys a debt
security, the security may cease to be rated or its rating may be reduced. Neither event requires a Fund to sell the security, but the investment adviser will consider such events in determining whether a Fund should
continue to hold the security. To the extent that ratings given by Moody’s, S&P, Fitch or another nationally recognized statistical rating organization change as a result of changes in those rating
organizations or their rating systems, a Fund will attempt to use similar ratings as standards for investments in accordance with the Fund’s investment policies. The investment adviser continuously monitors the
issuers of below-investment-grade securities held by a Fund for their ability to make required principal and interest payments, as well as in an effort to control the liquidity of a Fund so that it can meet redemption
requests.
A list of the rating categories
of Moody’s, S&P, Fitch and other nationally recognized statistical rating organizations for debt securities is contained in an Appendix to this SAI.
Unrated
Securities. Because a Fund may purchase securities that are not rated by any nationally recognized statistical rating organization, the investment adviser may internally assign
ratings to those securities, after assessing their credit quality and other factors, in categories similar to those of nationally recognized statistical rating organizations. Unrated securities are considered
“investment-grade” or “below-investment-grade” if judged by the investment adviser to be comparable to rated investment-grade or below-investment-grade securities. There can be no assurance,
nor is it intended, that the investment adviser’s credit analysis process is consistent or comparable with the credit analysis process used by a nationally recognized statistical rating organization. The
investment adviser’s rating does not constitute a guarantee of the credit quality. In addition, some unrated securities may not have an active trading market, which means that a Fund might have difficulty
selling them promptly at an acceptable price. In evaluating the credit quality of a particular security, whether rated or unrated, the investment adviser will normally take into consideration a number of factors
including, but not limited to, the financial resources of the issuer, the underlying source of funds for debt service on a security, the issuer’s sensitivity to economic conditions and trends, any operating
history of the facility financed by the obligation, the degree of community support for the financed facility, the capabilities of the issuer’s management, and regulatory factors affecting the issuer or the
particular facility.
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
Sub-Adviser 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.
Asset-Backed Securities. Asset-backed securities are fractional interests in pools of loans, receivables or other assets, typically accounts receivable or consumer loans. They are issued by trusts or
special-purpose vehicles and are backed by the loans, receivables or other assets that make up the pool. The income from the pool is passed through to the investor in the asset-backed security. 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 and may also be subject to prepayment and extension risks. 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, a holder 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 assets 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 the underlying
loans by the individual borrowers. A purchaser of an asset-backed security would generally have no recourse to the entity that originated the loans in the event of default by a borrower. The underlying loans may be
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-related securities.
Mortgage-Related Securities. Mortgage-related securities (also referred to as mortgage-backed securities) are a form of fixed-income 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 Conservative Balanced 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.
Collateralized Mortgage
Obligations. 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:
•
| pass-through certificates issued or guaranteed by Government National Mortgage Association (“Ginnie Mae”), Federal National Mortgage Association (“Fannie Mae”), or Federal Home Loan Mortgage
Corporation (“Freddie Mac”);
|
•
| unsecuritized mortgage loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs;
|
•
| unsecuritized conventional mortgages;
|
•
| other mortgage-related securities; or
|
•
| 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 tranches 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.
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 investment adviser is satisfied that the credit risk with respect to the agency or instrumentality is minimal.
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”).
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.
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”).
Mortgage-Related
U.S. Government Securities. A variety of mortgage-related securities are
issued by U.S. government agencies or instrumentalities. Like other mortgage-related securities, they may be issued in different
series with different interest rates and maturities. The collateral for these securities may be 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.
Some
mortgage-related securities issued by U.S. government agencies, such as Government National Mortgage Association pass-through
mortgage obligations (“Ginnie Maes”), are backed by the full faith and credit of the U.S. government. Others are supported
by the right of the agency to borrow from the U.S. Treasury under certain circumstances (for example, “Fannie Mae”
bonds issued by Federal National Mortgage Association and “Freddie Mac” obligations issued by Federal Home Loan Mortgage
Corporation). Others are supported only by the credit of the entity that issued them (for example obligations issued by the Federal
Home Loan Banks).
In
September 2008, the Federal Housing Finance Agency placed the Fannie Mae and Freddie Mac into conservatorship. The U.S. Department
of the Treasury also entered into a secured lending credit facility with those companies and a preferred stock purchase agreement.
Under the preferred stock purchase agreement, the U.S. Treasury will ensure that each company maintains a positive net worth.
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.
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 that 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.
Privately-Issued
Commercial Mortgage-Related Securities. Commercial mortgage-related securities
issued by private entities are generally multi-class debt or pass-through certificates secured by mortgage loans on commercial
properties. They are subject to the credit risks of the issuer and of the underlying loans. These securities typically are structured
to provide protection to investors in senior classes 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.
Inflation-Indexed Debt
Securities. Inflation-indexed bonds are fixed income securities whose principal value is periodically adjusted according to an identified rate of inflation. For example, the U.S. Treasury uses the
Consumer Price Index as the inflation measure for Treasury Inflation-Protection Securities. If the index measuring inflation falls, the principal value of the inflation-indexed bonds will be adjusted downward, and
consequently the interest payable on these securities (calculated with respect to smaller principal amounts) will be reduced. If the index measuring inflation rises, both the principal value and the interest payable
(calculated with respect to a larger principal amounts) will increase. With respect to certain inflation-indexed bonds, instead of adjusting the bond’s principal value, the inflation adjustment is reflected in
the coupon payment. Because of this inflation adjustment feature, inflation-protected bonds typically have lower yields than conventional fixed-rate bonds with similar maturities.
Special
Risks of Inflation-Indexed Debt Securities. If inflation declines, the principal amount or the
interest rate of an inflation-indexed bond will be adjusted downward. This will result in reduced income and may result in a decline
in the bond’s price which could cause losses for the fund. Interest payments on inflation-protected debt securities can
be unpredictable and will vary as the principal or interest rate is adjusted for inflation. Inflation-indexed bonds normally will
decline in price when real interest rates rise which could cause losses for the fund. (A real interest rate is calculated by subtracting
the inflation rate from a nominal interest rate).
Event-Linked
Bonds. The Funds may invest in “event-linked” bonds or interests in trusts and other
pooled entities that invest primarily or exclusively in event-linked bonds, including entities sponsored and/or advised by the
investment adviser or an affiliate.
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, for example, 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, the Fund
may lose all or a portion of its principal and additional interest. The Funds may also invest in similar bonds where the 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 the Funds 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 organizations and the Funds will only invest in event-linked bonds
that meet the credit quality requirements for the Funds.
The
issuers of the event-linked bonds in which the Funds will invest are generally treated as passive foreign investment companies
(“PFICs”) for U.S. income tax purposes. More information about PFICs is included elsewhere in this SAI.
Exchange-Traded Notes. Exchange-traded notes (“ETNs”) are senior, unsecured, unsubordinated debt securities whose returns are linked to the performance of a particular market benchmark or strategy
minus applicable fees. ETNs are traded on an exchange (e.g., the NYSE) during normal trading hours. However, investors can also hold the ETN until maturity. At maturity, the issuer pays to the investor a cash amount
equal to the principal amount, subject to the day’s market benchmark or strategy factor.
ETNs do not make periodic coupon
payments or provide principal protection. ETNs are subject to credit risk, and the value of the ETN may drop due to a downgrade in the issuer’s credit rating, despite the underlying market benchmark or strategy
remaining unchanged. The value of an ETN may also be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying assets, changes in the applicable interest
rates, changes in the issuer’s credit rating and economic, legal, political or geographic events that affect the referenced underlying asset. When a Fund invests in ETNs, it will bear its proportionate share of
any fees and expenses borne by the ETN. These fees and expenses generally reduce the return realized at maturity or upon redemption from an investment in an ETN; therefore, the value of the index underlying the ETN
must increase significantly in order for an investor in an ETN to receive at least the principal amount of the investment at maturity or upon redemption. A Fund’s decision to sell ETN holdings may be limited by
the availability of a secondary market.
Real Estate Investment Trusts
(REITs). Certain of the Funds, particularly Global Multi-Alternatives Fund/VA, Conservative Balanced Fund/VA, Global Strategic Income Fund/VA and Main Street Small Cap Fund/VA, may invest in REITs.
REITs are trusts that sell shares to investors and use the proceeds to invest in real estate. A REIT can focus on a particular project, such as a shopping center or apartment complex, or may buy many properties or
properties located in a particular geographic region.
REITs are sometimes informally
characterized as equity REITs, mortgage REITs and hybrid REITs. An equity REIT invests primarily in the fee ownership or leasehold ownership of land and buildings and derives its income primarily from rental income.
An equity REIT may also realize capital gains (or losses) by selling real estate properties in its portfolio that have appreciated (or depreciated) in value. A mortgage REIT invests primarily in mortgages on real
estate, which may secure construction, development or long-term loans. A mortgage REIT generally derives its income primarily from interest payments on the credit it has extended. A hybrid REIT combines the
characteristics of equity REITs and mortgage REITs, generally by holding both ownership interests and mortgage interests in real estate.
To the extent that a REIT
focuses on a particular project, sector of the real estate market or geographic region, its share price will be affected by economic and political events affecting that project, sector or geographic region. Property
values may fall due to increasing vacancies or declining rents resulting from unanticipated economic, legal, cultural or technological developments. REIT prices also may drop because of the failure of borrowers to pay
their loans, a dividend cut, a disruption to the real estate investment sales market, changes in federal or state taxation policies affecting REITs, and poor management.
Foreign Securities. The Equity Funds and the Fixed Income Funds may invest in foreign securities, and Global Fund/VA, Global Strategic Income Fund/VA and International Growth Fund/VA expect to have
substantial investments in foreign securities. “Foreign securities” include equity and debt securities of issuers organized under the laws of countries other than the United States and debt securities
issued or guaranteed by foreign governments or by supra-national entities, such as the World Bank, or by their agencies or instrumentalities. They may 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. Securities
denominated in foreign currencies issued by U.S. companies may also be considered to be “foreign securities.” They may be traded on foreign securities exchanges or in the foreign over-the-counter markets.
Global Strategic Income Fund/VA has no limitation on the amount of foreign securities in which it may invest but will 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 Depositary Receipts, or similar depositary arrangements, 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 purposes of the Fund’s investment allocations, because they are not subject to many of the special considerations and risks that apply to foreign securities held and traded
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 Funds’ 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. The Funds will hold foreign currency only in connection with the purchase or
sale of foreign securities.
Investing in foreign securities
offers potential benefits that are not available from investing only in the securities of U.S. issuers. Those benefits include the opportunity to invest in a wider range of issuers, in countries with economic policies
or business cycles that differ from those in the U.S. and in markets that often do not move parallel to U.S. markets. Because of these features, foreign investments may reduce portfolio volatility.
The percentage of assets
allocated to foreign securities may vary over time depending on a number of factors, including the relative yields of foreign and U.S. securities, the economies of foreign countries, the condition of foreign financial
markets, the interest rate climate in particular foreign countries, and the relationship of foreign currencies to the U.S. dollar. The investment adviser may analyze fundamental economic criteria, including for
example: relative inflation levels and trends, growth rate forecasts, natural resources, reliance on particular industries, balance of payments status, interest rates, market conditions, currency values, international
trading patterns, trade barriers, diplomatic developments, social and political factors, and economic policies.
Sovereign Debt. Sovereign debt securities include fixed income securities issued or guaranteed by governments, their agencies and instrumentalities, and securities issued by supranational entities such as
the World Bank or the European Union. Investment in sovereign debt can involve a high degree of risk, including the risk that the governmental entity that controls the repayment of sovereign debt may not be able or
willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity’s willingness or ability to repay principal and interest due in a timely manner may be
affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden
to the economy as a whole, the governmental entity’s policy towards international lenders or agencies and the political constraints to which a governmental entity may be subject. Although some sovereign debt,
such as Brady Bonds, is collateralized by U.S. government securities, repayment of principal and interest is not guaranteed by the U.S. government. Governmental entities may also be dependent on expected disbursements
from foreign governments, multilateral agencies and other entities to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such
disbursements may be conditioned on the implementation of economic reforms and/or economic performance and the timely service of such debtor’s obligations. Failure to implement such reforms, achieve specified
levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties’ commitments to lend funds to the governmental entity, which may further impair such
debtor’s ability or willingness to timely service its debts. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt may be
requested to participate in the rescheduling or restructuring of such debt and to extend further loans to governmental entities. Restructuring arrangements have included, among other things, reducing and rescheduling
interest and principal payments by negotiation, new or amended credit agreements or converting outstanding principal and unpaid interest to Brady Bonds, and obtaining new credit for finance interest payments. There
can be no assurance that foreign sovereign debt securities will not be subject to similar restructuring arrangements or to requests for new credit which may have adverse consequences for holders of such debt.
Furthermore, certain participants in the secondary market for such debt may be directly involved in negotiating the terms of these arrangements and may therefore have access to information not available to other
market participants. In the event of a default by a governmental entity, there may be limited or no effective legal remedies for collecting on such debt. A restructuring or default of sovereign debt may also cause
additional impacts to the financial markets, such as downgrades to credit ratings, a flight to quality debt instruments, disruptions in common trading markets or unions, reduced liquidity, increased volatility, and
heightened financial sector, foreign securities and currency risk, among others.
Debt securities issued by
certain “supra-national” entities 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. A supra-national entity’s lending activities may be limited
to a percentage of its total capital, reserves and net income. The governmental members of those 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. There can be no assurance that the constituent governments will continue to be able or willing to honor their capitalization
commitments.
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.
Risks of Foreign Investing. Investments in foreign securities present risks and considerations not usually associated with investments in U.S. securities. Those may include:
•
| a lack of public information about foreign issuers;
|
•
| lower trading volume and less liquidity in foreign securities markets than in U.S. markets;
|
•
| greater price volatility in foreign markets than in U.S. markets;
|
•
| less government regulation of foreign issuers, exchanges and brokers than in the U.S.;
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| a lack of uniform accounting, auditing and financial reporting standards in foreign countries compared to those applicable to U.S. issuers;
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| fluctuations in the value of foreign investments due to changes in currency rates;
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| the expense of currency exchange transactions;
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| greater difficulties in pricing securities in foreign markets;
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| foreign government restrictions on investments by U.S. and other non-local entities;
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| higher brokerage commission rates than in the U.S.;
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| increased risks of delays in clearance and settlement of portfolio transactions;
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| unfavorable differences between the U.S. economy and some foreign economies;
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| greater difficulty in commencing and pursuing lawsuits or other legal remedies;
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| less regulation of foreign banks and securities depositories;
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| increased risks of loss of certificates for portfolio securities;
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| government restrictions on the repatriation of profits or capital or other currency control regulations;
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| the possibility in some countries of expropriation, confiscatory taxation, political, financial or social instability or adverse diplomatic developments;
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| the reduction of income by foreign taxes; and
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| potential for time-zone arbitrage.
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Foreign investments are often
denominated in currencies other than the U.S. dollar, which means that changes in the currency exchange rate will affect the value of those investments. Generally, when the U.S. dollar increases in value against a
foreign currency, an investment denominated in that currency is worth less in U.S. dollars and when the U.S. dollar decreases in value against a foreign currency, an investment denominated in that currency
is worth more in U.S. dollars. The Fund must compute its net asset value and its income in U.S. dollars and a change in the dollar value of a foreign currency will generally result in a change in the Fund’s net
asset value or its investment income that is available for distribution to shareholders. Because a portion of the Fund’s investment income may be received in foreign currencies, the Fund will be required to
compute its income in U.S. dollars for distribution to shareholders, and therefore the Fund will absorb the cost of currency fluctuations. Foreign currency losses that occur after the Fund has distributed income may
result in the Fund having made a distribution that was larger than its investment income during a particular fiscal period. In that case, the additional amount distributed would be classified as a return of capital to
shareholders.
In the past, government policies
have discouraged investments in certain foreign countries through economic sanctions, trade restrictions, taxation or other government actions. It is possible that such policies could be implemented in the future.
Risks of Developing and Emerging Markets. Emerging and developing markets may offer special opportunities for investing but, in addition to being subject to all the risks of foreign investing, also have greater risks than more
mature foreign markets. Emerging and developing market countries may be subject to greater political, social and economic instability; have high inflation rates; experience unfavorable diplomatic developments; have
less liquid securities markets with greater price volatility; have additional delays in the settlement of securities transactions; impose exchange controls; be subject to trade barriers; impose differential taxes on
foreign investors; have a higher possibility of confiscatory taxes or the expropriation of assets; impose restrictions on direct investments or investments in issuers in particular industries; and lack developed legal
or regulatory systems. Investments in securities of issuers in developing or emerging market countries may be considered speculative. Additional information about certain risks associated with emerging and developing
markets is provided below.
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| Less Developed Securities Markets. Developing or emerging market countries may have less well-developed securities markets and exchanges. Consequently, they have lower trading volume than the securities markets of more
developed countries. These markets may be unable to respond effectively to increases in trading volume. Therefore, prompt liquidation of substantial portfolio holdings may be difficult at times. As a result, these
markets may be substantially less liquid than those of more developed countries, and the securities of issuers located in these markets may have limited marketability.
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| Transaction Settlement. Settlement procedures in developing or emerging markets may differ from those of more established securities markets. Settlements may also be delayed by operational problems. Securities
issued by developing countries and by issuers located in those countries may be subject to extended settlement periods. Delays in settlement could result in temporary periods during which some assets are uninvested
and no return is earned on those assets. The inability to make intended purchases of securities due to settlement problems could cause missed investment opportunities. Losses could also be caused by an inability to
dispose of portfolio securities due to settlement problems. As a result there could be subsequent declines in the value of the portfolio security, a decrease in the level of liquidity of the portfolio or, if there is
a contract to sell the security, a possible liability to the purchaser.
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| Price Volatility. Securities prices in developing or emerging markets may be significantly more volatile than is the case in more developed nations of the world, which may lead to greater difficulties in
pricing securities.
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| Less Developed Governments and Economies. Developing or emerging market countries may have less developed legal and accounting systems, and their governments may also be more unstable than the governments of more developed
countries. For example, governments of some developing or emerging market countries have defaulted on their bonds and there is the risk of this happening in the future. These countries may also have less protection of
property rights than more developed countries. Developing or emerging market countries also may be subject to social, political or economic instability, and have greater potential for pervasiveness of corruption and
crime, armed conflict, the adverse economic impact of civil war and religious or ethnic unrest. In addition, the economies of developing or emerging market countries may be more dependent on relatively few industries
or investors that may be highly vulnerable to local and global changes. Further, the value of the currency of a developing or emerging market country may fluctuate more than the currencies of countries with more
mature markets. Investments in developing or emerging market countries may also be subject to greater potential difficulties in enforcing contractual obligations.
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| Government Restrictions. In certain developing or emerging market countries, government approval may be required for the repatriation of investment income, capital or the proceeds of sales of securities by foreign
investors. Also, a government might impose temporary restrictions on remitting capital abroad if the country’s balance of payments deteriorates, or it might do so for other reasons. If government approval were
delayed or refused, income or capital gains may not be able to be transmitted to the United States. Other government restrictions may include confiscatory taxation, expropriation or nationalization of company assets,
restrictions on foreign ownership of local companies, managed adjustments in relative currency values and other protectionist measures, and practices such as share blocking. Share blocking is the practice in certain
foreign markets where voting rights related to an issuer’s securities are predicated on those securities being blocked from trading at the custodian or sub-custodian level for a period of time around a
shareholder meeting. Such restrictions have the effect of prohibiting the purchase and sale of certain voting securities within a specified number of days before, and in certain instances, after a shareholder meeting.
The share blocking period can last up to several weeks, typically terminating on a date established at the discretion of the issuer. Share blocking may prevent the Fund from buying or selling securities for a period
of time. When shares are blocked, trades in such securities will not settle. Having a blocking restriction lifted can be difficult and onerous, with the particular requirements varying widely by country. In some
countries, the block cannot be removed for the duration of time it is effective. Additionally, the imposition of restrictions on investments by foreign entities might result in less attractive investment opportunities
or require the sale of existing investments. Investments in developing or emerging market countries may also be subject to greater risks relating to the withdrawal or non-renewal of any license enabling the Fund to
trade in securities of a particular country.
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| Privatization Programs. The governments in some developing or emerging market countries have been engaged in programs to sell all or part of their interests in government-owned or controlled enterprises.
Privatization programs may offer opportunities for significant capital appreciation, in the appropriate circumstances. However, in certain developing countries, the ability of foreign entities to participate in
privatization programs may be limited by local law. Additionally, the terms on which a foreign entity might be permitted to participate may be less advantageous than those afforded local investors. There can be no
assurance that privatization programs will be successful.
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Eurozone Investment Risks. The European Union (EU) is an economic and political union of most western European countries and a growing number of eastern European countries, each known as a member state. One of the
key mandates of the EU is the establishment and administration of a common single market, consisting of, among other things, a single currency and a common trade policy. In order to pursue this goal, member states
established the Economic and Monetary Union (EMU), which sets out different stages and commitments that member states need to follow to achieve greater economic and monetary policy coordination, including the adoption
of a single currency, the euro. Many member states have adopted the euro as their currency and, as a result, are subject to the monetary policies of the European Central Bank (ECB).
The global economic crisis that
began in 2008 has caused severe financial difficulties for many EU countries, pushing some EU countries to the brink of insolvency and causing others to experience recession, large public debt, restructuring of
government debt, credit rating downgrades and an overall weakening of banking and financial sectors. Recovery from the crisis has been challenged by high unemployment and budget deficits as well as by weaknesses in
sovereign debt issued by Greece, Spain, Portugal, the Republic of Ireland, Italy and other EU countries. The sovereign debt of several of these countries was downgraded in 2012 and many remain subject to further
downgrades, which may have a negative effect on European and non-European banks that have significant exposure to sovereign debt. Since 2010, several countries, including Greece, Italy, Spain, the Republic of Ireland
and Portugal, agreed to multi-year bailout loans from the ECB, the International Monetary Fund, and other institutions. To address budget deficits and public debt concerns, a number of European countries have imposed
strict austerity measures and comprehensive financial and labor market reforms. In the wake of the crisis, EU countries will need to make economic and political decisions in order to restore economies to sustainable
growth. While a number of initiatives have been instituted to strengthen regulation and supervision of financial markets in the EU, greater regulation is expected but the exact nature and effect of this regulation is
still unknown.
Some EU countries may continue
to be dependent on assistance from the ECB, the International Monetary Fund, or other governments and institutions. Such assistance could depend on a country’s implementation of reforms or attainment of a
certain level of performance. Failure by one or more EU countries to reach those objectives or an insufficient level of assistance could result in a deeper or prolonged economic downturn, which could have a
significant adverse effect on the value of investments in European countries. By adopting the euro, a member country relinquishes control of its own monetary policies. As a result, European countries are significantly
affected by fiscal and monetary controls implemented by the EMU and may be limited to some degree from implementing their own economic policies. The euro may not fully reflect the strengths and weaknesses of the
various economies that comprise the EMU and Europe generally.
Additionally,
it is possible that EMU member countries could voluntarily abandon the euro or involuntarily be forced out of the euro, including
by way of a partial or complete dissolution of the monetary union. The effects of such outcomes on the rest of the Eurozone and
global markets as a whole are unpredictable, but are likely to be negative, including adversely impacted market values of Eurozone
and various other securities and currencies, redenomination of certain securities into less valuable local currencies, and more
volatile and illiquid markets. Under such circumstances, investments denominated in euros or replacement currencies may be difficult
to value, the ability to operate an investment strategy in connection with euro-denominated securities may be significantly impaired
and the value of euro-denominated investments may decline significantly and unpredictably. Furthermore, the United Kingdom’s
(“UK”) intended departure from the EU, known as “Brexit,” may have significant political and financial
consequences for Eurozone markets, including greater market volatility and illiquidity, currency fluctuations, deterioration in
economic activity, a decrease in business confidence and an increased likelihood of a recession in the UK. Uncertainty relating
to the withdrawal procedures and timeline may have adverse effects on asset valuations and the renegotiation of current trade
agreements, as well as an increase in financial regulation of UK banks. While the full impact of Brexit is unknown, market disruption
in the EU and globally may have a negative effect on the value of the Fund’s investments.
Publicly
Traded Partnerships; Master Limited Partnerships. Certain of the Funds, particularly Global Multi-Alternatives
Fund/VA, Conservative Balanced Fund/VA, Equity Income Fund/VA, Main Street Fund/VA and Main Street Small Cap Fund/VA, may invest
in publicly traded limited partnerships such as master limited partnerships (“MLPs”). MLPs issue units that are registered
with the Securities and Exchange Commission (the “SEC”) and are freely tradable on a securities exchange or in the
over-the-counter market. An MLP may have one or more general partners, who conduct the business, and one or more limited partners,
who contribute capital. The general partner and partners are jointly and severally responsible for the liabilities of the MLP.
A Fund invests as a limited partner, and normally would not be liable for the debts of an MLP beyond the amounts the Fund has
contributed but it would not be shielded to the same extent that a shareholder of a corporation would be. In certain circumstances,
creditors of an MLP would have the right to seek a return of capital that had been distributed to a limited partner. This right
of an MLP’s creditors would continue even after the Fund had sold its investment in the partnership. MLPs typically invest
in real estate, oil and gas and equipment leasing assets, but they also finance entertainment, research and development, and other
projects.
MLP Equity Securities. Equity securities issued by MLPs currently consist of common units, subordinated units and preferred units, as described more fully below.
MLP Common Units. The common units of many MLPs are listed and traded on U.S. securities exchanges, including the New York Stock Exchange, Inc. (“NYSE'') and the Nasdaq National Market System
(”Nasdaq''). MLP common units can
be purchased through open market transactions
and underwritten offerings, but may also be acquired through direct placements and privately negotiated transactions. Holders of MLP common units typically have very limited control and voting rights. Holders of such
common units are typically entitled to receive the minimum quarterly distribution (“MQD”), including arrearage rights, from the issuer. Generally, an MLP must pay (or set aside for payment) the MQD to
holders of common units before any distributions may be paid to subordinated unit holders. In addition, incentive distributions are typically not paid to the general partner or managing member unless the quarterly
distributions on the common units exceed specified threshold levels above the MQD. In the event of liquidation, common unit holders are intended to have a preference to the remaining assets of the issuer over holders
of subordinated units. MLPs also issue different classes of common units that may have different voting, trading, and distribution rights.
MLP Subordinated Units. Subordinated units, which, like common units, represent limited partner or member interests, are not typically listed or traded on an exchange. Outstanding subordinated units may be
purchased through negotiated transactions directly with holders of such units or newly issued subordinated units may be purchased directly from the issuer. Holders of such subordinated units are generally entitled to
receive a distribution only after the MQD and any arrearages from prior quarters have been paid to holders of common units. Holders of subordinated units typically have the right to receive distributions before any
incentive distributions are payable to the general partner or managing member. Subordinated units generally do not provide arrearage rights. Most MLP subordinated units are convertible into common units after the
passage of a specified period of time or upon the achievement by the issuer of specified financial goals. MLPs also issue different classes of subordinated units that may have different voting, trading, and
distribution rights.
MLP Convertible
Subordinated Units. MLP convertible subordinated units are typically issued by MLPs to founders, corporate general partners of MLPs, entities that sell assets to the MLPs, and institutional investors. The
purpose of the convertible subordinated units is to increase the likelihood that during the subordination period there will be available cash to be distributed to common unitholders. Subordinated units may be
purchased in direct placements from such persons or other persons that may hold such units. MLP convertible subordinated units generally are not entitled to distributions until holders of common units have received
specified MQD, plus any arrearages, and may receive less than common unitholders in distributions upon liquidation. Convertible subordinated unitholders generally are entitled to MQD prior to the payment of incentive
distributions to the general partner, but are not entitled to arrearage rights. Therefore, MLP convertible subordinated units generally entail greater risk than MLP common units. They are generally convertible
automatically into the senior common units of the same issuer at a one-to-one ratio upon the passage of time or the satisfaction of certain financial tests. Although the means by which convertible subordinated units
convert into senior common units depend on a security’s specific terms, MLP convertible subordinated units typically are exchanged for common shares. These units do not trade on a national exchange or OTC, and
there is no active market for convertible subordinated units. The value of a convertible subordinated unit is a function of its worth if converted into the underlying common units. Convertible subordinated units
generally have similar voting rights as do MLP common units. Distributions may be paid in cash or in-kind.
MLP Preferred Units. MLP preferred units are not typically listed or traded on an exchange. MLP preferred units can be purchased through negotiated transactions directly with MLPs, affiliates of MLPs and
institutional holders of such units. Holders of MLP preferred units can be entitled to a wide range of voting and other rights, depending on the structure of each separate security.
MLP General Partner or Managing
Member Interests. The general partner or managing member interest in MLPs is typically retained by the original sponsors of an MLP, such as its founders, corporate partners and entities that sell assets to
the MLP. The holder of the general partner or managing member interest can be liable in certain circumstances for amounts greater than the amount of the holder’s investment in the general partner or managing
member. General partner or managing member interests often confer direct board participation rights in, and in many cases control over the operations of, the MLP. General partner or managing member interests can be
privately held or owned by publicly traded entities. General partner or managing member interests receive cash distributions, typically in an amount of up to 2% of available cash, which is contractually defined in the
partnership or limited liability company agreement. In addition, holders of general partner or managing member interests typically receive incentive distribution rights (“IDRs''), which provide them with an
increasing share of the entity’s aggregate cash distributions upon the payment of per common unit distributions that exceed specified threshold levels above the MQD. Due to the IDRs, general partners of MLPs
have higher distribution growth prospects than their underlying MLPs, but quarterly incentive distribution payments would also decline at a greater rate than the decline rate in quarterly distributions to common and
subordinated unit holders in the event of a reduction in the MLP’s quarterly distribution. The ability of the limited partners or members to remove the general partner or managing member without cause is
typically very limited. In addition, some MLPs permit the holder of IDRs to reset, under specified circumstances, the incentive distribution levels and receive compensation in exchange for the distribution rights
given up in the reset.
MLP Debt Securities. Debt securities issued by MLPs may include those rated below investment grade or that are unrated but judged to be below investment grade by the investment adviser at the time of purchase.
A debt security of an MLP will be considered to be investment grade if it is rated as such by one of the rating organizations or, if unrated, are judged to be investment grade by the investment adviser at the time of
purchase. Investments in such securities may not offer the tax characteristics of equity securities of MLPs.
MLP
Affiliates. The Fund may invest in the equity and debt securities issued by affiliates of MLPs,
including the general partners or managing members of MLPs and companies that own MLP general partner interests and are energy
infrastructure companies. Such issuers may be organized and/or taxed as corporations and therefore may not offer the advantageous
tax characteristics of MLP units. The Fund may purchase such other MLP equity securities through market transactions, but may
also do so through direct placements.
I-Shares.
I-Shares represent an indirect ownership interest in an MLP and are issued by an MLP affiliate. The MLP affiliate uses
the proceeds from the sale of I-Shares to purchase limited partnership interests in the MLP in the form of I-units. Thus, I-Shares
represent an indirect interest in an MLP limited partnership interest. I-units have similar features as MLP common units in terms
of voting rights, liquidation preference and distribution. I-Shares themselves have limited voting rights and are similar in that
respect to MLP common units. I-Shares differ from MLP common units primarily in that instead of receiving cash distributions,
holders of I-Shares will receive distributions of additional I-Shares in an amount equal to the cash distributions received by
common unit holders. I-Shares are traded on the NYSE. Issuers of MLP I-Shares are treated as corporations and not partnerships
for tax purposes. MLP affiliates also include publicly traded limited liability companies that own, directly or indirectly, general
partner interests of MLPs.
Risks of Investing in MLPs. Investments in securities of MLPs involve risks that differ from an investment in common stock. Holders of units of MLPs have more limited control rights and limited rights to vote on
matters affecting the MLP as compared to holders of stock of a corporation. For example, unit holders may not elect the general partner or the directors of the general partner and they have limited ability to remove
an MLP’s general partner. MLPs are controlled by their general partners, which may be subject to conflicts of interest. General partners typically have limited fiduciary duties to an MLP, which could allow a
general partner to favor its own interests over the MLP’s interests. General partners of MLPs often have limited call rights that may require unit holders to sell their common units at an undesirable time or
price. MLPs may also issue additional common units without unit holder approval, which would dilute the interests of existing unit holders, including the Fund’s ownership interest.
Neither the Fund nor its
investment manager has control over the actions of underlying MLPs, particularly as to whether the MLPs can make distributions to its partners and on the tax character of those distributions. The amount of cash that
each individual MLP can distribute to its partners will depend on the amount of cash it generates from operations, which will vary from quarter to quarter depending on factors affecting the particular business lines
of the MLP. Available cash will also depend on the MLPs’ level of operating costs (including incentive distributions to the general partner), level of capital expenditures, debt service requirements, acquisition
costs (if any), fluctuations in working capital needs and other factors.
MLP common units, like other
equity securities, can be affected by macroeconomic and other factors affecting the stock market in general, expectations of interest rates, investor sentiment towards an issuer or certain market sector, changes in a
particular issuer’s financial condition, or unfavorable or unanticipated poor performance of a particular issuer (in the case of MLPs, generally measured in terms of distributable cash flow). Prices of common
units of individual MLPs, like the prices other equity securities, also can be affected by fundamentals unique to the partnership or company, including earnings power and coverage ratios.
Tax
Risk of Master Limited Partnerships. MLPs do not pay U.S. federal income tax at the partnership
level. Rather, each partner is allocated a share of the partnership’s income, gains, losses, deductions and expenses. A
change in current tax law, or a change in the underlying business mix of a given MLP, could result in an MLP being treated as
a corporation for U.S. federal income tax purposes, which would result in such MLP being required to pay U.S. federal income tax
on its taxable income plus any applicable state and local taxes. The classification of an MLP as a corporation for U.S. federal
income tax purposes would have the effect of reducing the amount of cash available for distribution by the MLP. Thus, if any of
the MLPs owned by the Fund were treated as a corporation for U.S. federal income tax purposes, it could result in a reduction
of the value of the Fund’s investment.
The
tax benefit the Fund is expected to derive from its investment in MLPs depends largely on the MLPs being treated as partnerships
for federal income tax purposes. As a partnership, an MLP has no federal income tax liability at the entity level. If, as a result
of a change in current law or a change in an MLP’s underlying asset mix, an MLP were treated as a corporation for federal
income tax purposes, the MLP would be obligated to pay federal income tax on its income at the corporate tax rate (currently at
a maximum rate of 35%). If an MLP were classified as a corporation for federal income tax purposes, the amount of cash available
for distribution would be reduced and part or all of the distributions the Fund receives might be taxed entirely as dividend income.
Therefore, treatment of one or more MLPs as a corporation for federal income tax purposes could affect the Fund’s investment
in the MLP and would reduce the amount of cash available to pay or distribute to the Fund. As discussed below, a Fund may also
invest in MLPs that qualify as publicly traded partnerships treated as corporations for U.S. tax purposes.
The
tax treatment of publicly traded partnerships could be subject to potential legislative, judicial or administrative changes and
differing interpretations, possibly on a retroactive basis. For example, members of Congress are considering substantive changes
to the existing federal income tax laws that affect certain publicly traded partnerships. Any modification to the federal income
tax laws and interpretations thereof may or may not be applied retroactively. Specifically, federal income tax legislation has
been proposed that would eliminate partnership tax treatment for certain
publicly
traded partnerships and re characterize certain types of income received from partnerships. Any such changes could negatively
impact the value of an investment in MLPs and therefore the value of the Fund. In addition, federal tax incentives are widely
used by oil, gas and coal companies. If those incentives were eliminated, or if new fees were imposed on certain energy producers,
MLPs and other natural resources sector companies in which a Fund invests, and/or the natural resources sector generally, could
be adversely affected.
A
Fund will be a limited partner in the MLPs in which it invests. As a result, it will be allocated a pro rata share of income,
gains, losses, deductions and expenses from those MLPs. Historically, a significant portion of income from such MLPs has been
offset by tax deductions. The percentage of an MLP’s income and gains which is offset by tax deductions and losses will
fluctuate over time for various reasons. A significant slowdown in acquisition activity by MLPs held in a Fund’s portfolio
could result in a reduction of accelerated depreciation generated by new acquisitions, which may result in increased current income
tax liability to the Fund.
A
Fund currently may also invest in MLPs that may qualify to be taxed as corporations for United States federal tax purposes and
that make distributions in additional shares rather than cash. Because these distributions of additional shares will be made proportionately
to all owners of shares, the receipt of these additional shares will not be included in the gross income of an owner of shares
for United States federal income tax purposes. When the Fund as an owner of the shares of such an MLP receives additional shares,
it will be required to allocate its tax basis in its shares of the MLP equally between shares that the Fund already owns and the
new additional shares received. Gain or loss recognized by the Fund as an owner of shares, on the sale or other disposition of
a share will generally be taxable as capital gain or loss. As a regulated investment company, the Funds are required to derive
at least 90% of its gross income for every taxable year from qualifying income. As an owner of shares of such an MLP, a Fund will
not report on its United States federal income tax return any of such an MLP’s items of income, gain, loss and deduction.
Thus, ownership of shares by a Fund will not result in income which is not qualifying income to the fund that elects to qualify
as a regulated investment company for federal tax purposes. Furthermore, any gain from the sale or other disposition of the shares
of an MLP that a Fund owns, and the associated purchase rights, will qualify for purposes of that 90% test. Finally, shares, and
the associated purchase rights, will constitute qualifying assets to mutual funds which also must own at least 50% qualifying
assets at the end of each quarter.
Energy Infrastructure
Industry MLPs. Certain of the Funds, particularly Global Multi-Alternatives Fund/VA, may invest in MLPs which are engaged in the: (i) gathering, transporting, processing, treating, terminalling, storing,
refining, distributing, mining or marketing of natural gas, natural gas liquids, crude oil, refined products or coal, (ii) the acquisition, exploitation and development of crude oil, natural gas and natural gas
liquids, (iii) processing, treating, and refining of natural gas liquids and crude oil, and (iv) owning, managing and transporting alternative energy infrastructure assets, including alternative fuels such as ethanol,
hydrogen and biodiesel. These MLPs are subject to many of the risks associated with investments in the energy infrastructure companies, including the following:
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| Commodity Risks. The return on an investment in an MLP will depend on the margins received by MLPs and energy infrastructure companies. These margins may fluctuate widely in response to a
variety of factors including global and domestic economic conditions, weather conditions, natural disasters, the supply and price of imported energy commodities, the production and storage levels of energy, political
instability, terrorist activities, transportation facilities, energy conservation, domestic and foreign governmental regulation and taxation and the availability of local, intrastate and interstate transportation
systems. Volatility of commodity prices also may make it more difficult for MLPs and energy infrastructure companies to raise capital to the extent the market perceives that their performance may be directly or
indirectly tied to commodity prices.
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| Supply and Demand Risks. A decrease in the production of natural gas, natural gas liquids, crude oil, coal or other energy commodities, a reduction in the volume of such commodities available for
transportation, mining, processing, storage or distribution, or a sustained decline in demand for such commodities, may adversely affect the financial performance or prospects of MLPs and energy infrastructure
companies. MLPs and energy infrastructure companies are subject to supply and demand fluctuations in the markets they serve which will be impacted by a wide range of factors, including fluctuating commodity prices,
weather, increased conservation or use of alternative fuel sources, increased governmental or environmental regulation, depletion, growing interest rates, declines in domestic or foreign production, accidents or
catastrophic events, and economic conditions, among others.
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| Operational Risks. MLPs and energy infrastructure companies are subject to various operational risks, such as disruption of operations, inability to timely and effectively integrate newly
acquired assets, unanticipated expenses, lack of proper asset integrity, underestimated cost projections, inability to renew or increased costs of rights of way, failure to obtain the necessary permits to operate and
failure of third-party contractors to perform their contractual obligations. Thus, some MLPs and energy infrastructure companies may be subject to construction risk, acquisition risk or other risks arising from their
specific business strategies.
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| Acquisition Risks. The ability of MLPs and energy infrastructure companies to grow and, where applicable, to increase dividends or distributions to their equity holders can be highly
dependent on their ability to make acquisitions of energy businesses that result in an increase in free cash flow. In the event that such companies are unable to make
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| such acquisitions, their future growth and ability to make or raise dividends or distributions will be limited and their ability to repay their debt and make payments to preferred equity holders may be weakened.
Furthermore, even if these companies do consummate acquisitions that they believe will be accretive, the acquisitions may instead result in a decrease in free cash flow.
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| Regulatory Risks. MLPs and energy infrastructure companies are subject to significant federal, state and local government regulation in virtually every aspect of their operations. Various
governmental authorities have the power to enforce compliance with these regulations and the permits issued under them, and violators are subject to administrative, civil and criminal penalties, including civil fines,
injunctions or both. More extensive laws, regulations or enforcement policies could be enacted in the future which would likely increase compliance costs and may adversely affect the financial performance of MLPs and
energy infrastructure companies.
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| Rising Interest Rate Risks. The values of debt and equity securities of MLPs and energy infrastructure companies held by a Fund are susceptible to decline when interest rates rise. Rising interest
rates could adversely impact the financial performance of these companies by increasing their costs of capital. This may reduce their ability to execute acquisitions or expansion projects in a cost-effective
manner.
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•
| Terrorism Risks. The terrorist attacks in the United States on September 11, 2001 had a disruptive effect on the economy and the securities markets. Events in the Middle East could have
significant adverse effects on the U.S. economy and the stock market. Uncertainty surrounding military strikes or actions or a sustained military campaign may affect an MLP’s or energy infrastructure
company’s operations in unpredictable ways, including disruptions of fuel supplies and markets, and transmission and distribution facilities could be direct targets, or indirect casualties, of an act of terror.
The U.S. government has issued warnings that energy assets, specifically the United States' pipeline infrastructure, may be the future target of terrorist organizations. In addition, changes in the insurance markets
have made certain types of insurance more difficult, if not impossible, to obtain and have generally resulted in increased premium costs.
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| Weather Risks. Extreme weather patterns or environmental hazards, such as the BP oil spill in 2010, could result in significant volatility in the supply of energy and power and could
adversely impact the value of the debt and equity securities of the MLPs and energy infrastructure industry in which a Fund may invest. This volatility may create fluctuations in commodity prices and earnings of MLPs
and energy infrastructure companies.
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•
| Catastrophe Risk. The operations of MLPs and energy infrastructure companies are subject to many hazards, including: damage to pipelines, storage tanks or related equipment and surrounding
properties caused by hurricanes, tornadoes, floods, fires and other natural disasters; inadvertent damage from construction or other equipment; leaks of natural gas, natural gas liquids, crude oil, refined petroleum
products or other hydrocarbons; and fires and explosions. These risks could result in substantial losses due to personal injury or loss of life, severe damage to and destruction of property and equipment and pollution
or other environmental damage and may result in the curtailment or suspension of their related operations. Not all MLPs and energy infrastructure companies are fully insured against all risks inherent to their
businesses. If a significant accident or event occurs that is not fully insured, it could adversely affect an MLP’s or energy infrastructure company’s operations and financial condition and the securities
issued by the company.
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| Competition Risk. The MLPs and energy infrastructure companies may face substantial competition in acquiring assets, expanding or constructing assets and facilities, obtaining and retaining
customers and contracts, securing trained personnel and operating their assets. Many of their competitors, including major oil companies, independent exploration and production companies, MLPs and other diversified
energy companies, will have superior financial and other resources.
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| Depletion and Exploration Risk. Energy reserves naturally deplete as they are produced over time. Many energy companies are either engaged in the production of natural gas, natural gas liquids, crude
oil, or coal, or are engaged in transporting, storing, distributing and processing these items or their derivatives on behalf of shippers. To maintain or grow their revenues, these companies or their customers need to
maintain or expand their reserves through exploration of new sources of supply, through the development of existing sources or, through acquisitions. The financial performance of MLPs and energy infrastructure
companies may be adversely affected if they, or the companies to whom they provide the service, are unable to cost-effectively acquire additional reserves sufficient to replace the depleted reserves. If an MLP or
energy infrastructure company fails to add reserves by acquiring or developing them, its reserves and production will decline over time as the reserves are produced. If an MLP or energy infrastructure company is not
able to raise capital on favorable terms, it may not be able to add to or maintain its reserves.
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| Financing Risk. Some MLPs and energy infrastructure companies may rely on capital markets to raise money to pay their existing obligations. Their ability to access the capital markets on
attractive terms or at all may be affected by any of the risk factors associated with MLPs and energy infrastructure companies described above, by general economic and market conditions or by other factors. This may
in turn affect their ability to satisfy their obligations to us. In addition, certain MLPs and energy infrastructure companies are dependent on their parents or sponsors for a majority of their revenues.
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Greenfield Projects. Greenfield projects are energy-related projects built by private joint ventures formed by energy infrastructure companies. Greenfield projects may include the creation of a new pipeline,
processing plant or storage
facility or other energy infrastructure asset
that is integrated with the company’s existing assets. Greenfield projects involve less investment risk than typical private equity financing arrangements. The primary risk involved with greenfield projects is
execution risk or construction risk. Changing project requirements, elevated costs for labor and materials, and unexpected construction hurdles all can increase construction costs. Financing risk exists should changes
in construction costs or financial markets occur. Regulatory risk exists should changes in regulation occur during construction or the necessary permits are not secured prior to beginning construction.
MLP Affiliates. The Funds, particularly Global Multi-Alternatives Fund/VA, may invest in the equity and debt securities issued by affiliates of MLPs, including the general partners or managing members of
MLPs and companies that own MLP general partner interests and are energy infrastructure companies. Such issuers may be organized and/or taxed as corporations and therefore may not offer the advantageous tax
characteristics of MLP units. A Fund may purchase such other MLP equity securities through market transactions, but may also do so through direct placements.
Portfolio
Turnover. ”Portfolio turnover“ describes the rate at which the Fund traded its portfolio
securities during its last fiscal year. For example, if the Fund sold all of its securities during the year to purchase securities,
its portfolio turnover rate would have been 100%. The portfolio turnover rate will fluctuate from year to year.
Increased
portfolio turnover creates higher brokerage and transaction costs for the Fund, which could reduce its overall performance. Additionally,
the realization of capital gains from selling portfolio securities may result in distributions of taxable capital gains to shareholders,
since the Fund will normally distribute all of its capital gains realized each year, to avoid Fund-level income and excise taxes
under the Internal Revenue Code.
The
change in the portfolio turnover rate for Conservative Balanced Fund/VA and Equity Income Fund/VA over the two most recently completed
fiscal years is due to a change in each Fund’s portfolio management team that occurred in 2013. The change in Global Multi-Alternatives
Fund/VA’s portfolio turnover rate over the two most recently completed fiscal years is due to an ongoing transition in the
Fund’s portfolio toward a more diversified risk profile.
The following investment policies
and instruments apply specifically to Government Money Fund/VA:
Portfolio Quality, Maturity,
Diversification, and Liquidity. Under Rule 2a-7 of the Investment Company Act of 1940, as amended (the ”Investment Company Act“) Government Money Fund/VA uses the amortized cost method to value its portfolio
securities to determine Government Money Fund/VA’s net asset value per share. Rule 2a-7 places restrictions on a money market fund’s investments. Under that Rule, Government Money Fund/VA may purchase only
those securities that the Sub-Adviser, under Board-approved procedures, has determined have minimal credit risks and are ”Eligible Securities.“ The rating restrictions described in Government Money
Fund/VA’s Prospectus and this SAI do not apply to banks in which Government Money Fund/VA’s cash is kept.
An ”Eligible
Security“ is one that has a remaining maturity of 397 calendar days or less and has been rated in one of the two highest short-term rating categories by any two ”nationally recognized statistical rating
organizations.“ That term is defined in Rule 2a-7 and they are referred to as ”Rating Organizations“ in this SAI. If only one Rating Organization has rated that security, it must have been rated in
one of the two highest rating categories by that Rating Organization. An unrated security that is judged by the Sub-Adviser, subject to review by Money Fund/VA’s Board, to be of comparable quality to Eligible
Securities rated by Rating Organizations may also be an ”Eligible Security.“
Rule 2a-7 permits Government
Money Fund/VA to purchase any number of ”First Tier Securities.“ These are Eligible Securities that have been rated in the highest rating category for short-term debt obligations by at least two Rating
Organizations. If only one Rating Organization has rated a particular security, it must have been rated in the highest rating category by that Rating Organization. Comparable unrated securities may also be First Tier
Securities.
Under Rule 2a-7, Government
Money Fund/VA may invest only up to 3% of its total assets in ”Second Tier Securities.“ Those are Eligible Securities that are not ”First Tier Securities.“ In addition, Government Money Fund/VA
may not invest more than:
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| 5% of its total assets in the securities of any one issuer (other than the U.S. government, its agencies or instrumentalities); provided, however, that Government Money Fund/VA may invest up to 25% of its total
assets in the First Tier Securities of a single issuer for a period of up to three business days after the acquisition thereof; provided, further, that Government Money Fund/VA may not invest in the securities of more
than one issuer in accordance with the foregoing provision at any time; or
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| One half of 1% of its total assets in Second Tier Securities of any one issuer.
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Under Rule 2a-7, Government
Money Fund/VA must maintain a dollar-weighted average portfolio maturity of not more than 60 days, and the maturity of any single portfolio investment may not exceed 397 days. In addition, Government Money Fund/VA may
not acquire a Second-Tier Security with remaining maturity greater than 45 days. The Board regularly reviews reports from the Sub-Adviser to show the Sub-Adviser’s compliance with Government Money
Fund/VA’s procedures and with the Rule.
If a security’s credit
rating is downgraded, the Sub-Adviser 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 Sub-Adviser will promptly reassess whether the
security continues to present minimal credit risk. If the Sub-Adviser 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, Government Money Fund/VA’s Board shall promptly reassess whether the security presents minimal credit risk and whether it is in the best interests of
Government Money Fund/VA to dispose of it.
If Government Money Fund/VA
disposes of the security within five days of the Sub-Adviser learning of the downgrade, the Sub-Adviser 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 whether it would be in the best interests of Government Money Fund/VA to dispose of the security.
The Rating Organizations must be
designated as nationally recognized statistical rating organizations by the Securities and Exchange Commission (”SEC“). Appendix B to this SAI contains descriptions of the rating categories of certain of
those Rating Organizations. Ratings at the time of purchase will determine whether securities may be acquired under the restrictions described above.
Government Money Fund/VA will
seek to maintain at least 10% of its assets measured on a daily basis, and 30% of its total assets measured on a weekly basis, in cash or securities that can be sold and settled for cash within either one business day
or five business days, respectively.
U.S. Government Securities. U.S. government securities are obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities. They include Treasury Bills (which mature within one year of
the date they are issued) and Treasury Notes and Bonds (which are issued with longer maturities). All Treasury securities are backed by the full faith and credit of the United States.
U.S. government agencies and
instrumentalities that issue or guarantee securities include, but are not limited to, the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General Services Administration, Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, the Tennessee Valley Authority and the District of Columbia Armory Board.
Securities issued or guaranteed
by U.S. government agencies and instrumentalities are not always backed by the full faith and credit of the United States. Some, such as securities issued by the Federal National Mortgage Association (“Fannie
Mae”), are backed by the right of the agency or instrumentality to borrow from the U.S. Treasury. Others, such as securities issued by the Federal Home Loan Mortgage Corporation (“Freddie Mac”), are
supported only by the credit of the instrumentality and not by the Treasury. If the securities are not backed by the full faith and credit of the United States, the purchaser must look principally to the agency
issuing the obligation for repayment and may not be able to assert a claim against the United States if the issuing agency or instrumentality does not meet its commitment.
Among the U.S. government
securities that may be purchased by Government Money Fund/VA are “mortgage-backed securities” of Fannie Mae, Government National Mortgage Association (“Ginnie Mae”) and Freddie Mac. Timely
payment of principal and interest on Ginnie Mae pass-through securities are guaranteed by the full faith and credit of the United States. These mortgage-backed securities include “pass-through” securities
and “participation certificates.” Both types of securities are similar, in that they represent pools of mortgages that are assembled by a vendor who sells interests in the pool. Payments of principal and
interest by individual mortgagors are “passed through” to the holders of the interests in the pool. Another type of mortgage-backed security is the “collateralized mortgage obligation.” It is
similar to a conventional bond and is secured by groups of individual mortgages.
Global
Multi-Alternatives Fund/VA can also engage in any of the following techniques and strategies (Conservative Balanced Fund/VA and
Global Strategic Income Fund/VA can also engage in the following techniques and strategies with respect to Senior Loans and where
otherwise indicated below):
“Structured”
Investments. “Structured” investments are financial instruments and contractual obligations designed to provide a specific risk-reward profile. A structured instrument is generally a hybrid
security (often referred to as “hybrids”) that combines characteristics of two or more different financial instruments. The terms of these investments may be contractually “structured” by the
purchaser and the issuer (which is typically associated with an investment banking firm) of the instrument. Structured investments may have certain features of equity and debt securities, but may also have additional
features. The key characteristics of structured investments are:
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| They change the risk or return on an underlying investment asset (such as a bond, money market instrument, loan or equity security).
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| They may replicate the risk or return of an underlying investment asset.
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| They typically involve the combination of an investment asset and a derivative.
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| The derivative is an integral part of the structure, not just a temporary hedging tool.
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The returns on these investments
may be linked to the value of an index (such as a currency or securities index) or a basket of instruments (a portfolio of assets, such as, high yield bonds, emerging market bonds, equities from a specific
industry sector, a broad-based equity index or
commodities), an individual stock, bond or other security, an interest rate, or a commodity. Some of the types of structured investments are:
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| Equity-linked notes
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| Index-linked notes
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| Inflation-linked notes
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| Commodity-linked notes
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| Credit-linked notes
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| Currency-linked notes
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The values of structured
investments will normally rise or fall in response to the changes in the performance of the underlying index, security, interest rate or commodity. Certain structured investments may offer full or partial principal
protection, or may pay a variable amount at maturity, or may pay a coupon linked to a specific security or index while leaving the principal at risk. These investments may be used to seek to realize gain or limit
exposure to price fluctuations and help control risk.
Depending on the terms of the
particular instrument, structured investments may be subject to equity market risk, commodity market risk, currency market risk or interest rate risk. Structured notes are subject to credit risk with respect to the
issuer of the instrument (referred to as “counter-party” risk) and, for structured debt investments, might also be subject to credit risk with respect to the issuer of the underlying investment. For notes
that do not include principal protection (a form of insurance), a main risk is the possible loss of principal. There is a legal risk involved with holding complex instruments, where regulatory or tax considerations
may change during the term of a note. Some structured investments may create leverage, which involves additional risks.
If the underlying investment or
index does not perform as anticipated, the investment might not result in a gain or may cause a loss. The price of structured investments 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. Usually structured investments are considered illiquid investments for purposes of limits on those investments.
Commodity-Linked Notes. A commodity-linked note is a derivative instrument that has characteristics of both a debt security and a commodity-linked derivative. It typically makes interest payments like a debt
security and at maturity the principal payment is linked to the price movement of an underlying commodity-related variable that may be: a physical commodity (such as heating oil, livestock, or agricultural products),
a commodity future or option contract, a commodity index, or some other readily measurable variable that reflects changes in the value of particular commodities or the commodities markets. Commodity-linked notes are
negotiated with the issuer to obtain specific terms and features that are tailored to particular investment needs.
Qualifying Hybrid
Instruments. “Qualifying hybrid instruments” are commodity-linked notes that are excluded from regulation under the Commodity Exchange Act and the rules thereunder.
Investment
in Wholly-Owned Subsidiary. Global Strategic Income Fund/VA and Global Multi-Alternatives Fund/VA
each may invest up to 25% of its total assets in a wholly-owned and controlled subsidiary (the “Subsidiary”). Global
Multi-Alternatives Fund/VA’s Subsidiary invests primarily in commodity-linked derivatives (including commodity futures,
financial futures, options and swap contracts) and exchange traded funds related to gold or other special minerals (“Gold
ETFs”). Global Strategic Income Fund/VA’s Subsidiary invests primarily in Regulation S securities. Global Multi-Alternatives
Fund/VA’s Subsidiary may also invest in certain fixed-income securities and other investments that may serve as margin or
collateral for its derivatives positions.
Since
each Fund may invest a substantial portion of its assets in the relevant Subsidiary, which may hold certain of the investments
described in the Fund’s prospectus and this Statement of Additional Information, each Fund may be considered to be investing
indirectly in those investments through its relevant Subsidiary. Therefore, references in the Funds’ Prospectus and in this
Statement of Additional Information to investments by the Fund also may be deemed to include the Fund’s indirect investments
through the relevant Subsidiary.
Neither
Subsidiary is registered under the Investment Company Act of 1940 (the “Investment Company Act”) and is therefore
not subject to its investor protections, except as noted in each Fund’s Prospectus or this Statement of Additional Information.
Each Fund, as the sole shareholder of the relevant Subsidiary, does not have all of the protections offered by the Investment
Company Act. However, each Subsidiary is wholly-owned and controlled by its respective Fund and managed by the Manager and the
Sub-Adviser. Therefore, the Fund’s ownership and control of the relevant Subsidiary make it unlikely that the Subsidiary
would take action contrary to the interests of the relevant Fund or its shareholders. Each Fund’s Board has oversight responsibility
for the investment activities of the relevant Fund, including its expected investment in the relevant Subsidiary, and each Fund’s
role as the sole shareholder of its Subsidiary. Also, in managing the relevant Subsidiary’s portfolio, the Manager and Sub-Adviser
are subject to the same investment policies and restrictions that apply to the management of the relevant Fund, and, in particular,
to the requirements relating to portfolio leverage, liquidity, brokerage, and the timing and method of the valuation of the Subsidiary’s
portfolio investments and shares of the Subsidiary.
Changes in the laws of the
United States (where each Fund is organized) and/or the Cayman Islands (where each Subsidiary is organized), could prevent a Fund and/or its Subsidiary from operating as described in the Fund’s Prospectus and
this Statement of Additional Information and could negatively affect the Fund and its shareholders. For example, the Cayman Islands currently does not impose certain taxes on exempted companies like the Subsidiary,
including income and capital gains tax, among others. If Cayman Islands laws were changed to require a Subsidiary to pay Cayman Islands taxes, the investment returns of a Fund would likely decrease.
Risks
of Investments in Mining Securities, Metal Investments and Gold ETFs. The Prospectus of Global
Multi-Alternatives Fund/VA describes whether and to what extent the Fund may invest in Mining Securities, Metal Investments and/or
Gold ETFs.
Investments in Mining
Securities, Metal Investments and Gold ETFs involve additional risks and considerations not typically associated with other types of investments: (1) the risk of substantial price fluctuations of gold and precious
metals; (2) the concentration of gold supply is mainly in five territories (South Africa, Australia, the Commonwealth of Independent States (the former Soviet Union), Canada and the United States), and the prevailing
economic and political conditions of these countries may have a direct effect on the production and marketing of gold and sales of central bank gold holdings; (3) unpredictable international monetary policies,
economic and political conditions; (4) possible U.S. governmental regulation of Metal Investments, as well as foreign regulation of such investments; and (5) possible adverse tax consequences for the Fund in making
Metal Investments, if it fails to qualify as a “regulated investment company” under the Internal Revenue Code. An adverse change with respect to any of these risk factors could have a significant negative
effect on each Fund’s net asset value per share. These risks are discussed in greater detail below.
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| Risk of Price Fluctuations. The prices of precious and strategic metals are affected by various factors such as economic conditions, political events, governmental monetary and regulatory policies
and market events. The prices of Mining Securities, Metal Investments and Gold ETFs held by the Fund may fluctuate sharply, which will affect the value of the Fund’s shares.
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| Concentration of Source of Gold Supply and Control of Gold Sales. Currently, the five largest producers of gold are the Republic of South Africa, Australia, the Commonwealth of Independent States (which includes Russia and certain other
countries that were part of the former Soviet Union), Canada and the United States. Economic and political conditions in those countries may have a direct effect on the production and marketing of gold and on sales of
central bank gold holdings. In South Africa, the activities of companies engaged in gold mining are subject to the policies adopted by the Ministry of Mines. The Reserve Bank of South Africa, as the sole authorized
sales agent for South African gold, has an influence on the price and timing of sales of South African gold. Political and social conditions in South Africa are still somewhat unsettled and may pose certain risks to
the Fund (in addition to the risks described under the caption “Foreign Securities”), because the Fund may hold a portion of its assets in securities of South African issuers.
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| Unpredictable International Monetary Policies, Economic and Political Conditions. There is the possibility that unusual international monetary or political conditions may make the Fund’s portfolio assets less liquid, or that the value of the
Fund’s assets might be more volatile, than would be the case with other investments. In particular, the price of gold is affected by its direct and indirect use to settle net balance of payments deficits and
surpluses between nations. Because the prices of precious or strategic metals may be affected by unpredictable international monetary policies and economic conditions, there may be greater likelihood of a more
dramatic fluctuation of the market prices of the Fund’s investments than of other investments.
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| Commodities Regulations. The trading of Metal Investments in the United States could become subject to the rules that govern the trading of agricultural and certain other commodities and
commodity futures. In the opinion of the Fund’s counsel, at present the Fund’s permitted Metal Investments (if any) are either not subject to regulation by the Commodity Futures Trading Commission or an
exemption from regulation is available. The absence of regulation may adversely affect the continued development of an orderly market in Metal Investments trading in the United States. The development of a regulated
futures market in Metal Investments trading may affect the development of a market in, and the price of, Metal Investments in the United States.
|
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| Effect on the Fund’s Tax Status. By making Metal Investments and/or investments in Gold ETFs, Global Multi-Alternatives Fund/VA risks failing to qualify as a regulated investment company under the
Internal Revenue Code. If the Funds should fail to qualify, they would lose the beneficial tax treatment accorded to qualifying investment companies under Subchapter M of the Code. Failure to qualify would occur if in
any fiscal year a Fund either (a) derived more than 10% of its gross income (as defined in the Internal Revenue Code, which disregards losses for this purpose) from sales or other dispositions of Metal Investments
and/or Gold ETFs, or (b) held more than 50% of its net assets in the form of Metal Investments and/or Gold ETFs or in securities not meeting certain tests under the Internal Revenue Code or (c) held more than 25% of
its total assets in the form of a single Metal Investment or Gold ETF, either directly or by derivative contract (see “Distributions and Taxes”). Accordingly, Global Strategic Income Fund/VA and Global
Multi-Alternatives Fund/VA each will endeavor to manage its portfolio within the limitations described above, and each has adopted an investment strategy limiting the amount of its total assets that can be invested in
Metal Investments and/or Gold ETFs. There can be no assurance that either Fund will qualify in every fiscal year. Furthermore, to comply with the limitations described above, either Fund may be required to make
investment decisions the Manager would otherwise not make, foregoing the opportunity to realize gains, if necessary, to permit the Fund to qualify.
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Senior Loans and Other Loans. Among other debt securities described elsewhere in this SAI, Global Strategic Income Fund/VA and Global Multi-Alternatives Fund/VA (each a “Fund”), may invest in loans, and in
particular, in floating rate loans (sometimes referred to as “adjustable rate loans”) that hold (or in the judgment of the investment adviser, hold) a senior position in the capital structure of U.S. and
foreign corporations, partnerships or other business entities that, under normal circumstances, allow them to have priority of claim ahead of (or at least as high as) other obligations of a borrower in the event of
liquidation. These investments are referred to as “Senior Loans” in this SAI. Loans typically are arranged through private negotiations between a borrower and one or more financial institutions
(“Lenders”). Usually the Lenders are represented by an agent (“Agent”), which usually is one of the Lenders. The borrowers may use the proceeds of loans to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, debt refinancings, or for other purposes.
Agents typically are commercial
or investment banks that originate loans and invite other parties to join the lending syndicate. In larger transactions, it is common to have several Agents. However, only one Agent usually has primary responsibility
for documentation and administration of the loan. Agents are normally paid fees by the borrower for their services. While the Fund can serve as the Agent or co-agent for a loan, the Fund currently does not intend to
act as an Agent or co-Agent. Agents, acting on behalf of the Lenders, generally are primarily responsible for negotiating the loan agreement, which establishes the terms and conditions of the loan and the rights of
the borrower and the Lenders. The Fund will rely on Agents to collect payments of principal and interest on a loan. The Fund also will rely in part on Agents to monitor compliance by the borrower with the restrictive
covenants in the loan agreement and to notify the Fund (or the Lender from whom the Fund has purchased a participation) of any adverse change in the borrower’s financial condition.
Loans may be secured or
unsecured. Where a loan is secured, Agents usually monitor the adequacy of assets that collateralize loans. In reliance upon the opinions of their legal counsel, Agents generally are also responsible for determining
that the Lenders have obtained a perfected security interest in the collateral securing loans, if any.
Financial difficulties of Agents
can pose a risk to the Fund. If an Agent for a particular loan becomes insolvent, the Fund could incur losses in connection with its investment in that loan. An Agent could declare bankruptcy, and a regulatory
authority could appoint a receiver or conservator. Should this occur, the assets that the Agent holds under the loan agreement, if any, should continue to be available to the Lenders, including the Fund. A regulator
or a court, however, might determine that any such assets are subject to the claims of the Agent’s general or secured creditors. If that occurs, the Fund might incur costs and delays in realizing final payment
on a loan, or the Fund might suffer a loss of principal or interest. The Fund may be subject to similar risks when it buys a participation interest in a loan. Most participations purchased by the Fund are structured
to be “true sales” of the underlying loan, in which case the loan should not be included in the bankruptcy estate of the participation seller. However, a court might determine that the participation was
not in fact a “true sale”, in which case the Fund would be a general unsecured creditor of the participation seller.
In certain circumstances, loans
may not be deemed to be securities, and in the event of fraud or misrepresentation by a borrower or an arranger, lenders will not have the protection of the anti-fraud provisions of the federal securities laws, as
would be the case for bonds or stocks. Instead, in such cases, lenders generally rely on the contractual provisions in the loan agreement itself, and common-law fraud protections under applicable state law.
How the Fund Invests in
Loans. The Fund may invest in loans in one or more of three ways: the Fund may invest directly in a loan by acting as an original Lender; the Fund may invest directly in a loan by purchasing a
loan by an assignment from the Agent or other Lender; or the Fund may invest indirectly in a loan by purchasing a participation interest in a loan from an Agent or other Lender. The Fund may also gain exposure to
loans indirectly using certain derivative instruments, which is discussed elsewhere in this SAI.
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| Original Lender. The Fund can invest in loans, generally “at par” (a price for the loan equal approximately to 100% of the funded principal amount of the loan, minus any original issue
discount) as an original lender. When the Fund is an original lender, it is entitled to receive a return at the full interest rate for the loan. When the Fund is an original lender, it will have a direct contractual
relationship with the borrower and will have direct recourse against the borrower in the event the borrower fails to pay scheduled principal or interest.
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•
| Assignments. The Fund may also purchase a loan by assignment. When the Fund purchases a loan by assignment, it typically succeeds to whatever rights and obligations the assigning lender had under the
loan agreement and becomes a “lender” under the loan agreement, entitled to the same rights (including, but not limited to, enforcement or set-off rights) that are available to lenders generally.
|
•
| Participation Interests. These investments represent an undivided, indirect interest in a loan obligation of a borrower. They are typically purchased from banks or dealers that have made the loan, or are members
of the loan syndicate. The participation seller remains as lender of record, and continues to face the borrower, the agent, and the other parties to the loan agreement, while the Fund generally acquires beneficial
ownership of the loan. Participation interests are subject to the ongoing counterparty risk of the participation seller (and, in certain circumstances, such seller’s credit risk) as well as the credit risk of
the borrower.
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While the Fund expects to have
access to financial and other information regarding the borrower that has been made available to the lenders under a loan, it may not have such information in connection with participation interests and
certain loan assignments. Additionally, the
amount of public information available with respect to loans generally will be less extensive than what is available for exchange-listed or otherwise registered securities.
The Sub-Adviser will normally
seek to avoid receiving material, non-public information about the issuers of loans being considered for acquisition by the Fund or held in the Fund’s portfolio. In many instances, borrowers may offer to furnish
material, non-public information to existing and prospective investors in the issuer’s loans. The Sub-Adviser’s decision not to receive material, non-public information may place the Sub-Adviser at a
disadvantage relative to other investors in loans (such as by having an adverse effect on the price the Fund pays or receives when buying or selling loans). Also, in instances where holders of loans are asked to grant
amendments, waivers or consent, the Sub-Adviser’s ability to assess their significance or desirability may be adversely affected. For these and other reasons, it is possible that the Sub-Adviser’s decision
not to receive material, non-public information under normal circumstances could adversely affect the Fund’s investment performance.
Notwithstanding its intention
generally not to receive material, non-public information with respect to its management of investments in loans, the Sub-Adviser may from time to time come into possession of material, non-public information about
the issuers of loans that may be held in the Fund’s portfolio. Possession of such information may in some instances occur despite the Sub-Adviser’s efforts to avoid such possession, but in other instances
the Sub-Adviser may choose to receive such information (for example, in connection with participation in a creditors’ committee with respect to a financially distressed issuer). The Sub-Adviser’s ability
to trade in these loans for the account of the Fund could potentially be limited by its possession of such information. Such limitations on the Sub-Adviser’s ability to trade could have an adverse effect on the
Fund by, for example, preventing the Fund from selling a loan that is experiencing a material decline in value. In some instances, these trading restrictions could continue in effect for a substantial period of
time.
Participation interests involve
risks for the Fund. Participation interests are primarily dependent upon the creditworthiness of the borrower, which is obligated to make payments of principal and interest on the loan. In buying a participation
interest, however, the Fund assumes both the credit risk of the borrower and the counterparty risk of the Lender selling the participation interest. As with an assignment or a loan originated by the Fund, 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’s income may be reduced and the value of the investment in the
participation interest might also decline. Further, the seller of the participation interest will have no obligation to the Fund other than to pay the Fund the proportionate amount of the principal and interest
payments it receives from the borrower. In addition, if the seller of the participation interest fails to perform its obligations, purchasers might incur costs and delays in realizing payment and suffer a loss of
principal and/or interest, including in cases where the borrower may have performed its obligation to the Lender that issued the participation (e.g., if the participation seller fails to pass along to the Fund
payments received from the borrower). Although most participation interests purchased by the Fund are structured to cause the Fund to become beneficial owner of the relevant loans, and therefore avoid this outcome, if
a Lender that sells the Fund a participation interest becomes insolvent, the Fund may be treated as a general creditor of the Lender. As a general creditor, the Fund will have to share the proceeds of the loan with
any other creditors of the Lender. The Fund will acquire a participation interest only if the investment adviser determines that the Lender (or other intermediary Participant) selling the participation interest is
creditworthy.
The Fund’s rights under a
participation interest with respect to a particular loan may be more limited than the rights of original Lenders or of investors who acquire an assignment of that loan. The Fund has the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender selling the participation interest and only when the Lender receives the payments from the borrower. In purchasing participation interests,
the Fund will usually have a contractual relationship only with the selling institution and not the borrower. The Fund generally will have no right directly to enforce compliance by the borrower with the terms of the
related loan agreement, nor will the Fund necessarily have the right to object to certain changes to the loan agreement agreed to by the selling institution.
If the Fund buys a participation
interest in a loan, the Fund may be subject to any rights of set-off the borrower has against the selling institution (although recourse to the selling institution may be available in the event of any such set-off).
In the event of bankruptcy or insolvency of the borrower, the obligation of the borrower to repay the loan may be subject to certain defenses that can be asserted by the borrower as a result of any improper conduct of
the Lender selling the participation (although recourse to the Lender may be available). As a result, the Fund may be subject to delays, expenses and risks that are greater than those that exist when the Fund is an
original Lender or assignee, and therefore a participation may be relatively illiquid as compared to a direct investment in a loan because of a smaller universe of investors who are willing to assume these additional
risks present in a participation.
Interest Rate Benchmarks for
Floating Rate Loans. Interest rates on floating rate loans adjust periodically based on a benchmark rate plus a premium or spread over the benchmark rate. The benchmark rate usually is the Prime Rate, LIBOR,
the Federal Reserve federal funds rate, or other base lending rates used by commercial lenders (each as defined in the applicable loan agreement).
•
| The Prime Rate quoted by a major U.S. bank is generally the interest rate at which that bank is willing to lend U.S. dollars to its most creditworthy borrowers, although it may not be the bank’s lowest
available rate.
|
•
| LIBOR usually is an average of the interest rates quoted by several designated banks as the rates at which they pay interest to major depositors in the London interbank market on deposits in a particular currency.
Because Senior Loans are U.S. dollar denominated, any applicable LIBOR rate for Senior Loans would be in respect of U.S. dollar deposits. The market views changes in short-term LIBOR rates as closely related to
changes in the Federal Reserve federal funds rate, although the two are not officially related.
|
•
| The Federal Reserve federal funds rate is the rate that the Federal Reserve Bank charges member banks for borrowing money.
|
The
interest rate on Prime Rate-based loans floats daily as the Prime Rate changes, while the interest rate on LIBOR based loans is
reset periodically, typically between 30 days and one year. Quarterly interest periods are most common for floating rate loans
in which the Underlying Fund invests. Certain floating or variable rate loans may permit the borrower to select an interest rate
reset period of up to one year (although interest periods longer than six months will often require lender consent). Investing
in loans with longer interest rate reset periods or fixed interest rates may increase fluctuations in the Underlying Fund’s
net asset value as a result of changes in market interest rates: falling short-term floating interest rates tend to decrease the
income payable to the Underlying Fund on its floating rate loan investments, and rising short-term floating interest rates tend
to increase that income. However, the Underlying Fund may attempt to hedge its fixed rate loans against interest rate fluctuations
by entering into interest rate swaps or total return swap transactions. The Underlying Fund also will attempt to maintain a dollar-weighted
average time period to the next interest rate adjustment of 90 days or less for its portfolio of floating rate loans. Nevertheless,
changes in interest rates can affect the value of the Underlying Fund’s floating rate loans, especially if rates change
sharply in a short period, because the resets of the interest rates on the underlying portfolio of floating rate loans occur periodically
and will not all happen simultaneously with changes in prevailing rates.
Floating
rate loans are generally structured so that borrowers pay higher margins when they elect LIBOR-based borrower options. This permits
lenders to obtain generally consistent yields on floating rate loans, regardless of whether borrowers select the LIBOR-based options
or the Prime-based option. In market conditions where the differential between the lower LIBOR base rates and the higher Prime
Rate base rates prevailing in the commercial bank markets has widened to the point that the higher margins paid by borrowers for
LIBOR based pricing options do not compensate for the differential between the Prime Rate and the LIBOR base rates, borrowers
may select the LIBOR-based pricing option, resulting in a yield on floating rate loans that is consistently lower than the yield
available from the Prime Rate-based pricing option. In sustained periods of such market conditions, this tendency will significantly
limit the ability of the Underlying Fund to achieve a net return to shareholders that consistently approximates the average published
Prime Rate of leading U.S. banks. The Sub-Adviser cannot predict the occurrence of these conditions nor their duration in the
event they do occur.
In addition, in market
conditions where short term interest rates are particularly low, certain floating rate loans may be issued with a feature that prevents the relevant benchmark rate from adjusting below a specified minimum level. This
is achieved by defining a “floor” to the benchmark rate, so that if downward market movements of the benchmark rate would, absent this feature, cause the benchmark rate to fall below the floor, with this
feature, the benchmark rates of these floating rate loans become fixed at the applicable minimum floor level until short term interest rates (and therefore the benchmark rate) rise above that level. Although this
feature is intended to result in these floating rate loans yielding more than they otherwise would when short term interest rates are low, the feature might also result in the secondary market prices of these floating
rate loans becoming more sensitive to changes in interest rates should short term interest rates rise.
The Fund may invest in loans
having a fixed rate of interest, however it is unlikely to do so given fixed rate loans are uncommon in the loan market generally.
Prepayment Risk and Loans. Loans typically have mandatory and optional prepayment provisions. Because of prepayments, the actual remaining maturity of a loan may be considerably less than its stated maturity. The
reinvestment by the Fund of the proceeds of prepaid loans could result in a reduction of income to the Fund in falling interest rate environments. Prepayment penalty fees that may be assessed in some cases may help
offset the loss of income to the Fund in those cases.
Subordination. Senior loans generally hold the most senior position in a borrower’s capital structure. Borrowers generally are required contractually to pay the holders of senior loans before they
pay the holders of corporate bonds or subordinated debt and preferred or common stockholders. Lenders obtain priority liens that typically provide the first right to cash flows or proceeds from the sale of a
borrower’s collateral, if any, if the borrower becomes insolvent. That right is subject to the limitations of bankruptcy law, which may provide higher priority to certain other claims such as, for example,
employee salaries, employee pensions and taxes. Senior loans are subject to the risk that a court could subordinate a senior loan to presently existing or future indebtedness or take other action detrimental to the
holders of senior loans.
Lien Position. Loans that are collateralized may have multiple lenders or other creditors that take different lien positions. This means that if the borrower defaults on its obligations under the loan
and the loan creditors enforce their security interest or if the borrower becomes bankrupt, the secured claims of the creditors in the first lien position will be satisfied prior to the secured claims of the creditors
in the second lien position. If the cash flow and assets of the borrower are
insufficient to satisfy both the first lien
loans and the second lien loans in full, the creditors in the second lien position may not be satisfied in full. Intercreditor arrangements that are often present where a loan has first and second lien positions
typically include ‘standstill’ provisions whereby the enforcement rights of second lien creditors are restricted in favor of the first lien creditors’ rights and give the first lien creditors the
right to accept or reject any restructuring plans in the event of the default or insolvency of the borrower. If a loan has first and second lien positions, typically the Fund will invest in the first lien position;
however, it may invest in the second lien position. Second lien positions generally pay a higher margin than first lien positions to compensate second lien creditors for the greater risk they assume.
Collateral. Loans, like other debt obligations, are subject to the risk of the borrower’s non-payment of scheduled interest and/or principal. While certain of the Fund’s investments in
loans may be secured by collateral that the investment adviser believes to be equal to or in excess of the principal amount of the loan at the time of investment, there can be no assurance that the liquidation of such
collateral, if any, would satisfy the borrower’s obligations in the event of non-payment of scheduled interest or principal payments, or that the collateral could be readily liquidated. In the event of a
borrower’s bankruptcy, the Fund could experience delays or limitations in its ability to realize the benefits of collateral securing a loan.
For the loans in which the Fund
invests that are secured by collateral, that collateral may include the borrower’s tangible assets, such as cash, accounts receivable, inventory, real estate, buildings and equipment, common and/or preferred
stock of subsidiaries, and intangible assets including trademarks, copyrights, patent rights and franchise value. The Fund may also receive guarantees or other credit support as a form security. A loan agreement may
or may not require the borrower to pledge additional collateral to secure a loan if the value of the initial collateral declines, or if additional assets are acquired by the borrower. Collateral may consist of assets
that may not be readily liquidated, and there is no assurance that the liquidation of those assets would satisfy in full a borrower’s obligations under a loan. If the collateral consists of stock of the borrower
or its subsidiaries or affiliates, the stock may lose all of its value in the event of a bankruptcy, which would leave the Fund exposed to greater potential loss.
Generally, the Agent for a
particular loan is responsible for monitoring collateral and for exercising remedies available to the Lenders such as foreclosure upon collateral in the event of the borrower’s default. However, the Agent will
usually only be liable for its gross negligence or willful misconduct, and not for ordinary negligence. In certain circumstances, the loan agreement may authorize the Agent to liquidate the collateral and to
distribute the liquidation proceeds pro rata among the lenders. The Fund may also invest in loans that are not secured by collateral. Unsecured loans involve additional risk because the lenders are general unsecured
creditors of the borrower and any secured creditors may have prior rights of recourse to the assets of the borrower, and the assets of the borrower may be insufficient to satisfy in full all obligations owed to its
creditors.
Highly Leveraged Transactions and
Insolvent Borrowers. The Fund can invest in loans made in connection with highly leveraged transactions. These transactions may include operating loans, leveraged buyout loans, leveraged capitalization loans
and other types of acquisition financing. Those loans are subject to greater credit risks than other loans. Highly leveraged loans and loans in default also may be less liquid than other loans. If the Fund voluntarily
or involuntarily sold those types of loans, it might not receive the full value it expected.
The Fund can also invest in
loans of borrowers that are experiencing, or are likely to experience, financial difficulty. In addition, the Fund can invest in loans of borrowers that have filed for bankruptcy protection or that have had
involuntary bankruptcy petitions filed against them by creditors. Various laws enacted for the protection of debtors may apply to loans. A bankruptcy proceeding against a borrower could delay or limit the ability of
the Fund to collect the principal and interest payments on that borrower’s loans. If a lawsuit is brought by creditors of a borrower under a loan, a court or a trustee in bankruptcy could take certain actions
that would be adverse to the Fund. For example:
•
| Other creditors might convince the court to set aside a loan or the collateralization of the loan as a “fraudulent conveyance” or “preferential transfer.” In that event, the court could
recover from the Fund the interest and principal payments that the borrower made before becoming insolvent. There can be no assurance that the Fund would be able to prevent that recapture.
|
•
| A bankruptcy court may restructure the payment obligations under the loan so as to reduce the amount to which the Fund would be entitled.
|
•
| The court might discharge the amount of the loan that exceeds the value of the collateral or assets to which the lenders have recourse.
|
•
| The court could subordinate the Fund’s rights to the rights of other creditors of the borrower under applicable law.
|
Borrower Covenants and Lender
Rights. Loan agreements generally have contractual terms designed to protect Lenders. Loan agreements often include restrictive covenants that limit the activities of the borrower. A restrictive
covenant is a promise by the borrower not to take certain actions that might impair the rights of Lenders. Those covenants typically require the scheduled payment of interest and principal and may include restrictions
on dividend payments and other distributions to the borrower’s shareholders, provisions requiring the borrower to maintain specific financial ratios or relationships and limits on the borrower’s total
debt. In addition, a covenant may require the borrower to prepay the loan or debt obligation with any excess cash flow, proceeds of asset sales or casualty insurance, or other available cash. Excess cash flow
generally includes net cash flow after scheduled debt service payments and permitted capital
expenditures, among other things, as well as
the proceeds from asset dispositions or sales of securities. A breach of a covenant (after the expiration of any cure period) in a loan agreement that is not waived by the Agent and the Lenders normally is an event of
default, permitting acceleration of the loan. This means that the Agent has the right to demand immediate repayment in full of the outstanding loan. If a loan is not paid when due, or if upon acceleration of a loan,
the borrower fails to repay principal and accrued (but unpaid) interest in full, this failure may result in a reduction in value of the loan (and possibly the Fund’s net asset value).
Lenders typically have certain
voting and consent rights under a loan agreement. Action subject to a Lender vote or consent generally requires the vote or consent of the holders of some specified percentage of the outstanding principal amount of a
loan. Certain decisions, such as reducing the amount or increasing the time for payment of interest on or repayment of principal of a loan, or releasing collateral for the loan, frequently requires the unanimous vote
or consent of all Lenders affected.
If the Fund is not a direct
lender under the loan because it has invested via a participation, derivative or other indirect means, the Fund may not be entitled to exercise some or all of the Lender rights described in this section.
Delayed Draw Loans. The Fund may have obligations under a loan agreement to make disbursements of loans after the initial disbursement in certain circumstances, for example if the loan was partially
“unfunded” at the time the Fund invested or if there otherwise is an ongoing commitment from the lenders to disburse further loans. The Fund intends to establish a reserve against such contingent
obligations by identifying on its books cash or other liquid assets. The Fund will not purchase a loan that would require the Fund to make additional loans if as a result of that purchase all of the Fund’s
additional loan commitments in the aggregate would cause the Fund to fail to meet any applicable asset segregation requirements.
Delayed Settlement. Compared to securities and to certain other types of financial assets, purchases and sales of loans, including via participation, take relatively longer to settle. This is partly due to
the nature of loans, which require a written assignment agreement and various ancillary documents for each transfer, and frequently require discretionary consents from both the borrower and the administrative agent.
In addition, dealers frequently insist on matching their purchases and sales, which can lead to delays in the Fund’s settlement of a purchase or sale in circumstances where the dealer’s corresponding
transaction with another party is delayed. Dealers will also sometimes sell loans short, and hold their trades open for an indefinite period while waiting for a price movement or looking for inventory to
purchase.
This extended settlement process
can (i) increase the counterparty credit risk borne by the Fund; (ii) leave the Fund unable to timely vote, or otherwise act with respect to, loans it has agreed to purchase; (iii) delay the Fund from realizing the
proceeds of a sale of a loan; (iv) inhibit the Fund’s ability to re-sell a loan that it has agreed to purchase if conditions change (leaving the Fund more exposed to price fluctuations); (v) prevent the Fund
from timely collecting principal and interest payments; and (vi) expose the Fund to adverse tax or regulatory consequences.
The Loan Syndications and
Trading Association (the “LSTA”) has promulgated a “delay compensation” provision in its standard loan documentation that mitigates the direct risk of permanently losing interest payments as a
result of delayed settlement by causing interest to begin to accrue for the buyer’s account after the seventh business day following the trade date (for distressed trades, the twentieth business day). However,
this does not mitigate the other risks of delayed settlement. In addition, the mechanism itself can result in opportunistic behavior: A seller, having locked in its trade, might delay closing for seven business days
in order to maximize its interest collections, even if it could have closed earlier, while a buyer may no longer feel any pressure to close at all, since interest is accruing for its benefit, and may choose to use its
cash elsewhere. The LSTA has further attempted to put an outer limit on long, unjustified settlement delays by promulgating “buy-in/sell-out” provisions that allow a party to enter into a
“cover” trade if the other party refuses to close. However, these provisions are complicated, time-consuming, and little-used, and are in any event not triggered until the fifteenth business day after the
trade date (for distressed trades, the fiftieth business day).
To the extent the extended loan
settlement process gives rise to short-term liquidity needs, such as the need to satisfy redemption requests, the Fund may hold cash, sell investments or temporarily borrow from banks or other lenders.
Short Sales. The Funds may make short sales of securities, either as a hedge against the potential decline in value of a security that a Fund owns or to realize appreciation when a security that a Fund
does not own declines in value. To effect a short sale, the Fund will borrow the security that it desires to short from a broker and then sell the security. While the Fund is borrowing the security, it will generally
pay a fee to the lending broker and reimburse the broker for any dividends or other income paid on the security. Additionally, regulations require that the a Fund provide collateral to the lending broker to secure its
obligation to return the borrowed security. Making short sales in securities that it does not own exposes a Fund to risks associated with those securities. If a Fund makes short sales in securities that increase in
value, it will likely underperform similar mutual funds that do not make short sales in securities they do not own. A Fund will incur a loss as a result of a short sale if the price of the security increases between
the date of the short sale and the date on which the Fund closes the short position. The Fund will realize a gain if the security declines in price between those dates and that decline is greater than the costs of
borrowing the security and transaction costs. There can be no assurance that a Fund will be able to close out a short position at any particular time or at an acceptable price. Although a Fund’s gain is limited
to the price at which it sold the security short, its potential loss is limited only by the maximum attainable price of the security, less the price at which the security was sold short and may, theoretically, be
unlimited. Additionally, a
lending broker may request, or market
conditions may dictate, that securities sold short be returned to the broker on short notice, which may result in a Fund having to buy the securities sold short at an unfavorable price. If this occurs, any anticipated
gain to a Fund may be reduced or eliminated or the short sale may result in a loss. A Fund’s short selling strategies may limit its ability to fully benefit from increases in the securities markets.
Each Fund will comply with
guidelines established by the Securities and Exchange Commission with respect to asset coverage of short sales. These guidelines may, in certain instances, require earmarking or segregation by a Fund of cash or liquid
securities with its custodian or a designated sub-custodian to the extent its obligations with respect to a short sale are not otherwise “covered” through ownership of the underlying security or by other
means consistent with applicable regulatory policies. Earmarking or otherwise segregating a large percentage of a Fund’s assets could impede the Manager’s ability to manage the Fund’s portfolio.
Global Multi-Alternatives Fund/VA
can also engage in the following techniques and strategies:
Pay-in-kind (PIK)
Securities. Pay-in-kind (“PIK”) securities are securities which pay interest through the issuance of additional debt or equity securities. Similar to zero coupon obligations, PIK
securities also carry additional risks as holders of these types of securities realize no cash until the cash payment date unless a portion of such securities is sold. The higher interest rates of pay-in-kind
securities reflect the payment deferral and increased credit risk associated with those securities and such investments generally represent a significantly higher credit risk than coupon loans. If the issuer defaults,
a Fund may obtain no return at all on its investment. Even if accounting conditions are met, the issuer of the securities could still default when the Fund’s actual collection is supposed to occur at the
maturity of the obligation. The market price of PIK securities is affected by interest rate changes to a greater extent, and therefore tends to be more volatile, than that of securities which pay interest in cash.
Pay-in-kind securities may have unreliable valuations because their continuing accruals require ongoing judgments about the collectability of the deferred payments and the value of any associated collateral.
Additionally, the deferral of payment-in-kind interest also reduces the loan-to-value ratio at a compounding rate. Additionally, a Fund may be required to accrue income on certain PIK securities for U.S. federal
income tax purposes even though the Fund receives no corresponding interest payment in cash on the investments. Pay-in-kind securities also create the risk that management fees may be paid to the Manager based on
non-cash accruals that ultimately may not be realized. In such instances, the Manager may not be obligated to reimburse the Fund for such fees.
Private Equity and Debt
Investments. Private equity investments, which include private investments in public equity (“PIPEs”), and private debt investments, involve an extraordinarily high degree of business and
financial risk and can result in substantial or complete losses. Some portfolio companies in which a Fund may invest may be operating at a loss or with substantial variations in operating results from period to period
and may need substantial additional capital to support expansion or to achieve or maintain competitive positions. Such companies may face intense competition, including competition from companies with much greater
financial resources, much more extensive development, production, marketing and service capabilities and a much larger number of qualified managerial and technical personnel. A Fund can offer no assurance that the
marketing efforts of any particular portfolio company will be successful or that its business will succeed. Additionally, privately held companies are not subject to Securities and Exchange Commission
(“SEC”) reporting requirements, are not required to maintain their accounting records in accordance with generally accepted accounting principles, and are not required to maintain effective internal
controls over financial reporting. As a result, the Manager may not have timely or accurate information about the business, financial conditions and results of operations of the privately held companies in which a
Fund invests.
Private Investments in Public
Equity (PIPEs). Shares in private investments in public equity (“PIPEs”) generally are not registered with the SEC until after a certain time period from the date the private sale is
completed. This restricted period can last many months. Until the public registration process is completed, PIPEs are restricted as to resale and the portfolios cannot freely trade the securities. Generally, such
restrictions cause the PIPEs to be illiquid during this time. PIPEs may contain provisions that the issuer will pay specified financial penalties to the holder if the issuer does not publicly register the restricted
equity securities within a specified period of time, but there is no assurance that the restricted equity securities will be publicly registered, or that the registration will remain in effect.
Total Return Swaps on Shares of
Affiliated Funds. A total return swap entered into between the Fund and certain counterparties for which shares of an affiliated Oppenheimer registered investment company managed by the
Manager or an affiliate of the Manager (a “referenced fund”) serve as the reference security would provide the Fund with synthetic long investment exposure, through a swap dealer counterparty, to the
performance of the referenced fund. Investment exposure to the referenced fund is obtained through payments made by the counterparty to the Fund under the swap that reflect the positive total return (inclusive of
dividends and distributions) on a specified number (and corresponding value) of shares of the referenced fund, in exchange for periodic payments by the Fund to the counterparty based on a fixed or variable interest
rate that accrues on that value, as well as payments reflecting any negative total return on those shares. The swap provides the Fund with the economic equivalent of ownership of those shares through an
entitlement to receive any gains realized, and dividends paid, on the shares, and an obligation to pay any losses realized on the shares. This investment technique provides the Fund effectively with a form of leverage
that is intended to achieve an economic effect similar to the Fund’s purchase of shares of the referenced fund with borrowed money. As such, this investment technique will subject the Fund to the risks of
leverage discussed in the Prospectus.
Performance of such a swap is subject to the
performance and risks of the referenced fund and its investment portfolio. If the performance of the shares of the referenced fund referenced in the swap is negative or is not sufficiently positive to offset the
periodic payment due to the counterparty based on the fixed or variable interest rate, then the performance of the fund will be negatively impacted. The counterparty’s payments to the Fund will be based upon the
change in the net asset value of the referenced fund’s shares referenced in the swap, which take into account the ratable share of the internal expenses of the referenced fund as reflected in its net asset value
(including management fee and administrative expenses of the referenced fund). Though not contractually required (or requested by the Manager) to do so, the counterparty would be expected to hedge its market risk
exposure under the swap by purchasing for its own account shares of the referenced fund so that any payments it owes to the Fund under the swap are offset by gains in (and receipt of dividends from) the
counterparty’s direct investment in the shares of the referenced fund. If the counterparty does hedge by purchasing shares of the referenced fund, the Manager or an affiliate of the Manager (as applicable), as
investment adviser to the referenced fund, will receive a management fee attributable to the counterparty’s direct investment in the referenced fund. There is no certainty that the Manager or an affiliate will
receive any fees indirectly through the use of this investment technique. Like other total return swaps, these swaps are subject to counterparty risk. If the counterparty fails to meet its obligations, the Fund may
lose money.
Because certain data inputs
necessary for the daily pricing of these swaps may not be available in a timely manner under standard valuation methodologies used by the Fund for over-the-counter derivatives, these swaps will be fair valued daily
pursuant to the Fund’s fair valuation procedures using a fair valuation methodology.
The Manager will apply certain
requirements of its policy governing affiliated fund-of-fund arrangements to these total return swaps, notwithstanding that the Fund never purchases or owns shares of the referenced fund that are referenced in such a
swap or is ever required to purchase shares to satisfy any future obligation to a counterparty. The application of this policy will require, among other things, that any referenced fund be an eligible acquired fund in
an affiliated fund of funds arrangement under the Investment Company Act.
Global Strategic Income Fund/VA
can also engage in the following techniques and strategies:
Risks of Investing in Regulation S
Securities. Regulation S securities of U.S. and non-U.S. issuers are offered through private offerings without registration with the SEC pursuant to Regulation S of the Securities Act of 1933.
Offerings of Regulation S securities may be conducted outside of the United States, and Regulation S securities may be relatively less liquid as a result of legal or contractual restrictions on resale. Although
Regulation S securities may be resold in privately negotiated transactions, the price realized from these sales could be less than that originally paid by the Fund. Further, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded. Accordingly, Regulation S securities may involve a high degree
of business and financial risk and may result in substantial losses.
Other Investments and Investment
Strategies
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.
Investing in Small, Unseasoned
Companies. These are companies that have typically been in operation for less than three years, including the operations of any predecessors. Because small, unseasoned companies may be less secure
financially, they may rely on borrowing to a greater extent. In that case, they may be more susceptible to adverse changes in interest rates than larger, more established companies. Small, unseasoned companies may
also offer fewer products and rely on fewer key personnel. Market or economic developments may have a significant impact on these companies and on the value of their securities. These companies may have a limited
trading market and the prices of their securities may be volatile, which could make them difficult to sell in a short period of time at a reasonable price. If other investors that own the security are trading it at
the same time, it may have a more significant effect on the security’s price than that trading activity would have on the security price of a larger company. Securities of smaller, newer companies are also
subject to greater risks of default than those of larger, more established issuers. These securities may be considered speculative and could increase overall portfolio risks.
Investing in Special
Situations. At times, investment benefit may be sought from what a portfolio manager considers to be “special situations,” such as mergers, reorganizations,
restructurings or other unusual events, that are expected to affect a particular issuer. There is a risk that the expected change or event might not occur, which could cause the price of the security to fall, perhaps
sharply. In that case, the investment might not produce the expected gains or might cause a loss. This is an aggressive investment technique that may be considered speculative.
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
Sub-Adviser 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 a Fund 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 Sub-Adviser 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 Sub-Adviser 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.
Zero-Coupon Securities. The Fixed Income Funds and Global Multi-Alternatives Fund/VA 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, Conservative Balanced Fund/VA and Global
Multi-Alternatives 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.
“Stripped”
Mortgage-Related Securities. The Fixed Income Funds, Conservative Balanced Fund/VA and Global Multi-Alternatives 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, a 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.
Municipal Securities. Municipal securities are issued to raise money for a variety of public or private purposes, including financing state or local governments in the United States, financing specific
projects or financing public facilities. These debt obligations are issued by the state governments, as well as their political subdivisions (such as cities, towns, and counties) and their agencies and authorities.
Municipal securities generally are classified as general or revenue obligations. General obligations are secured by the issuer’s pledge of its full faith, credit and taxing power for the payment of principal and
interest. Revenue obligations are bonds whose interest is payable only from the revenues derived from a particular facility or class of facilities, or a specific excise tax or other revenue source. Some revenue
obligations are private activity bonds that pay interest that may be a tax preference item for investors subject to the federal alternative minimum tax. The Fund can invest in municipal securities because the
portfolio managers believe they offer attractive yields relative to the yields and risks of other debt securities, rather than to seek tax-exempt interest income for distribution to shareholders.
Repurchase Agreements. The Funds may acquire securities subject to repurchase agreements. They may do so for liquidity purposes to meet anticipated redemptions of Funds shares, or pending the investment of the
proceeds from sales of Funds 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 institution 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 institutions 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 investment adviser 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 Government Money Fund/VA, 5% of its total assets) 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 institution 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 Sub-Adviser will monitor the institution’s creditworthiness to confirm that it 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 investment adviser or its affiliates, 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 Funds’ 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.
Reverse Repurchase
Agreements. A reverse repurchase agreement is the sale of a debt obligation to a party for a specified price, with the simultaneous agreement to repurchase it from that party on a future date at a
higher price. Similar to a borrowing, reverse repurchase agreements provide the Fund with cash for investment and operational purposes. Reverse repurchase agreements that the Fund may engage in also create leverage.
When the Fund engages in reverse repurchase agreements, changes in the value of the Fund’s investments will have a larger effect on its share price than if it did not engage in these transactions due to the
effect of leverage. Reverse repurchase agreements create fund expenses and require that the Fund have sufficient cash available to repurchase the debt obligation when required. Reverse repurchase agreements also
involve the risk that the market value of the debt obligation that is the subject of the reverse repurchase agreement could decline significantly below the price at which a Fund is required to repurchase the security.
A Fund will identify liquid assets on its books to cover its obligations under reverse repurchase agreements until payment is made to the other party.
Illiquid and Restricted
Securities. Generally, an illiquid asset is an asset that cannot be sold or disposed of in the ordinary course of business within seven days at approximately the price at which it has been valued.
Under the policies and procedures established by the Board, the investment adviser determines the liquidity of portfolio investments. The holdings of illiquid and restricted securities are monitored on an ongoing
basis to determine whether to sell any holdings to maintain adequate liquidity. Among the types of illiquid securities are repurchase agreements maturing in more than seven days. Liquidity may dissipate at any time
and there can be no assurance that the investment adviser’s liquidity determinations will be correct or that a reduction in liquidity will not occur between the time such determination is made and an event
prompting the Fund to sell a security.
Restricted securities acquired
through private placements have contractual restrictions on their public resale that might limit the ability to value or to dispose of the securities and might lower the price that could be realized on a sale. To sell
a restricted security that is not registered under applicable securities laws, the security might need to be registered. The expense of registering restricted securities may be negotiated with the issuer at the time
of purchase. If the securities must be registered in order to be sold, a significant period may elapse between the time the decision is made to sell the security and the time the security is registered. There is a
risk of downward price fluctuation during that period.
Limitations that apply to
purchases of restricted securities do not limit purchases of restricted securities that are eligible for sale to qualified institutional buyers under Rule 144A of the Securities Act of 1933, if those securities have
been determined to be liquid by the investment adviser under its policies and procedures. Those policies and procedures take
into account the trading activity for the
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, holdings of that security may be considered to be
illiquid.
Borrowing and Leverage. Each Fund, except Government Money Fund/VA, can borrow from banks, as permitted by the Investment Company Act. Each Fund also can borrow from banks and other lenders to meet redemption
obligations or for temporary and emergency purposes. When the Fund borrows money for investment in other assets, it is using a speculative investment technique known as “leverage,” and changes in the value
of the Fund’s investments will have a larger effect on its share price if the investments were acquired using leverage than if the Fund acquired assets without the use of leverage.
Under the Fund’s
investment policies, the Fund may not borrow money, except to the extent permitted under the Investment Company Act, the rules or regulations thereunder or any exemption from that Act that applies to the Fund.
Currently, under the Investment Company Act, a mutual fund may borrow only from banks (other than for emergency purposes) and the maximum amount it may borrow is up to one-third of its total assets (including the
amount borrowed), less all liabilities and indebtedness other than borrowings, meaning that the value of those assets must be at least equal to 300% of the amount borrowed. If the value of the Fund’s assets
fails to meet this 300% asset coverage requirement, the Fund will reduce the amount of its borrowings within three days to meet the requirement. To do so, the Fund might have to sell a portion of its investments at a
disadvantageous time and for a disadvantageous price.
The Fund may also borrow up to
5% of its total assets for temporary or emergency purposes from any lender, including a non-bank. Under the Investment Company Act, there is a rebuttable presumption that a loan is temporary if it is repaid within 60
days and not extended or renewed.
The Fund will pay interest and
may pay other fees in connection with loans. Interest expense and the amount of any other fees incurred by the Fund in connection with loans will raise the overall expenses of the Fund and may reduce its returns. If
the Fund does borrow, its expenses will usually be greater than comparable funds that do not borrow. Additionally, if the Fund does borrow the use of leverage will make the Fund’s share prices more sensitive to
changes in the value of its assets and thus might cause the Fund’s net asset value per share to fluctuate more than that of funds that do not borrow. Finally, on the maturity date for any loan, the Fund must
have sufficient cash available to pay back the lenders the amount borrowed.
Each Fund, except Government
Money Fund/VA, participates in a multi-borrower, unsecured, revolving line of credit along with certain other Oppenheimer funds (the “Line of Credit”) and with a syndicate of banks as lenders. The Line of
Credit permits combined borrowings by the Fund and these other Oppenheimer funds of up to a maximum aggregate amount, as negotiated from time to time. Borrowings by a Fund under the Line of Credit may only be used for
temporary or emergency purposes, including without limitation, funding of shareholder redemptions, and may not be used for leverage. The Fund’s Board has determined that the Fund’s participation in the
Line of Credit is consistent with the Fund’s investment objective and policies and is in the best interests of the Fund and its shareholders.
Under the Line of Credit,
interest is charged to the Fund, based on its borrowings, at a floating benchmark rate of interest plus a margin. Additionally, the Fund will pay quarterly its pro rata portion of a loan commitment fee for the Line of
Credit, and pays an additional fee at each renewal of the facility (which is expected to be annually) to the administrative agent for management and administration of the facility. The Fund can prepay loans and
terminate its participation in the Line of Credit at any time upon prior notice to the lenders, however each borrowing under the Line of Credit will have a scheduled maturity of 30 days. As a borrower under the Line
of Credit, the Fund has certain rights and remedies under state and federal law comparable to those it would have with respect to a loan from a bank.
Bank Obligations. The Funds can buy time deposits, certificates of deposit and bankers’ acceptances. They must be:
•
| 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
|
•
| obligations of a foreign bank with total assets of at least U.S. $1 billion
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“Banks” include
commercial banks, savings banks and savings and loan associations, which may or may not be members of the Federal Deposit Insurance Corporation.
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 Sub-Adviser 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.
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 Funds’ 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 Sub-Adviser 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 Funds in illiquid securities, described in the Prospectus. A description of the investment policies for Government Money Fund/VA is located below under the heading “Investment
Restrictions.”
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 a derivative
instrument is used at the wrong time or judges market conditions incorrectly, the use of derivatives may reduce a Fund’s return.
Although they are 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:
•
| sell futures contracts,
|
•
| buy puts on such futures or on securities, or
|
•
| write covered calls on securities or futures. Covered calls may also be used to increase a Fund’s income.
|
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 a Fund could:
•
| buy futures, or
|
•
| buy calls on such futures or on securities.
|
A Fund’s strategy of
hedging with futures and options on futures will be incidental to that 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 that Fund’s investment objectives and are permissible under applicable regulations governing that Fund.
“Structured”
Notes. “Structured” notes are specially-designed derivative debt instruments. The terms of the instrument may be “structured” by the purchaser and the issuer of the note.
Payments of principal or interest on these notes may be linked to the value of an index (such as a currency or securities index), one or more securities or a commodity or to the financial performance of one or more
obligors. The value of these notes will normally rise or fall in response to the changes in the performance of the underlying security, index, commodity or obligors.
Structured notes are subject to
interest rate risk and are also subject to credit risk with respect both to the issuer and, if applicable, to the underlying security or obligor. If the underlying investment or index does not perform as anticipated,
the Funds might receive less interest than the stated coupon payment or receive less principal upon maturity of the structured note. The price of structured notes may be very volatile and they may have a limited
trading market, making it difficult for the Funds to value them or sell them at an acceptable price. In some cases, the Funds may enter into agreements with an issuer of structured notes to purchase a minimum amount
of these notes over time.
Swaps. The Funds may enter into swap agreements, including interest rate, total return, credit default, volatility and currency 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 that 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 that Fund has not yet received. The Sub-Adviser will monitor the creditworthiness of counterparties to a Fund’s swap transactions on an ongoing basis. A Fund’s
successful use of swap agreements is dependent upon the Sub-Adviser’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 that Fund would be subject to investment exposure on the notional amount of the swap.
•
| Interest Rate Swaps. The Funds, especially Core Bond Fund/VA, Global Strategic Income Fund/VA, Conservative Balanced Fund/VA and Global Multi-Alternatives 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 or other reference rate. 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 a Fund under a swap agreement will be greater than the payments it receives.
|
•
| 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 Sub-Adviser.
|
•
| Credit Default Swaps. The Fixed Income Funds, Conservative Balanced Fund/VA and Global Multi-Alternatives 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 and indirectly in the form of a swap
embedded within a structured security. Credit default swaps may refer to a single security or on a basket of securities.
|
If a Fund buys credit protection
using a credit default swap and a credit event occurs, that Fund will deliver the defaulted bonds underlying the swap and the swap counterparty will pay the par amount of the bonds. Alternatively, the credit default
swap may be cash settled where the seller of protection will pay the buyer of protection the difference between the par value and the market value of the defaulted bonds. If a Fund sells credit protection using a
credit default swap and a credit event occurs, that 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.
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 a Fund is buying credit protection, there is a risk that no credit
event will occur and that 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 that Fund does not own the underlying
security, that Fund will have difficulty acquiring the bond on the open market and may receive adverse pricing.
•
| 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
Sub-Adviser is incorrect in forecasts of volatility of the underlying asset or reference.
|
•
| Currency Swaps. The Funds, especially Global Strategic Income Fund/VA, may enter into currency swaps. A currency swap is an agreement between counterparties to exchange different currencies at contract
inception that are equivalent to a notional value. The exchange at contract inception is made at the current spot rate. The contract also includes an agreement to reverse the exchange of the same notional values of
those currencies at contract termination. The re-exchange at contract termination may take place at the same exchange rate, a specified rate or the then current spot rate. Certain currency swap contracts may have
other features. Currency swaps entail both credit
|
| risk and liquidity risk. A loss may be sustained as a result of the insolvency or bankruptcy of the counterparty or the failure of the counterparty to make required payments or otherwise comply with the terms of the
agreement. It may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in losses to the Funds.
|
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 it has paid if that 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.
Risks of Swap Transactions. Swaps involve the risk that the value of the instrument will not perform as expected. Swaps also involve credit risk, which is the risk that the counterparty might
default. If the counterparty defaults, the purchaser might lose the amount of any contractual payments that it has not received. The Sub-Adviser will monitor the creditworthiness of counterparties to swap transactions
on an ongoing basis. A Fund’s successful use of swap agreements is dependent upon the Sub-Adviser’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 a Fund would be subject to investment exposure on the notional amount of the swap.
Under financial reform
legislation currently being implemented, certain types of swaps are (or soon will be) required to be executed on a regulated market and/or cleared through a clearinghouse, which may affect counterparty risk and other
risks faced by a Fund, and could result in increased margin requirements and costs for a Fund. Swap agreements are privately negotiated in the over-the-counter market and may be entered into as a bilateral contract or
may be centrally cleared. In a cleared swap, immediately following execution of the swap agreement, the swap agreement is submitted for clearing to a clearinghouse, and a Fund faces the clearinghouse by means of a
Fund account with a futures commission merchant that is a member of the clearinghouse. Because the regulations regarding cleared swaps have not yet been fully implemented, the scope of potential risks, including risks
relating to the use of clearinghouses and futures commission merchants, is unclear.
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 their 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.
Hedging. Although the Funds can use certain hedging instruments and techniques, they are not obligated to use them in seeking their objectives. 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 instruments each Fund can use are described below.
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.
Writing Call Options. The Funds may write (that is, sell) calls. If a Fund sells a call option, it must be covered. That means a Fund must own the security subject to the call while the call is outstanding, or
the call must be covered by segregating liquid assets to enable that Fund to satisfy its obligations if the call is exercised. There is no limit on the amount of a Fund’s total assets that may be subject to
covered calls that Fund writes.
When a Fund writes a call on a
security, it receives cash (a premium). That Fund agrees to sell the underlying security to a purchaser of a corresponding call on the same security during the call period at a fixed exercise price regardless of
market price changes during the call period. The call period is usually not more than nine months. The exercise price may differ from the market price of the underlying security. That Fund 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 that 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 that 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, that 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, that Fund would keep the cash premium.
A Fund’s custodian bank,
or a securities depository acting for the custodian, will act as that Fund’s escrow agent, through the facilities of the Options Clearing Corporation (“OCC”), as to the investments on which that 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 that 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 that 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, a Fund may purchase a corresponding call in a “closing purchase transaction.” That 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 that Fund wrote is more or less than the price of the call that Fund purchases to close out the transaction. That Fund may realize a profit if the call expires
unexercised, because that Fund will retain the underlying security and the premium it received when it wrote the call. If that Fund cannot effect a closing purchase transaction due to the lack of a market, it will
have to hold the callable securities until the call expires or is exercised.
A Fund may also write calls on a
futures contract without owning the futures contract or securities deliverable under the contract. To do so, at the time the call is written, that Fund must cover the call by segregating an equivalent dollar amount of
liquid assets as identified in that Fund’s books. That 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 that Fund’s receipt of an exercise notice as to that future require that Fund to deliver a futures contract. It would simply put that Fund in a short futures
position, which is permitted by that Fund’s hedging policies.
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.
If a Fund writes a put, the put
must be covered by liquid assets identified in that Fund’s books. The premium a 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, a Fund also
assumes the obligation during the option period to buy the underlying investment from the buyer of the put at the exercise price, even if the value of the investment falls below the exercise price.
If a put a Fund has written
expires unexercised, that Fund realizes a gain in the amount of the premium less the transaction costs incurred. If the put is exercised, that Fund must fulfill its obligation to purchase the underlying investment at
the exercise price. That price will usually exceed the market value of the investment at that time. In that case, that Fund may incur a loss if it sells the underlying investment. That loss will be equal to the sum of
the sale price of the underlying investment and the premium received minus the sum of the exercise price and any transaction costs that Fund incurred.
When writing a put option on a
security, to secure its obligation to pay for the underlying security a Fund will deposit in escrow liquid assets with a value equal to or greater than the exercise price of the underlying securities. That Fund
therefore forgoes the opportunity of investing the segregated assets or writing calls against those assets.
As long as a Fund’s
obligation as the put writer continues, it may be assigned an exercise notice by the broker-dealer through which the put was sold. That notice will require that Fund to take delivery of the underlying security and pay
the exercise price. That 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, that Fund effects a closing purchase transaction by purchasing a put of the
same series as it sold. Once that Fund has been assigned an exercise notice, it cannot effect a closing purchase transaction.
A Fund may decide to effect a
closing purchase transaction to realize a profit on an outstanding put option it has written or to prevent the underlying security from being put. Effecting a closing purchase transaction will also permit that Fund to
write another put option on the security, or to sell the security and use the proceeds from the sale for other investments. That 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.
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. That Fund then has the right to buy the underlying investment
from a seller of a corresponding call on the same investment during the call period at a fixed exercise price.
A Fund benefits only if it sells
the call at a profit or if, during the call period, the market price of the underlying investment is above the sum of the call price plus the transaction costs and the premium paid for the call and that Fund exercises
the call. If that 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 that 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 a Fund purchases a put, it pays a premium and, except as to puts on indices, has the right to sell the underlying investment to a seller of a put on a corresponding
investment during the put period at a fixed exercise price.
Buying a put on 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 a 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.
Buying and Selling Options on
Foreign Currencies. Put and call options on foreign currencies include puts and calls that trade on a securities or commodities exchange or in the over-the-counter markets or that are quoted
by major recognized dealers in such options. 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 investment adviser
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 investment adviser anticipates a decline in the dollar value of a foreign currency, the decline in the dollar value of portfolio securities denominated in that currency might be partially
offset by writing calls or purchasing
puts on that foreign currency. However, the
currency rates could fluctuate in a direction adverse to a Fund’s position. That Fund will then have incurred option premium payments and transaction costs without a corresponding benefit.
A call the Fund writes on a
foreign currency is “covered” if the Fund owns the underlying foreign currency covered by the call or has an absolute and immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a segregated account by its custodian bank) upon conversion or exchange of other foreign currency held in its portfolio.
A Fund could write a call on a
foreign currency to provide a hedge against a decline in the U.S. dollar value of a security which a 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, that 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 that Fund’s custodian bank.
Limitations on Options
Transactions Imposed by Options Exchanges. Options transactions 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 purchased, sold or held through one or more different exchanges or are held in one or more accounts or through one or
more brokers. Thus, the number of options that can be sold by an investment company advised by the same investment adviser may be affected by options written or held by other investment companies advised by the same
investment adviser or affiliated entities. The exchanges and CFTC 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.
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 investment adviser uses a hedging strategy at the wrong time or judges market conditions incorrectly, hedging strategies may reduce a Fund’s return. A Fund could also experience losses if the prices of its
futures and options positions were not correlated with its other investments. A Fund’s option activities may affect its costs.
A Fund’s option activities
could affect its portfolio turnover rate and brokerage commissions. The exercise of calls written by a Fund might cause that Fund to sell related portfolio securities, thus increasing its turnover rate. The exercise
by a Fund of puts on securities will cause the sale of underlying investments, increasing portfolio turnover. Although the decision whether to exercise a put it holds is within a Fund’s control, holding a put
might cause that Fund to sell the related investments for reasons that would not exist in the absence of the put.
A Fund could pay a brokerage
commission each time it buys 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 a Fund’s net asset value being more sensitive to changes in the value of the underlying investment.
If a covered call written by a
Fund is exercised on an investment that has increased in value, that Fund will be required to sell the investment at the call price. It will not be able to realize any profit if the investment has increased in value
above the call price.
An exchange traded 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 a Fund’s portfolio securities. The risk is that the prices of the futures
or the applicable index will correlate imperfectly with the behavior of the cash prices of a Fund’s securities. For example, it is possible that while a Fund has used derivative instruments in a short hedge, the
market may advance and the value of the securities held in that Fund’s portfolio might decline. If that occurred, that 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 a Fund’s portfolio diverges from the securities included in the applicable index. To compensate for the imperfect correlation of movements in the price of the
portfolio securities being hedged and movements in the price of the hedging instruments, that 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.
A 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 a Fund does so the market might decline. If a 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.
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 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 a 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.”
A Fund will cover its short
positions in these cases by identifying on its books assets having a value equal to the aggregate amount of that Fund’s commitment under forward contracts. A Fund will not enter into forward contracts or
maintain a net exposure to such contracts if the consummation of the contracts would obligate that Fund to deliver an amount of foreign currency in excess of the value of that Fund’s portfolio securities or
other assets denominated in that currency or another currency that is the subject of the hedge.
However, to avoid excess
transactions and transaction costs, a Fund may maintain a net exposure to forward contracts in excess of the value of that 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 a decision
might be made 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 a 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 a Fund to sell a currency, that Fund might sell a portfolio security and use the sale proceeds to make delivery of the currency. In the alternative a Fund might retain the security and
offset its contractual obligation to deliver the currency by purchasing a second contract. Under that contract the Fund will obtain, on the same maturity date, the same amount of the currency that it is obligated to
deliver. Similarly, a Fund might close out a forward contract requiring it to purchase a specified currency by entering into a second contract entitling it to sell the same amount of the same currency on the maturity
date of the first contract. The Fund would realize a gain or loss as a result of entering into such an offsetting forward contract under either circumstance. The gain or loss will depend on the extent to which the
exchange rate or rates between the currencies involved moved between the execution dates of the first contract and offsetting contract.
The costs to 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.
Asset
Coverage for Certain Investments and Trading Practices. A Fund will segregate with its custodian
or otherwise designate on its books and records liquid assets in an amount the Fund believes to be adequate to ensure that it
has sufficient liquid assets to meet its obligations under its derivatives contracts, or the Fund may enter into an offsetting
position to “cover” its obligations with respect to such transactions. Depending upon the contractual terms of the
derivatives instrument, the customary settlement practice associated with the derivative instrument and the instrument’s
liquidity, among other things, the amounts that are segregated or designated may be based on the notional (or contract) amount
of the derivative or on the daily mark-to-market obligation under the derivatives contract. These amounts may be reduced by amounts
on deposit with the applicable broker or counterparty to the derivatives transaction. With respect to less liquid derivative instruments
(or in other situations in which the Sub-Adviser believes it necessary), a Fund may segregate amounts in addition to the amounts
described above. By segregating or designating liquid assets equal to only the mark-to-market obligation under a derivatives contract,
a Fund will have the ability to utilize these instruments to a greater extent than if the Fund segregated or designated liquid
assets equal to the full market value of the underlying asset or the notional (or contract) amount of the instrument.
In certain circumstances, a Fund
may enter into an offsetting position rather than segregating or designating liquid assets (e.g., the Fund may “cover” a written put option with a purchased put option with the same or higher exercise
price). Although the Sub-Adviser will attempt to ensure that a Fund has sufficient liquid assets to meet its obligations under its derivative contracts, it is possible that the Fund’s liquid assets may be
insufficient to support such obligations under its derivatives positions.
Segregating or designating a
large percentage of the Fund’s liquid assets could impede the Sub-Adviser’s ability to manage the Fund’s portfolio. A Fund may modify its asset segregation policies from time to time.
Regulatory Aspects of Derivatives
and Hedging Instruments. As a result of recent amendments to rules under the Commodity Exchange Act (“CEA”) by the Commodity Futures Trading Commission (“CFTC”), the Manager must either
operate within certain guidelines and restrictions with respect to a Fund’s use of futures, options on such futures, commodity options and certain swaps, or be subject to registration with the CFTC as a
“commodity pool operator” (“CPO”) with respect to a Fund, and, upon the finalization of additional CFTC rules, be required to operate a Fund in compliance with certain disclosure, reporting,
and recordkeeping requirements.
Previously, the CFTC permitted
unlimited futures transactions and options thereon, so long as a fund had claimed an exclusion from registration as a CPO, and swap contracts were not formerly regulated by the CFTC. Under the amended
rules, the investment adviser of a registered
investment company may claim an exemption from registration as a CPO only if the registered investment company that it advises uses futures contracts, options on such futures, commodity options and certain swaps
solely for “bona fide hedging purposes,” or limits its use of such instruments for non-bona fide hedging purposes to certain de minimis amounts.
While the Manager will be
registered as a CPO under the CEA, the Manager currently intends, except with respect to Global Multi-Alternatives Fund/VA (discussed below), to limit and monitor, consistent with internal compliance procedures, each
Fund’s use of futures, options on such futures, commodity options and certain swaps in order to permit such Fund to continue to claim an exemption under the CFTC rules. As such, with respect to the management of
each Fund except Global Multi-Alternatives Fund/VA, the Manager will not be subject to the disclosure, reporting and recordkeeping requirements under the CFTC rules.
With respect to Global
Multi-Alternatives Fund/VA, consistent with that Fund’s principal investment strategy, the Manager intends to maintain the flexibility to utilize futures contracts, options on such futures, commodity options and
certain swaps for non-bona fide hedging purposes beyond the de minimis amounts provided under the CFTC rules. As such, Global Multi-Alternatives Fund/VA does not qualify for the Rule 4.5 exemption under CFTC rules.
Therefore, the Manager (as a registered CPO), will be required to comply with the CFTC disclosure, reporting and recordkeeping requirements with respect to its management of Global Multi-Alternatives Fund/VA upon the
effectiveness of additional CFTC rules.
Financial reform legislation is
currently being implemented imposes execution and clearing requirements on certain types of over-the-counter derivatives, among other things. In a cleared derivatives transaction, a Fund’s ultimate counterparty
is a clearing organization, or clearinghouse, rather than a bank or broker. A Fund will enter into cleared derivatives transactions with an executing broker. Such transactions then will be submitted for clearing and,
if cleared, will be held in accounts at regulated futures commission merchants that are members of clearinghouses. In contrast to bilateral derivatives transactions, cleared derivatives transactions are submitted for
clearing to clearinghouses immediately following execution of the agreement. Clearinghouses and the members of such clearinghouses generally can require termination of existing cleared derivatives transactions at any
time, and can also require increases in margin above the margin that was required at the beginning of a transaction.
A Fund is also subject to the
risk that, after entering into a cleared derivatives transaction, no futures commission merchant or clearinghouse is willing or able to clear the transaction on a Fund’s behalf. In such an event, a Fund might
have to pay a termination amount to the executing broker. Further, the assets of a Fund might not be fully protected in the event of the bankruptcy of a Fund’s futures commission merchant or the clearinghouse,
because a Fund might be limited to recovering only a pro rata share of all available funds and margin segregated on behalf of the futures commission merchant’s customers. Also, a Fund is subject to the risk that
the futures commission merchant will use a Fund’s assets, which are held in an omnibus account with assets belonging to the futures commission merchant’s other customers, to satisfy payment obligations of
a defaulting customer of the futures commission merchant to the clearinghouse. In addition, futures commission merchants generally provide to the clearinghouse the net amount of variation margin required for cleared
derivatives for all customers in the aggregate, rather than the gross amount for each customer. A Fund is therefore subject to the risk that a clearinghouse will not make variation margin payments owed to a Fund if
another customer of the futures commission merchant has suffered a loss and is in default. In cleared derivatives transactions, a Fund is also required to post initial as well as variation margin, thus increasing the
cost of transacting in this type of instrument.
The ultimate impact of the
financial reform legislation and related regulations remains unclear. New regulations could, among other things, restrict a Fund’s ability to engage in, or increase the cost to a Fund of, derivatives
transactions.
Tax Aspects of Certain Hedging
Instruments. Futures contracts, non-equity options and certain foreign currency exchange contracts are treated as “Section 1256 contracts” under the Internal Revenue Code. In general, gains
or losses relating to Section 1256 contracts are characterized as 60% long-term and 40% short-term capital gains or losses under the Internal Revenue Code. However, foreign currency gains or losses arising from
Section 1256 contracts that are forward contracts generally are treated as ordinary income or loss. In addition, Section 1256 contracts held by a Fund at the end of each taxable year are
“marked-to-market,” and unrealized gains or losses are treated as though they were realized. These contracts also may be marked-to-market for purposes of determining the excise tax potentially applicable
to a Fund and for other purposes under rules prescribed pursuant to the Internal Revenue Code. An election can be made by a Fund to exempt those transactions from this marked-to-market treatment
Certain forward contracts may
result in “straddles” for federal income tax purposes. The straddle rules may affect the character and timing of gains (or losses) recognized on those straddle positions. Generally, a loss sustained on the
disposition of a position making up a straddle is allowed only to the extent that the loss exceeds any unrecognized gain in the offsetting positions. Disallowed loss is generally allowed at the point where there is no
unrecognized gain in the offsetting positions making up the straddle, or the offsetting position is disposed of.
Under the Internal Revenue Code,
the following gains or losses are treated as ordinary income or loss:
1.
| gains or losses attributable to fluctuations in exchange rates that occur between the time interest or other receivables
|
| are accrued or expenses or other liabilities denominated in a foreign currency are accured and the time a Fund actually collects such receivables or pays such liabilities, and
|
2.
| gains or losses attributable to fluctuations in the value of a foreign currency between the date of acquisition of a debt security denominated in a foreign currency or foreign
currency forward contracts and the date of disposition.
|
Currency gains and losses are
offset against market gains and losses on each trade before determining a net “Section 988” gain or loss under the Internal Revenue Code for that trade, which may increase or decrease the amount of
investment income available for distribution to its shareholders.
Investments in Other Investment
Companies. The Funds 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 of 1940 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 of 1940. The Funds do not
intend to invest in other investment companies unless the Sub-Adviser 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
their net assets in shares of other investment companies.
Passive Foreign Investment
Companies. Under U.S. tax laws, passive foreign investment companies (“PFICs”) are those foreign corporations which generate primarily “passive” income. Passive income is
defined as any income that is considered foreign personal holding company income under the Internal Revenue Code. For federal tax purposes, a foreign corporation is deemed to be a PFIC if 75% or more of its gross
income during a taxable year is passive income or if 50% or more of its assets during a taxable year are assets that produce, or are held to produce, passive income.
Foreign mutual funds are
generally deemed to be PFICs, since nearly all of the income of a mutual fund is passive income. Foreign mutual funds investments may be used to gain exposure to the securities of companies in countries that limit or
prohibit direct foreign investment; however investments in foreign mutual funds by the Fund are subject to limits under the Investment Company Act.
Other types of foreign
corporations may also be considered PFICs if their percentage of passive income or passive assets exceeds the limits described above. Unless the Fund makes an election with respect to its investment in a PFIC, which
election may not always be possible, income from the disposition of a PFIC investment and from certain PFIC distributions may be subject to adverse tax treatment. The application of the PFIC rules may affect, among
other things, the character of gains, the amount of gain or loss and the timing of the recognition of income with respect to PFIC shares, and may subject the Fund itself to tax on certain income from PFIC shares.
Federal tax laws impose severe tax penalties for failure to properly report investment income from PFICs. Although every effort is made to ensure compliance with federal tax reporting requirements for these
investments, foreign corporations that are PFICs for federal tax purposes may not always be recognized as such or may not provide the Fund with all information required to report, or make an election with respect to,
such investment.
Additional risks of investing in
other investment companies are described under “Investments in Other Investment Companies.”
Temporary Defensive and Interim
Investments. When market conditions are unstable, or the investment adviser 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:
•
| obligations issued or guaranteed by the U.S. government or its instrumentalities or agencies,
|
•
| 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,
|
•
| short-term debt obligations of corporate issuers, rated investment grade (rated at least Baa by Moody’s or at least BBB by S&P or a comparable rating by another rating organization), or unrated securities
judged by the investment adviser to have a comparable quality to rated securities in those categories,
|
•
| certificates of deposit and bankers’ acceptances of domestic and foreign banks having total assets in excess of $1 billion, and
|
•
| 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.
Loans of Portfolio Securities.
Global Fund/VA and International Growth Fund/VA may lend securities to broker-dealers and other parties to earn income or for other purposes. There are certain risks in connection with
securities lending, including possible delays in receiving additional collateral to secure a loan, or a delay or expenses in recovery of the loaned securities. Global Fund/VA and International Growth Fund/VA receive
collateral from the borrowers consisting of cash or securities of the U.S. government (or its agencies or instrumentalities). On each business day, the amount of collateral that Global Fund/VA and International Growth
Fund/VA have received must at least equal the value of the loaned securities or Global Fund/VA and International Growth Fund/VA will take steps to terminate the loan. If Global Fund/VA or International Growth Fund/VA
receives cash collateral from the borrower, the Sub-Adviser, may cause that cash to be invested in certain high quality, short-term investments, including in money market funds. Each of Global Fund/VA and
International Growth Fund/VA will be subject to its proportional share of the expenses of such money market funds, including management fees. A collateral administration fee will also be charged on the value of cash
collateral invested. Global Fund/VA and International Growth Fund/VA will be responsible for the risks associated with the investment of cash collateral, including the risk that Global Fund/VA and International Growth
Fund/VA may lose money on the investment or may fail to earn sufficient income to meet its obligations to the borrower. If a borrower defaults on its obligation to return the securities loaned, Global Fund/VA or
International Growth Fund/VA could experience delays and costs in recovering the securities or in gaining access to the collateral. The Fund’s participation in loans of securities also may affect the amount,
timing and character of distributions to shareholders. With respect to any security subject to a securities loan, any (i) amounts received by Global Fund/VA or International Growth Fund/VA in place of dividends earned
on the security during the period that such security was not directly held by the Fund may not give rise to qualified dividend income and (ii) withholding taxes accrued on dividends during the period that such
security was not directly held by the Fund will not qualify as a foreign tax paid by the Fund, and therefore cannot be passed through to shareholders even if the Fund meets the requirements described in
“Distributions and Taxes,” below. In addition, although voting rights pass with the securities loaned, if the Fund has knowledge that a material event will occur affecting securities on loan, and in
respect to which the holder of the securities will be entitled to vote or consent, the lender must be entitled to call the loaned securities in time to vote or consent.
Cyber Security Risk. With the increased use of technologies such as the Internet and the dependence on computer systems to perform necessary business functions, the Fund may be prone to operational and
informational security risks resulting from breaches in cyber security (“cyber-attacks”). A cyber-attack refers to both intentional and unintentional events that may cause a Fund to lose proprietary
information, suffer data corruption, or lose operational capacity. Cyber-attacks include, but are not limited to, infection by computer viruses or other malicious software code, gaining unauthorized access to systems,
networks, or devices that are used to service the Fund’s operations through “hacking” or other means for the purpose of misappropriating assets or sensitive information, corrupting data, or causing
operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks on the Fund’s websites (i.e., efforts to
make network services unavailable to intended users). In addition, authorized persons could inadvertently or intentionally release confidential or proprietary information stored on the Fund’s systems.
Cyber
security failures or breaches by the Fund’s affiliates or service providers, may cause disruptions and impact the business
operations, potentially resulting in financial losses to both the Fund and shareholder, the inability of fund shareholders to
transact business and the mutual funds to process transactions, inability to calculate the Fund’s net asset value, impediments
to trading, violations of applicable privacy and other laws (including the release of private shareholder information), regulatory
fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. In addition,
substantial costs may be incurred in attempting to prevent any cyber incidents in the future. While the investment adviser has
policies and procedures (and risk management systems) designed to prevent or reduce the impact of such cyber-attacks, there are
inherent limitations in such controls, systems and protocols, including the possibility that certain risks have not been identified,
as well as the rapid development of new threats. These cyber security risks are also present for issuers of securities in which
the Fund invests, which could result in material adverse consequences for such issuers, and may cause the Fund’s investment
in such securities to lose value and may result in financial loss for Fund shareholders.
Investment Restrictions
Diversification. The Funds are classified as “diversified” under the Investment Company Act. Currently, under the Investment Company Act a “diversified” fund is one with at least
75% of the value of its total assets represented by: (i) cash and cash items (including receivables), (ii) securities issued by the U.S. government or any of its agencies or instrumentalities, (iii) securities of
other investment companies, and (iv) other securities that, for any one issuer, are limited in respect to an amount not greater than 5% of the value of the fund’s total assets and not more than 10% of the
outstanding voting securities of such issuer. A change to a non-diversified status would require shareholder approval.
Fundamental Policies. The Funds have adopted policies and restrictions to govern their investments. Under the Investment Company Act, fundamental policies are those policies that can be changed only by the vote
of a “majority” of each Fund’s outstanding voting securities which is defined as the vote of the holders of the lesser of:
•
| 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
|
•
| More than 50% of the outstanding shares.
|
Each Fund’s investment
objective is a non-fundamental policy. Other policies and restrictions described in the Funds’ Prospectuses or this SAI are “fundamental” only if they are identified as such. The Funds’ Board
of Trustees can change non-fundamental policies and restrictions without shareholder approval. However, significant changes to investment policies and restrictions will be described in supplements or updates to a
Fund’s Prospectus or this SAI, as appropriate. The Funds’ most significant investment policies are described in the Prospectus.
Other Fundamental Investment
Restrictions. The following investment restrictions are fundamental policies of each Fund, except Government Money Fund/VA.
•
| The Fund 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,
regulations or exemptions may be amended or interpreted from time to time by the Securities and Exchange Commission, its staff, or other authority with appropriate jurisdiction.
|
•
| The Fund may not make any investment if, as a result, the Fund’s investments will be concentrated in any one industry, 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, regulations or exemption may be amended or interpreted from time to time by the Securities and Exchange Commission, its
staff, or other authority with appropriate jurisdiction. For purposes of this concentration limitation, the Fund’s investment adviser may analyze the characteristics of a particular issuer and instrument and may
assign an industry or sector classification consistent with those characteristics in the event that any third party classification provider that may be used by the investment adviser does not assign a classification.
|
•
| The Fund 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,
regulations or exemption may be amended or interpreted from time to time by the Securities and Exchange Commission, its staff, or other authority with appropriate jurisdiction.
|
•
| The Fund cannot invest in real estate or commodities, 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, regulations or exemption may be amended or interpreted from time to time by the Securities and Exchange Commission, its staff, or other authority with appropriate jurisdiction.
|
•
| The Fund cannot issue “senior securities,” 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, regulations or exemption may be amended or interpreted from time to time by the Securities and Exchange Commission, its staff, or other authority with appropriate jurisdiction.
|
•
| The Fund cannot underwrite securities of other issuers, except to the extent permitted under the Investment Company Act or the Securities Act of 1933, the rules or regulations
thereunder or any exemption therefrom that is applicable to the Fund, as such statutes, rules, regulations or exemption may be amended or interpreted from time to time by the Securities and Exchange Commission, its
staff, or other authority with appropriate jurisdiction.
|
The following investment
restrictions are fundamental policies of Government Money Fund/VA.
•
| The Fund 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,
regulations or exemptions may be amended or interpreted from time to time by the Securities and Exchange Commission, its staff, or other authority with appropriate jurisdiction.
|
•
| The Fund may not make any investment if, as a result, the Fund’s investments will be concentrated in any one industry, except that the Fund may invest without limit in obligations issued by banks, and 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, regulations or exemption may be amended
or interpreted from time to time by the Securities and Exchange Commission, its staff, or other authority with appropriate jurisdiction. For purposes of this concentration limitation, the Fund’s investment
adviser may analyze the characteristics of a particular issuer and instrument and may assign an industry or sector classification consistent with those characteristics in the event that any third party classification
provider that may be used by the investment adviser does not assign a classification.
|
•
| The Fund 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, regulations or exemption may be amended or interpreted from time to time by the Securities and Exchange Commission, its staff, or other authority with appropriate jurisdiction.
|
•
| The Fund cannot invest in real estate or commodities, 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, regulations or exemption may be amended or interpreted from time to time by the Securities and Exchange Commission, its staff, or other authority with appropriate jurisdiction.
|
•
| The Fund cannot issue “senior securities,” 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, regulations or exemption may be amended or interpreted from time to time by the Securities and Exchange Commission, its staff, or other authority with appropriate jurisdiction.
|
•
| The Fund cannot underwrite securities of other issuers, except to the extent permitted under the Investment Company Act or the Securities Act of 1933, the rules or regulations
thereunder or any exemption therefrom that is applicable to the Fund, as such statutes, rules, regulations or exemption may be amended or interpreted from time to time by the Securities and Exchange Commission, its
staff, or other authority with appropriate jurisdiction.
|
Non-Fundamental
Restrictions. Main Street Small Cap Fund/VA has the following additional operating policy that is not “fundamental” and can be changed by the Board without shareholder approval.
•
| The Fund cannot invest in the securities of other registered investment companies or registered unit investment trusts in reliance on sub-paragraph (F) or (G) of Section 12(d)(1) of the Investment Company Act.
|
The following is only a brief
summary of certain current limitations imposed on investment companies by the Investment Company Act and certain rules and interpretations thereunder, and is not a complete description of such limits. The discussion
below is based on current law, regulations and administrative interpretations. Those laws, regulations and administrative interpretations may be changed by legislative, judicial, or administrative action, sometimes
with retroactive effect.
The Investment Company Act
prohibits a fund from issuing “senior securities,” which are generally defined as fund obligations that have a priority over the fund’s shares with respect to the payment of dividends or the
distribution of fund assets, except that the fund may borrow money as described above.
Currently, under the Investment
Company Act, and an OppenheimerFunds exemptive order, a fund may borrow only from banks and/or affiliated investment companies in an amount up to one-third of its total assets (including the amount borrowed less all
liabilities and indebtedness other than borrowing), except that a fund may borrow up to 5% of its total assets from any person for temporary purposes. Under the Investment Company Act, there is a rebuttable
presumption that a loan is temporary if it is repaid within 60 days and not extended or renewed.
Under the Investment Company
Act, a fund currently cannot make any commitment as an underwriter, if immediately thereafter the amount of its outstanding underwriting commitments, plus the value of its investments in securities of issuers (other
than investment companies) of which it owns more than ten percent of the outstanding voting securities, exceeds twenty-five percent of the value of the fund’s total assets, except to the extent that a fund may
be considered an underwriter within the meaning of the Securities Act when reselling securities held in its own portfolio.
The Investment Company Act does
not prohibit a fund from owning real estate, commodities or contracts related to commodities. The extent to which the Fund can invest in real estate and/or commodities or contracts related to commodities is set out in
the investment strategies described in the Prospectus and this SAI.
Current SEC staff
interpretations under the Investment Company Act prohibit a fund from lending more than one-third of its total assets, except through the purchase of debt obligations or the use of repurchase agreements.
The Investment Company Act does
not define what constitutes “concentration” in an industry. However, the SEC has taken the position that investment of more than 25% of a fund’s total assets in issuers in the same industry
constitutes concentration in that industry. That limit does not apply to securities issued or guaranteed by the U.S. government or its agencies and instrumentalities; however, securities issued by any one foreign
government are considered to be part of a single “industry.” The Fund will consider, to the extent practicable, the concentration of the portfolio securities of any underlying investment companies in which
it may invest when determining compliance with its concentration policy.
Government Money Fund/VA has a
fundamental concentration policy that permits it to invest without limit in the obligations of banks. Government Money Fund/VA will retain this fundamental policy as is since the SEC has long taken the position that
money market funds may reserve the right to invest without limit in obligations of banks without being deemed to concentrate its investments. As a government money market fund, Government Money Fund/VA will not rely
on the policy to invest without limit in obligations issued by banks, and it will retain this policy solely to avoid the expense of an unnecessary shareholder vote, which would be required to remove this fundamental
policy.
Unless a Fund’s Prospectus
or this SAI states that a percentage restriction applies on an ongoing basis, it applies only at the time that a Fund makes an investment (except in the case of borrowing and investments in illiquid securities). A
Fund 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, the Funds have adopted classifications of industries and group of related industries. These classifications are not fundamental policies.
Each of Global Strategic Income
Fund/VA’s and Global Multi-Alternatives Fund/VA’s Subsidiaries will also follow those Funds’ fundamental and non-fundamental investment restrictions, described above, with respect to its
investments.
Disclosure of Portfolio Holdings
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
processes, 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 a Fund, which could negatively affect the prices a Fund is able to obtain in portfolio transactions or the availability of the securities that a portfolio manager is trading on a Fund’s behalf.
The
Funds, the Manager/Sub-Adviser, the Distributor and the Transfer Agent have therefore adopted policies and procedures regarding
the dissemination of information about the Funds’ portfolio holdings by employees, officers and directors or trustees of
the Funds, the Manager, the Distributor and the Transfer Agent. These policies are designed to assure that non-public information
about the Funds’ portfolio securities holdings 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 Funds. It is a violation of the Code of Ethics for any covered person to release holdings in contravention of
the portfolio holdings disclosure policies and procedures adopted by the Funds.
Portfolio
Holdings Disclosure Policies. The Funds, the Manager/Sub-Adviser, the Distributor and the Transfer
Agent and their affiliates and subsidiaries, employees, officers, and directors or trustees, 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 Funds’
non-public portfolio holdings. The receipt of investment advisory fees or other fees and compensation paid to the Manager/Sub-Adviser
and its subsidiaries pursuant to agreements approved by the Funds’ Board shall not be deemed to be “compensation”
or “consideration” for these purposes. Until publicly disclosed, the Funds’ portfolio holdings are proprietary,
confidential business information. After they are publicly disclosed, the Funds’ portfolio holdings may be released in accordance
with the Funds', the Manager’s/Sub-Adviser’s, the Distributor’s and the Transfer Agent’s policies and
procedures regarding dissemination of information about the Funds’ portfolio holdings.
• | Public Disclosure. Each Fund’s portfolio holdings, other than Government Money Fund/VA,
are made publicly available no later than 60 days after the close of each of the Fund’s fiscal quarters in its annual
and semi-annual reports to shareholders and in its Schedule of Investments on Form N-Q. Those documents are publicly available
at the SEC. In addition, the Fund’s portfolio holdings information, as of the end of each calendar month, may be posted
and available on the Fund’s website (at www.oppenheimerfunds.com) no sooner than 30 calendar days after the end of
the calendar month to which the information relates. Partial holdings, listed by security or by issuer, may be posted on
the Fund’s website no sooner than 5 business days following the month to which the information relates. The Fund may
delay posting its holdings or may not post any holdings, if the Manager/Sub-Adviser believes that would be 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 publicly disclosed 5 business
days after the end of the calendar month to which the information relates. |
• | Government Money Fund/VA’s portfolio holdings, as of the most recent prior close of
the New York Stock Exchange (the “NYSE”), are posted on the Government Money Fund/VA’s website at www.oppenheimerfunds.com
on the last regular business day of the week. Government Money Fund/VA’s portfolio holdings are also 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
report to shareholders, or in its Schedule of Investment on Form N-Q. Those documents are publicly available at the SEC.
Additionally, the Fund posts its portfolio holdings with additional detail on a monthly basis, within 5 business days of
the end of the month, on the Fund’s website and files information on its holdings monthly with the SEC on Form N-MFP,
which is available on both the Fund’s website and the SEC’s website. |
The Fund’s portfolio
holdings (which may include the Fund’s entire portfolio or individual securities therein) may be released to the following categories of individuals or entities pursuant to ongoing arrangements, provided that
such individual or entity either (1) has signed an agreement to keep such information confidential and will not use such information in any way that is detrimental to the Fund or (2) as a member of any service
provider to the Fund or of the Fund’s legal counsel, is subject to fiduciary obligations (a) not to disclose such information except in compliance with the Fund’s policies and procedures and (b) not to
trade for his or her personal account on the basis of such information. For the categories of individuals and entities described below that have ongoing arrangements to receive portfolio holdings
information, such information may be furnished
as often as appropriate for the purpose for which it is being provided, which may be as frequently as daily and often with no time lag between the date of the information and the date it is furnished.
•
| Employees of the Fund’s service providers who need to have access to such information;
|
•
| The Fund’s independent registered public accounting firm;
|
•
| Members of the Fund’s Board and the Board’s legal counsel;
|
•
| The Fund’s custodian bank;
|
•
| The Fund’s financial printers;
|
•
| A proxy voting service designated by the Fund and its Board;
|
•
| Rating/ranking organizations (such as Lipper and Morningstar);
|
•
| Portfolio pricing services retained by the Manager/Sub-Adviser to provide portfolio security prices;
|
•
| Brokers and dealers for purposes of providing portfolio analytic services, in connection with portfolio transactions (purchases and sales), and to obtain bids or bid and asked prices (if securities
held by the Fund are not priced by the Fund’s regular pricing services, or to obtain prices for inter-fund trades or similar transactions); and
|
•
| Other service providers to the Fund, the Manager, the Sub-Adviser, the Distributor, and the Transfer Agent, including providers of index services and personal trading compliance
services.
|
Month-end lists of the
Fund’s complete portfolio holdings may be disclosed for legitimate business reasons, no sooner than 5 business days after the relevant month end, pursuant to special requests and under limited circumstances
discussed below, provided that:
•
| The third-party recipient must first submit a request for release of Fund portfolio holdings, explaining the business reason for the request;
|
•
| Senior officers in the Manager’s/Sub-Adviser’s Investment Operations and Legal departments must approve the completed request for release of Fund portfolio holdings; and
|
•
| Before receiving the data, the third-party recipient must sign a portfolio holdings non-disclosure agreement, agreeing to keep confidential the information that is not publicly
available regarding the Fund’s holdings and agreeing not to use such information in any way that is detrimental to the Fund.
|
Other
than for Government Money Fund/VA, portfolio holdings may be disclosed for legitimate business purposes to brokers and dealers
for purposes of providing portfolio analytic services, in connection with portfolio transactions (purchases and sales), and to
obtain bids or bid and asked prices (if securities held by the Fund are not priced by the Fund’s regular pricing services).
Portfolio holdings also may be disclosed for legitimate business purposes to consultants for pension plans that invest in Oppenheimer
funds and sponsors of 401(k) plans that include Oppenheimer funds.
Portfolio
holdings information (which may include information on the Fund’s entire portfolio or individual securities therein) may
be provided by senior officers of the Manager/Sub-Adviser or attorneys on the legal staff of the Manager, Distributor, or Transfer
Agent, in the following circumstances:
•
| Response to legal process in litigation matters, such as responses to subpoenas or in class action matters where the Fund may be part of the plaintiff class (and seeks recovery for losses on a security) or a
defendant;
|
•
| Response to regulatory requests for information (from the SEC, the Financial Industry Regulatory Authority (“FINRA”), state securities regulators, and/or foreign securities authorities, including without
limitation requests for information in inspections or for position reporting purposes);
|
•
| To potential sub-advisers of portfolios (pursuant to confidentiality agreements);
|
•
| To consultants for retirement plans for plan sponsors/discussions at due diligence meetings (pursuant to confidentiality agreements); and
|
•
| Investment bankers in connection with merger discussions (pursuant to confidentiality agreements).
|
Portfolio managers and analysts
may, subject to the Manager’s/Sub-Adviser’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 representatives.
The Fund’s shareholders
may, under unusual circumstances (such as a lack of liquidity in the Fund’s portfolio to meet redemptions), receive redemption proceeds of their Fund shares paid as pro rata shares of securities held in the
Fund’s portfolio. In such circumstances, disclosure of the Fund’s portfolio holdings may be made to such shareholders up to 5 business days prior to making the redemption request, provided that such
shareholders have entered into a non-disclosure agreement not to disclose or trade on the basis of such portfolio holdings.
Any permitted release of
otherwise non-public portfolio holdings information must be in accordance with the then-current policy on approved methods for communicating confidential information.
The Fund’s policy
regarding disclosure of portfolio holdings and all material amendments have been reviewed and approved by the Fund’s board. The investment manager conducts periodic reviews of compliance with the policy and
provides periodic reports relating to such
reviews to the Board. The Fund’s Board reserves the right to amend the Fund’s policy regarding the disclosure of portfolio holdings from time to time without prior notice and in its sole discretion.
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 that was initially organized as a Massachusetts business trust. The Trust was reorganized as a Delaware statutory trust in August 2012 and presently includes 12 series. All references to the Funds’ Board
of Trustees and Officers refer to the Trustees and Officers, respectively, of Oppenheimer Variable Account Funds.
Effective April 30, 2014, Class
3 Shares and Class 4 Shares of Global Fund/VA were reclassified as Non-Service Shares and Service Shares, respectively.
The suffix “VA” was
added to each Fund’s name on May 1, 1999 (if applicable). The following table shows each Fund’s current name, its year of organization and any prior Fund names:
Fund Name
| Year of Organization
| Prior Fund Name
|
Capital Appreciation Fund/VA
| 1983
| N/A
|
Conservative Balanced Fund/VA
| 1986
| Oppenheimer Capital Income Fund/VA (prior to April 30, 2015);
Oppenheimer Balanced Fund/VA (prior to April 30, 2013).
|
Core Bond Fund/VA
| 1983
| Oppenheimer Bond Fund/VA (prior to April 29, 2005).
|
Discovery Mid Cap Growth Fund/VA
| 1986
| Oppenheimer Small- & Mid-Cap Growth Fund/VA (prior to April 30, 2013);
Oppenheimer MidCap Fund/VA (prior to April 30, 2010); Oppenheimer
Aggressive Growth Fund/VA (prior to April 30, 2006).
|
Equity Income Fund/VA
| 2002
| Oppenheimer Value Fund/VA (prior to April 30, 2013).
|
Global Fund/VA
| 1990
| Oppenheimer Global Securities Fund/VA (prior to April 30, 2013).
|
Global Multi-Alternatives Fund/VA
| 2013
| Oppenheimer Diversified Alternatives Fund/VA (prior to April 30, 2015).
|
Global Strategic Income Fund/VA
| 1993
| Oppenheimer Strategic Bond Fund/VA (prior to April 30, 2010).
|
Government Money Fund/VA
| 1983
| Oppenheimer Money Fund/VA (prior to April 29,
2016)
|
International Growth Fund/VA*
| 1981
| N/A
|
Main Street Fund/VA
| 1995
| N/A
|
Main Street Small Cap Fund/VA
| 1998
| Oppenheimer Main Street Small- & Mid-Cap Fund®/VA (prior to April 30,
2013); Oppenheimer Main Street Small Cap Fund/VA (prior to April 29, 2011).
|
*International Growth Fund/VA was established as a series of the Panorama Series Fund in 1981. On or about April 30, 2014, the International Growth Fund/VA merged into the newly formed entity
established under the Oppenheimer Variable Account Funds, established for the sole purpose of moving the International Growth Fund/VA from under the Panorama Series Fund to the Oppenheimer Variable Account Funds.
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.
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 Fund. 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 (except for Government
Money Fund/VA) currently offer two classes of shares. Government Money Fund/VA currently offers one class of shares. 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 Government Money Fund/VA also offer a service share class, subject to a Distribution and Service Plan. Government Money Fund/VA currently only offers the class
of non-service shares. Each class of shares:
•
| has its own dividends and distributions,
|
•
| pays certain expenses which may be different for the different classes,
|
•
| will generally have a different net asset value,
|
•
| will generally have separate voting rights on matters in which interests of one class are different from interests of another class, and
|
•
| 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.
Shareholder and Trustee Liability;
Shareholder Meetings. Under Delaware law and the Trust’s Declaration of Trust, Fund shareholders are entitled to the same limitation of personal liability extended to shareholders of corporations
organized under Delaware law. Under Delaware law and the Trust’s Declaration of Trust, Trustees are not personally liable to any person for any obligations of the Funds. Therefore a shareholder or Trustee of the
Funds generally will not be subject to personal liability for Fund obligations. The risk that a Fund shareholder or Trustee will incur personal liability for Fund obligations is limited to the circumstances in which a
state court may not apply Delaware law or the terms of the Trust’s Declaration of Trust.
As a Delaware statutory trust,
the Trust is not required to hold regular annual meetings of shareholders and does not plan to do so. The Trust may hold shareholder meetings from time to time.
Board of Trustees and Oversight
Committees
The
Fund is governed by a Board of Trustees, which is responsible for overseeing the Fund. The Board is led by Robert J. Malone, an
independent trustee, who is not an “interested person” of the Fund, as that term is defined in the Investment Company
Act. The Board meets periodically throughout the year to oversee the Fund’s activities, including to review its performance,
oversee potential conflicts that could affect the Fund, and review the actions of the Manager and Sub-Adviser. With respect to
its oversight of risk, the Board, through its committees, relies on reports and information received from various parties, including
the Manager and Sub-Adviser, internal auditors, the Fund’s Chief Compliance Officer, the Fund’s outside auditors and
Fund counsel. It is important to note that, despite the efforts of the Board and of the various parties that play a role in the
oversight of risk, it is likely that not all risks will be identified or mitigated.
The Board has an Audit
Committee, a Review Committee and a Governance Committee. Each of the Committees is comprised solely of Trustees who are not “interested persons” under the Investment Company Act (the “Independent
Trustees”). The Board has determined that its leadership structure is appropriate in light of the characteristics and circumstances of the Fund because it allocates areas of responsibility among the committees
in a manner that enhances the Board’s oversight.
During
the Fund’s fiscal year ended December 31, 2016, the Audit Committee held 7 meetings, the Review Committee held 4 meetings
and the Governance Committee held 3 meetings.
The
members of the Audit Committee are Karen L. Stuckey (Chairman), F. William Marshall, Jr. and James D. Vaughn. The Audit Committee
is responsible for the appointment, compensation and oversight of the work of the independent certified public accountants and
auditors of the Fund or registered public accounting firm (also referred to as the “independent Auditors”) for the
purpose of preparing or issuing audit reports and for all other services provided by 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 Fund’s independent Auditors
regarding the Fund’s internal accounting procedures and controls; (iii) reviewing reports regarding Fund operations that
relate to accounting and financial reporting from Management’s Internal Audit Department; (iv) maintaining a direct line
of communication and meeting with the Fund’s independent Auditors at least annually; (v) reviewing the independence of the
Fund’s independent Auditors; and (vi) approving in advance the provision of any audit and/or non-audit services by the Fund’s
independent Auditors, including tax services, that are not prohibited by the Sarbanes–Oxley Act of 2002, to the Fund, the
Manager and certain affiliates of the Manager. The Audit Committee also reviews and considers the valuation of portfolio investments,
including the procedures for the determination of the fair value of any such investments that do not have readily available market
quotations.
The
members of the Review Committee are Victoria J. Herget (Chairman), Jon S. Fossel, Richard F. Grabish and Beverly L. Hamilton.
Among other duties, as set forth in the Review Committee’s Charter, the Review Committee reviews
Fund
performance and expenses, as well as oversees several of the Fund’s principal service providers and certain policies and
procedures of the Fund. The Review Committee also reviews certain reports from and meets periodically with the Fund’s Chief
Compliance Officer.
The
members of the Governance Committee are Richard F. Grabish (Chairman), Beverly L. Hamilton, Victoria J. Herget, F. William Marshall,
Jr., Karen L. Stuckey and James D. Vaughn. The Governance Committee has adopted a charter setting forth its duties and responsibilities.
Among other duties, the Governance Committee reviews and oversees Fund governance and the nomination of Trustees, including Independent
Trustees. The Governance Committee has adopted a process for shareholder submission of recommendations for Trustee nominees. Shareholders
may submit such recommendations for the Governance Committee’s consideration by mail to the Governance Committee in care
of the Fund. Such recommendations should be accompanied by, at a minimum, (i) the name, address, and business, educational, and/or
other pertinent background information of the person being recommended; (ii) a statement concerning whether the person is an “interested
person” as defined in the 1940 Act; (iii) any other information that the Fund would be required to include in a proxy statement
concerning the person if he or she was nominated; and (iv) the name and address of the person submitting the recommendation and,
if that person is a shareholder, the period for which that person held Fund shares. The recommendation also can include any additional
information which the person submitting it believes would assist the Governance Committee in evaluating the recommendation. The
Governance Committee has not established specific qualifications that it believes must be met by a Trustee nominee. In evaluating
Trustee nominees, the Governance Committee considers, among other things, an individual’s background, skills, and experience;
whether the individual is an “interested person” as defined in the 1940 Act; and whether the individual would be deemed
an “audit committee financial expert” within the meaning of applicable SEC rules. The Governance Committee also considers
whether the individual’s background, skills, and experience will complement the background, skills, and experience of other
Trustees and will contribute to the Board’s diversity. 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 Trustee it will recommend to the Board and the 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 OFI Global 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 correspondence
electronically at www.oppenheimerfunds.com under the caption “contact us” or by mail to the Fund at the address on
the front cover of this SAI.
Shareholders who desire to
communicate with the Board should address correspondence to the Board or an individual Board member and may submit correspondence electronically at www.oppenheimerfunds.com under the caption “contact us”
or by mail to the Fund at the address on the front cover of this SAI.
Below is a brief discussion of
the specific experience, qualifications, attributes or skills of each Board member that led the Board to conclude that he or she should serve as a Trustee of the Fund.
Each Independent Trustee has
served on the Board for the number of years listed below, during the course of which he or she has become familiar with the Fund’s (and other Oppenheimer funds') financial, accounting, regulatory and investment
matters and has contributed to the Board’s deliberations. Each Trustee’s outside professional experience is outlined in the table of Biographical Information, below.
Trustees and Officers of the
Funds
Except for Mr. Steinmetz, each
of the Trustees is an Independent Trustee. All of the Trustees are also trustees of the following Oppenheimer funds (referred to as “Denver Board Funds”):
Oppenheimer Capital Income Fund
|
Oppenheimer Corporate Bond Fund
|
Oppenheimer Emerging Markets Local Debt Fund
|
Oppenheimer Equity Fund
|
Oppenheimer Global High Yield Fund
|
Oppenheimer Global Strategic Income Fund
|
Oppenheimer Government Cash Reserves
|
Oppenheimer Integrity Funds:
|
Oppenheimer Core Bond Fund
|
Oppenheimer International Bond Fund
|
Oppenheimer Limited-Term Government Fund
|
Oppenheimer Main Street Funds:
|
Oppenheimer Main Street Fund
|
Oppenheimer Main Street Select Fund
|
Oppenheimer Main Street Small Cap Fund
|
Oppenheimer Main Street Mid Cap Fund
|
Oppenheimer Master Event-Linked Bond Fund, LLC
|
Oppenheimer Master Inflation Protected Securities Fund, LLC
|
Oppenheimer Master Loan Fund, LLC
|
Oppenheimer Revenue Weighted ETF Trust:
|
Oppenheimer ADR Revenue ETF
|
Oppenheimer ESG Revenue ETF
|
Oppenheimer Financials Sector Revenue ETF
|
Oppenheimer Global ESG Revenue ETF
|
Oppenheimer Global Growth Revenue ETF
|
Oppenheimer Large Cap Revenue ETF
|
Oppenheimer Mid Cap Revenue ETF
|
Oppenheimer Small Cap Revenue ETF
|
Oppenheimer Ultra Dividend Revenue ETF
|
Oppenheimer Senior Floating Rate Fund
|
Oppenheimer Senior Floating Rate Plus Fund
|
Oppenheimer SteelPath MLP Funds Trust:
|
Oppenheimer SteelPath MLP Alpha Fund
|
Oppenheimer SteelPath MLP Alpha Plus Fund
|
Oppenheimer SteelPath MLP Income Fund
|
Oppenheimer SteelPath MLP Select 40 Fund
|
Oppenheimer SteelPath Panoramic Fund
|
Oppenheimer Variable Account Funds:
|
Oppenheimer Capital Appreciation Fund/VA
|
Oppenheimer Conservative Balanced Fund/VA
|
Oppenheimer Core Bond Fund/VA
|
Oppenheimer Discovery Mid Cap Growth Fund/VA
|
Oppenheimer Equity Income Fund/VA
|
Oppenheimer Global Fund/VA
|
Oppenheimer Global Multi-Alternatives Fund /VA
|
Oppenheimer Global Strategic Income Fund/VA
|
Oppenheimer Government Money Fund/VA
|
Oppenheimer International Growth Fund/VA
|
Oppenheimer Main Street Fund/VA
|
Oppenheimer Main Street Small Cap Fund/VA
|
Oppenheimer Ultra-Short Duration Fund
|
Messrs.
Anello, Bhaman, Dunphy, Edwards, Evans, Govil, Hamilton, Kelly, Kennedy, Krantz, Kotlarz, Larson, Lee, Legg, Levine, Livengood,
Mata, Memani, O’Donnell, Petersen, Proctor, Ram, Rockmuller, Steinmetz, Sternhell, Strzalkowski, Vardharaj, Weiner, Wilde,
Yoder, Zibelli and Ziehl and Mss. Budzinski, Bullington, Burley, Foxson, Ketner, LaFond, Lo Bessette, Miller, Picciotto and Ziverte,
who are officers of the Funds, hold the same offices with one or more of the other Denver Board Funds.
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 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. Present
or former officers, directors, trustees and employees (and their eligible family members) of the Funds, the Manager and its affiliates, its parent company and the subsidiaries of its parent company, and retirement
plans established for the benefit of such individuals, are also permitted to purchase Class Y shares of the Oppenheimer funds that offer Class Y shares. Such purchases of Class A shares or Class Y shares are subject
to the requirement to receive Fund documents electronically through eDocs Direct.
As
of April __, 2017 the Trustees/Directors and officers of each Fund, as a group, owned less than 1% of any class of shares of any
Fund beneficially or of record.
The foregoing
statement does not reflect ownership of shares held of record by an employee benefit plan for employees of the Manager, Sub-Adviser and its subsidiaries, other than the shares beneficially owned under that plan by the
officers of the Fund. In addition, none of the Independent Trustees/Directors (nor any of their immediate family members) owns securities of either the Manager, Sub-Adviser or the Distributor or of any entity directly
or indirectly controlling, controlled by or under common control with the Manager or the Distributor.
Biographical
Information. The Trustees and officers, their positions with the Fund, 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 address of each Independent 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.
Each Trustee has served
the Fund in the following capacities from the following dates:
Independent Trustees | Position(s) | Length of Service |
Robert J. Malone | Chairman of the Board & | Since 2016; 2002 |
| Trustee | |
Jon S. Fossel | Trustee | Since 1990 |
Richard F. Grabish | Trustee | Since 2012 |
Beverly L. Hamilton | Trustee | Since 2002 |
Victoria J. Herget | Trustee | Since 2012 |
F. William Marshall, Jr. | Trustee | Since 2000 |
Karen L. Stuckey | Trustee | Since 2012 |
James D. Vaughn | Trustee | Since 2012 |
Interested Trustee | | |
Arthur P. Steinmetz | Trustee | Since 2015 |
Independent Trustees
|
|
|
Name, Year of Birth, Position(s)
| Principal Occupations(s) During the Past
5 Years; Other Trusteeship Held
| Portfolios Overseen
in Fund Complex
|
Robert J. Malone (1944)
Chairman of the Board of Trustees | Chairman - Colorado Market of MidFirst
Bank (since January 2015); Chairman of the Board (2012-2016) and Director (August 2005-March
2016) of Jones International University (educational organization); Trustee of the Gallagher
Family Foundation (non-profit organization) (2000-2016); Chairman, Chief Executive Officer
and Director of Steele Street Bank Trust (commercial banking) (August 2003-January 2015);
Board of Directors of Opera Colorado Foundation (non-profit organization) (2008-2012);
Director of Colorado UpLIFT (charitable organization) (1986-2010); Director of Jones
Knowledge, Inc. (2006-2010); 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 U.S. Exploration,
Inc. (oil and gas exploration) (1997-February 2004); Chairman of the Board (1991-1994)
and Trustee (1985-1994) of Regis University; and Chairman of the Board (1990-1991) and
Member (1984-1999) of Young Presidents Organization. Mr. Malone has served on the Boards
of certain Oppenheimer funds since 2002, during which time he has become familiar with
the Fund’s (and other Oppenheimer funds') financial, accounting, regulatory and
investment matters and has contributed to the Board’s deliberations. | 47 |
Jon S. Fossel (1942)
Trustee
| Chairman of the Board of Jack Creek
Preserve Foundation (non-profit organization) (since March 2005); Director of Jack Creek Preserve Foundation (non-profit
organization) (March 2005-December 2014); Chairman of the Board (2006-December 2011) and Director (June 2002-December 2011)
of UNUMProvident (insurance company); Director of Northwestern Energy Corp. (public utility corporation) (November 2004-December
2009); Director of P.R. Pharmaceuticals (October 1999-October 2003); Director of Rocky Mountain Elk Foundation (non-profit
organization) (February 1998-February 2003 and February 2005-February 2007); Chairman and Director (until October 1996) and
President and Chief Executive Officer (until October 1995) of the Sub-Adviser; President, Chief Executive Officer and Director
of the following: Oppenheimer Acquisition Corp. (“OAC”) (parent holding company of the Sub-Adviser), Shareholders
Services, Inc. and Shareholder Financial Services, Inc. (until October 1995). Mr. Fossel has served on the Boards of certain
Oppenheimer funds since 1990, during which time he has become familiar with the Fund’s (and other Oppenheimer funds')
financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations. | 47 |
Richard F. Grabish (1948)
Trustee
| Formerly Senior Vice President and Assistant Director of Sales and Marketing (March 1997-December 2007), Director (March
1987-December 2007) and Manager of Private Client Services (June 1985-June 2005) of A.G. Edwards & Sons, Inc. (broker/dealer and investment firm); Chairman and Chief Executive Officer of A.G. Edwards Trust
Company, FSB (March 2001-December 2007); President and Vice Chairman of A.G. Edwards Trust Company, FSB (investment adviser) (April 1987-March 2001); President of A.G. Edwards Trust Company, FSB (investment adviser)
(June 2005-December 2007). Mr. Grabish has served on the Boards of certain Oppenheimer funds since 2001, during which time he has become familiar with the Fund’s (and other Oppenheimer funds') financial,
accounting, regulatory and investment matters and has contributed to the Boards’ deliberations.
| 47 |
Independent Trustees
|
|
|
Name, Year of Birth, Position(s)
| Principal Occupations(s) During the Past
5 Years; Other Trusteeship Held
| Portfolios Overseen
in Fund Complex
|
Beverly L. Hamilton (1946)
Trustee
| Trustee of Monterey Institute for International Studies (educational organization) (2000-2014); Board Member of Middlebury
College (educational organization) (December 2005-June 2011); Chairman (since 2010) of American Funds’ Emerging Markets Growth Fund, Inc. (mutual fund); Director of The California Endowment (philanthropic
organization) (April 2002-April 2008); Director (February 2002-2005) and Chairman of Trustees (2006-2007) of the Community Hospital of Monterey Peninsula; Director (October 1991-2005) and Vice Chairman (2006-2009) 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
(2001-2006) 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). Ms. Hamilton has served on the Boards of certain Oppenheimer funds since 2002, during which time she has become familiar with the Fund’s (and other Oppenheimer funds')
financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations.
| 47 |
Victoria J. Herget (1951)
Trustee
| Board Chair (2008-2015) and Director (2004-Present), United Educators (insurance company); Trustee (since 2000) and Chair
(since 2010), Newberry Library (independent research library); Trustee, Mather LifeWays (senior living organization) (since 2001); Independent Director of the First American Funds (mutual fund family) (2003-2011);
former Managing Director (1993-2001), Principal (1985-1993), Vice President (1978-1985) and Assistant Vice President (1973-1978) of Zurich Scudder Investments (investment adviser) (and its predecessor firms); Trustee
(1992-2007), Chair of the Board of Trustees (1999-2007), Investment Committee Chair (1994-1999) and Investment Committee member (2007-2010) of Wellesley College; Trustee, BoardSource (non-profit organization)
(2006-2009) and Chicago City Day School (K-8 School) (1994-2005). Ms. Herget has served on the Boards of certain Oppenheimer funds since 2012, during which time she has become familiar with the Fund’s (and other
Oppenheimer funds') financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations.
| 47 |
F. William Marshall, Jr. (1942)
Trustee
| Trustee Emeritus of Worcester Polytech
Institute (WPI) (private university) (since 2009); Trustee of MassMutual Select Funds (formerly MassMutual Institutional
Funds) (investment company) (1996-2015), MML Series Investment Fund (investment company) (1996-2015) and Mass Mutual Premier
Funds (investment company) (January 2012-December 2015); President and Treasurer of the SIS Charitable Fund (private charitable
fund) (January 1999-March 2011); Former Trustee of WPI (1985-2008); Former Chairman of the Board (2004-2006) and Former Chairman
of the Investment Committee of WPI (1994-2008); Chairman of SIS Family Bank, F.S.B. (formerly SIS Bank) (commercial bank)
(January 1999-July 1999); Executive Vice President of Peoples Heritage Financial Group, Inc. (commercial bank) (January 1999-July
1999); and Former President and Chief Executive Officer of SIS Bancorp. (1993-1999). Mr. Marshall has served on the Boards
of certain Oppenheimer funds since 2000, during which time he has become familiar with the Fund’s (and other Oppenheimer
funds') financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations. | 47 |
Independent Trustees
|
|
|
Name, Year of Birth, Position(s)
| Principal Occupations(s) During the Past
5 Years; Other Trusteeship Held
| Portfolios Overseen
in Fund Complex
|
Karen L. Stuckey (1953)
Trustee
| Member (since May 2015) of Desert Mountain Community Foundation Advisory Board (non-profit organization); Partner (1990-2012)
of PricewaterhouseCoopers LLP (professional services firm) (held various positions 1975-1990); Trustee (1992-2006); member of Executive, Nominating and Audit Committees and Chair of Finance Committee (1992-2006), and
Emeritus Trustee (since 2006) of Lehigh University; and member, Women’s Investment Management Forum (professional organization) since inception. Ms. Stuckey has served on the Boards of certain Oppenheimer funds
since 2012, during which time she has become familiar with the Fund’s (and other Oppenheimer funds') financial, accounting, regulatory and investment matters and has contributed to the Boards’
deliberations.
| 47 |
James D. Vaughn (1945)
Trustee
| Retired; former managing partner (1994-2001) of Denver office of Deloitte & Touche LLP, (held various positions 1969-1993);
Trustee and Chairman of the Audit Committee of Schroder Funds (2003-2012); Board member and Chairman of Audit Committee of AMG National Trust Bank (since 2005); Trustee and Investment Committee member, University of
South Dakota Foundation (since 1996); Board member, Audit Committee Member and past Board Chair, Junior Achievement (since 1993); former Board member, Mile High United Way, Boys and Girls Clubs, Boy Scouts, Colorado
Business Committee for the Arts, Economic Club of Colorado and Metro Denver Network. Mr. Vaughn has served on the Boards of certain Oppenheimer funds since 2012, during which time he has become familiar with the
Fund’s (and other Oppenheimer funds') financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations.
| 47 |
Mr. Steinmetz is an
“Interested Trustee” because he is affiliated with the Manager and the Sub-Adviser by virtue of his positions as Chairman and director of the Sub-Adviser and officer and director of the Manager. Both as a
Trustee and as an officer, Mr. Steinmetz serves for an indefinite term, or until his resignation, retirement, death or removal. Mr. Steinmetz’s address is 225 Liberty Street, New York, New York 10281-1008.
Interested Trustee and Officer
|
|
Name, Year of Birth, Position(s)
| Principal Occupation(s) During the Past 5 Years; Other Trusteeships/Directorships Held
| Portfolios Overseen
in Fund Complex
|
Arthur P. Steinmetz (1958)
Trustee, President and Principal Executive Officer
| Chairman of the Sub-Adviser (since January 2015); CEO and Chairman of the Manager (since July 2014), President of the Manager
(since May 2013), a Director of the Manager (since January 2013), Director of the Sub-Adviser (since July 2014), President, Management Director and CEO of Oppenheimer Acquisition Corp. (the Sub-Adviser’s parent
holding company) (since July 2014), and President and Director of OFI SteelPath, Inc. (since January 2013). Chief Investment Officer of the OppenheimerFunds advisory entities from (January 2013-December 2013);
Executive Vice President of the Manager (January 2013-May 2013); Chief Investment Officer of the Sub-Adviser (October 2010-December 2012); Chief Investment Officer, Fixed-Income, of the Sub-Adviser (April 2009-October
2010); Executive Vice President of the Sub-Adviser (October 2009-December 2012); Director of Fixed Income of the Sub-Adviser (January 2009-April 2009); and a Senior Vice President of the Sub-Adviser (March
1993-September 2009).
| 103 |
The
addresses of the officers in the chart below are as follows: for Messrs. Anello, Bhaman, Dunphy, Edwards, Evans, Govil, Hamilton,
Kelly, Kotlarz, Krantz, Larson, Lee, Levine, Livengood, Mata, Memani, Ram, Rockmuller, Steinmetz, Sternhell, Strzalkowski, Vardharaj,
Weiner, Yoder, Ziehl and Zibelli and Mss. Budzinski, Foxson, Ketner, Lo Bessette, Picciotto and Ziverte, 225 Liberty Street, New
York, New York 10281-1008, for Messrs. Kennedy, Legg, O’Donnell, Petersen, Proctor and Wilde and Mss. Bullington, Burley,
LaFond and Miller, 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.
Each of the Officers has served the Funds in the
following capacities from the following dates:
| Position(s)
| Length of Service
|
Raymond Anello
| Vice President
| Since 2011
|
Rajeev Bhaman
| Vice President
| Since 2004
|
Joy Budzinski
| Vice President
| Since 2013
|
Robert Dunphy
| Vice President
| Since 2013*
|
George Evans
| Vice President
| Since 2013*
|
Manind Govil
| Vice President
| Since 2009
|
Mark Hamilton
| Vice President
| Since 2013
|
Chris Kelly | Vice President | Since 2017 |
Kristin Ketner | Vice President | Since 2013 |
Michael Kotlarz | Vice President | Since 2012 |
Paul Larson
| Vice President
| Since 2014
|
Dokyoung Lee
| Vice President
| Since 2014
|
Michael Levine
| Vice President
| Since 2013
|
Justin Livengood
| Vice President
| Since 2014
|
Michael Mata
| Vice President
| Since 2014
|
Krishna Memani
| Vice President
| Since 2009
|
Christopher Proctor
| Vice President
| Since 2010
|
Benjamin Ram
| Vice President
| Since 2009
|
Benjamin Rockmuller
| Vice President
| Since 2014
|
Peter A. Strzalkowski
| Vice President
| Since 2009
|
Raman Vardharaj
| Vice President
| Since 2009
|
Adam Weiner
| Vice President
| Since 2013
|
Adam Wilde
| Vice President
| Since 2013
|
Ronald Zibelli, Jr.
| Vice President
| Since 2006
|
Matthew Ziehl
| Vice President
| Since 2009
|
Ruta Ziverte | Vice President | Since 2017 |
Arthur P. Steinmetz
| President and Principal Executive Officer
| Since 2014
|
Jennifer Foxson | Vice President and Chief Business
Officer | Since 2014 |
Mary Ann Picciotto
| Chief Compliance Officer and Chief AML Officer
| Since 2014
|
Brian Petersen
| Treasurer and Principal Financial & Accounting Officer
| Since 2016
|
Julie Burley
| Assistant Treasurer
| Since 2013
|
James A. Kennedy
| Assistant Treasurer
| Since 2011
|
Jan Miller
| Assistant Treasurer
| Since 2013
|
Mathew O’Donnell
| Assistant Treasurer
| Since 2012
|
Stephanie Bullington | Assistant Treasurer | Since 2016 |
Cynthia Lo Bessette
| Secretary and Chief Legal Officer
| Since 2016
|
Taylor V. Edwards
| Assistant Secretary
| Since 2008
|
Randy G. Legg
| Assistant Secretary
| Since 2008
|
Michael Sternhell
| Assistant Secretary
| Since 2016
|
| Position(s)
| Length of Service
|
John Yoder
| Assistant Secretary
| Since 2016
|
Gloria LaFond
| Blue Sky Officer
| Since 2011
|
*As of April 30, 2014, International Growth Fund/VA, for which George Evans and Robert Dunphy are Vice Presidents and portfolio managers, is no longer a series under the Panorama Series Fund
(another registered investment company in the Oppenheimer family of funds), and is a series under Oppenheimer Variable Account Funds. Mr. Evans and Mr. Dunphy had been officers of Panorama Series Fund since 1999 and
2012, respectively.
Other Information About the Officers of the Funds
|
Name, Year of Birth, Position(s)
| Principal Occupation(s) During the Last 5 Years
| Portfolios Overseen
in Fund Complex
|
Raymond Anello (1964)
Vice President
| Vice President of the Sub-Adviser (since May 2009) and a portfolio manager of the Sub-Adviser (since April 2011). Sector
manager for energy and utilities for the Sub-Adviser’s Main Street Investment Team (since May 2009). Portfolio Manager of the RS All Cap Dividend product (from its inception in July 2007-April 2009) and served
as a sector manager for energy and utilities for various other RS Investments products. Guardian Life Insurance Company (October 1999) and transitioned to RS Investments (October 2006) in connection with Guardian Life
Insurance Company’s acquisition of an interest in RS Investments. Mr. Anello served as an equity portfolio manager/analyst and high yield analyst at Orion Capital (1995-1998) and an assistant portfolio manager
at the Garrison Bradford portfolio management firm (1988-1995).
| 3
|
Rajeev Bhaman (1963)
Vice President
| Director of Global Equities of the Sub-Adviser (since January 2013); Senior Vice President of the Sub-Adviser (since May 2006);
Vice President of the Sub-Adviser (January 1997-May 2006).
| 2
|
Christopher Kelly (1967)
Vice President | Senior Vice President of the Sub-Adviser
(since January 2016); Vice President and Portfolio Manager of the Sub-Adviser (March 2015-Janury 2016) and Co-Head of the
Global Debt Team since March 2015. Prior to joining the Sub-Adviser, Mr. Kelly was at BlackRock Inc., where he was Deputy
Head of Emerging Markets Fixed Income from June 2012 to January 2015. Mr. Kelly was also a portfolio manager and Deputy Chief
Investment Officer of Emerging Markets at Fisher Francis Trees and Watts, a BNP Paribas Investment Partner, from February
2008 to April 2012. | 4 |
Ruta Ziverte (1973)
Vice President | Vice President and Senior Portfolio
Manager of the Sub-Adviser (July 2015). Prior to joining the Sub-Adviser, she was Senior Vice President and Portfolio Manager
at GE Asset Management (June 2009 to June 2015). | 3 |
Other Information about the Officers of the Fund
|
|
Name, Year of Birth, Position(s)
| Principal Occupation(s) During the Past 5 Years
| Portfolios Overseen
in Fund Complex
|
Mary Ann Picciotto (1973)
Chief Compliance Officer and
Chief Anti-Money Laundering Officer
| Senior Vice President and Chief Compliance Officer of the Manager (since March 2014); Chief Compliance Officer of Sub-Adviser,
OFI SteelPath, Inc., OFI Global Trust Company, OFI Global Institutional, Inc., Oppenheimer Real Asset Management, Inc., OFI Private Investments, Inc., Harborview Asset Management Corporation, Trinity Investment
Management Corporation, and Shareholder Services, Inc. (since March 2014); Managing Director of Morgan Stanley Investment Management Inc. and certain of its various affiliated entities; Chief Compliance Officer of
various Morgan Stanley Funds (May 2010-January 2014); Chief Compliance Officer of Morgan Stanley Investment Management Inc. (April 2007-January 2014).
| 103
|
Jennifer Foxson (1969)
Vice President and Chief Business Officer | Senior Vice President of OppenheimerFunds
Distributor, Inc. (since June 2014); Vice President of OppenheimerFunds Distributor, Inc. (April 2006-June 2014); Vice President
of OppenheimerFunds, Inc. (January 1998-March 2006); Assistant Vice President of OppenheimerFunds, Inc. (October 1991-December
1998). | 103 |
Brian S. Petersen (1970)
Treasurer and Principal Financial and Accounting Officer
| Senior Vice President of the Manager
(since January 2017); Vice President of the Manager (January 2013-January 2017); Vice President of Sub-Adviser (February
2007-December 2012); Assistant Vice President of Sub-Adviser (August 2002-2007). | 103 |
Other Information about the Officers of the Fund
|
|
Name, Year of Birth, Position(s)
| Principal Occupation(s) During the Past 5 Years
| Portfolios Overseen
in Fund Complex
|
Stephanie Bullington (1977)
Assistant Treasurer | Vice President of the Manager (since
February 2014); Vice President of the Manager (January 2013-September 2013); Vice President of the Sub-Adviser (January 2010-December
2012); Assistant Vice President of the Sub-Adviser (October 2005-January 2010). | 103 |
Julie Burley (1981)
Assistant Treasurer
| Vice President of the Manager (since October 2013). Previously held the following positions at Deloitte & Touche: Senior
Manager (September 2010-October 2013), Manager (September 2008-August 2010), and Audit Senior (September 2005-August 2008).
| 103 |
James A. Kennedy (1958)
Assistant Treasurer
| Senior Vice President of the Manager (since January 2013); Senior Vice President of the Sub-Adviser (September 2006-December
2012).
| 103 |
Jan Miller (1963)
Assistant Treasurer
| Vice President of the Manager (since January 2014); Assistant Vice President of the Manager (January 2013-January 2014);
Assistant Vice President of the Sub-Adviser (2005-December 2012); Assistant Vice President in the Sub-Adviser’s Fund Accounting department (November 2004 to March 2006).
| 103 |
Mathew O’Donnell (1967)
Assistant Treasurer
| Vice President of the Manager (since January 2013); Vice President of the Sub-Adviser (January 2008-December 2012); Accounting
Policy Director of the Sub-Adviser (May 2007-March 2012).
| 103 |
Cynthia Lo Bessette (1969)
Secretary and Chief Legal Officer | Executive Vice President, General
Counsel and Secretary of the Manager (since February 2016); Chief Legal Officer of the Sub-Adviser and the Distributor (since
February 2016); Vice President, General Counsel and Secretary of Oppenheimer Acquisition Corp. (since February 2016); General
Counsel of OFI SteelPath, Inc., VTL Associates, LLC and Index Management Solutions, LLC (since February 2016); Chief Legal
Officer of OFI Global Institutional, Inc., HarbourView Asset Management Corporation, OFI Global Trust Company, Oppenheimer
Real Asset Management, Inc., OFI Private Investments Inc., Shareholder Services, Inc. and Trinity Investment Management Corporation
(since February 2016); Senior Vice President and Deputy General Counsel (March 2015-February 2016) and Executive Vice President,
Vice President, Corporate Counsel (February 2012-March 2015) and Deputy Chief Legal Officer (April 2013-March 2015) of Jennison
Associates LLC; Assistant General Counsel (April 2008-September 2009) and Deputy General Counsel (October 2009-February 2012)
of Lord Abbett & Co. LLC. | 103 |
Taylor V. Edwards (1967)
Assistant Secretary | Senior Vice President and Senior
Counsel (since January 2017); Vice President and Senior Counsel of the Manager (January 2013-January 2017); Vice President
(February 2007-December 2012) and Senior Counsel (February 2012-December 2012) of the Sub-Adviser; Associate Counsel (May
2009-January 2012); Assistant Vice President (January 2006-January 2007) and Assistant Counsel (January 2006-April 2009)
of the Sub-Adviser. | 103 |
Randy Legg (1965)
Assistant Secretary
| Vice President and Senior Counsel of the Manager (since January 2013); Vice President (June 2005-December 2012) and Senior
Counsel (March 2011-December 2012) of the Sub-Adviser; Associate Counsel (January 2007-March 2011) of the Sub-Adviser.
| 103 |
Michael J. Sternhell (1975)
Assistant Secretary
| Senior Vice President and Senior Counsel of the Manager (since February 2015); Vice President and Associate Counsel of the
Manager (January 2013-January 2015); Vice President and Associate Counsel (June 2011-December 2012) of the Sub-Adviser.
| 103 |
John Yoder (1975)
Assistant Secretary
| Vice President and Assistant Counsel of the Manager (since January 2013); Vice President and Assistant Counsel (July
2011-December 2012) of the Sub-Adviser.
| 103 |
Gloria J. LaFond (1945)
Blue Sky Officer
| Assistant Vice President of the Manager (since January 2013); Assistant Vice President (January 2006-December 2012) of the
Sub-Adviser.
| 103 |
Trustees’
Share Ownership. The chart below shows information about each Trustee’s beneficial share
ownership in the Fund and in all of the registered investment companies that the Trustee oversees in the Oppenheimer family of
funds (“Supervised Funds”).
As of December 31, 2016
|
|
|
| Dollar Range of Shares Beneficially
Owned in the Funds
| Aggregate Dollar Range of Shares
Beneficially Owned in Supervised Funds
|
Independent Trustees
|
|
|
Jon S. Fossel | $________ | $________ |
Richard F. Grabish | $________ | $________ |
Beverly L. Hamilton | $________ | $________ |
Victoria J. Herget | $________ | $________ |
Robert J. Malone | $________ | $________ |
F. William Marshall, Jr. | $________ | $________ |
Karen L. Stuckey | $________ | $________ |
James D. Vaughn | $________ | $________ |
Interested Trustee | | |
Arthur P. Steinmetz | $________ | $________ |
Remuneration of the Officers and
Trustees. The officers and the Interested Trustee of the Fund, who are associated with the Manager, receive no salary or fee from the Fund. The Independent Trustees’ total compensation from
the Fund and fund complex represents compensation for serving as a Trustee and member of a committee (if applicable) of the Boards of the Fund and other funds in the OppenheimerFunds complex during the calendar year
ended December 31, 2016.
| Aggregate Compensation
From the Fund1
| Total Compensation From
the Fund and Fund Complex2
|
Name and Other Fund Position(s) (as applicable)
| Fiscal Year Ended
December 31, 2016
| Year Ended
December 31, 2016
|
Robert J. Malone3
Chairman of the Board | $_____ | $_____ |
Jon S. Fossel
Review Committee Member | $_____ | $_____ |
Richard F. Grabish
Governance Committee Chairman and Review Committee Member | $_____ | $_____ |
Beverly L. Hamilton
Governance Committee Member and Review Committee Member | $_____4 | $_____ |
Victoria J. Herget
Review Committee Chairman and Governance Committee Member | $_____ | $_____ |
F. William Marshall, Jr.
Audit Committee Member and Governance Committee Member | $_____ | $_____ |
Karen L. Stuckey
Audit Committee Chairman and Governance Committee Member | $_____ | $_____ |
James D. Vaughn
Audit Committee Member and Governance Committee Member | $_____ | $_____ |
1.
Aggregate Compensation from the Fund” 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 Fund’s Manager. The Manager also serves as the Sub-Adviser 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 Oppenheimer Funds’ “Fund Complex” as that term may be otherwise
interpreted.
3. Mr. Malone began serving as
Chairman of the Board effective August 24, 2016.
4. Includes $______ deferred by Ms.
Hamilton under the “Compensation Deferral Plan” described below.
Compensation Deferral Plan. The Board of Trustees has adopted a Compensation Deferral 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 certain 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 on the amount of compensation deferred and the performance of the selected funds.
Deferral of the Trustees’ fees under the
plan will not materially affect a Fund’s assets, liabilities or net income per share. The plan will not obligate a fund 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, a fund may invest in the funds selected by the Trustee under the plan without shareholder approval for the limited purpose of determining the value of the
Trustee’s deferred compensation account.
Major Shareholders. For information on control persons and principal holders of securities of the Funds, please see Appendix A.
The Manager and the Sub-Adviser
The Manager is a wholly-owned
subsidiary of OppenheimerFunds, Inc., the Sub-Adviser. The Sub-Adviser is wholly-owned by Oppenheimer Acquisition Corp., a holding company primarily owned by Massachusetts Mutual Life Insurance Company, a global,
diversified insurance and financial services company.
Code of Ethics. The Funds (except Government Money Fund/VA), the Manager, the Sub-Adviser 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 a 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. 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, the Sub-Adviser and the Distributor.
The Code of Ethics is an exhibit
to the Funds’ registration statement filed with the SEC and can be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You can obtain information about the hours of operation of the
Public Reference Room by calling the SEC at 1.202.551.8090. The Code of Ethics can also be viewed as part of the Funds’ registration statement on the SEC’s EDGAR database at the SEC’s Internet
website at http://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. 20549-1520.
The Investment Advisory
Agreements. The Manager provides investment advisory and management services to each Fund under an investment advisory agreement between the Manager and each Fund. The Manager has retained the
Sub-Adviser pursuant to a separate sub-advisory agreement, described below, under which the Sub-Adviser chooses the Funds’ investments and provides related advisory services to the Funds.
Each advisory agreement requires
the Manager, at its expense, to provide the Funds with adequate office space, facilities and equipment. It also requires the Manager to provide and supervise the activities of all administrative and clerical personnel
required to provide effective administration for the Funds. Those responsibilities include the compilation and maintenance of records with respect to Funds’ operations, the preparation and filing of specified
reports, and composition of proxy materials and registration statements for the continuous public sale of shares of the Funds.
The Funds pay expenses not
expressly assumed by the Manager under the investment advisory agreements. The investment advisory agreements list examples of expenses paid by the Funds. The major categories relate to interest, taxes, brokerage
commissions, fees to certain Directors/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 the Funds as a whole. The fees are allocated to each
class of shares based upon the relative proportion of a Fund’s net assets represented by that class. The management fees paid by the Funds to the Manager during their last three fiscal years were:
Management Fees for
the Fiscal Year Ended December 31 |
Fund | 2014 | 2015 | 2016 |
Capital Appreciation
Fund/VA | $6,567,456 | $6,445,151 | $________ |
Conservative
Balanced Fund/VA | $2,027,361 | $1,884,550 | $________ |
Core Bond
Fund/VA | $894,939 | $863,572 | $________ |
Discovery
Mid Cap Growth Fund/VA | $5,106,401 | $5,169,569 | $________ |
Equity Income
Fund/VA | $84,397 | $79,485 | $________ |
Global Fund/VA | $17,582,863 | $17,181,922 | $________ |
Global Multi-Alternatives
Fund/VA | $1,608,581 | $3,780,674 | $________ |
Global Strategic
Income Fund/VA | $13,590,052 | $11,920,333 | $________ |
Government
Money Fund/VA | $1,450,286 | $4,723,202 | $________ |
International
Growth Fund/VA | $4,985,935 | $4,823,454 | $________ |
Main Street
Fund/VA | $9,198,662 | $8,575,831 | $________ |
Main Street Small Cap Fund/VA | $7,351,685 | $7,205,948 | $________ |
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 agreements,
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 advisor for any other person, firm or corporation and to use the name “Oppenheimer” in connection with other investment companies for which it may act as investment advisor or
general distributor. If the Manager shall no longer act as investment advisor to the Funds, the Manager may withdraw the right of the Funds to use the name “Oppenheimer” as part of their name.
The Sub-Advisory Agreements. Under the sub-advisory agreements between the Manager and the Sub-Adviser, the Sub-Adviser shall regularly provide investment advice with respect to the Funds and invest and reinvest cash,
securities, commodity interests and the property comprising the assets of the Funds. The Sub-Adviser selects securities and/or commodity interests for the Funds’ portfolios and provides related advisory
services. The portfolio managers of the Funds are employed by the Sub-Adviser and are principally responsible for the provision of advisory services of the Funds’ portfolios. Other members of the
Sub-Adviser’s investment teams provide the portfolio managers with counsel and support in managing the Funds’ portfolios.
Under the sub-advisory
agreement, the Manager pays the Sub-Adviser a percentage of the net investment advisory fee (after all applicable waivers) that it receives from the Funds as compensation for the provision of investment advisory
services. The fee paid to the Sub-Adviser under the sub-advisory agreement is paid by the Manager, not by the Funds.
The sub-advisory agreement
states that in the absence of willful misfeasance, bad faith, negligence or reckless disregard of its duties or obligations, the Sub-Adviser shall not be liable to the Manager for any act or omission in the course of
or connected with rendering services under the Sub-Advisory Agreement or for any losses that may be sustained in the purchase, holding or sale of any security.
In addition, as described below
under “Organization and Management of Wholly-Owned Subsidiaries,” the Subsidiary for each of Global Strategic Income Fund/VA and Global Multi-Alternatives Fund/VA has entered into a separate contract with
the Manager for the management of the Subsidiary’s portfolio. The Manager has contractually agreed to waive the management fee it receives from each Fund in an amount equal to the management fee paid to the
Manager each Fund’s respective Subsidiary. This undertaking will continue in effect for so long as the Funds invest in their respective Subsidiaries, and may not be terminated by the Manager unless the Manager
first obtains the prior approval of the Board of Trustees of Global Strategic Income Fund/VA or Global Multi-Alternatives Fund/VA, as applicable, for such termination.
The Sub-Sub-Advisers. OFI SteelPath, Inc., one of the Sub-Sub-Advisers to the Global Multi-Alternatives Fund/VA, is a wholly-owned subsidiary of OFI, Global Multi-Alternatives Fund/VA’s Sub-Adviser.
Barings LLC, another Sub-Sub-Adviser to Global Multi-Alternatives Fund/VA, is an indirect subsidiary of Massachusetts Mutual Life Insurance Company (“MassMutual”), the parent company of the
Manager.
The Sub-Sub-Advisory
Agreements. Under the Sub-Sub-Advisory Agreements between the Sub-Adviser and the Sub-Sub-Advisers, each Sub-Sub-Adviser shall regularly provide investment advice with respect to that portion, or all,
of the Fund’s assets that the Sub-Adviser and/or the Adviser shall allocate to the Sub-Sub-Adviser from time to time (the “Allocated Assets”), and invest and reinvest cash, securities and the
property comprising the assets of the Allocated Assets that the respective Sub-Sub-Adviser manages. The Sub-Sub-Adviser also agrees to provide assistance in the distribution and marketing of the Fund.
Under the Sub-Sub-Advisory Agreements, the
Sub-Adviser pays each Sub-Sub-Adviser an annual fee in monthly installments, with respect to and based on the portion of the average daily net assets of the Fund comprising the Allocated Assets. The fee paid to the
Sub-Sub-Adviser under the Sub-Sub-Advisory Agreement is paid by the Sub-Adviser, not by the Fund. The Sub-Adviser will pay each Sub-Sub-Adviser a percentage of the investment management fee collected by the
Sub-Adviser from the Manager with respect to and based on the portion of the average daily net assets of the Fund comprising the assets managed by each Sub-Sub-Adviser, which shall be calculated after any investment
management fee waivers (voluntary or otherwise). Notwithstanding the foregoing, if the Sub-Adviser, without the Sub-Sub-Adviser’s concurrence, agrees to voluntarily waive a portion of the investment management
fee the Manager is required to pay to the Sub-Adviser, the Sub-Sub-Adviser’s fee hereunder shall be based upon the investment management fee the Manager would have to pay exclusive of any such waiver agreed to
by the Sub-Adviser in its sole discretion.
Each Sub-Sub-Advisory Agreement
states that in the absence of willful misfeasance, bad faith, negligence or reckless disregard of its duties or obligations, the Sub-Sub-Adviser shall not be liable to the Sub-Adviser for any act or omission in the
course of or connected with rendering services under the Sub-Sub-Advisory Agreement or for any losses that may be sustained in the purchase, holding or sale of any security.
Portfolio Proxy Voting. The Fund has adopted Portfolio Proxy Voting Policies and Procedures, which include Proxy Voting Guidelines, under which the Fund votes proxies relating to securities held by the Fund
(“portfolio proxies”). The Manager generally undertakes to vote portfolio proxies with a view to enhancing the value of the company’s stock held by the Fund. The Fund has retained an independent,
third party proxy voting agent to vote portfolio proxies in accordance with the Fund’s Proxy Voting Guidelines and to maintain records of such portfolio proxy voting. The Manager’s internal Proxy Voting
Committee is responsible for monitoring the third party proxy voting agent.
The Portfolio Proxy Voting
Policies and Procedures include provisions to address conflicts of interest that may arise between the Fund 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 material conflicts of interest 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 procedures, as long as OFI determines that the course of action is consistent with the
best interests of the Fund and its shareholders:
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.
•
| If such proposal is not specifically addressed in the Proxy Voting Guidelines, or if the Proxy Voting Guidelines provide discretion to the Manager on how to vote (i.e., on a case-by-case basis), 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.
|
•
| With respect to such proposal where a portfolio manager has requested that the Manager vote (i) in a manner inconsistent with the Proxy Voting Guidelines, or (ii) if such proposal is
not specifically addressed in the Proxy Voting Guidelines, in a manner inconsistent with the third-party proxy voting agent’s general recommended guidelines, the Proxy Voting Committee may determine that such a
request is in the best interests of the Fund (and, if applicable, its shareholders) and does not pose an actual material conflict of interest. In making its determination, the Proxy Voting Committee may consider,
among other things, whether the portfolio manager is aware of the business relationship with the company, and/or is sufficiently independent from the business relationship, and to the Proxy Voting Committee’s
knowledge, whether the Manager has been contacted or influenced by the company in connection with the proposal.
|
If none of the previous
procedures provides an appropriate voting recommendation, the Proxy Voting Committee may: (i) determine how to vote on the proposal; (ii) recommend that the Manager retain an independent fiduciary to advise the
Manager on how to vote the proposal; or (iii) determine that voting on the particular proposal is impracticable and/or is outweighed by the cost of voting and direct the Manager to abstain from voting.
The Proxy Voting
Guidelines’ provisions with respect to certain routine and non-routine proxy proposals are summarized below:
•
| The Fund evaluates director nominees on a case-by-case basis, examining the following factors, among others: composition of the board and key board committees, experience and qualifications, attendance at board
meetings, corporate governance provisions and takeover activity, long-term company performance, the nominee’s investment in the company, and whether the company or nominee is targeted in connection with public
“vote no” campaigns.
|
•
| The Fund generally supports proposals requiring the position of chairman to be filled by an independent director unless there are compelling reasons to recommend against the proposal
such as a counterbalancing governance structure.
|
•
| The Fund generally supports proposals asking that a majority of directors be independent. The Fund generally supports proposals asking that a board audit, compensation, and/or nominating committee be composed
exclusively of independent directors.
|
•
| The Fund generally votes against shareholder proposals to require a company to nominate more candidates than the number of open board seats.
|
•
| The Fund generally supports shareholder proposals to reduce a super-majority vote requirement, and opposes management proposals to add a super-majority vote requirement.
|
•
| The Fund generally supports proposals to allow shareholders the ability to call special meetings.
|
•
| The Fund generally votes for proposals that remove restrictions on or provide the right of shareholders to act by written consent independently of management taking into account the company’s specific
governance provisions including right to call special meetings, poison pills, vote standards, etc. on a case-by-case basis.
|
•
| The Fund generally votes against proposals to create a new class of stock with superior voting rights.
|
•
| The Fund generally votes against proposals to classify a board.
|
•
| The Fund generally supports proposals to eliminate cumulative voting.
|
•
| The Fund generally votes against proposals to establish a new board committee.
|
•
| The Fund generally votes on management proposals seeking approval to exchange/reprice options on a case-by-case basis.
|
•
| The Fund votes on qualified employee stock purchase plans on a case-by-case basis. The Fund generally supports non-qualified employee stock purchase plans that feature broad-based participation, limits on employee
contribution, company matching up to 25%, and no discount on the stock price on the date of purchase.
|
•
| The Fund generally supports transfer stock option (“TSO”) programs, if executive officers and non-employee directors are excluded from participating, if stock options are purchased from third-party
financial institutions at a discount to their fair value using option pricing models, and if there is a two-year minimum holding period for sale proceeds. The Fund generally votes against equity plan proposals if the
details of ongoing TSO programs are not provided to shareholders.
|
•
| The Fund generally supports proposals to require majority voting for the election of directors.
|
•
| The Fund generally supports proposals seeking additional disclosure of executive and director pay information.
|
•
| The Fund generally supports proposals seeking disclosure regarding the company’s, board’s or committee’s use of compensation consultants.
|
•
| The Fund generally supports “pay-for-performance” and “pay-for-superior-performance standard” proposals that align a significant portion of total compensation of senior executives to company
performance, and generally supports an annual frequency for advisory votes on executive compensation.
|
•
| The Fund generally supports having shareholder votes on poison pills.
|
•
| The Fund generally supports proposals calling for companies to adopt a policy of not providing tax gross-up payments.
|
•
| The Fund votes case-by-case on bonus banking/bonus banking “plus” proposals.
|
•
| The Fund generally supports proposals calling for companies to adopt a policy of obtaining shareholder approval for golden coffins/executive death benefits. This would not apply to any benefit programs or equity
plan proposals for which the broad-based employee population is eligible.
|
•
| The Fund generally supports proposals to eliminate accelerated vesting of unvested equity awards to senior executives in the event of change in control (except for pro rata vesting considering the time elapsed and
attainment of any related performance goals between the award date and the change in control).
|
•
| In the case of social, political and environmental responsibility issues, the Fund will generally abstain where there could be a detrimental impact on share value or where the perceived value if the proposal was
adopted is unclear or unsubstantiated.
|
•
| The Fund generally supports proposals that would clearly have a discernible positive impact on short- or long-term share value, or that would have a presently indiscernible impact on
short- or long-term share value but promotes general long-term interests of the company and its shareholders.
|
The Fund is 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 Fund’s Form N-PX filing is available (i) without charge, upon request, by calling
the Fund toll-free at 1.800.525.7048 and (ii) on the SEC’s website at www.sec.gov.
Pending
Litigation. In 2009, several putative class action lawsuits were filed and later consolidated
before the U.S. District Court for the District of Colorado in connection with the investment performance of Oppenheimer Rochester
California Municipal Fund (the “California Fund”), a fund advised by OppenheimerFunds, Inc. (“OFI”) and
distributed by OppenheimerFunds Distributor, Inc. (“OFDI”). The plaintiffs asserted claims against OFI, OFDI and certain
present and former trustees and officers of the California Fund under the federal securities laws, alleging, among other things,
that the disclosure documents of the California Fund contained misrepresentations and omissions and the investment policies of
the California Fund were not followed. An amended complaint and a motion to dismiss were filed, and in 2011, the court
issued
an order which granted in part and denied in part the defendants’ motion to dismiss. In October 2015, following a successful
appeal by defendants and a subsequent hearing, the court granted plaintiffs’ motion for class certification and appointed
class representatives and class counsel.
OFI and the Distributor believe
the suit is without merit; that it is premature to render any opinion as to the likelihood of an outcome unfavorable to them in the suit; and that no estimate can yet be made as to the amount or range of any potential
loss. Furthermore, OFI believes that the suit should not impair the ability of OFI or OFDI to perform their respective duties to the Fund and that the outcome of the suit should not have any material effect on the
operations of any of the Oppenheimer funds.
Portfolio Managers. Each Fund’s portfolio is managed by the following:
Fund
| Portfolio Manager(s)
|
Capital Appreciation Fund/VA
| Michael Kotlarz
|
Conservative Balanced Fund/VA
| Magnus Krantz, Krishna Memani
|
Core Bond Fund/VA
| Krishna Memani, Peter A. Strzalkowski
|
Discovery Mid Cap Growth Fund/VA
| Ronald Zibelli, Jr., Justin Livengood
|
Equity Income Fund/VA
| Michael Levine
|
Global Fund/VA
| Rajeev Bhaman
|
Global Multi-Alternatives
Fund/VA | Mark Hamilton, David Wharmby, Brian
Watson, Benjamin Rockmuller, Dokyoung Lee |
Global Strategic Income Fund/VA | Michael Mata, Krishna Memani, Chris Kelly, Ruta
Ziverte |
Government Money Fund/VA
| Christopher Proctor, Adam Wilde
|
International Growth Fund/VA
| George Evans, Robert Dunphy
|
Main Street Fund/VA
| Manind “Mani” Govil, Benjamin Ram, Paul Larson
|
Main Street Small Cap Fund/VA
| Matthew Ziehl, Raymond Anello, Raman Vardharaj, Joy Budzinski, Kristen Ketner, Magnus Krantz, Adam Weiner
|
Each of the above individuals is
referred to as a “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.
Other
Accounts Managed. In addition to managing the Funds’ investment portfolio, Messrs. Anello,
Bhaman, Dunphy, Evans, Govil, Hamilton, Kelly, Krantz, Kotlarz, Larson, Lee, Levine, Livengood, Mata, Memani, Proctor, Ram, Rockmuller,
Strzalkowski, Vardharaj, Watson, Weiner, Wilde, Wharmby, Zibelli and Ziehl and Mss. Budzinski, Ketner and Ziverte also manage
other investment portfolios or accounts on behalf of the Sub-Adviser or its affiliates. The following tables provide information
regarding those portfolios and accounts as of December 31, 2016 (or as otherwise noted). No portfolio or account has a performance-based
advisory fee:
Fund Name & Portfolio Managers | Registered
Investment
Companies
Managed | Total Assets
in Registered
Investment
Companies
Managed | Other
Pooled
Investment
Vehicles
Managed | Total Assets
in Other
Pooled
Investment
Vehicles
Managed | Other
Accounts
Managed | Total Assets
in Other
Accounts
Managed3 |
Capital Appreciation
Fund/VA |
Michael Kotlarz | ___ | $___ | ___ | $___ | ___ | $___ |
Conservative Balanced
Fund/VA |
Magnus Krantz | ___ | $___ | ___ | $___ | ___ | $___ |
Krishna Memani | ___ | $___ | ___ | $___ | ___ | $___ |
Core Bond/VA |
Krishna Memani | ___ | $___ | ___ | $___ | ___ | $___ |
Peter A. Strzalkowski | ___ | $___ | ___ | $___ | ___ | $___ |
Discovery Mid Cap
Growth Fund/VA |
Ronald J. Zibelli, Jr. | ___ | $___ | ___ | $___ | ___ | $___ |
Fund Name & Portfolio Managers | Registered
Investment
Companies
Managed | Total Assets
in Registered
Investment
Companies
Managed | Other
Pooled
Investment
Vehicles
Managed | Total Assets
in Other
Pooled
Investment
Vehicles
Managed | Other
Accounts
Managed | Total Assets
in Other
Accounts
Managed3 |
Justin Livengood | ___ | $___ | ___ | $___ | ___ | $___ |
Equity Income Fund/VA |
Michael Levine | ___ | $___ | ___ | $___ | ___ | $___ |
Global Fund/VA |
Rajeev Bhaman | ___ | $___ | ___ | $___ | ___ | $___ |
Global Multi-Alternatives
Fund/VA |
Mark Hamilton | ___ | $___ | ___ | $___ | ___ | $___ |
David Wharmby | ___ | $___ | ___ | $___ | ___ | $___ |
Brian Watson | ___ | $___ | ___ | $___ | ___ | $___ |
Benjamin Rockmuller | ___ | $___ | ___ | $___ | ___ | $___ |
Dokyoung Lee | ___ | $___ | ___ | $___ | ___ | $___ |
Global Strategic
Income Fund/VA |
Michael Mata | ___ | $___ | ___ | $___ | ___ | $___ |
Krishna Memani | ___ | $___ | ___ | $___ | ___ | $___ |
Chris Kelly4 | ___ | $___ | ___ | $___ | ___ | $___ |
Ruta Ziverte4 | ___ | $___ | ___ | $___ | ___ | $___ |
Government Money
Fund/VA |
Christopher Proctor | ___ | $___ | ___ | $___ | ___ | $___ |
Adam Wilde | ___ | $___ | ___ | $___ | ___ | $___ |
International Growth
Fund/VA |
George Evans | ___ | $___ | ___ | $___ | ___ | $___ |
Robert Dunphy | ___ | $___ | ___ | $___ | ___ | $___ |
Main Street Fund/VA |
Manind Govil | ___ | $___ | ___ | $___ | ___ | $___ |
Benjamin Ram | ___ | $___ | ___ | $___ | ___ | $___ |
Paul Larson | ___ | $___ | ___ | $___ | ___ | $___ |
Main Street Small
Cap Fund/VA |
Matthew Ziehl | ___ | $___ | ___ | $___ | ___ | $___ |
Raymond Anello | ___ | $___ | ___ | $___ | ___ | $___ |
Joy Budzinski | ___ | $___ | ___ | $___ | ___ | $___ |
Raman Vardharaj | ___ | $___ | ___ | $___ | ___ | $___ |
Kristin Ketner | ___ | $___ | ___ | $___ | ___ | $___ |
Magnus Krantz | ___ | $___ | ___ | $___ | ___ | $___ |
Adam Weiner | ___ | $___ | ___ | $___ | ___ | $___ |
1. | In
billions.
|
2.
| In
millions.
|
3.
| Does not include personal accounts of portfolio managers and their families, which are subject to the Code of Ethics.
|
4.
| Mr. Kelly and Ms. Ziverte joined the Fund’s management team after the fiscal year end, and as such, their “other accounts managed” information is provided as of _____________.
|
As indicated above, a portfolio
manager may also manage other funds and accounts. At different times, a portfolio manager may manage other funds or accounts with investment objectives and strategies similar to, or different from, those of the Funds.
At times, those responsibilities could potentially conflict with the interests of the Funds. That may occur whether the investment objectives and strategies of the other funds and 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 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
Sub-Adviser have the same management fee. If the management fee
structure of another fund or account is more
advantageous to the Sub-Adviser than the fee structure of a Fund, the Sub-Adviser could have an incentive to favor the other fund or account. However, the Sub-Adviser’s compliance procedures and Code of Ethics
recognize the Sub-Adviser’s obligation to treat all of its clients, including the Funds, fairly and equitably, and are designed to preclude a portfolio manager 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.
Compensation of Portfolio
Managers. Portfolio managers are employed and compensated by the Sub-Adviser or an affiliate, not by the Funds. Under the compensation program for portfolio managers and portfolio analysts,
compensation is based primarily on the relative investment performance results of the funds or accounts they manage, rather than on the financial success of the Sub-Adviser. This is intended to align the interests of
the portfolio managers and analysts with the success of the funds and accounts of their shareholders. The compensation structure is designed to attract and retain highly qualified investment management professionals
and to reward individual and team contributions toward creating shareholder value. A portfolio manager’s compensation is not directly based on the total value of assets they manage; however, higher total
compensation potential is likely to align with greater assets under management. The compensation structure is intended to be internally and externally equitable and serve to reduce potential conflicts of interest
arising from a portfolio manager’s responsibilities managing different funds or accounts.
Portfolio manager compensation
generally consists of three components: a base salary, an annual bonus, and eligibility to participate in long-term awards. In general, the average proportion of total compensation among these three components is as
follows: base salary is 15%, annual bonus is 65%, and long-term awards are 20%.
The base pay component for 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 bonus is calculated
based on two factors: a formulaic performance portion and a discretionary portion. In general, the formulaic performance portion is a much larger part of the annual bonus than the discretionary portion. The formulaic
performance portion of the annual bonus is measured against the one, three and five year performance, or performance since inception, as applicable, of the fund(s) relative to an appropriate peer group category
selected by senior management. Performance is measured on a pre-tax basis. The compensation structure is weighted towards long-term performance of the funds, with one year performance weighted at 20%, three year
performance rated at 30%, and five year performance weighted at 50%. This formula has the effect of rewarding consistently above median performance, which best aligns the interests of the portfolio manager and the
shareholder. Below median performance in all three periods results in an extremely low, and in some cases no, formulaic performance based bonus.
The discretionary portion of the
annual bonus is determined by senior management of the Sub-Adviser and is based on a number of factors, including, management quality (such as style consistency, risk management, sector coverage, team leadership and
coaching), contributions to marketing efforts and organizational development.
Finally,
the long-term award component consists of grants in the form of appreciation rights in regard to the common stock of the Sub-Adviser’s
holding company parent, restricted shares of such common stock, as well as deferred cash investments in the fund(s) managed by
a portfolio manager. Portfolio managers must elect to receive either 20% or 40% of their long-term award component in the form
of deferred cash investments in the fund(s) managed. Through this long-term award component, portfolio managers’ interests
are further aligned with those of fund shareholders.
The compensation structure of
other funds and/or accounts managed by a portfolio manager, if any, is generally the same as the compensation structure described above. A portfolio manager’s compensation with regard to other portfolios may be
based on the performance of those portfolios compared to a peer group category that may be different from that described below.
With respect to compensation of
portfolio managers relating to a Fund’s cash management, such compensation reflects aspects unique to that role: The formulaic performance portion of the annual bonus is measured against the one and three year
performance, or performance since inception, as applicable, of the fund(s) relative to appropriate peer group rankings, credit performance and collateral management selected by senior management. Performance is
measured on a pre-tax basis. The compensation structure is weighted at 50% for one year performance and 50% for three year performance. This formula has the effect of rewarding consistently above median performance,
which best aligns the interests of the portfolio manager and the shareholder. Below median performance results in an extremely low, and in some cases no, formulaic performance based bonus. Finally, the long-term award
component consists of two equal portions, the first portion being grants in the form of appreciation rights in regard to the common stock of the Sub-Adviser’s holding company parent, and the second portion being
restricted shares of such common stock.
The
following paragraph applies with respect to the compensation of David Wharmby, who is employed by Barings LLC, a Sub-Sub-Adviser
to Global Multi-Alternatives Fund/VA:
Portfolio
managers are employed and compensated by the Sub-Sub-Adviser, not by the Fund. Under the compensation program for portfolio managers
and portfolio analysts, compensation is based primarily on the relative investment performance results of the funds or accounts
they manage along with the financial success of the Sub-Sub-Adviser. This is intended to align the interests of the portfolio
managers and analysts with the success of the funds and accounts of
their
shareholders. The compensation structure is designed to attract and retain highly qualified investment management professionals
and to reward individual and team contributions toward creating shareholder value. A portfolio manager’s compensation is
not directly based on the total value of assets they manage; however, higher total compensation potential is likely to align with
greater assets under management. The compensation structure is intended to be internally and externally equitable and serve to
reduce potential conflicts of interest arising from a portfolio manager’s responsibilities managing different funds or accounts.
Portfolio manager compensation generally consists of three components: a base salary, an annual bonus, and eligibility to participate
in long-term awards. The base pay component for 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 bonus is determined by senior management
of the Sub-Sub-Adviser and is based on a number of factors, including, the financial results of the Sub-Sub-Adviser and the funds
or accounts managed by the Portfolio Managers, management quality (such as, for example, style consistency, risk management, sector
coverage, team leadership and coaching), contributions to marketing efforts and organizational development. Finally, the long-term
incentive program, which is offered to key individuals at the Sub-Sub-Adviser, is an additional component of individual compensation.
The contributions are paid out over a three-year period beginning in the third year following the year for which the contribution
was made. Participants are not vested in the balances until paid, creating an incentive for these key personnel to remain with
Barings LLC on a long-term basis. The compensation structure of other funds and accounts managed by a portfolio manager, if any,
is generally the same as the compensation structure described above. A portfolio manager’s compensation with regard to other
portfolios may be based on the performance of those portfolios compared to a peer group category that may be different from that
described below.
The peer group categories with
respect to the Funds are listed below.
Fund Name and Portfolio Managers
| Peer Group Category
|
Capital Appreciation Fund/VA
Michael Kotlarz
| Morningstar Large Growth
|
Conservative Balanced Fund/VA
Magnus Krantz (Equity Sleeve)
| Morningstar Large Blend
|
Krishna Memani (Fixed Income Sleeve)
| Morningstar Intermediate Term Bond
|
Core Bond Fund/VA
Krishna Memani
Peter A. Strzalkowski
| Morningstar Intermediate-Term Bond
|
Discovery Mid Cap Growth Fund/VA
Ronald Zibelli, Jr.
Justin Livengood
| Morningstar Mid-Cap Growth
|
Equity Income Fund/VA
Michael Levine
| Morningstar Large Cap Value
|
Global Fund/VA
Rajeev Bhaman
| Morningstar World Stock
|
Global Multi-Alternatives Fund/VA
Mark Hamilton
David Wharmby
Brian Watson
Benjamin Rockmuller
Dokyoung Lee | Morningstar Multialternative |
Global Strategic Income Fund/VA
Michael Mata
Krishna Memani
Chris Kelly
Ruta Ziverte | Morningstar Multisector Bond |
Government Money Fund/VA
Christopher Proctor
Adam Wilde | iMoney 1st Tier Retail |
International Growth Fund/VA
George Evans
Robert Dunphy
| Morningstar Foreign Large Growth
|
Main Street Fund/VA
Manind “Mani” Govil
Benjamin Ram
Paul Larson
| Morningstar Large Blend
|
Main Street Small Cap Fund/VA
Matthew Ziehl
Raymond Anello
Raman Vardharaj
Joy Budzinski
Kristin Ketner
Magnus Krantz
Adam Weiner
| Morningstar Small Blend
|
Ownership of Fund Shares. As of December 31, 2015, the Portfolio Managers did not beneficially own any shares of the Funds, which are sold only through insurance companies to their contract owners.
Organization
and Management of Wholly-Owned Subsidiaries. Each of Global Strategic Income Fund/VA and Global
Multi-Alternatives Fund/VA may invest up to 25% of its total assets in its Subsidiary. It is expected that Global Strategic Income
Fund/VA’s Subsidiary will invest primarily in Regulation S securities. Global Multi-Alternatives Fund/VA’s Subsidiary
may also invest in certain fixed-income securities and other investments that may serve as margin or collateral for its derivatives
positions.
Each Subsidiary is an exempted
company incorporated under the laws of the Cayman Islands, whose registered office is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The
Subsidiaries’ affairs are overseen by a board of directors consisting of the following directors:
Sophia A. Dilbert: Ms. Dilbert serves as an independent director on a wide range of alternative investment funds, including fund of funds, hedge funds, private equity funds and segregated portfolio
companies. Ms. Dilbert works at MaplesFS, which she joined in 2012. Prior to joining MaplesFS, Ms. Dilbert was Global Head of Legal at Admiral Administration Ltd. in the Cayman Islands, starting there in 2007, where
she was responsible for advising on all legal and regulatory matters. Ms. Dilbert was also responsible for the implementation of global policies and procedures. Prior to that, Ms. Dilbert worked for Stuart Walker
Hersant as a senior associate in the Cayman Islands, specializing in investment funds and general corporate law. Ms. Dilbert commenced her career with Maples and Calder where she spent eight years as an associate
attorney specializing in capital markets and investment funds. Her area of practice also included general corporate and commercial law, real estate, immigration and employment matters. Ms. Dilbert graduated from the
University of Liverpool with a Bachelor of Laws with Honours. She is an Attorney-at-Law and is a member of the Caymanian Bar Association, the Cayman Islands Law Society and the Honourable Society of Middle Temple in
the United Kingdom. She is a member of the Cayman Islands Directors Association and a member of the Council of the Cayman Islands Stock Exchange.
Letitia Solomon: Ms. Solomon serves as an independent director on a wide range of alternative investment funds including fund of funds, hedge funds, private equity funds, and segregated portfolio
companies. Ms. Solomon works at MaplesFS, which she joined in 2008. Prior to joining MaplesFS, Ms. Solomon worked at Deloitte in the Cayman Islands as a senior manager from 2005 to 2007, where she was responsible for
a team of consultants providing consulting services to private and public sector entities. Prior to that, Ms. Solomon worked in the Ministry of Finance of the Cayman Islands Government as an assistant financial
secretary starting there in 1996. During her time there, Ms. Solomon developed regulatory policy and guidelines for the financial services industry, liaised with the financial services associations in considering
regulatory issues impacting the industry as well as changes to legislation, regulations, anti-money laundering policies, procedures and guidance notes and provided general administration and oversight of the affairs
and business of the Cayman Islands Monetary Authority (“CIMA”). Ms. Solomon commenced her career with CIMA where she spent nine years providing supervision and regulation of financial services entities and
ensuring compliance with relevant laws and regulations. She is also a former director of the board of CIMA. Ms. Solomon graduated from the University of South Florida with a Bachelor of Science Degree in Finance. She
holds a MBA from Edinburgh University, Scotland. Ms. Solomon has also received the Accredited Director designation from the Chartered Secretaries Canada. She is a member of the Cayman Islands Directors
Association.
Brian S. Petersen: Mr. Petersen’s biographical information appears above in the chart “Other Officers of the Funds.”
The services of Sophia A.
Dilbert and Letitia Solomon are being provided by Maples Fiduciary Services (Cayman) Limited (“MaplesFS”), a regulated entity in the Cayman Islands.
MaplesFS has entered into a
Director Services Agreement with each Subsidiary which sets out the terms on which it will provide the services of Sophia A. Dilbert and Letitia Solomon.
The directors provided by
MaplesFS are non-executive directors of each Subsidiary. They may be engaged in any other business and/or be concerned or interested in or act as directors or officers of any other company or entity. Neither MaplesFS
nor any of the directors supplied by MaplesFS are responsible for (i) the commercial structuring of a Subsidiary
or its investment strategy, (ii) the purchase
or sale of any investment on behalf of a Subsidiary (which is the responsibility solely of the Investment Manager), (iii) the valuation of the assets of a Subsidiary, or (iv) any loss or damage caused by the acts or
omissions of the Manager, any other service provider to a Subsidiary, or any of their delegates or sub-delegates unless any such loss or damage is actually occasioned by the actual fraud, willful default or gross
negligence (as defined in the Director Services Agreement) of the directors supplied by MaplesFS.
To the extent that the
Subsidiary’s directors are considered “commodity pool operators” subject to registration with the CFTC, each Director has delegated to OFI Global Asset Management, Inc. his or her rights and
responsibilities as a “commodity pool operator” with respect to the Subsidiary.
Each Subsidiary’s Articles
of Association (the “Articles”) provide that every director and officer of the Subsidiary shall be indemnified out of the assets of the Subsidiary against any liability incurred as a result of any act or
failure to act in carrying out his or her functions other than such liability (if any) that may be incurred by reason of the actual fraud, willful default or gross negligence of such director or officer. The Articles
also provide that no such director or officer shall be liable to the Subsidiary for any loss or damage in carrying out his or her functions unless that liability arises through the actual fraud, willful default or
gross negligence of such director or officer.
The Director Services Agreement
provides that none of MaplesFS or any of the directors provided by the Maples Group shall be liable to the Subsidiary under or in connection with the Director Services Agreement in an amount more than that specified
in the Agreement, except in circumstances where such liability was caused by the actual fraud of MaplesFS or, as the case may be, any of the directors provided by the Maples Group.
Each Subsidiary has entered into
separate contracts with the Manager for the management of its portfolio. Each Subsidiary has also entered into arrangements with KPMG LLP to serve as the Subsidiary’s independent auditor. Each Subsidiary has
also entered into arrangements with JP Morgan Chase Bank to serve as the Subsidiary’s custodian, and with OppenheimerFunds Services to serve as the Subsidiary’s transfer agent. Each Subsidiary has adopted
compliance policies and procedures that are substantially similar to the policies and procedures adopted, respectively, by Global Strategic Income Fund/VA and Global Multi-Alternatives Fund/VA. Global Strategic Income
Fund/VA’s and Global Multi-Alternatives Fund/VA’s Chief Compliance Officer oversees implementation of the Subsidiaries’ policies and procedures, and makes periodic reports to each Fund’s Board
regarding its Subsidiary’s compliance with its policies and procedures.
Global Strategic Income Fund/VA
and Global Multi-Alternatives Fund/VA each pays the Manager a fee for its services. The Manager has contractually agreed to waive the management fee it receives from each Fund in an amount equal to the management fee
paid to the Manager by the Subsidiary. This undertaking will continue in effect for as long as each Fund invests in its Subsidiary, and may not be terminated by the Manager unless the Manager first obtains the prior
approval for such termination from the Board of Trustees of Global Strategic Income Fund/VA and Global Multi-Alternatives Fund/VA. Each Subsidiary will bear the fees and expenses incurred in connection with the
custody, transfer agency, and audit services that it receives. Both Global Strategic Income Fund/VA and Global Multi-Alternatives Fund/VA expects that the expenses borne by its Subsidiary will not be material in
relation to the value of each Fund’s respective assets. It is also anticipated that each Fund’s own expenses will be reduced to some extent as a result of the payment of such expenses at the Subsidiary
level. It is therefore expected that each Fund’s investment in the Subsidiary will not result in it paying duplicative fees for similar services provided to the Fund and its Subsidiary.
Please refer to the section
titled “Distributions and Taxes” for information about certain tax aspects of Global Strategic Income Fund/VA’s and Global Multi-Alternative Fund/VA’s investment in the Subsidiaries.
Brokerage Policies of the Funds
Brokerage Provisions of the
Investment Advisory Agreements and the Sub-Advisory Agreements. One of the duties of the Sub-Adviser under the sub-advisory agreements is to arrange the portfolio transactions for the Funds. The sub-advisory agreements contain provisions relating to
the employment of broker-dealers for that purpose. The Sub-Advisory agreements authorize the Sub-Adviser to employ broker-dealers, including “affiliated brokers,” as that term is defined in the Investment
Company Act, that the Sub-Adviser thinks, in its best judgment based on all relevant factors, will implement the policy of the Funds to obtain the “best execution” of the Funds’ portfolio
transactions. “Best execution” means executing trades in a manner such that the total costs or proceeds are the most favorable under the circumstances. Some of the circumstances that may influence this
decision are: cost (brokerage commission or dealer spread), size of order, difficulty of order, and the firm’s ability to provide prompt and reliable execution. The Sub-Adviser need not seek competitive
commission bidding. However, the Sub-Adviser 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 their Board of Trustees. The Funds are not required to pay the lowest available commission.
Under the investment advisory
and sub-advisory agreements, in choosing brokers to execute portfolio transactions for the Funds, the Manager and the Sub-Adviser 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 and Sub-Adviser make a good faith determination that the commission is fair and reasonable in relation to the services
provided.
Brokerage Practices Followed by
the Sub-Adviser. The Sub-Adviser allocates brokerage for the Funds subject to the provisions of the sub-advisory agreements and other applicable rules and procedures described below.
The Sub-Adviser’s
portfolio traders allocate brokerage based upon recommendations from the Sub-Adviser’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 Sub-Adviser’s executive officers supervise the allocation of brokerage.
For
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 Sub-Adviser 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, a 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
Sub-Adviser 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 that Fund, which could affect the supply and price of the
securities. When possible, the Sub-Adviser tries to combine concurrent orders to purchase or sell the same security by more than one of the accounts managed by the Sub-Adviser or its affiliates. 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.
Rule 12b-1 under the Investment
Company Act prohibits any fund from compensating a broker or dealer for promoting or selling the fund’s shares by (1) directing to that broker or dealer any of the fund’s 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 fund’s 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 fund’s brokerage for the purpose of rewarding
broker-dealers for selling the fund’s 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 and the Sub-Adviser have 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 Sub-Adviser’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, the Sub-Adviser and the Distributor from entering into agreements or understandings under which the Sub-Adviser 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 and
sub-advisory agreements permit the Manager and the Sub-Adviser 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 and the Sub-Adviser 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 or Sub-Adviser in a non-research capacity (such as bookkeeping or other administrative functions), then only the percentage or component that
provides assistance to the Manager or Sub-Adviser in the investment decision making process may be paid in commission dollars.
Although
the Manager and the Sub-Adviser currently do not do so, the Board of Trustees may permit the Manager and the Sub-Adviser to use
stated commissions on secondary fixed-income agency trades to obtain research if the broker
represents
to the Manager or Sub-Adviser 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 and Sub-Adviser 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 and the Sub-Adviser.
That research provides additional views and comparisons for consideration, and helps the Manager and the Sub-Adviser 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 and the Sub-Adviser provide information to the Board about the commissions paid to brokers furnishing
such services, together with the Manager’s and the Sub-Adviser’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, 2014, 2015 and 2016, the Fund paid the total brokerage commissions indicated in the chart
below.
The change in total brokerage
commissions paid by each of Discovery Mid Cap Growth Fund/VA and Global Multi-Alternatives Fund/VA in the two fiscal years prior to the most recently completed fiscal year was due to portfolio repositioning
necessitated by the evolving macroeconomic environment and/or changing market dynamics. The change in total brokerage commissions paid by International Growth Fund/VA in the two fiscal years prior to the most recently
completed fiscal year was due to a sell-off in 2014 of certain issuers necessitated by such issuers’ sizes and the resumption of normal trading activity in 2015. The change in total brokerage commissions paid by
Main Street Fund/VA in the two fiscal years prior to the most recently completed fiscal year was due to changing market conditions resulting in reduced trading activity.
Total Brokerage Commissions
Paid by the Funds* |
Fund | 2014 | 2015 | 2016 |
Capital Appreciation Fund/VA | $449,625 | $441,975 | |
Conservative Balanced Fund/VA | $51,137 | $68,147 | |
Core Bond Fund/VA | $6,357 | $8,495 | |
Discovery Mid Cap Growth Fund/VA | $713,426 | $450,077 | |
Equity Income Fund/VA | $8,703 | $7,818 | |
Global Fund/VA | $806,433 | $820,021 | |
Global Multi-Alternatives Fund/VA | $200,887 | $2,749,626 | |
Global Strategic Income Fund/VA | $107,879 | $51,736 | |
Government Money Fund/VA | $0 | $0 | |
International Growth Fund/VA | $371,808 | $211,959 | |
Main Street Fund/VA | $705,495 | $557,192 | |
Main Street Small Cap Fund/VA | $1,062,639 | $894,249 | |
*
| Amounts do not include spreads or commissions on principal transactions on a net trade basis.
|
During
the fiscal year ended December 31, 2016, 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 Firms that
Provide Research
| Aggregate Transactions
by Firms that
Provide Research
|
________ | $______ | $______ |
Regular
Broker-Dealers. If the Fund has acquired during its most recent fiscal year, securities of its
regular brokers or dealers as defined in Rule 10b-1 under the Investment Company Act or of their parents, the following table
identifies those regular brokers or dealers or their parents that derived more than 15% of their gross revenues from the business
of a broker, a dealer, an underwriter, or an investment adviser as of the fiscal year ended December 31, 2016:
Name of Regular Broker or Dealer or
Parent of Regular Broker or Dealer
| Aggregate Holdings of the Securities of the Issuer
as of the Fiscal Year Ended December 31, 2016
|
_____________________ | $________ |
Distribution and Service Arrangements
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.
Distribution and Service (12b-1)
Plans. Each Fund has adopted a Distribution and Service Plan under Rule 12b-1 of the Investment Company Act (a “Plan”) for its Service shares. Each Fund that offers Service 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, 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 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 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, 2014, the Board had set no minimum asset amount. For the fiscal year ended December 31, 2015, all payments made under the Service share Plan were paid by
the Distributor, to Recipients (including Recipients affiliated with the Manager).
The
Service shares payments during the fiscal year ended December 31, 2016, for all Funds having Service shares outstanding as of
that date, were as follows:
Fund | Service Plan Payments by OFDI |
________________ | $______ |
Under the Plans, the Sub-Adviser 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 Sub-Adviser 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. 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 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.
A plan states that while it is
in effect, the selection and nomination of these Trustees of the Trust who are not “interested persons” of the Trust are committed to the discretion of the Independent Trustees. This does not prevent the
involvement of others in the selection and nomination process as long as the final decision as to selection or nomination is approved by a majority of the Independent Trustees.
Payments to Financial
Intermediaries
Financial intermediaries may
receive various forms of compensation or reimbursement in the form of 12b-1 distribution and service plan payments as described in the preceding section. They may also receive payments or concessions from the
Distributor, derived from sales charges paid by the financial intermediary’s clients, also described in this SAI. In addition, the Sub-Adviser, the Transfer Agent, Sub-Transfer Agent and the Distributor may make
payments to broker-
dealers, other financial intermediaries or to
service providers for some or all of the following services: distribution, promotional and marketing support, operational and recordkeeping, sub-accounting, networking and administrative services.
The types of financial
intermediaries that may receive compensation for providing such services include, but are not limited to, broker-dealers, financial advisors, registered investment advisers, sponsors of fund
“supermarkets,” sponsors of fee-based advisory or wrap fee-based programs, sponsors of college and retirement savings programs, banks, trust companies, retirement plan or qualified tuition program
administrators, third party administrators, financial intermediaries that offer products that hold Fund shares, and insurance companies that offer variable annuity or variable life insurance products.
Types of payments to financial
intermediaries may include, without limitation, all or portions of the following:
1.
| Payments made by the Fund, or by an investor buying or selling shares of the Fund, including:
|
•
| ongoing asset-based distribution and/or service fees (described in the section “Distribution and Service Arrangements - Distribution and Service (12b-1) Plans” above).
|
2.
| Payments made by the Transfer Agent or Sub-Transfer Agent to financial intermediaries, to compensate or reimburse them for
services provided, such as sub-transfer agency services for shareholders or retirement plan participants, omnibus accounting
or sub-accounting, participation in networking arrangements, operational and recordkeeping and other administrative services.
These payments are made out of the Transfer Agent’s or Sub-Transfer Agent’s own resources and/or assets, including
from the revenues or profits derived from the transfer agency fees the Transfer Agent receives from the Fund.Financial intermediaries
will not receive any transfer agent fees, operational and recordkeeping, networking or sub-accounting fees, administrative
fees, 12b-1 fees, commission payments, or so called “finder’s fees” for Class I shares. |
3.
| In addition, the Sub-Adviser or Distributor may, at their discretion, make the following types of payments from their own resources and/or assets, including from the revenues or
profits derived from the advisory fees the Sub-Adviser receives from the Manager for sub-advisory services on behalf of the Fund. Payments are made based on the guidelines established by the Sub-Adviser and
Distributor, subject to applicable law. These payments are often referred to as “revenue sharing” payments, and may include, but are not limited to:
|
•
| compensation for marketing or promotional support, support provided in offering shares in the Fund or other Oppenheimer funds through certain trading platforms and programs, and other promotional or marketing
services; and
|
•
| other compensation, to the extent the payment is not prohibited by law or by any self-regulatory agency, such as FINRA.
|
4.
| The Distributor may also provide, accept and/or cover the cost of certain non-cash compensation items, subject to internal policies and applicable FINRA regulations.
|
Although an intermediary that
sells Fund shares may also act as a broker or dealer in connection with the purchase or sale of portfolio securities by the Fund or other Oppenheimer funds, neither the Manager, the Sub-Adviser nor any advisory
affiliate considers a financial intermediary’s sales of shares of the Fund or other Oppenheimer funds when choosing brokers or dealers to effect portfolio transactions for the Fund or other Oppenheimer funds.
Revenue sharing payments can pay
for distribution-related or asset retention items including, without limitation:
•
| charges for setting up access for the Fund or other Oppenheimer funds on particular trading systems;
|
•
| marketing, promotional support and program support, such as expenses related to including the Oppenheimer funds in retirement plans, college savings plans, fee-based advisory or wrap fee-based programs, fund
“supermarkets,” bank or trust company products or insurance companies’ variable annuity or variable life insurance products;
|
•
| placement on the dealer’s list of offered funds;
|
•
| providing representatives of the Distributor with access to a financial intermediary’s sales meetings, sales representatives and management representatives; or
|
•
| firm support, which may include, but is not limited to, business planning assistance, “due diligence” or training meetings, advertising, or educating a financial
intermediary’s sales personnel about the Oppenheimer funds.
|
These payments may provide an
incentive to financial intermediaries to actively market or promote the sale of shares of the Fund or other Oppenheimer funds, or to support the marketing or promotional efforts of the Distributor in offering shares
of the Fund or other Oppenheimer funds. In addition, some types of payments may provide a financial intermediary with an incentive to recommend the Fund or a particular share class. Financial intermediaries may earn
profits on these payments, since the amount of the payments may exceed the cost of providing the services. 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 Fund’s Prospectus and this SAI. You should ask your financial
intermediary for information about any payments it receives from the Fund, the Transfer Agent, Sub-Transfer Agent, Sub-Adviser or the Distributor and any services it provides, as well as the fees and commissions it
charges.
For the year ended December 31, 2015, the
following financial intermediaries and/or their affiliates (which in some cases are broker-dealers) offered shares of the Oppenheimer funds and received revenue sharing or similar distribution-related payments (of at
least $5,000) from the Sub-Adviser or the Distributor for marketing or program support:
1st Global Capital Corp
|
AIG Life Insurance Company
|
Allianz Life Insurance Company
|
Allstate Life Insurance Company
|
American General Annuity Insurance Company
|
American Portfolios Financial Services, Inc.
|
Ameriprise Financial Services, Inc.
|
Ameritas Life Insurance Company
|
AXA Advisors, LLC
|
Bank of America Merrill Lynch
|
Cadaret Grant & Co.
|
Cambridge Investment Research
|
CCO Investment Services Corporation
|
Cetera Financial Group, Inc.
|
Citigroup Global Markets Inc.
|
Commonwealth Financial Network
|
CUNA Brokerage Services, Inc.
|
CUSO Financial Services, LP
|
Edward Jones and Company
|
Fidelity Brokerage Services LLC
|
Genworth Financial, Inc.
|
Goldman Sachs & Co
|
GWFS Equities, Inc.
|
H. Beck, Inc.
|
H.D. Vest Investment Services, Inc.
|
Hartford Life Insurance Company
|
Investacorp, Inc.
|
J.P. Morgan Securities LLC
|
Kemper Investors Life Insurance Company
|
Lincoln Financial Advisors Corporation
|
Lincoln Financial Securities Corporation
|
Lincoln Investment Planning, Inc.
|
Lincoln National Life Insurance Company
|
LPL Financial Corporation
|
Massachusetts Mutual Life Insurance Company
|
MetLife Investors Insurance Company
|
MetLife Securities, Inc.
|
Morgan Stanley Smith Barney LLC
|
National Planning Holdings, Inc.
|
Nationwide Financial Services, Inc.
|
NFP Advisor Services, LLC
|
Northwestern Mutual Investment Services, LLC
|
Oppenheimer & Co. Inc.
|
Pacific Life Insurance Company
|
Park Avenue Securities LLC
|
PNC Investments LLC
|
Protective Life Insurance Company
|
Prudential Investment Management Services LLC
|
Raymond James Financial Services, Inc.
|
RBC Capital Markets LLC
|
Robert W. Baird & Co.
|
Securities America, Inc.
|
Security Benefit Life Insurance Company
|
Signator Investments, Inc.
|
State Farm VP Management Corp.
|
Stifel Nicolaus & Company Incorporated
|
Sun Life Financial
|
Sun Trust Investment Services, Inc.
|
The Guardian Insurance & Annuity Company, Inc.
|
Thrivent Investment Management
|
Triad Advisors
|
UBS Financial Services, Inc.
|
Union Central Life Insurance Company
|
U.S. Bancorp Investments, Inc.
|
Voya Financial
|
Wells Fargo Advisors/First Clearing LLC
|
For the year ended
December 31, 2015, the following financial intermediaries and/or their affiliates (which in some cases are broker-dealers) received payments from the Transfer Agent or Sub-Transfer Agent (of at least $2,500) for
operational and recordkeeping, networking, sub-accounting or administrative services provided:
1st Global Capital Corp
|
ADP Broker-Dealer, Inc.
|
Alerus Retirement Solutions
|
Alliance Benefit Group
|
Allianz Life Insurance Company
|
Allstate Life Insurance Company
|
American General Annuity Insurance Company
|
American United Life Insurance Co.
|
Ameriprise Financial Services, Inc.
|
Ameritas Life Insurance Company
|
Annuity Investors Life Insurance Company
|
Ascensus, Inc.
|
AXA Equitable Life Insurance Company
|
Bank of America Merrill Lynch
|
Benefit Consultants Group
|
Benefit Plans Administrative Services, Inc.
|
Benefit Trust Company
|
Benetech, Inc.
|
Charles Schwab & Co. Inc.
|
CUNA Mutual Group
|
Davenport & Co. LLC
|
David Lerner Associates, Inc.
|
Digital Retirement Solutions
|
Dyatech, LLC
|
E*TRADE Clearing LLC
|
Edward Jones and Company
|
ExpertPlan, Inc.
|
Fidelity Brokerage Services LLC
|
Genworth Financial, Inc.
|
Goldman Sachs & Co.
|
Great-West Life & Annuity Insurance Company
|
GWFS Equities, Inc.
|
H.D. Vest Investment Services, Inc.
|
Hartford Life Insurance Company
|
Hewitt Associates LLC
|
Huntington Asset Services, Inc.
|
ICMA-RC
|
Jefferson National Life Insurance
|
John Hancock Life Insurance Company
|
J.P. Morgan Clearing Corp.
|
Kemper Investors Life Insurance Company
|
Lincoln Financial Advisors Corporation
|
Lincoln Investment Planning Inc.
|
Lincoln National Life Insurance Company
|
LPL Financial Corporation
|
Massachusetts Mutual Life Insurance Company
|
Matrix Settlement & Clearance Services
|
Mercer HR Services
|
MetLife Investors Insurance Company
|
Mid Atlantic Capital Corporation
|
Midland National Life Insurance Company
|
Milliman, Inc.
|
Minnesota Life Insurance Company
|
Morgan Stanley Smith Barney, LLC
|
Nationwide Financial Services, Inc.
|
New York Life Insurance and Annuity Corporation
|
Newport Retirement Services
|
Northwest Plan Services Inc.
|
Oppenheimer & Co. Inc.
|
Pacific Life Insurance Company
|
PenServ Plan Services, Inc.
|
Penson Financial Services
|
People’s Securities, Inc.
|
Pershing LLC
|
Phoenix Life Insurance Company
|
Plan Administrators Inc.
|
PlanMemeber Securities Corporation
|
PNC Bank N.A.
|
Principal Life Insurance Company
|
Protective Life Insurance Company
|
Prudential Investment Management Services LLC
|
Raymond James Financial Services, Inc.
|
RBC Capital Markets, LLC
|
Reliance Trust Co.
|
Robert W. Baird & Co.
|
Sammons Financial Network, LLC
|
Scott & Stringfellow, Inc.
|
Security Benefit Life Insurance Company
|
Security Financial Resources, Inc.
|
SEI Private Trust Company
|
Standard Insurance Company
|
Stifel Nicolaus & Company Incorporated
|
Sun Life Financial
|
T. Rowe Price
|
TD Ameritrade Clearing, Inc.
|
The Guardian Insurance & Annuity Company, Inc.
|
Tiaa-Cref Individual & Institutional
|
Transamerica Life Insurance Co.
|
Transamerica Retirement Services
|
Trust Company of America
|
UBS Financial Services, Inc.
|
Union Central Life Insurance Company
|
U.S. Bank N.A.
|
VALIC Financial Advisors, Inc.
|
Vanguard Group
|
Voya Financial
|
Wells Fargo Advisors LLC/First Clearing LLC
|
Wilmington Trust Company
|
About Your Account
How to Buy 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.
Determination of Net Asset Value
Per Share. The net asset value, or “NAV,” per share for each class of shares of the Fund is determined by dividing the value of the Fund’s net assets attributable to a class by the
number of shares of that class that are outstanding. The NAV is determined as of 4:00 p.m., Eastern time, on each day that the New York Stock Exchange (the “NYSE”) is open, except in the case of a NYSE
scheduled early closing, in which case the Fund will calculate the net asset value of each class of shares as of the NYSE scheduled early closing time (the “Valuation 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, Washington’s Birthday (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 that the NYSE is closed (including weekends and holidays) or after 4:00 p.m. on a regular business day. Because the Fund’s net asset values will not be
calculated on those days, the Fund’s net asset values per share may be significantly affected on 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 Valuation Time.
Changes in the values of
securities traded on foreign exchanges or markets as a result of events that occur after the close of the principal market on which a security is traded, but before the Valuation Time, will not be reflected in the
Fund’s calculation of its net asset values that day unless the investment adviser learns of the event and determines that the event is likely to cause a material change in the value of the security.
Additionally, the investment adviser has contracted with a pricing service or other vendor that provides a methodology to assist in monitoring for significant events that may materially affect the value of one or more
securities of the Fund, or to adjust closing or evaluated prices of securities traded in foreign or domestic markets, based upon factors such as (without limitation) volatility of certain securities markets (measured
by changes in an appropriate market index) and the correlation of a foreign security’s sensitivity to such U.S. market volatility. Subject to the investment adviser’s oversight and review, such methodology
may be used to provide a fair valuation adjustment to market quotations, evaluated prices or other valuations of securities. The Board has adopted valuation procedures for the Fund and has delegated the day-to-day
responsibility for fair value determinations under those procedures to the investment adviser’s “Valuation Committee”. Fair value determinations are subject to review, approval, ratification and
confirmation by the Board at its next scheduled meeting after the fair valuations are determined.
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, methodology for calculating the net asset value, dividends and distributions of each 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).
Securities Valuation. The Funds’ Board of Trustees has established procedures for the valuation of the Funds’ securities. In general those procedures for all Funds other than Government Money
Fund/VA are as follows:
•
| 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.
|
•
| 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 Sub-Adviser 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.
|
•
| 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 Sub-Adviser from two active market makers in the security on the basis of reasonable inquiry.
|
•
| 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 Sub-Adviser 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.
|
•
| 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.
|
•
| Securities (including restricted securities) not having readily-available market quotations are valued at fair value determined under the Board’s procedures. If the Sub-Adviser
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 Sub-Adviser 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 Sub-Adviser 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 Sub-Adviser by a bank, dealer or pricing service that the Sub-Adviser 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 Sub-Adviser. 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 Sub-Adviser 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 a 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 that Fund.
Government Money Fund/VA Net Asset
Valuation Per Share. Government 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. Government 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 Government Money Fund/VA’s net asset value at $1.00 per share. If Government 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 Government 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 Government 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 Government 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 Government 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 Government Money Fund/VA would receive more investment income than if that
Fund were priced at market value.
Fair Value Pricing. Pursuant to Rule 2a-7, Government Money Fund/VA will also calculate a shadow price for periodic review by the Board. For purposes of calculating the shadow price, Government Money Fund/VA
may 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 value is 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, that security may be valued by another method that the Board believes would more accurately reflect
the security’s fair value. 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.
Government Money Fund/VA’s
use of fair value pricing procedures involves subjective judgments and it is possible that the fair value determined for a security may be materially different from the value that could be realized upon the sale of
that security.
Valuation of the Subsidiaries and
their Underlying Investments. The securities valuation procedures for Global Strategic Income Fund/VA and Global Multi-Alternatives Fund/VA are the same used in valuing each respective Subsidiary’s portfolio
investments and shares of each respective Subsidiary.
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 a Fund may determine that
it would be detrimental to the best interests of the remaining shareholders of the Fund to make payment of a redemption order wholly or partly in cash. In that case, the Fund may pay the redemption proceeds in whole
or in part by a distribution “in kind” of liquid portfolio securities from the portfolio of the Fund, 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
Fund/VA, Oppenheimer Main Street Fund®/VA and Oppenheimer Global Strategic Income Fund/VA has elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, each of Oppenheimer Global
Fund/VA, Oppenheimer Main Street Fund®/VA and Oppenheimer Global Strategic Income 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 the Funds 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.
Distributions 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 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 the sum of 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) and 90% of its net tax exempt interest income. 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 investment company taxable 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, all distributions to its shareholders would then
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.
As discussed above, each Fund
needs to satisfy certain requirements relating to the source of its income, diversification of assets, and distribution of income, in order to qualify for favorable U.S. federal tax treatment as a regulated investment
company. If the Fund enters into derivative financial instrument or similar transactions, it will consider the requirements for qualification as a regulated investment company, the expected tax treatment of such
transactions, as well as the applicable regulatory rules and authorities. However, there may be no direct authority specifically addressing the application of the rules applicable to regulated investment companies to
certain potential derivative financial instrument activities, including for instance securities lending activities, that may be entered into by the Fund. As a result, in certain cases, the tax treatment of an activity
entered into by the Fund may be uncertain, and there can be no assurance that the tax authorities in question or a court of law will agree with the Fund’s characterization of a transaction in applying the
qualification requirements for tax treatment as a regulated investment company, or with respect to the recognition of income, deductions, gain, or loss, or any liability for taxes arising from such transaction.
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 thereunder. 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, or any other tax-exempt entity whose ownership of beneficial interests in the company
would not preclude exemption from the excise tax or another regulated investment company that qualifies for this exemption. 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.
Tax
Considerations with Respect to each Subsidiary. Global Strategic Income Fund/VA and Global Multi-Alternatives
Fund/VA may each invest a portion of its assets in its Subsidiary, each of which is classified as a corporation for U.S. federal
income tax purposes. A foreign corporation, such as the Subsidiaries, will generally not be subject to U.S. federal income taxation
unless it is deemed to be engaged in a U.S. trade or business. It is expected that each Subsidiary will conduct its activities
in a manner so as to meet the requirements of a safe harbor under Section 864(b)(2) of the Internal Revenue Code (the “Safe
Harbor”) pursuant to which a Subsidiary, provided it is not a dealer in stocks, securities or commodities, may engage in
trading in stocks or securities (including contracts or options to buy or sell securities) for its own account without being deemed
to be engaged in a U.S. trade or business. Thus, a Subsidiary’s securities and commodities trading activities should not
constitute a U.S. trade or business. However, if certain of a Subsidiary’s activities were determined not to be of the type
described in the Safe Harbor or if a Subsidiary’s gains are attributable to investments in securities that constitute U.S.
real property interests (which is not expected), then the activities of the Subsidiary may constitute a U.S. trade or business,
or be taxed as such.
In
general, a foreign corporation that does not conduct a U.S. trade or business is nonetheless subject to tax at a flat rate of
30 percent on the gross amount of certain U.S.-source income that is not effectively connected with a U.S. trade or business (or
lower tax treaty rate), generally payable through withholding. There is presently no tax treaty in force between the U.S. and
the Cayman Islands that would reduce this rate of withholding tax. Income subject to such a flat tax includes dividends and certain
interest income. The 30 percent tax does not apply to U.S.-source capital gains (whether long-term or short-term) or to interest
paid to a foreign corporation on its deposits with U.S. banks. The 30 percent tax also does not apply to interest which qualifies
as “portfolio interest.” The term “portfolio interest” generally includes interest (including original
issue discount) on an obligation in registered form which has been issued after July 18, 1984 and with respect to which the person,
who would otherwise be required to deduct and withhold the 30 percent tax, received the required statement that the beneficial
owner of the obligation is not a U.S. person within the meaning of the Internal Revenue Code. Under certain circumstances, interest
on bearer obligations may also be considered portfolio interest. Each Subsidiary intends to comply with the provisions of the
Foreign Account tax Compliance Act (“FATCA”) and the intergovernmental agreement signed by the Cayman Islands and
the United States to avoid being subject to the 30% FATCA withholding tax on “withholdable payments” received by the
Subsidiary after June 30, 2014.
Each Subsidiary is wholly-owned,
respectively, by Global Strategic Income Fund/VA or Global Multi-Alternatives Fund/VA. A U.S. person who owns (directly, indirectly or constructively) 10 percent or more of the total combined voting power of all
classes of stock of a foreign corporation is a “U.S. Shareholder” for purposes of the controlled foreign corporation (“CFC”) provisions of the Internal Revenue Code. A foreign corporation is a
CFC if, on any day of its taxable year, more than 50 percent of the voting power or value of its stock is owned (directly, indirectly or constructively) by “U.S. Shareholders.” Because each of Global
Strategic Income Fund/VA and Global Multi-Alternatives Fund/VA is a U.S. person that owns all of the stock of the relevant Subsidiary, each Fund is a “U.S. Shareholder” and its Subsidiary is a CFC. As a
“U.S. Shareholder,” each Fund is required to include in gross income for United States federal income tax purposes all of its Subsidiary’s “subpart F income” (defined, in part, below),
whether or not such income is distributed by the Subsidiary. It is expected that all of the Subsidiary’s income will be “subpart F income.” “Subpart F income” generally includes interest,
original issue discount, dividends, net gains from the disposition of stocks or securities, receipts with respect to securities loans and net payments received with respect to equity swaps and similar derivatives.
“Subpart F income” also includes the excess of gains over losses from transactions (including futures, forward and similar transactions) in any commodities. Each Fund’s recognition of its
Subsidiary’s “subpart F income” will increase its tax basis in the Subsidiary.
Distributions
by the Subsidiaries to Global Strategic Income Fund/VA or Global Multi-Alternatives Fund/VA (as applicable) will be tax-free,
to the extent of its previously undistributed “subpart F income,” and will correspondingly reduce each Fund’s
tax basis in its Subsidiary. “Subpart F income” is generally treated as ordinary income, regardless of the character
of the Subsidiary’s underlying income. If a net loss is realized by the Subsidiaries, such loss is generally not available
to offset the income earned by Global Strategic Income Fund/VA or Global Multi-Alternatives Fund/VA.
In
general, each “U.S. Shareholder” is required to file IRS Form 5471 with its U.S. federal income tax (or information)
returns providing information about its ownership of the CFC and the CFC. In addition, a “U.S. Shareholder” may in
certain circumstances be required to report a disposition of shares in the Subsidiary by attaching IRS Form 5471 to its U.S. federal
income tax (or information) return that it would normally file for the taxable year in which the disposition occurs. In general,
these filing requirements will apply to investors of Global Strategic Income Fund/VA and Global Multi-Alternatives Fund/VA if
the investor is a U.S. person who owns directly, indirectly or constructively (within the meaning of Sections 958(a) and (b) of
the Internal Revenue Code) 10 percent or more of the total combined voting power
of
all classes of voting stock of a foreign corporation that is a CFC for an uninterrupted period of 30 days or more during any tax
year of the foreign corporation, and who owned that stock on the last day of that year.
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
Fund
The Transfer Agent. OFI Global Asset Management, Inc. is the Fund’s Transfer Agent. It serves as the Transfer Agent for a fee based on annual net assets. Shareholder Services, Inc., an affiliate of the
Transfer Agent, doing business as OppenheimerFunds Services, is the Fund’s Sub-Transfer Agent. OppenheimerFunds Services is responsible for maintaining the Fund’s shareholder registry and shareholder
accounting records, and for paying dividends and distributions to shareholders. It also handles shareholder servicing and administrative functions. It also acts as shareholder servicing agent for the other Oppenheimer
funds. Shareholders should direct inquiries about their accounts to OppenheimerFunds Services at the address and toll-free numbers shown on the back cover.
Under the Sub-Transfer Agency
Agreement, the Transfer Agent pays the Sub-Transfer Agent an annual fee in monthly installments, equal to a percentage of the transfer agent fee collected by the Transfer Agent from the Fund, which shall be calculated
after any applicable fee waivers. The fee paid to the Sub-Transfer Agent is paid by the Transfer Agent, not by the Fund.
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 and Sub-Transfer Agent do 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 to the Funds’ Transfer Agent or Sub-Transfer Agent.
The Custodian. JPMorgan Chase Bank is the custodian of the Fund’s cash balances and portfolio securities, except affiliated mutual fund shares. The custodian’s responsibilities include
safeguarding and controlling the Fund’s portfolio securities and handling the delivery of such securities to and from the Fund. It is the practice of the Fund to deal with the custodian in a manner uninfluenced
by any banking relationship the custodian may have with the Manager and its affiliates. The Fund’s cash balances with the custodian in excess of $250,000 are not protected by the Federal Deposit Insurance
Corporation (“FDIC”). Those uninsured balances at times may be substantial. The Sub-Transfer Agent records the Fund’s positions in affiliated mutual fund shares that may be held by the
Fund.
Independent
Registered Public Accounting Firm. _______ serves as the independent registered public accounting
firm for the Fund. _______ audits the Fund’s financial statements and performs other related audit and tax services. _______
also acts as the independent registered public accounting firm for the Manager and certain other funds advised by the Manager
and its affiliates. Audit and non-audit services provided by _______ to the Fund must be pre-approved by the Audit Committee.
Appendix A
Major Shareholders
Control
Persons. Shareholders who beneficially own 25% or more of outstanding shares of a Fund may be
in control of the Fund and may be able to affect the outcome of certain matters presented for a vote of shareholders. As of April
__, 2017, to the best of our knowledge, the following insurance companies held 25% or more of the outstanding shares of the applicable
Fund:
Principal
Holders of Securities. As of April __, 2017, to the best of our knowledge, the only persons
or entities who owned of record or were known by the Fund to own beneficially 5% or more of any class of the Fund’s outstanding
shares are listed below:
TO BE UPDATED
Appendix B
Ratings Definitions
Below are summaries of the
rating definitions used by the nationally recognized statistical rating organizations (“NRSROs”) listed below. Those ratings represent the opinion of the NRSRO as to the credit quality of issues that they
rate. The summaries below are based upon publicly available information provided by the NRSROs.
Moody’s Investors Service,
Inc. (“Moody’s”)
GLOBAL RATING SCALES
Ratings assigned on
Moody’s global long-term and short-term rating scales are forward-looking opinions of the relative credit risks of financial obligations issued by non-financial corporates, financial institutions, structured
finance vehicles, project finance vehicles, and public sector entities. Long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a
default on contractually promised payments and the expected financial loss suffered in the event of default.1 Short-term ratings are assigned to obligations with an original maturity of thirteen months or less and reflect both on the
likelihood of a default on contractually promised payments and the expected financial loss suffered in the event of default.2
Global Long-Term Rating Scale
Aaa: Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa: Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A: Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Baa: Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Ba: Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B: Obligations rated B are considered speculative and are subject to high credit risk.
Caa: Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca: Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
C: Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
Note: Moody’s appends
numerical modifiers 1, 2, and 3 to 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. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by
banks, insurers, finance companies, and securities firms.*
* By their terms, hybrid
securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment if such an omission occurs. Hybrid securities may also be subject to contractually
allowable write-downs of principal that could result in impairment. Together with the hybrid indicator, the long-term obligation rating assigned to a hybrid security is an expression of the relative credit risk
associated with that security.
Global Short-Term Rating Scale
Short-term ratings are assigned
to obligations with an original maturity of thirteen months or less and reflect the likelihood of a default on contractually promised payments.
P-1: Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2: Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP: Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
U.S. MUNICIPAL SHORT-TERM DEBT AND
DEMAND OBLIGATION RATINGS
Short-Term Obligation Ratings
While the global short-term
‘prime’ rating scale is applied to US municipal tax-exempt commercial paper, these programs are typically backed by external letters of credit or liquidity facilities and their short-term prime ratings
usually map to the long-term rating of the enhancing bank or financial institution and not to the municipality’s rating. Other short-term
municipal obligations, which generally have
different funding sources for repayment, are rated using two additional short-term rating scales (i.e., the MIG and VMIG scales discussed below). The Municipal Investment Grade (MIG) scale is used to rate US municipal
bond anticipation notes of up to three years maturity. Municipal notes rated on the MIG scale may be secured by either pledged revenues or proceeds of a take-out financing received prior to note maturity. MIG ratings
expire at the maturity of the obligation, and the issuer’s long-term rating is only one consideration in assigning the MIG rating. MIG ratings are divided into three levels—MIG 1 through MIG 3—while
speculative grade short-term obligations are designated SG.
MIG 1: This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the
market for refinancing.
MIG 2: This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
MIG 3: This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well-established.
SG: This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
Demand Obligation Ratings
In the case of variable rate
demand obligations (VRDOs), a two-component rating is assigned: a long or short-term debt rating and a demand obligation rating. The first element represents Moody’s evaluation of risk associated with scheduled
principal and interest payments. The second element represents Moody’s evaluation of risk associated with the ability to receive purchase price upon demand (“demand feature”). The second element uses
a rating from a variation of the MIG scale called the Variable Municipal Investment Grade (VMIG) scale.
VMIG 1: This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity provider and structural and legal protections
that ensure the timely payment of purchase price upon demand.
VMIG 2: This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections that
ensure the timely payment of purchase price upon demand.
VMIG 3: This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength of the liquidity provider and structural and legal
protections that ensure the timely payment of purchase price upon demand.
SG: This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider that does not have an investment grade short-term
rating or may lack the structural and/or legal protections necessary to ensure the timely payment of purchase price upon demand.
S&P Global Ratings
(“S&P”), a part of McGraw-Hill Financial
ISSUE CREDIT RATINGS
A S&P issue credit rating is
a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on
medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the
currency in which the obligation is denominated. The opinion reflects S&P view of the obligor’s capacity and willingness to meet its financial commitments as they come due, and may assess terms, such as
collateral security and subordination, which could affect ultimate payment in the event of default.
Issue credit ratings can be
either long-term or short-term. 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. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. Medium-term notes are
assigned long-term ratings.
Issue credit ratings are based,
in varying degrees, on S&P analysis of the following considerations:
•
| 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;
|
•
| Nature of and provisions of the obligation and the promise we impute;
|
•
| 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.
|
Issue ratings are an assessment
of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower
priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company
obligations.)
LONG-TERM ISSUE CREDIT RATINGS
AAA: An obligation rated ‘AAA’ has the highest rating assigned by S&P. The obligor’s capacity to meet its financial commitment on the obligation is extremely
strong.
AA: An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is
very strong.
A: An obligation rated ‘A’ is 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’ 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.
BB; B; CCC; CC; and C: Obligations 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’ is less vulnerable to nonpayment than other speculative issues. However, it faces 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’ is 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’ 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. 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’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a default has not yet occurred, but S&P expects default to
be a virtual certainty, regardless of the anticipated time to default.
C: An obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or lower ultimate recovery compared to
obligations that are rated higher.
D: An obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an
obligation are not made on the date due, unless S&P believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30
calendar days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to
automatic stay provisions. An obligation’s rating is lowered to ‘D’ if it is subject to a distressed exchange offer.
NR: This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular obligation as a matter of
policy.
Note: 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.
SHORT-TERM ISSUE CREDIT RATINGS
A-1: A short-term obligation rated ‘A-1’ is rated in the highest category by S&P. 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 vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial
commitments; however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitments.
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 default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when
payments on an obligation are not made on the date due, unless S&P believes that such payments will be made within any stated grace period. However, any stated grace period longer than five business days will be
treated as five business days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation is a virtual certainty, for
example due to automatic stay provisions. An obligation’s rating is lowered to ‘D’ if it is subject to a distressed exchange offer.
MUNICIPAL SHORT-TERM NOTE
RATINGS
An S&P U.S. municipal note
rating reflects S&P opinion about the liquidity factors and market access risks unique to the notes. Notes due in three years or less will likely receive a note rating. Notes with an original maturity of more than
three years will most likely receive a long-term debt rating. In determining which type of rating, if any, to assign, S&P analysis will review the following considerations:
•
| Amortization schedule-the larger the final maturity relative to other maturities, the more likely it will be treated as a note; and
|
•
| 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 determined to possess a very strong capacity to pay debt service is given a plus (+) 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.
ISSUER CREDIT RATINGS
An S&P issuer credit rating
is a forward-looking opinion about an obligor’s overall creditworthiness. This opinion focuses on the obligor’s capacity and willingness to meet its financial commitments as they come due. It does not
apply to any specific financial obligation, as it does not take into account the nature of and provisions of the obligation, its standing in bankruptcy or liquidation, statutory preferences, or the legality and
enforceability of the obligation. Counterparty credit ratings, corporate credit ratings and sovereign credit ratings are all forms of issuer credit ratings. Issuer credit ratings can be either long-term or
short-term.
LONG-TERM ISSUER CREDIT RATINGS
AAA: An obligor rated ‘AAA’ has extremely strong capacity to meet its financial commitments. ‘AAA’ is the highest issuer credit rating assigned by S&P.
AA: An obligor rated ‘AA’ has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree.
A: An obligor rated ‘A’ has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligors in higher-rated categories.
BBB: An obligor rated ‘BBB’ has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitments.
BB; B; CCC; and CC: Obligors rated ‘BB’, ‘B’, ‘CCC’, and ‘CC’ are regarded as having significant speculative characteristics. ‘BB’ indicates the
least degree of speculation and ‘CC’ the highest. While such obligors will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to
adverse conditions.
BB: An obligor rated ‘BB’ is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties and exposure to adverse business,
financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitments.
B: An obligor rated ‘B’ is more vulnerable than the obligors rated ‘BB’, but the obligor currently has the capacity to meet its financial commitments. Adverse
business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitments.
CCC: An obligor rated ‘CCC’ is currently vulnerable, and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments.
CC: An obligor rated ‘CC’ is currently highly vulnerable. The ‘CC’ rating is used when a default has not yet occurred, but S&P expects default to be a virtual
certainty, regardless of the anticipated time to default.
R: An obligor rated ‘R’ is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision the regulators may have the power to
favor one class of obligations over others or pay some obligations and not others.
SD and D: An obligor rated ‘SD’ (selective default) or ‘D’ is in default on one or more of its financial obligations including rated and unrated financial obligations but
excluding hybrid instruments classified as regulatory capital or in non-payment according to terms. An obligor is considered in default unless S&P believes that such payments will be made within five business days
of the due date in the absence of a stated grace period, or within the earlier of the stated grace period or 30 calendar days. A ‘D’ rating is assigned when S&P believes that the default will be a
general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. An ‘SD’ rating is assigned when S&P believes that the obligor has selectively
defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. An obligor’s rating is lowered to
‘D’ or ‘SD’ if it is conducting a distressed exchange offer.
NR: An issuer designated ‘NR’ is not rated.
Note: 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.
SHORT-TERM ISSUER CREDIT
RATINGS
A-1: An obligor rated ‘A-1’ has strong capacity to meet its financial commitments. It is rated in the highest category by S&P. Within this category, certain obligors are
designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitments is extremely strong.
A-2: An obligor rated ‘A-2’ has satisfactory capacity to meet its financial commitments. However, it is somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than obligors in the highest rating category.
A-3: An obligor rated ‘A-3’ has adequate capacity to meet its financial obligations. However, adverse economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitments.
B: An obligor rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments;
however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitments.
C: An obligor rated ‘C’ is currently vulnerable to nonpayment that would result in a ‘SD’ or ‘D’ issuer rating, and is dependent upon favorable business,
financial, and economic conditions for it to meet its financial commitments.
R: An obligor rated ‘R’ is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision the regulators may have the power to
favor one class of obligations over others or pay some obligations and not others. Please see S&P issue credit ratings for a more detailed description of the effects of regulatory supervision on specific issues or
classes of obligations.
SD and D: An obligor rated ‘SD’ (selective default) or ‘D’ has failed to pay one or more of its financial obligations (rated or unrated), excluding hybrid instruments
classified as regulatory capital or in nonpayment according to terms, when it came due. An obligor is considered in default unless S&P believes that such payments will be made within any stated grace period.
However, any stated grace period longer than five business days will be treated as five business days. A ‘D’ rating is assigned when S&P believes that the default will be a general default and that the
obligor will fail to pay all or substantially all of its obligations as they come due. An ‘SD’ rating is assigned when S&P believes that the obligor has selectively defaulted on a specific issue or
class of obligations, excluding hybrid instruments classified as regulatory capital, but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. An
obligor’s rating is lowered to ‘D’ or ‘SD’ if it is conducting a distressed exchange offer.
NR: An issuer designated ‘NR’ is not rated.
Fitch Ratings, Inc.
Fitch Ratings’ credit
ratings provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit
ratings are used by investors as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they invested. The agency’s credit ratings cover the global spectrum of
corporate, sovereign (including
supranational and sub-national), financial,
bank, insurance, municipal and other public finance entities and the securities or other obligations they issue, as well as structured finance securities backed by receivables or other financial assets.
The terms “investment
grade” and “speculative grade” have established themselves over time as shorthand to describe the categories ‘AAA’ to ‘BBB’ (investment grade) and ‘BB’ to
‘D’ (speculative grade). The terms “investment grade” and “speculative grade” are market conventions, and do not imply any recommendation or endorsement of a specific security for
investment purposes. “Investment grade” categories indicate relatively low to moderate credit risk, while ratings in the “speculative” categories either signal a higher level of credit risk or
that a default has already occurred.
A designation of “Not
Rated” or “NR” is used to denote securities not rated by Fitch where Fitch has rated some, but not all, securities comprising an issuance capital structure.
Credit ratings express risk in
relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss. For information about the historical performance of ratings please refer
to Fitch’s Ratings Transition and Default studies which detail the historical default rates and their meaning. The European Securities and Markets Authority also maintains a central repository of rating default
rates.
Fitch Ratings’ credit
ratings do not directly address any risk other than credit risk. In particular, ratings do not deal with the risk of a market value loss on a rated security due to changes in interest rates, liquidity and other market
considerations. However, in terms of payment obligation on the rated liability, market risk may be considered to the extent that it influences the ability of an issuer to pay upon a commitment. Ratings nonetheless do
not reflect market risk to the extent that they influence the size or other conditionality of the obligation to pay upon a commitment (for example, in the case of index-linked bonds).
In the default components of
ratings assigned to individual obligations or instruments, the agency typically rates to the likelihood of non-payment or default in accordance with the terms of that instrument’s documentation. In limited
cases, Fitch Ratings may include additional considerations (i.e. rate to a higher or lower standard than that implied in the obligation’s documentation). In such cases, the agency will make clear the assumptions
underlying the agency’s opinion in the accompanying rating commentary.
INTERNATIONAL ISSUER AND CREDIT
RATING SCALES
International credit ratings
relate to either foreign currency or local currency commitments and, in both cases, assess the capacity to meet these commitments using a globally applicable scale. As such, both foreign currency and local currency
international ratings are internationally comparable assessments.
The local currency international
rating measures the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled and hence does not take account of the possibility that it will not be possible to convert local
currency into foreign currency, or make transfers between sovereign jurisdictions (transfer and convertibility (T&C) risk).
Foreign currency ratings
additionally consider the profile of the issuer or note after taking into account transfer and convertibility risk. This risk is usually communicated for different countries by the Country Ceiling, which
“caps” the foreign currency ratings of most, though not all, issuers within a given country.
Where the rating is not
explicitly described in the relevant rating action commentary as local or foreign currency, the reader should assume that the rating is a “foreign currency” rating (i.e. the rating is applicable for all
convertible currencies of obligation).
INTERNATIONAL LONG-TERM ISSUER
RATINGS
Rated entities in a number of
sectors, including financial and non-financial corporations, sovereigns and insurance companies, are generally assigned Issuer Default Ratings (IDRs). IDRs opine on an entity’s relative vulnerability to default
on financial obligations. The “threshold” default risk addressed by the IDR is generally that of the financial obligations whose non-payment would best reflect the uncured failure of that entity. As such,
IDRs also address relative vulnerability to bankruptcy, administrative receivership or similar concepts, although the agency recognizes that issuers may also make pre-emptive and therefore voluntary use of such
mechanisms.
In aggregate, IDRs provide an
ordinal ranking of issuers based on the agency’s view of their relative vulnerability to default, rather than a prediction of a specific percentage likelihood of default.
AAA: Highest credit quality. ‘AAA’ ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial
commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA: Very high credit quality. ‘AA’ ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is
not significantly vulnerable to foreseeable events.
A: High credit quality. ‘A’ ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB: Good credit quality. ‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but
adverse business or economic conditions are more likely to impair this capacity.
BB: Speculative. ‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time;
however, business or financial flexibility exists which supports the servicing of financial commitments.
B: Highly speculative. ‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however,
capacity for continued payment is vulnerable to deterioration in the business and economic environment.
CCC: Substantial credit risk. Default is a real possibility.
CC: Very high levels of credit risk. Default of some kind appears probable.
C: Exceptionally high levels of credit risk. Default is imminent or inevitable, or the issuer is in standstill. Conditions that are indicative of a ‘C’ category rating for an
issuer include:
a. the issuer has entered into a
grace or cure period following non-payment of a material financial obligation;
b. the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or
c. Fitch Ratings otherwise believes a condition of ‘RD’ or ‘D’ to be imminent or inevitable, including through the formal announcement of a distressed debt exchange.
RD: Restricted default. ‘RD’ ratings indicate an issuer that in Fitch Ratings’ opinion has experienced an uncured payment default on a bond, loan or other material financial
obligation but which has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased operating. This would include:
a. the selective payment default
on a specific class or currency of debt;
b. the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation;
c. the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; or
d. execution of a distressed debt exchange on one or more material financial obligations.
D: Default. ‘D’ ratings indicate an issuer that in Fitch Ratings’ opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal
winding-up procedure, or which has otherwise ceased business. Default ratings are not assigned prospectively to entities or their obligations; within this context, non-payment on an instrument that contains a deferral
feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance, or by a
distressed debt exchange. “Imminent” default typically refers to the occasion where a payment default has been intimated by the issuer, and is all but inevitable. This may, for example, be where an issuer
has missed a scheduled payment, but (as is typical) has a grace period during which it may cure the payment default. Another alternative would be where an issuer has formally announced a distressed debt exchange, but
the date of the exchange still lies several days or weeks in the immediate future. In all cases, the assignment of a default rating reflects the agency’s opinion as to the most appropriate rating category
consistent with the rest of its universe of ratings, and may differ from the definition of default under the terms of an issuer’s financial obligations or local commercial practice.
Note: The modifiers “+” or “–” may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the
‘AAA’ Long-Term category, or to Long-Term categories below ‘B’.
INTERNATIONAL SHORT-TERM ISSUER
AND ISSUE CREDIT RATINGS
A short-term issuer or
obligation rating is based in all cases on the short-term vulnerability to default of the rated entity or security stream and relates to the capacity to meet financial obligations in accordance with the documentation
governing the relevant obligation. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as “short term” based on market convention. Typically, this means up to 13 months for
corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
F1: Highest short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to denote any exceptionally
strong credit feature.
F2: Good short-term credit quality. Good intrinsic capacity for timely payment of financial commitments.
F3: Fair short-term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate.
B: Speculative short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic
conditions.
C: High short-term default risk. Default is a real possibility.
RD: Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Applicable to entity
ratings only.
D: Default Indicates a broad-based default event for an entity, or the default of a short-term obligation.
DBRS
LONG-TERM OBLIGATIONS
The DBRS® long-term rating scale provides an opinion on the risk of default. That is, the risk that an issuer will fail to
satisfy its financial obligations in accordance with the terms under which an obligations has been issued. Ratings are based on quantitative and qualitative considerations relevant to the issuer, and the relative
ranking of claims. All rating categories other than AAA and D also contain subcategories “(high)” and “(low)”. The absence of either a “(high)” or “(low)” designation
indicates the rating is in the middle of the category.
AAA: Highest credit quality. The capacity for the payment of financial obligations is exceptionally high and unlikely to be adversely affected by future events.
AA: Superior credit quality. The capacity for the payment of financial obligations is considered high. Credit quality differs from AAA only to a small degree. Unlikely to be significantly
vulnerable to future events.
A: Good credit quality. The capacity for the payment of financial obligations is substantial, but of lesser credit quality than AA. May be vulnerable to future events, but qualifying negative
factors are considered manageable.
BBB: Adequate credit quality. The capacity for the payment of financial obligations is considered acceptable. May be vulnerable to future events.
BB: Speculative, non investment-grade credit quality. The capacity for the payment of financial obligations is uncertain. Vulnerable to future events.
B: Highly speculative credit quality. There is a high level of uncertainty as to the capacity to meet financial obligations.
CCC/CC/C: Very highly speculative credit quality. In danger of defaulting on financial obligations. There is little difference between these three categories, although CC and C ratings are normally
applied to obligations that are seen as highly likely to default, or subordinated to obligations rated in the CCC to B range. Obligations in respect of which default has not technically taken place but is considered
inevitable may be rated in the C category.
D: When the issuer has filed under any applicable bankruptcy, insolvency or winding up statute or there is a failure to satisfy an obligation after the exhaustion of grace periods, a
downgrade to D may occur. DBRS may also use SD (Selective Default) in cases where only some securities are impacted, such as the case of a “distressed exchange”.
COMMERCIAL PAPER AND SHORT-TERM
DEBT
The DBRS® short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial
obligations in a timely manner. Ratings are based on quantitative and qualitative considerations relevant to the issuer and the relative ranking of claims. The R-1 and R-2 rating categories are further denoted by the
subcategories “(high),” “(middle),” and “(low).”
R-1 (high): Highest credit quality. The capacity for the payment of short-term financial obligations as they fall due is exceptionally high. Unlikely to be adversely affected by future
events.
R-1 (middle): Superior credit quality. The capacity for the payment of short-term financial obligations as they fall due is very high. Differs from R-1 (high) by a relatively modest degree. Unlikely to
be significantly vulnerable to future events.
R-1 (low): Good credit quality. The capacity for the payment of short-term financial obligations as they fall due is substantial. Overall strength is not as favorable as higher rating categories. May
be vulnerable to future events, but qualifying negative factors are considered manageable.
R-2 (high): Upper end of adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future events.
R-2 (middle): Adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future events or may be exposed to other
factors that could reduce credit quality.
R-2 (low): Lower end of adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future events. A number of
challenges are present that could affect the issuer’s ability to meet such obligations.
R-3: Lowest end of adequate credit quality. There is a capacity for the payment of short-term financial obligations as they fall due. May be vulnerable to future events and the certainty of
meeting such obligations could be impacted by a variety of developments.
R-4: Speculative credit quality. The capacity for the payment of short-term financial obligations as they fall due is uncertain.
R-5: Highly speculative credit quality. There is a high level of uncertainty as to the capacity to meet short-term financial obligations as they fall due.
D: When the issuer has filed under any applicable bankruptcy, insolvency or winding up statute or there is a failure to satisfy an obligation after the exhaustion of grace periods, a
downgrade to D may occur. DBRS may also use SD (Selective Default) in cases where only some securities are impacted, such as the case of a “distressed exchange”.
Kroll Bond Rating Agency
(“KBRA”)
LONG-TERM CREDIT RATINGS
Kroll Bond Rating Agency (KBRA)
assigns credit ratings to issuers and their obligations using the same rating scale. In either case, KBRA’s credit ratings are intended to reflect both the probability of default and severity of loss in the
event of default, with greater emphasis on probability of default at higher rating categories. For obligations, the determination of expected loss severity is, among other things, a function of the seniority of the
claim. Generally speaking, issuer-level ratings assume a loss severity consistent with a senior unsecured claim. KBRA appends an (sf) indicator to ratings assigned to structured finance obligations.
AAA: Determined to have almost no risk of loss due to credit-related events. Assigned only to the very highest quality obligors and obligations able to survive extremely challenging economic
events.
AA: Determined to have minimal risk of loss due to credit-related events. Such obligors and obligations are deemed very high quality.
A: Determined to be of high quality with a small risk of loss due to credit-related events. Issuers and obligations in this category are expected to weather difficult times with low credit
losses.
BBB: Determined to be of medium quality with some risk of loss due to credit-related events. Such issuers and obligations may experience credit losses during stress environments.
BB: Determined to be of low quality with moderate risk of loss due to credit-related events. Such issuers and obligations have fundamental weaknesses that create moderate credit
risk.
B: Determined to be of very low quality with high risk of loss due to credit-related events. These issuers and obligations contain many fundamental shortcomings that create significant credit
risk.
CCC: Determined to be at substantial risk of loss due to credit-related events, or currently in default with high recovery expectations.
CC: Determined to be near default or in default with average recovery expectations.
C: Determined to be near default or in default with low recovery expectations.
D: KBRA defines default as occurring if:
1. There is a missed interest or principal payment on a rated obligation which is unlikely to be recovered.
2. The rated entity files for protection from creditors, is placed into receivership or is closed by regulators such that a missed payment is likely to result.
3. The rated entity seeks and completes a distressed exchange, where existing rated obligations are replaced by new obligations with a diminished economic value.
KBRA may append – or +
modifiers to ratings in categories AA through CCC to indicate, respectively, upper and lower risk levels within the broader category.
SHORT-TERM CREDIT RATINGS
Kroll Bond Rating Agency’s
short-term ratings indicate an ability to meet obligations that typically have maturities of thirteen months or less when issued by corporate entities, financial institutions, and in connection with structured finance
transactions. When applied to municipal obligations, KBRA’s short-term ratings typically indicate an ability to meet obligations of three years or less. Short-term ratings may be assigned to both issuers and to
specific obligations. As compared to long-term ratings, greater emphasis is placed on an obligor’s liquidity profile and access to funding. KBRA appends an (sf) indicator to ratings assigned to structured
finance obligations.
K1: Very strong ability to meet short-term obligations.
K2: Strong ability to meet short-term obligations.
K3: Adequate ability to meet short-term obligations.
B: Questionable ability to meet short-term obligations.
C: Little ability to meet short-term obligations.
D: KBRA defines default as occurring if:
1. There is a missed interest or principal payment on a rated obligation which is unlikely to be recovered.
2. The rated entity files for protection from creditors, is placed into receivership or is closed by regulators such that a missed payment is likely to result.
3. The rated entity seeks and completes a distressed exchange, where existing rated obligations are replaced by new obligations with a diminished economic value.
KBRA may append a + modifier to
ratings in the K1 category to indicate exceptional ability to meet short-term obligations.
Footnotes to Appendix B:
1.
| For
certain structured finance, preferred stock and hybrid securities in which payment default events are either not defined or do not match investors’ expectations for timely payment, the ratings reflect the
likelihood of impairment and the expected financial loss in the event of impairment.
|
2.
| For certain structured finance, preferred stock and hybrid securities in which payment default events are either not defined or do not match investors’ expectations for timely payment, the ratings
reflect the likelihood of impairment.
|
Financial Statements
The Fund’s audited
Financial Statements and the audited financial statements of the Fund’s Subsidiary, each included in the Fund’s Annual Report dated ________, including the notes thereto and the reports of ________
thereon, are each incorporated by reference into this Statement of Additional Information.
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Oppenheimer Variable Account Funds
Website
www.oppenheimerfunds.com
Investment Adviser and
Sub-Adviser
OFI Global Asset Management, Inc. and OppenheimerFunds, Inc.
225 Liberty Street
New York, New York 10281-1008
Distributor
OppenheimerFunds Distributor, Inc.
225 Liberty Street
New York, New York 10281-1008
Transfer Agent and Sub-Transfer
Agent
OFI Global Asset Management, Inc. and
Shareholder Services Inc. doing business as OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1.800.CALL OPP (225.5677)
Custodian Bank
JPMorgan Chase Bank
4 Chase Metro Tech Center
Brooklyn, New York 11245
Independent Registered Public
Accounting Firm
Legal Counsel
Ropes & Gray LLP
191 North Wacker Drive, 32nd Floor
Chicago, Illinois 60606
OPPENHEIMER VARIABLE ACCOUNT FUNDS
FORM N-1A
PART C
OTHER INFORMATION
Item 28. Exhibits
(a) |
(i) |
Agreement and Declaration of Trust dated 8/15/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(ii) |
Schedule A, as amended 4/29/16, to Agreement and Declaration of Trust dated 8/15/12: Previously filed with Registrant’s Post-Effective Amendment No. 79, (04/26/16), and incorporated herein by reference. |
(b) |
By-Laws dated 8/15/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
(c) |
(i) |
Article V of the Agreement and Declaration of Trust dated 8/15/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(ii) |
Article II of the By-Laws: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
(d) |
(i) |
Restated Investment Advisory Agreement for Oppenheimer Capital Appreciation Fund/VA dated 11/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 71, (2/7/14), and incorporated herein by reference. |
|
(ii) |
Investment Sub-Advisory Agreement for Oppenheimer Capital Appreciation Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 73, (4/28/14), and incorporated herein by reference. |
|
(iii) |
Restated Investment Advisory Agreement for Oppenheimer Conservative Balanced Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 66, (4/26/13), and incorporated herein by reference. |
|
(iv) |
Investment Sub-Advisory Agreement for Oppenheimer Conservative Balanced Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 73, (4/28/14), and incorporated herein by reference. |
|
(v) |
Restated Investment Advisory Agreement for Oppenheimer Core Bond Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 66, (4/26/13), and incorporated herein by reference. |
|
(vi) |
Investment Sub-Advisory Agreement for Oppenheimer Core Bond Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 73, (4/28/14), and incorporated herein by reference. |
|
(vii) |
Restated Investment Advisory Agreement for Oppenheimer Discovery Mid Cap Growth Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 66, (4/26/13), and incorporated herein by reference. |
|
(viii) |
Investment Sub-Advisory Agreement for Oppenheimer Discovery Mid Cap Growth Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 73, (4/28/14), and incorporated herein by reference. |
|
(ix) |
Investment Advisory Agreement for Oppenheimer Global Multi-Alternatives Fund/VA dated 8/20/13: Previously filed with Registrant’s Post-Effective Amendment No. 69, (11/6/13), and incorporated herein by reference. |
|
(x) |
Investment Sub-Advisory Agreement for Oppenheimer Global Multi-Alternatives Fund/VA dated 8/20/13: Previously filed with Registrant’s Post-Effective Amendment No. 69, (11/6/13), and incorporated herein by reference. |
|
(xi) |
Investment Sub-SubAdvisory Agreement with Barings, LLC for Oppenheimer Global Multi-Alternatives Fund/VA dated 8/20/13: Previously filed with Registrant’s Post-Effective Amendment No. 69, (11/6/13), and incorporated herein by reference. |
|
(xii) |
Investment Sub-SubAdvisory Agreement with OFI SteelPath, Inc. for Oppenheimer Global Multi-Alternatives Fund/VA dated 8/20/13: Previously filed with Registrant’s Post-Effective Amendment No. 69, (11/6/13), and incorporated herein by reference. |
|
(xiii) |
Restated Investment Advisory Agreement for Oppenheimer Equity Income Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 66, (4/26/13), and incorporated herein by reference. |
|
(xiv) |
Investment Sub-Advisory Agreement for Oppenheimer Equity Income Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 73, (4/28/14), and incorporated herein by reference. |
|
(xv) |
Restated Investment Advisory Agreement for Oppenheimer Global Fund/VA dated 11/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 71, (2/7/14), and incorporated herein by reference. |
|
(xvi) |
Investment Sub-Advisory Agreement for Oppenheimer Global Fund Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 73, (4/28/14), and incorporated herein by reference. |
|
(xvii) |
Restated Investment Advisory Agreement for Oppenheimer Global Strategic Income Fund/VA dated 11/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 71, (2/7/14), and incorporated herein by reference. |
|
(xviii) |
Investment Sub-Advisory Agreement for Oppenheimer Global Strategic Income Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 73, (4/28/14), and incorporated herein by reference. |
|
(xix) |
Restated Investment Advisory Agreement for Oppenheimer Main Street Fund/VA dated 11/01/15: Previously filed with Registrant’s Post-Effective Amendment No. 79, (4/26/16), and incorporated herein by reference. |
|
(xx) |
Investment Sub-Advisory Agreement for Oppenheimer Main Street Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 73, (4/28/14), and incorporated herein by reference. |
|
(xxi) |
Restated Investment Advisory Agreement for Oppenheimer Main Street Small Cap Fund/VA dated 11/01/15: Previously filed with Registrant’s Post-Effective Amendment No. 79, (4/26/16), and incorporated herein by reference. |
|
(xxii) |
Investment Sub-Advisory Agreement for Oppenheimer Main Street Small Cap Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 73, (4/28/14), and incorporated herein by reference. |
|
(xxiii) |
Restated Investment Advisory Agreement for Oppenheimer Government Money Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 66, (4/26/13), and incorporated herein by reference. |
|
(xxiv) |
Investment Sub-Advisory Agreement for Oppenheimer Government Money Fund/VA dated 1/1/13: Previously filed with Registrant’s Post-Effective Amendment No. 73, (4/28/14), and incorporated herein by reference. |
|
(xxv) |
Restated Investment Advisory Agreement for Oppenheimer International Growth Fund/VA dated 11/01/15: Previously filed with Registrant’s Post-Effective Amendment No. 79, (4/26/16), and incorporated herein by reference. |
|
(xxvi) |
Investment Sub-Advisory Agreement for Oppenheimer International Growth Fund/VA dated 11/12/13: Previously filed with Registrant’s Post-Effective Amendment No. 70, (11/25/13), and incorporated herein by reference. |
(e) |
(i) |
General Distributors Agreement for Service shares of Oppenheimer Conservative Balanced Fund/VA dated 5/1/98: Filed with Post-Effective Amendment No. 32, (4/29/98), and incorporated herein by reference. |
|
(ii) |
General Distributors Agreement for Service shares of Oppenheimer Discovery Mid Cap Growth Fund/VA dated 5/1/98: Filed with Post-Effective Amendment No. 32, (4/29/98), and incorporated herein by reference. |
|
(iii) |
General Distributors Agreement for Service shares of Oppenheimer Core Bond Fund/VA dated 5/1/98: Filed with Post-Effective Amendment No. 32, (4/29/98), and incorporated herein by reference. |
|
(iv) |
General Distributors Agreement for Service shares of Oppenheimer Capital Appreciation Fund/VA dated 5/1/98: Filed with Post-Effective Amendment No. 32, (4/29/98), and incorporated herein by reference. |
|
(v) |
General Distributors Agreement for Service shares of Oppenheimer Global Fund/VA dated 5/1/98: Filed with Post-Effective Amendment No. 32, (4/29/98), and incorporated herein by reference. |
|
(vi) |
General Distributors Agreement for Service shares of Oppenheimer Main Street Fund/VA dated 5/1/98: Filed with Post-Effective Amendment 32, (4/29/98), and incorporated herein by reference. |
|
(vii) |
General Distributors Agreement for Service shares of Oppenheimer Main Street Small Cap Fund/VA dated 5/1/98: Filed with Post-Effective Amendment No. 32, (4/29/98), and incorporated herein by reference. |
|
(viii) |
General Distributors Agreement for Service shares of Oppenheimer Government Money Fund/VA dated 5/1/98: Filed with Post-Effective Amendment No. 32, (4/29/98), and incorporated herein by reference. |
|
(ix) |
General Distributors Agreement for Service shares of Oppenheimer Global Strategic Income Fund/VA dated 5/1/98: Filed with Post-Effective Amendment No. 32, (4/29/98), and incorporated herein by reference. |
|
(x) |
General Distributors Agreement for Service shares of Oppenheimer Equity Income Fund/VA dated 10/22/02: Filed with Registrant’s Post-Effective Amendment No. 39, (12/20/02) and incorporated herein by reference. |
|
(xi) |
General Distributors Agreement for Service Shares of Oppenheimer Global Multi-Alternatives Fund/VA dated 8/20/13: Previously filed with Registrant’s Post-Effective Amendment No. 69, (11/6/13), and incorporated herein by reference. |
|
(xii) |
General Distributors Agreement for Service Shares of Oppenheimer International Growth Fund/VA dated 11/12/13: Previously filed with Registrant’s Post-Effective Amendment No. 70, (11/25/13), and incorporated herein by reference. |
|
(xiii) |
Form of Participation Agreement: Previously filed with Registrant’s Post-Effective Amendment No. 52, (4/24/07), and incorporated herein by reference. |
(f) |
Form of Oppenheimer Funds Compensation Deferral Plan, as Amended and Restated Effective 1/1/08: Previously filed with Post-Effective Amendment No. 2 to the Registration Statement of Oppenheimer Portfolio Series Fixed Income Active Allocation Fund (Reg. No. 333-146105), (5/29/09), and incorporated herein by reference. |
(g) |
(i) |
Global Custody Agreement dated 8/16/02, as amended: Previously filed with Post-Effective Amendment No. 51 to the Registration Statement of Oppenheimer Capital Appreciation Fund (Reg. No. 2-69719), (10/23/06), and incorporated herein by reference. |
|
(ii) |
Amendment dated 7/14/16 to the Global Custody Agreement: Previously filed with Post-Effective Amendment No. 16 to the Registration Statement of Oppenheimer Global Value Fund (Reg. No. 333-144517), (8/25/16), and incorporated herein by reference. |
(h) |
Not Applicable. |
(i) |
(i) |
Opinion and Consent of Counsel for Oppenheimer Conservative Balanced Fund/VA dated 8/21/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(ii) |
Opinion and Consent of Counsel for Oppenheimer Capital Appreciation Fund/VA dated 8/21/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(iii) |
Opinion and Consent of Counsel for Oppenheimer Core Bond Fund/VA dated 8/21/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(iv) |
Opinion and Consent of Counsel for Oppenheimer Global Fund/VA dated 8/21/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(v) |
Opinion and Consent of Counsel for Oppenheimer Global Strategic Income Fund/VA dated 8/21/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(vi) |
Opinion and Consent of Counsel for Oppenheimer Main Street Fund/VA dated 8/21/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(vii) |
Opinion and Consent of Counsel for Oppenheimer Main Street Small Cap Fund/VA dated 8/21/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(viii) |
Opinion and Consent of Counsel for Oppenheimer Government Money Fund/VA dated 8/21/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(ix) |
Opinion and Consent of Counsel for Oppenheimer Discovery Mid Cap Growth Fund/VA dated 8/21/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(x) |
Opinion and Consent of Counsel for Oppenheimer Equity Income Fund/VA dated 8/21/12: Previously filed with Registrant’s Post-Effective Amendment No. 64, (8/21/12), and incorporated herein by reference. |
|
(xi) |
Opinion and Consent of Counsel for Oppenheimer Global Multi-Alternatives Fund/VA: Previously filed with Registrant’s Post-Effective Amendment No. 69, (11/6/13), and incorporated herein by reference. |
|
(xii) |
Opinion and Consent of Counsel for Oppenheimer International Growth Fund/VA: Previously filed with Registrant’s Post-Effective Amendment No. 71, (2/7/14), and incorporated herein by reference. |
(j) |
Independent Registered Public Accounting Firm’s Consents: To be filed by subsequent amendment. |
(k) |
Not applicable. |
(l) |
Investment Letter dated 3/14/85 from Monarch Life Insurance Company to Registrant: Previously filed with Registrant’s Post-Effective Amendment No. 37, (4/24/02), and incorporated herein by reference. |
(m) |
(i) |
Amended and Restated Distribution and Service Plan and Agreement for Service shares of Oppenheimer Discovery Mid Cap Growth Fund/VA dated 10/28/05: Previously filed with Registrant’s Post-Effective Amendment No. 48, (04/28/06), and incorporated herein by reference. |
|
(ii) |
Amended and Restated Distribution and Service Plan and Agreement for Service shares of Oppenheimer Conservative Balanced Fund/VA dated 10/28/05: Previously filed with Registrant’s Post-Effective Amendment No. 48, (04/28/06), and incorporated herein by reference. |
|
(iii) |
Amended and Restated Distribution and Service Plan and Agreement for Service shares of Oppenheimer Capital Appreciation Fund/VA dated 10/28/05: Previously filed with Registrant’s Post-Effective Amendment No. 48, (04/28/06), and incorporated herein by reference. |
|
(iv) |
Amended and Restated Distribution and Service Plan and Agreement for Service shares of Oppenheimer Core Bond Fund/VA dated 10/28/05: Previously filed with Registrant’s Post-Effective Amendment No. 48, (04/28/06), and incorporated herein by reference. |
|
(v) |
Amended and Restated Distribution and Service Plan and Agreement for Service shares of Oppenheimer Global Fund/VA dated 10/28/05: Previously filed with Registrant’s Post-Effective Amendment No. 48, (04/28/06), and incorporated herein by reference. |
|
(vi) |
Amended and Restated Distribution and Service Plan and Agreement for Service shares of Oppenheimer Main Street Fund/VA dated 10/28/05: Previously filed with Registrant’s Post-Effective Amendment No. 48, (04/28/06), and incorporated herein by reference. |
|
(vii) |
Amended and Restated Distribution and Service Plan and Agreement for Service shares of Oppenheimer Main Street Small Cap Fund/VA dated 10/28/05: Previously filed with Registrant’s Post-Effective Amendment No. 48, (04/28/06), and incorporated herein by reference. |
|
(viii) |
Amended and Restated Distribution and Service Plan and Agreement for Service shares of Oppenheimer Government Money Fund/VA dated 10/28/05: Previously filed with Registrant’s Post-Effective Amendment No. 48, (04/28/06), and incorporated herein by reference. |
|
(ix) |
Amended and Restated Distribution and Service Plan and Agreement for Service shares of Oppenheimer Global Strategic Income Fund/VA dated 10/28/05: Previously filed with Registrant’s Post-Effective Amendment No. 48, (04/28/06), and incorporated herein by reference. |
|
(x) |
Amended and Restated Distribution and Service Plan and Agreement for Service shares of Oppenheimer Equity Income Fund/VA dated 10/28/05: Previously filed with Registrant’s Post-Effective Amendment No. 48, (04/28/06), and incorporated herein by reference. |
|
(xi) |
Distribution and Service Plan and Agreement for Service shares of Oppenheimer Global Multi-Alternatives Fund/VA dated 8/20/13: Previously filed with Registrant’s Post-Effective Amendment No. 69, (11/6/13), and incorporated herein by reference. |
|
(xii) |
Distribution and Service Plan and Agreement for Service shares of Oppenheimer International Growth Fund/VA dated 11/12/13: Previously filed with Registrant’s Post-Effective Amendment No. 70, (11/25/13), and incorporated herein by reference. |
(n) |
Oppenheimer Funds Multiple Class Plan Pursuant to Rule 18f-3: Previously filed with Post-Effective Amendment No. 1 to the Registration Statement of Oppenheimer Global High Yield Fund (Reg. No. 333-176889), (9/25/14), and incorporated herein by reference. |
(o) |
|
Power of Attorney dated 2/23/16 for all Trustees and Officers: Previously filed with Post-Effective Amendment No. 64 to the Registration Statement of Oppenheimer Integrity Funds (Reg. No. 2-76547), (3/24/16), and incorporated herein by reference. |
(p) |
(i) |
Code of Ethics of the Oppenheimer Funds, Oppenheimer Revenue Weighted ETF Trust, OFI Global Asset Management, Inc. OFI SteelPath, Inc., VTL Associates, LLC, OppenheimerFunds, Inc. (including certain other affiliates and subsidiaries) and OppenheimerFunds Distributor, Inc., effective as of 5/26/16, under Rule 17j-1 of the Investment Company Act of 1940: Previously filed with Post-Effective Amendment No. 18 to the Registration Statement of Oppenheimer Portfolio Series (Reg. No. 333-121449), (5/25/16), and incorporated herein by reference. |
|
(ii) |
Code of Ethics of Barings LLC, dated as of 1/14/15, under Rule 17j-1 of the Investment Company Act of 1940. Previously filed with Post-Effective Amendment No. 6 to the Registration Statement of Oppenheimer Global Multi-Alternatives Fund (Reg. No. 333-184384), (4/27/15), and incorporated herein by reference. |
Item 29. – Persons Controlled by or Under Common
Control with the Fund
None.
Item 30. – Indemnification
Reference is made to the provisions of
Article VII of Registrant’s Agreement and Declaration of Trust filed as Exhibit 28(a) to the Registration Statement and incorporated
herein by reference.
Insofar as indemnification for certain
liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of Registrant
pursuant to the foregoing provisions or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred
or paid by a trustee, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding)
is asserted by such trustee, officer or controlling person, Registrant will, unless in the opinion of its counsel the matter has
been settled by
controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
Item 31. – Business and Other Connections of the
Investment Advisers
(a) |
OFI Global Asset Management, Inc. (the “Manager”) is the manager of the Registrant. The information required by this Item 31 about officers and directors of the Manager, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Form ADV, filed by the Manager pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-76771). |
(b) |
OppenheimerFunds, Inc. (the “Sub-Adviser”) provides advisory services to the Registrant. The information required by this Item 31 about officers and directors of the Sub-Adviser, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Form ADV, filed by the Sub-Adviser pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-8253). |
(c) |
Barings LLC (the “Sub-Sub-Adviser”) provides advisory services to the Registrant. The information required by this Item 31 about officers and directors of the Sub-Sub-Adviser, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Form ADV, filed by the Sub-Sub-Adviser pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-51633). |
(d) |
OFI SteelPath, Inc. (“OFI SteelPath“) provides advisory services to the Registrant. The information required by this Item 31 about officers and directors of OFI SteelPath, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Form ADV, filed by OFI SteelPath pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-77030). |
Item 32. – Principal Underwriter
(a) |
OppenheimerFunds Distributor, Inc. is the Distributor of the Registrant’s shares. It is also the Distributor of each of the registered open-end investment companies listed below and for MassMutual Institutional Funds. |
Oppenheimer Capital Appreciation Fund
Oppenheimer Capital Income Fund
Oppenheimer Core Bond Fund (a series of Oppenheimer Integrity
Funds)
Oppenheimer Corporate Bond Fund
Oppenheimer Developing Markets Fund
Oppenheimer Discovery Fund
Oppenheimer Discovery Mid Cap Growth Fund
Oppenheimer Dividend Opportunity Fund
Oppenheimer Emerging Markets Innovators Fund
Oppenheimer Emerging Markets Local Debt Fund
Oppenheimer Equity Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Global High Yield Fund
Oppenheimer Global Multi-Alternatives Fund
Oppenheimer Global Multi-Asset Growth Fund
Oppenheimer Global Multi-Asset Income Fund
Oppenheimer Global Multi Strategies Fund
Oppenheimer Global Opportunities Fund
Oppenheimer Global Real Estate Fund
Oppenheimer Global Strategic Income Fund
Oppenheimer Global Value Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Government Cash Reserves
Oppenheimer Government Money Market Fund
Oppenheimer Institutional Government Money Market Fund
Oppenheimer International Bond Fund
Oppenheimer International Diversified Fund
Oppenheimer International Equity Fund
Oppenheimer International Growth Fund
Oppenheimer International Growth and Income Fund
Oppenheimer International Small-Mid Company Fund
Oppenheimer Limited-Term Bond Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer Macquarie Global Infrastructure Fund
Oppenheimer Main Street Fund (a series of Oppenheimer Main Street
Funds)
Oppenheimer Main Street Mid Cap Fund
Oppenheimer Main Street Select Fund
Oppenheimer Main Street Small Cap Fund
Oppenheimer Master Event-Linked Bond Fund, LLC
Oppenheimer Master Inflation Protected Securities Fund, LLC
Oppenheimer Master International Value Fund, LLC
Oppenheimer Master Loan Fund, LLC
Oppenheimer Multi-State Municipal Trust (3 series):
Oppenheimer Rochester High Yield Municipal Fund
Oppenheimer Rochester New Jersey Municipal Fund
Oppenheimer Rochester Pennsylvania Municipal Fund
Oppenheimer Portfolio Series (4 series):
Active Allocation Fund
Conservative Investor Fund
Equity Investor Fund
Moderate Investor Fund
Oppenheimer Quest For Value Funds (3 series):
Oppenheimer Fundamental Alternatives Fund
Oppenheimer Global Allocation Fund
Oppenheimer Mid Cap Value Fund
Oppenheimer Real Estate Fund
Oppenheimer Revenue Weighted ETF Trust
Oppenheimer ADR Revenue ETF
Oppenheimer ESG Revenue ETF
Oppenheimer Financials Sector Revenue ETF
Oppenheimer Global ESG Revenue ETF
Oppenheimer Global Growth Revenue ETF
Oppenheimer Large Cap Revenue ETF
Oppenheimer Mid Cap Revenue ETF
Oppenheimer Small Cap Revenue ETF
Oppenheimer Ultra Dividend Revenue ETF
Oppenheimer Rising Dividends Fund
Oppenheimer Rochester AMT-Free Municipal Fund
Oppenheimer Rochester AMT-Free New York Municipal Fund
Oppenheimer Rochester Arizona Municipal Fund
Oppenheimer Rochester California Municipal Fund
Oppenheimer Rochester Fund Municipals
Oppenheimer Rochester Intermediate Term Municipal Fund
Oppenheimer Rochester Limited Term California Municipal Fund
Oppenheimer Rochester Limited Term Municipal Fund (a series
of Oppenheimer Municipal Fund)
Oppenheimer Rochester Limited Term New York Municipal Fund (a
series of Rochester Portfolio Series)
Oppenheimer Rochester Maryland Municipal Fund
Oppenheimer Rochester Massachusetts Municipal Fund
Oppenheimer Rochester Michigan Municipal Fund
Oppenheimer Rochester Minnesota Municipal Fund
Oppenheimer Rochester North Carolina Municipal Fund
Oppenheimer Rochester Ohio Municipal Fund
Oppenheimer Rochester Short Term Municipal Fund
Oppenheimer Rochester Virginia Municipal Fund
Oppenheimer Senior Floating Rate Fund
Oppenheimer Senior Floating Rate Plus Fund
Oppenheimer Small Cap Value Fund
Oppenheimer SteelPath MLP Funds Trust (4 series):
Oppenheimer SteelPath MLP Select 40 Fund
Oppenheimer SteelPath MLP Alpha Fund
Oppenheimer SteelPath MLP Income Fund
Oppenheimer SteelPath MLP Alpha Plus Fund
Oppenheimer SteelPath Panoramic Fund
Oppenheimer Ultra-Short Duration Fund
Oppenheimer Value Fund (a series of Oppenheimer Series Fund)
Oppenheimer Variable Account Funds (12 series):
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Conservative Balanced Fund/VA
Oppenheimer Core Bond Fund/VA
Oppenheimer Discovery Mid Cap Growth Fund/VA
Oppenheimer Equity Income Fund/VA
Oppenheimer Global Fund/VA
Oppenheimer Global Multi-Alternatives Fund/VA
Oppenheimer Global Strategic Income Fund/VA
Oppenheimer Government Money Fund/VA
Oppenheimer International Growth Fund/VA
Oppenheimer Main Street Fund/VA
Oppenheimer Main Street Small Cap Fund/VA
(b) |
The directors and officers of the Registrant’s principal underwriter are: |
Name & Principal
Business Address |
Position & Office
with Underwriter |
Position and Office
with Registrant |
Rina M. Aligaen(2) |
Assistant Vice President |
None |
Anthony P. Allocco(2) |
Assistant Vice President |
None |
Joseph M. Allyn(1) |
Vice President |
None |
Nicole Andersen(2) |
Assistant Vice President |
None |
Charles F. Anderson(1) |
Vice President |
None |
Janette Aprilante(2) |
Secretary |
None |
Rupa Athreya(2) |
Senior Vice President |
None |
Matthew J. Auer(2) |
Vice President |
None |
Kevin K. Babikian(2) |
Assistant Secretary |
None |
Anthony E. Bamonte(2) |
Vice President |
None |
James P. Barker(2) |
Vice President |
None |
Todd M. Barney(1) |
Vice President |
None |
Marina O. Barskaya(2) |
Assistant Vice President |
None |
Leslie A. Bednar(2) |
Assistant Vice President |
None |
Kathleen M. Beichert(1) |
Senior Vice President |
None |
Kimberly A. Belsole(2) |
Vice President |
None |
Rocco Benedetto(2) |
Senior Vice President |
None |
Emanuele S. Bergagnini(2) |
Vice President |
None |
Christopher E. Bergeron(2) |
Vice President |
None |
Rhea M. Berglund(1) |
Vice President |
None |
Rick D. Bettridge(2) |
Vice President |
None |
Kamal Bhatia(2) |
Senior Vice President |
None |
Name & Principal
Business Address |
Position & Office
with Underwriter |
Position and Office
with Registrant |
Adam L. Bilmes(2) |
Vice President |
None |
Paul G. Blease(2) |
Senior Vice President |
None |
Carolyn Boccaccio(2) |
Vice President |
None |
Maria T. Boingeanu(2) |
Assistant Vice President |
None |
Nancy S. Bong(2) |
Vice President |
None |
David A. Borrelli(2) |
Senior Vice President |
None |
Jeffrey R. Botwinick(2) |
Vice President |
None |
Sarah M. Bourgraf(1) |
Vice President |
None |
Matthew Brady(2) |
Assistant Vice President |
None |
Reginald J. Breaux(1) |
Vice President |
None |
Joshua H. Broad(2) |
Vice President |
None |
Kenneth S. Brodsky(2) |
Senior Vice President |
None |
Gregory L. Brown(2) |
Vice President |
None |
Matthew G. Brown(1) |
Vice President |
None |
Ryan M. Buckley(2) |
Vice President |
None |
Megan R. Byrne(2) |
Assistant Vice President |
None |
Clare Cambria(2) |
Vice President |
None |
Mersin Capollari(1) |
Vice President |
None |
Tara Carbonneau(1) |
Vice President |
None |
Sean T. Carey(2) |
Vice President |
None |
Robert M. Caruso(2) |
Vice President |
None |
Rick A. Casagrande(2) |
Assistant Vice President |
None |
Thomas M. Caulfield(1) |
Vice President |
None |
Stephane C. Chevrier(2) |
Vice President |
None |
Michael G. Chewning(1) |
Vice President |
None |
Donelle L. Chisolm(2) |
Vice President |
None |
Andrew S. Chonofsky(2) |
Senior Vice President |
None |
Angelanto L. Ciaglia(2) |
Vice President |
None |
Steven F. Cinquino(2) |
Assistant Vice President |
None |
Nicholas A. Cirbo(1) |
Vice President |
None |
John S. Clark(2) |
Vice President |
None |
Adam M. Cohen(2) |
Assistant Vice President |
None |
Craig U. Colby(2) |
Vice President |
None |
Ryan J. Coleman(1) |
Vice President |
None |
Ellen L. Comisar(2) |
Vice President |
None |
Serina Copanas(2) |
Vice President |
None |
John H. Corcoran(2) |
Vice President |
None |
Cameron T. Cowden(2) |
Vice President |
None |
Neev Crane(2) |
Vice President |
None |
Michael Daley(2) |
Vice President |
None |
Amanda J. Dampier(2) |
Assistant Vice President |
None |
Edward Dane(2) |
Senior Vice President |
None |
Name & Principal
Business Address |
Position & Office
with Underwriter |
Position and Office
with Registrant |
Jeffrey N. Davis(3) |
Vice President |
None |
Stephen D. Degnan(2) |
Vice President |
None |
Ivan A. DelRio(2) |
Vice President |
None |
Richard E. DeMarco(2) |
Assistant Vice President |
None |
Michael R. Dennehy(2) |
Vice President |
None |
Michelle D. DeWitt(2) |
Assistant Vice President |
None |
Christine A. Dinolfo(2) |
Assistant Vice President |
None |
Robert U. Duffey(2) |
Vice President |
None |
Cameron F. Dunford(1) |
Vice President |
None |
Robert B. Dunphy(2) |
Vice President |
None |
Wendy Hetson Ehrlich(2) |
Vice President |
None |
Paul F. Eisenhardt(2) |
Senior Vice President |
None |
Kyle C. Elliott(2) |
Vice President |
None |
Rickey C. Ernzen(3) |
Vice President |
None |
Michael J. Eustic(2) |
Vice President |
None |
Thomas E. Evans(2) |
Vice President |
None |
Gregg A. Everett(2) |
Vice President |
None |
George R. Fahey(1) |
Senior Vice President |
None |
Jason E. Farrell(2) |
Vice President |
None |
Kristie M. Feinberg(2) |
Assistant Treasurer |
None |
Jessica M. Fernandez(2) |
Vice President |
None |
Josean Y. Fernandez(2) |
Vice President |
None |
Michael A. Ferrer(2) |
Vice President |
None |
Jonathan Ferris(4) |
Assistant Vice President |
None |
Mark J. Ferro(2) |
Senior Vice President |
None |
Nicole Filingeri(2) |
Vice President |
None |
Tristan A. Fischer(2) |
Assistant Vice President |
None |
David Ford(2) |
Vice President |
None |
John Fortuna(2) |
Senior Vice President |
None |
Mark D. Foster(1) |
Vice President |
None |
Jayme D. Fowler(2) |
Vice President |
None |
Valeri L. Fox(2) |
Vice President |
None |
Jennifer L. Foxson(2) |
Senior Vice President |
Vice President and Chief Business Officer |
George P. Fraser(1) |
Vice President |
None |
Victoria K. Frey(1) |
Assistant Vice President |
None |
Alice K. Fricke(2) |
Vice President |
None |
William L. Friebel(2) |
Vice President |
None |
Joseph T. Friedman(1) |
Vice President |
None |
Kathryn T. Gallo(2) |
Vice President |
None |
Hazem S. Gamal(2) |
Vice President |
None |
Charlotte A. Gardner(1) |
Vice President |
None |
Sarah E. Garrity(1) |
Vice President |
None |
Name & Principal
Business Address |
Position & Office
with Underwriter |
Position and Office
with Registrant |
Christopher R. Gaudio(2) |
Vice President |
None |
Jay Gentry(1) |
Senior Vice President |
None |
Dina Ghanbarzadeh(2) |
Assistant Vice President |
None |
Nancy J. Girondo(2) |
Vice President |
None |
Jill E. Glazerman(2) |
Senior Vice President |
None |
Emily R. Glotzer(2) |
Assistant Vice President |
None |
Jack E. Goldin(2) |
Vice President |
None |
Justin A. Goldstein(2) |
Vice President |
None |
Michael H. Gottesman(2) |
Senior Vice President |
None |
Raquel Granahan(2) |
Senior Vice President |
None |
Justin P. Grant(2) |
Assistant Vice President |
None |
Anthony Greco(2) |
Assistant Vice President |
None |
Steven M. Grise(2) |
Assistant Vice President |
None |
Samuel J. Groban(2) |
Vice President |
None |
Vincent E. Grogan(2) |
Senior Vice President |
None |
Eric M. Grossjung(2) |
Vice President |
None |
Michael D. Guman(2) |
Vice President |
None |
Joseph B. Gunderson(2) |
Assistant Vice President |
None |
Mahrukh Hameed(2) |
Assistant Vice President |
None |
LeaAnna M. Hartman(1) |
Vice President |
None |
Alexander D. Hayes(2) |
Vice President |
None |
John Hauryluke(2) |
Assistant Vice President |
None |
Petter A. Hellstrom-Bialek(1) |
Vice President |
None |
Richard N. Henn(2) |
Vice President |
None |
Nicholas M. Henry(2) |
Vice President |
None |
Nicole M. Pretzel Holahan(2) |
Vice President |
None |
Heather L. Holliday-Smith(1) |
Assistant Vice President |
None |
Eric D. Holquist(2) |
Vice President |
None |
Timothy B. Horsburgh(2) |
Assistant Vice President |
None |
Edward Hrybenko(2) |
Senior Vice President |
None |
Brian F. Husch(2) |
Vice President |
None |
Keith P. Hylind(2) |
Vice President |
None |
Vincent R. Iacono(2) |
Vice President |
None |
Omar Z. Idilby(2) |
Assistant Vice President |
None |
Jason F. Israel(2) |
Assistant Vice President |
None |
Christopher Ivezic(2) |
Vice President |
None |
Michael C. Jamison(1) |
Vice President |
None |
Nickie J. Jacobs(1) |
Assistant Vice President |
None |
Shonda R. Jaquez(2) |
Vice President |
None |
Allyson M. Jarecky-Freitag(2) |
Vice President |
None |
Daniel C. Jarema(1) |
Vice President |
None |
Robert T. Jason(1) |
Assistant Vice President |
None |
Name & Principal
Business Address |
Position & Office
with Underwriter |
Position and Office
with Registrant |
Ira F. Jersey(2) |
Vice President |
None |
Ryan O. Johann(2) |
Assistant Vice President |
None |
Eric K. Johnson(1) |
Senior Vice President |
None |
Sarah J. Joyce(2) |
Assistant Vice President |
None |
Sachin Kambli(2) |
Assistant Vice President |
None |
Annie V. Kang(2) |
Vice President |
None |
Assaf Kedem (2) |
Assistant Vice President |
None |
Geoffrey M. Keller(1) |
Vice President |
None |
Scott R. Kelley(1) |
Vice President |
None |
Brian P. Kiley(2) |
Vice President |
None |
Irin Kim(2) |
Assistant Vice President |
None |
Elena Kirova(2) |
Assistant Vice President |
None |
Matthew J. Kissane(4) |
Assistant Vice President |
None |
Melissa M. Kretschmer(2) |
Assistant Vice President |
None |
Eric J. Kristenson(2) |
Vice President |
None |
Lamar V. Kunes(2) |
Senior Vice President |
None |
Stanford L. Kutler(2) |
Senior Vice President |
None |
David T. Kuzia(1) |
Vice President |
None |
Michael S. La Tona(2) |
Vice President |
None |
Lisa Lamentino(2) |
Vice President |
None |
Thomas M. Landhauser(2) |
Vice President |
None |
Brian Landy(2) |
Assistant Vice President |
None |
Laura L. Lawson(2) |
Vice President |
None |
Daniel J. Lee(2) |
Vice President |
None |
Eric Lee(2) |
Assistant Vice President |
None |
Talley D. Leger(2) |
Vice President |
None |
John P. Leonard(2) |
Vice President |
None |
Brian S. Levitt(2) |
Senior Vice President |
None |
Jesse E. Levitt(2) |
Vice President |
None |
Lorna A. Lindquist(2) |
Vice President |
None |
Malissa B. Lischin(2) |
Vice President |
None |
Susan List(2) |
Assistant Vice President |
None |
Terrie P. Liu(1) |
Assistant Vice President |
None |
Cynthia Lo Bessette(2) |
Chief Legal Officer |
Secretary and Chief Legal Officer |
Gordon C. Loetz(2) |
Vice President |
None |
Christina J. Loftus(2) |
Senior Vice President |
None |
David P. Lolli(2) |
Assistant Vice President |
None |
Thomas Loncar(2) |
Vice President |
None |
Inna London-Ikhilov(2) |
Assistant Vice President |
None |
David A. Long(1) |
Assistant Vice President |
None |
John Luiz(2) |
Vice President |
None |
Mary Catherine Macaluso(2) |
Vice President |
None |
Name & Principal
Business Address |
Position & Office
with Underwriter |
Position and Office
with Registrant |
Joseph M. Macaluso(2) |
Assistant Vice President |
None |
John W. Mackey(2) |
Vice President |
None |
Peter K. Maddox(2) |
Vice President |
None |
Salvatore Maia(2) |
Assistant Vice President |
None |
Michael J. Malik(2) |
Vice President |
None |
Joseph C. Marich(2) |
Vice President |
None |
Natalie Marin(2) |
Vice President |
None |
Michael A. Marino(4) |
Assistant Vice President |
None |
Todd A. Marion(2) |
Vice President |
None |
Sheila M. Masley(1) |
Assistant Vice President |
None |
Katarina Maxianova(2) |
Vice President |
None |
Peter J. McCarthy(1) |
Vice President |
None |
Robert D. McClure(2) |
Vice President |
None |
John C. McDonough(2) |
Chairman, Chief Executive
Officer, President & Director |
None |
Matthew S. McGee(1) |
Vice President |
None |
Brian P. McGinty(1) |
Vice President |
None |
Kent C. McGowan(2) |
Vice President |
None |
Simon A. McKay(2) |
Vice President |
None |
Philip J. McKeon(4) |
Assistant Vice President |
None |
William J. McNamara(2) |
Vice President |
None |
Christopher S. Mechem(2) |
Vice President |
None |
Brian F. Medina(1) |
Vice President |
None |
Gregory E. Mehok(2) |
Vice President |
None |
Daniel P. Melehan(2) |
Vice President |
None |
Izaak Mendelson(2) |
Assistant Vice President |
None |
Ariella Menegon(2) |
Assistant Vice President |
None |
Debbie S. Michaelson(1) |
Vice President |
None |
David B. Miller(2) |
Assistant Vice President |
None |
Toller C. Miller(1) |
Vice President |
None |
Peter L. Mintzberg(2) |
Executive Vice President |
None |
Clint T. Modler(1) |
Senior Vice President |
None |
Ella Monakova(2) |
Assistant Vice President |
None |
Thomas J. Montefinise(2) |
Assistant Vice President |
None |
Rian Morrissey(1) |
Vice President |
None |
James F. Mugno(2) |
Vice President |
None |
Matthew D. Mulcahy(2) |
Vice President |
None |
Wendy J. Murray(2) |
Vice President |
None |
Keith D. Myers(1) |
Assistant Vice President |
None |
Kyle Najarian(1) |
Vice President |
None |
Christina M. Nasta(2) |
Senior Vice President |
None |
Kevin R. Neznek(2) |
Senior Vice President |
None |
Name & Principal
Business Address |
Position & Office
with Underwriter |
Position and Office
with Registrant |
Nichola L. Noriega(2) |
Vice President |
None |
Peter J. Novak(2) |
Senior Vice President |
None |
Timothy J. O’Connell(2) |
Vice President |
None |
James B. O’Connell(2) |
Assistant Vice President |
None |
Patricia O’Connor(2) |
Vice President |
None |
Tony D. Oh(1) |
Treasurer |
None |
Ronald M. Ongaro(2) |
Assistant Vice President |
None |
Leonard J. Oremland(2) |
Senior Vice President |
None |
Steven W. Paddon(2) |
Senior Vice President |
None |
Leonar G. Palao(2) |
Assistant Vice President |
None |
Bruce Palm(2) |
Vice President |
None |
Alan I. Panzer(2) |
Vice President |
None |
Andrew Y. Park(1) |
Vice President |
None |
Maria Paster(2) |
Vice President |
None |
Ashley B. Patten(1) |
Vice President |
None |
Lori L. Penna (2) |
Vice President |
None |
Brian C. Perkes(2) |
Vice President |
None |
Daniel J. Petter(2) |
Vice President |
None |
Charles K. Pettit(2) |
Vice President |
None |
David M. Pfeffer(2) |
Director & Chief Financial Officer |
None |
Andrew W. Phillips(1) |
Vice President |
None |
Piers A. Platt(2) |
Vice President |
None |
Scott A. Porter(2) |
Assistant Vice President |
None |
Chad W. Potter(3) |
Assistant Vice President |
None |
Stacy L. Pottinger(2) |
Assistant Vice President |
None |
Rachel R. Powers(1) |
Vice President |
None |
Michael E. Quinn(2) |
Vice President |
None |
Michael A. Radon(2) |
Assistant Vice President |
None |
Richard E. Rath(2) |
Vice President |
None |
William J. Raynor(2) |
Vice President |
None |
Brenna D. Rhone(2) |
Assistant Vice President |
None |
James T. Robinson(1) |
Vice President |
None |
Ian M. Roche(2) |
Vice President |
None |
Jason D. Roche(2) |
Vice President |
None |
Adam T. Rochlin(2) |
Senior Vice President |
None |
Michael A. Rock(2) |
Vice President |
None |
Rachel S. Rodgers(2) |
Assistant Vice President |
None |
Philip Rolleri(2) |
Assistant Vice President |
None |
Michael J. Roman(2) |
Assistant Vice President |
None |
Megan P. Rosenblum(2) |
Vice President |
None |
Francis W. Ross(1) |
Vice President |
None |
Kristen M. Ross(2) |
Assistant Vice President |
None |
Name & Principal
Business Address |
Position & Office
with Underwriter |
Position and Office
with Registrant |
Adrienne M. Ruffle(2) |
Vice President |
None |
Thomas F. Sabow(2) |
Vice President |
None |
Gary Salerno(2) |
Assistant Vice President |
None |
Gary J. Sanchez(1) |
Vice President |
None |
Catherine D. Sanders(2) |
Vice President |
None |
John C. Saunders(2) |
Senior Vice President |
None |
Kurt R. Savallo(2) |
Assistant Vice President |
None |
Alex C. Schardt(2) |
Vice President |
None |
Joshua I. Scher(2) |
Assistant Vice President |
None |
Thomas J. Schmitt(2) |
Vice President |
None |
Erik M. Schneberger (2) |
Senior Vice President |
None |
William A. Schories(2) |
Vice President |
None |
Eric M. Schranck(1) |
Assistant Vice President |
None |
Patrick L. Scorzelli(2) |
Vice President |
None |
Jeffrey D. Sharon(2) |
Vice President |
None |
James B. Shields(1) |
Assistant Vice President |
None |
Faiza Sikander(2) |
Assistant Vice President |
None |
Bryant B. Smith(2) |
Vice President |
None |
Timothy F. Smith(2) |
Assistant Vice President |
None |
Mark C. Sokoloff(2) |
Assistant Vice President |
None |
John A. Spensley(2) |
Vice President |
None |
Timothy J. Spitz(2) |
Vice President |
None |
Kirti N. Srikant(2) |
Vice President |
None |
Alfred O. St. John(2) |
Vice President |
None |
Michael N. Staples(2) |
Vice President |
None |
Keith S. Stecker(2) |
Assistant Vice President |
None |
Bryan D. Stein(2) |
Vice President |
None |
Joseph D. Stellato(2) |
Vice President |
None |
Benjamin A. Stewart(2) |
Senior Vice President |
None |
Wayne C. Strauss(2) |
Vice President |
None |
Matthew C. Straut(2) |
Senior Vice President |
None |
Brian C. Summe(2) |
Vice President |
None |
Michael E. Sussman(2) |
Vice President |
None |
George T. Sweeney(2) |
Senior Vice President |
None |
Adam L. Tabor(2) |
Vice President |
None |
Leo P. Tallon(2) |
Vice President |
None |
Laura B. Taylor (1) |
Senior Vice President |
None |
Paul E. Temple(2) |
Senior Vice President |
None |
Jay S. Therrien(2) |
Vice President |
None |
Anil K. Thomas(2) |
Vice President |
None |
David G. Thomas(2) |
Vice President |
None |
John B. Thorpe(1) |
Vice President |
None |
Name & Principal
Business Address |
Position & Office
with Underwriter |
Position and Office
with Registrant |
Luz V. Touma(2) |
Vice President |
None |
Catherine L. Tulley(1) |
Assistant Vice President |
None |
David C. Van Hellemont(2) |
Vice President |
None |
Wesley R. Vance(2) |
Vice President |
None |
Vincent C. Vermette(2) |
Vice President |
None |
Alyse S. Vishnick(2) |
Vice President |
None |
Rohit Vohra(2) |
Vice President |
None |
Kenneth M. Waddell(2) |
Vice President |
None |
Richard Walsh(2) |
Vice President |
None |
Teresa M. Ward(2) |
Vice President |
None |
Keith R. Watts(1) |
Vice President |
None |
Taylor Watts(1) |
Vice President |
None |
Michael J. Weigner(2) |
Vice President |
None |
Kimberly W. Weinrick(2) |
Vice President |
None |
Donn S. Weise(2) |
Vice President |
None |
Christopher G. Werner(2) |
Vice President |
None |
Donna M. White (2) |
Chief Compliance Officer |
None |
Jason Widener(2) |
Vice President |
None |
Ryan C. Wilde(1) |
Vice President |
None |
Tim A. Wilkinson(1) |
Vice President |
None |
Thomas Winnick(2) |
Vice President |
None |
Patrick J. Wisneski(1) |
Vice President |
None |
Kevin P. Woodson(1) |
Assistant Vice President |
None |
Ryan J. Woolhiser(1) |
Vice President |
None |
Cary P. Wozniak(2) |
Vice President |
None |
Theodore J. Young(1) |
Assistant Vice President |
None |
David T. Zicchinella(2) |
Vice President |
None |
Steven L. Zito(1) |
Vice President |
None |
(1)6803
South Tucson Way, Centennial, CO 80112-3924
(2)225
Liberty Street, New York, NY 10281-1008
(3)2100
McKinney Avenue, Suite 1401, Dallas, TX 75201
(4)2005
Market Street, Suite 2020, Philadelphia, PA 19103
Item 33. – Location of Accounts and Records
The accounts, books and other documents
required to be maintained by Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and rules promulgated thereunder
are in the possession of OFI Global Asset Management, Inc., OppenheimerFunds, Inc. and Shareholder Services, Inc., as applicable,
at each entity’s offices at 6803 South Tucson Way, Centennial, Colorado 80112-3924.
Item 34. – Management Services
Not applicable.
Item 35. – Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 27th day of February,
2017.
|
OPPENHEIMER VARIABLE ACCOUNT FUNDS |
By: |
Arthur P. Steinmetz*
|
|
Arthur P. Steinmetz
Trustee, President and Principal Executive Officer |
Pursuant to the requirements of the Securities
Act of 1933, this Registration Statement has been signed below by the following persons in the capacities on the dates indicated:
Signatures |
Title |
Date |
Robert J. Malone*
Robert J. Malone |
Chairman of the Board of Trustees |
February 27, 2017 |
Arthur P. Steinmetz*
Arthur P. Steinmetz |
Trustee, President and Principal Executive Officer |
February 27, 2017 |
Brian S. Petersen*
Brian S. Petersen |
Treasurer, Principal Financial & Accounting Officer |
February 27, 2017 |
Jon S. Fossel*
Jon S. Fossel |
Trustee |
February 27, 2017 |
Richard F. Grabish*
Richard F. Grabish |
Trustee |
February 27, 2017 |
Beverly L. Hamilton*
Beverly L. Hamilton |
Trustee |
February 27, 2017 |
Victoria J. Herget*
Victoria J. Herget |
Trustee |
February 27, 2017 |
F. William Marshall, Jr.*
F. William Marshall, Jr. |
Trustee |
February 27, 2017 |
Karen L. Stuckey*
Karen L. Stuckey |
Trustee |
February 27, 2017 |
James D. Vaughn*
James D. Vaughn |
Trustee |
February 27, 2017 |
*By: /s/ Mitchell J. Lindauer
Mitchell J. Lindauer, Attorney-in-Fact |
|
|