-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GAXnuPpKCZT8vDKRAfwMaom3Z3bLYnKPtpRgQeBxBivzHSGs0uHIlHSueybIBRPG jJ8p4WB9EQXJLSdm00h8NQ== 0000752737-94-000018.txt : 19941028 0000752737-94-000018.hdr.sgml : 19941028 ACCESSION NUMBER: 0000752737-94-000018 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19941027 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPPENHEIMER VARIABLE ACCOUNT FUNDS CENTRAL INDEX KEY: 0000752737 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 840974272 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-93177 FILM NUMBER: 94555375 BUSINESS ADDRESS: STREET 1: 3410 S GALENA ST CITY: DENVER STATE: CO ZIP: 80231 BUSINESS PHONE: 3036713200 MAIL ADDRESS: STREET 2: 3410 S GALENA ST CITY: DENVER STATE: CO ZIP: 80231 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER VARIABLE LIFE FUNDS DATE OF NAME CHANGE: 19860609 497 1 Investors are advised to read and retain this Prospectus for future reference. OPPENHEIMER VARIABLE ACCOUNT FUNDS 3410 South Galena Street Denver, Colorado 80231 1-800-525-7048 OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is a diversified open-end investment company consisting of eight separate funds (collectively, the "Funds"): OPPENHEIMER MONEY FUND ("Money Fund") seeks the maximum current income from investments in "money market" securities consistent with low capital risk and the maintenance of liquidity. Its shares are neither insured nor guaranteed by the U.S. government, and there is no assurance that this Fund will be able to maintain a stable net asset value of $1.00 per share. OPPENHEIMER HIGH INCOME FUND ("High Income Fund") seeks a high level of current income from investment in high yield fixed-income securities. High Income Fund's investments include unrated securities or high risk securities in the lower rating categories, commonly known as "junk bonds," which are subject to a greater risk of loss of principal and nonpayment of interest than higher-rated securities. These securities may be considered to be speculative. OPPENHEIMER BOND FUND ("Bond Fund") primarily seeks a high level of current income from investment in high yield fixed-income securi- ties rated "Baa" or better by Moody's or "BBB" or better by Standard & Poor's. Secondarily, this Fund seeks capital growth when consistent with its primary objective. OPPENHEIMER CAPITAL APPRECIATION FUND ("Capital Appreciation Fund") seeks to achieve capital appreciation by investing in "growth-type" companies. OPPENHEIMER GROWTH FUND ("Growth Fund") seeks to achieve capital appreciation by investing in securities of well-known established companies. OPPENHEIMER MULTIPLE STRATEGIES FUND ("Multiple Strategies Fund") seeks a total investment return (which includes current income and capital appreciation in the value of its shares) from investments in common stocks and other equity securities, bonds and other debt securities, and "money market" securities. OPPENHEIMER GLOBAL SECURITIES FUND ("Global Securities Fund") seeks long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" compa- nies, cyclical industries and special situations which are considered to have appreciation possibilities. Current income is not an objective. These securities may be considered to be speculative. OPPENHEIMER STRATEGIC BOND FUND ("Strategic Bond Fund") seeks a high level of current income principally derived from interest on debt securities and seeks to enhance such income by writing covered call options on debt securities. The Fund intends to invest principally in: (i) foreign government and corporate debt securi- ties, (ii) U.S. Government securities, and (iii) lower-rated high yield domestic debt securities, commonly known as "junk bonds", which are subject to a greater risk of loss of principal and nonpayment of interest than higher-rated securities. These securities may be considered to be speculative. Shares of the Funds are sold only to provide benefits under variable life insurance policies and variable annuity contracts (collectively, the "Accounts"). The Accounts invest in shares of one or more of the Funds in accordance with allocation instructions received from Account owners. Such allocation rights are further described in the accompanying Account Prospectus. Shares are redeemed to the extent necessary to provide benefits under an Account. This Prospectus sets forth concisely information about the Trust and the Funds that prospective investors should know before investing. A Statement of Additional Information about the Trust and the Funds (the "Additional Statement") dated May 1, 1994, has been filed with the Securities and Exchange Commission ("SEC") and is available without charge upon request to Oppenheimer Shareholder Services (the "Transfer Agent"), P.O. Box 5270, Denver, Colorado 80217, or by calling the toll-free number shown above. The Statement of Additional Information (which is incorporated in its entirety by reference in this Prospectus) contains more detailed information about the Trust, the Funds and their management. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS- SION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Prospectus is effective May 1, 1994, as revised October 14, 1994. Table Of Contents Page Financial Highlights 3 Performance Information 10 The Funds and Their Investment Policies 10 Introduction 10 Investment Policies - Money Fund 10 Investment Policies - High Income Fund, Bond Fund and Strategic Bond Fund 11 High Income Fund 11 Bond Fund 11 Strategic Bond Fund 12 Risk Factors 13 Investment Policies - Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund and Global Securities Fund 13 Capital Appreciation Fund 13 Growth Fund 13 Multiple Strategies Fund 13 Global Securities Fund 14 Special Investment Methods 14 Borrowing 14 Small, Unseasoned Companies 14 Participation Interests 14 Foreign Securities 14 Warrants and Rights 15 Repurchase Agreements 15 Restricted and Illiquid Securities 15 Loans of Portfolio Securities 15 When Issued Securities 16 Writing Covered Calls 16 Hedging 16 Interest Rate Futures 16 Bond Index Futures 16 Stock Index Futures 16 Purchasing Calls on Securities and Futures 16 Puts on Securities and Futures 17 Foreign Currency Options 17 Forward Contracts 17 Interest Rate Swap Transactions 17 Risk of Options and Futures Trading 17 Derivative Investments 17 Portfolio Turnover 18 Short Sales Against-the-Box 18 Investment Restrictions 18 Management of the Funds 18 Management's Discussion of Performance 18 Indices 22 Purchase of Shares 22 Redemption of Shares 23 Dividends, Distributions and Taxes 23 Dividends of the Money Fund 23 Dividends and Distributions of High Income Fund, Bond Fund, Strategic Bond Fund and Multiple Strategies Fund 23 Dividends and Distributions of Capital Appreciation Fund, Growth Fund and Global Securities Fund 23 Dividends and Distributions: General 23 Tax Treatment to the Account as Shareholder 23 Tax Status of the Funds 23 Additional Information 23 Description of the Trust and its Shares 23 Shareholder Inquires 24 The Custodian and the Transfer Agent 24 Appendix A - Description of Terms A-1 Appendix B - Description of Securities Rating B-1 Financial Highlights Selected data for a share of beneficial interest outstanding throughout each period The information in the following tables has been audited by Deloitte & Touche, independent auditors, whose report on the financial statements of the Funds for the fiscal year ended December 31, 1993, is included in the Statement of Additional Information.
Oppenheimer Money Fund 1993(2) 1992(2) 1991(2) 1990(2) 1989(2) 1988(2) 1987(2) 1986(2) 1985(1) PER SHARE OPERATING DATA: Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Income from investment operations-net investment income and net realized gain on investments .03 .04 .06 .08 .09 .07 .06 .06 .05 Dividends and distributions to shareholders (.03) (.04) (.06) (.08) (.09) (.07) (.06) (.06) (.05) Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $61,221 $58,266 $58,709 $89,143 $68,440 $69,468 $42,538 $28,218 $2,506 Average net assets (in thousands) $57,654 $61,317 $75,747 $82,966 $67,586 $60,241 $35,138 $12,914 $2,080 Number of shares outstanding at end of period (in thousands) 61,221 58,266 58,703 89,141 68,439 69,468 42,538 28,218 2,506 Ratios to average net assets: Net investment income 3.12% 3.76% 5.97% 7.80% 8.82% 7.31% 6.33% 5.68% 7.25%(3) Expenses .43% .50% .49% .51% .53% .55% .59% .75% .75%(3) 1. For the period from April 3, 1985 (commencement of operations) to December 31, 1985. 2. For the year ended December 31. 3. Annualized.
Oppenheimer High Income Fund 1993(2) 1992(2) 1991(2) 1990(2) 1989(2) 1988(2) 1987(2) 1986(1) PER SHARE OPERATING DATA: Net asset value, beginning of period $ 9.74 $ 9.40 $ 7.90 $ 8.59 $ 9.30 $ 9.14 $ 10.04 $ 10.00 Income from investment operations: Net investment income .82 1.19 1.28 1.21 1.09 1.12 1.30 .72 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.65 .43 1.30 (.82) (.65) .23 (.51) (.24) Total income from investment operations 2.47 1.62 2.58 .39 .44 1.35 .79 .48 Dividends and distributions to shareholders: Dividends from net investment income (1.19) (1.28) (1.08) (1.08) (1.08) (1.07) (1.55) (.44) Distributions from net realized gain on investments - - - - (.07) (.12) (.14) - Total dividends and distributions to shareholders (1.19) (1.28) (1.08) (1.08) (1.15) (1.19) (1.69) (.44) Net asset value, end of period $ 11.02 $ 9.74 $ 9.40 $ 7.90 $ 8.59 $ 9.30 $ 9.14 $ 10.04 TOTAL RETURN, AT NET ASSET VALUE(3) 26.34% 17.92% 33.91% 4.65% 4.84% 15.58% 8.07% 4.73% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $93,011 $40,817 $27,308 $19,172 $23,698 $25,551 $21,768 $14,833 Average net assets (in thousands) $67,000 $36,861 $23,663 $21,493 $26,040 $24,530 $20,637 $ 8,036 Number of shares outstanding at end of period (in thousands) 8,443 4,189 2,905 2,427 2,760 2,746 2,382 1,478 Ratios to average net assets: Net investment income 10.50% 12.08% 14.26% 14.32% 11.52% 11.94% 13.13% 11.18%(4) Expenses .68% .73% .75% .75% .75% .75% .75% .75%(4) Portfolio turnover rate(5) 135.7% 144.2% 108.0% 95.1% 78.7% 57.9% 42.1% 18.3% 1. For the period from April 30, 1986 (commencement of operations) to December 31, 1986. 2. For the year ended December 31. 3. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additionalshares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. 4. Annualized. 5. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the periodSecurities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.
Oppenheimer Bond Fund 1993(2) 1992(2) 1991(2) 1990(2) 1989(2) 1988(2) 1987(2) 1986(2) 1985(1) PER SHARE OPERATING DATA: Net asset value, beginning of period $ 10.99 $ 11.15 $ 10.33 $ 10.49 $ 10.15 $ 10.19 $ 11.15 $11.27 $10.00 Income from investment operations: Net investment income .65 .87 .95 .97 .98 .94 .97 .97 .86 Net realized and unrealized gain (loss) on investments and foreign currency transactions .76 (.17) .80 (.18) .32 (.05) (.71) .09 .99 Total income from investment operations 1.41 .70 1.75 .79 1.30 .89 .26 1.06 1.85 Dividends and distributions to shareholders: Dividends from net investment income (.75) (.86) (.93) (.95) (.96) (.93) (1.17) (1.03) (.58) Distributions from net realized gain on investments - - - - - - (.05) (.15) - Total dividends and distributions to shareholders (.75) (.86) (.93) (.95) (.96) (.93) (1.22) (1.18) (.58) Net asset value, end of period $ 11.65 $ 10.99 $ 11.15 $ 10.33 $ 10.49 $ 10.15 $ 10.19 $11.15 $11.27 TOTAL RETURN, AT NET ASSET VALUE(3) 13.04% 6.50% 17.63% 7.92% 13.32% 8.97% 2.53% 10.12% 18.82% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $111,846 $63,354 $32,762 $16,576 $13,422 $ 9,989 $10,415 $7,377 $2,725 Average net assets (in thousands) $ 87,215 $45,687 $22,169 $15,088 $11,167 $11,028 $ 8,748 $4,647 $1,614 Number of shares outstanding at end ofperiod (in thousands) 9,602 5,766 2,939 1,604 1,280 984 1,022 662 242 Ratios to average net assets: Net investment income 7.20% 7.81% 8.73% 9.30% 9.34% 9.08% 9.17% 8.71% 10.52%(4) Expenses .46% .56% .64% .61% .64% .70% .75% .75% .75%(4) Portfolio turnover rate(5) 36.3% 41.3% 7.6% 7.4% 5.4% 36.3% 5.9% 27.7% 101.3% 1. For the period from April 3, 1985 (commencement of operations) to December 31, 1985. 2. For the year ended December 31. 3. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additionalshares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. 4. Annualized. 5. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.
Oppenheimer Capital Appreciation Fund 1993(2) 1992(3) 1991(3) 1990(3) 1989(3) 1988(3) 1987(3) 1986(2) 1986(1) PER SHARE OPERATING DATA: Net asset value, beginning of period $ 26.04 $ 23.24 $ 15.24 $ 20.40 $ 16.31 $ 14.39 $13.12 $16.21 $13.71 Income (loss) from investment operations: Net investment income .05 .06 .08 .32 .50 .33 .21 .12 .09 Net realized and unrealized gain (loss) on investments 6.71 3.43 8.18 (3.54) 3.93 1.60 1.67 (1.24) 3.40 Total income (loss) from investment operations 6.76 3.49 8.26 (3.22) 4.43 1.93 1.88 (1.12) 3.49 Dividends and distributions to shareholders: Dividends from net investment income (.06) (.14) (.26) (.53) (.34) - (.34) (.21) (.20) Distributions from net realized gain on investments (1.10) (.55) - (1.41) - (.01) (.27) (1.76) (.79) Total dividends and distributions to shareholders (1.16) (.69) (.26) (1.94) (.34) (.01) (.61) (1.97) (.99) Net asset value, end of period $ 31.64 $ 26.04 $ 23.24 $ 15.24 $ 20.40 $ 16.31 $14.39 $13.12 $16.21 TOTAL RETURN, AT NET ASSET VALUE(4) 27.32% 15.42% 54.72% (16.82)% 27.57% 13.41% 14.34% (1.65)% N/A RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $136,885 $83,335 $49,371 $23,295 $27,523 $13,667 $9,692 $4,549 $3,852 Average net assets (in thousands) $ 98,228 $56,371 $34,887 $24,774 $21,307 $13,239 $8,598 $3,099 $2,292 Number of shares outstanding at end of period (in thousands) 4,326 3,201 2,125 1,528 1,349 838 674 347 238 Ratios to average net assets: Net investment income .23% .30% .81% 1.93% 3.27% 2.13% 1.68% 2.36%(5) 2.27% Expenses .47% .54% .63% .71% .68% .73% .75% 1.01%(5) 2.17% Portfolio turnover rate(6) 122.8% 78.9% 122.3% 222.0% 130.5% 128.7% 138.7% 100.1% 464.8% 1. For the year ended June 30, 1986Operating results were achieved by Centennial Capital Appreciation Fund, a separate investment company acquired by OCAP on August14, 1986. 2. For the six months ended December 31, 1986Operating results prior to August 15, 1986 were achieved by Centennial Capital Appreciation Fund, a separate investmentcompany acquired by OCAP on August 14, 1986. 3. For the year ended December 31. 4. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additionalshares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. 5. Annualized. 6. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.
Oppenheimer Growth Fund 1993(2) 1992(2) 1991(2) 1990(2) 1989(2) 1988(2) 1987(2) 1986(2) 1985(1) PER SHARE OPERATING DATA: Net asset value, beginning of period $ 16.96 $ 15.17 $ 12.54 $ 16.38 $ 13.64 $ 11.21 $ 12.53 $10.95 $10.00 Income (loss) from investment operations: Net investment income .46 .16 .30 .56 .66 .29 .20 .13 .16 Net realized and unrealized gain (loss) on investments .74 1.99 2.82 (1.79) 2.50 2.19 .24 1.76 .79 Total income (loss) from investment operations 1.20 2.15 3.12 (1.23) 3.16 2.48 .44 1.89 .95 Dividends and distributions to shareholders: Dividends from net investment income (.14) (.36) (.49) (.62) (.35) - (.34) (.15) - Distributions from net realized gain on investments (.32) - - (1.99) (.07) (.05) (1.42) (.16) - Total dividends and distributions to shareholders (.46) (.36) (.49) (2.61) (.42) (.05) (1.76) (.31) - Net asset value, end of period $ 17.70 $ 16.96 $ 15.17 $ 12.54 $ 16.38 $ 13.64 $ 11.21 $12.53 $10.95 TOTAL RETURN, AT NET ASSET VALUE(3) 7.25% 14.53% 25.54% (8.21)% 23.59% 22.09% 3.32% 17.76% 9.50% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $56,701 $36,494 $22,032 $15,895 $19,301 $17,746 $14,692 $8,287 $ 820 Average net assets (in thousands) $46,389 $25,750 $18,810 $17,235 $18,596 $15,585 $15,121 $3,744 $ 388 Number of shares outstanding at end of period (in thousands) 3,203 2,152 1,453 1,267 1,179 1,301 1,311 661 75 Ratios to average net assets: Net investment income 1.13% 1.36% 2.82% 4.09% 3.72% 2.39% 1.56% 2.62% 4.25%(4) Expenses .50% .61% .70% .71% .70% .70% .75% .75% .75%(4) Portfolio turnover rate(5) 12.6% 48.7% 133.9% 267.9% 148.0% 132.5% 191.0% 100.9% 132.9% 1. For the period from April 3, 1985 (commencement of operations) to December 31, 1985. 2. For the year ended December 31. 3. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additionalshares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period 4. Annualized. 5. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.
Oppenheimer Multiple Strategies Fund 1993(2) 1992(2) 1991(2) 1990(2) 1989(2) 1988(2) 1987(1) PER SHARE OPERATING DATA: Net asset value, beginning of period $ 12.47 $ 11.96 $ 10.90 $ 12.30 $ 11.58 $ 10.04 $ 10.00 Income (loss) from investment operations: Net investment income .55 .55 .69 .73 .73 .66 .44 Net realized and unrealized gain (loss) on investments and options written 1.41 .50 1.15 (.97) 1.04 1.53 .07 Total income (loss) from investment operations 1.96 1.05 1.84 (.24) 1.77 2.19 .51 Dividends and distributions to shareholders: Dividends from net investment income (.55) (.54) (.78) (.70) (.68) (.65) (.43) Distributions from net realized gain on investments and options written - - - (.46) (.37) - (.04) Total dividends and distributions to shareholders (.55) (.54) (.78) (1.16) (1.05) (.65) (.47) Net asset value, end of period $ 13.88 $ 12.47 $ 11.96 $ 10.90 $ 12.30 $ 11.58 $ 10.04 TOTAL RETURN, AT NET ASSET VALUE(3) 15.95% 8.99% 17.48% (1.91)% 15.76% 22.15% 3.97% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $250,290 $159,464 $124,634 $118,888 $121,286 $78,386 $53,291 Average net assets (in thousands) $199,954 $139,011 $117,000 $123,231 $101,057 $64,298 $34,256 Number of shares outstanding at end of period (in thousands) 18,026 12,792 10,421 10,908 9,860 6,766 5,306 Ratios to average net assets: Net investment income 4.44% 4.63% 5.95% 6.53% 6.36% 6.18% 6.12%(4) Expenses .48% .55% .54% .55% .57% .58% .65%(4) Portfolio turnover rate(5) 32.4% 57.8% 80.3% 99.2% 66.9% 110.0% 46.9% 1. For the period from February 9, 1987 (commencement of operations) to December 31, 1987. 2. For the year ended December 31. 3. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. 4. Annualized. 5. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.
Oppenheimer Global Securities Fund 1993(2) 1992(2) 1991(2) 1990(1) PER SHARE OPERATING DATA: Net asset value, beginning of period $ 9.57 $ 10.38 $10.04 $10.00 Income (loss) from investment operations: Net investment income (.02) .07 .04 - Net realized and unrealized gain (loss) on investments 6.75 (.80) .30 .04 Total income (loss) from investment operations 6.73 (.73) .34 .04 Dividends and distributions to shareholders: Dividends from net investment income - (.04) - - Distributions from net realized gain on investments - (.04) - - Total dividends and distributions to shareholders - (.08) - - Net asset value, end of period $ 16.30 $ 9.57 $10.38 $10.04 TOTAL RETURN, AT NET ASSET VALUE(3) 70.32% (7.11)% 3.39% .40% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $96,425 $13,537 $7,339 $ 432 Average net assets (in thousands) $31,696 $11,181 $3,990 $ 263 Number of shares outstanding at end of period (in thousands) 5,917 1,415 707 43 Ratios to average net assets: Net investment income .72% 1.04% .75% .08%(4) Expenses .92% 1.06% 1.32% 6.84%(4) Portfolio turnover rate(5) 65.1% 34.1% 29.5% 0.0% 1. For the period from November 12, 1990 (commencement of operations) to December 31, 1990. 2. For the year ended December 31. 3. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. 4. Annualized. 5. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation.
Oppenheimer Strategic Bond Fund 1993(1) PER SHARE OPERATING DATA: Net asset value, beginning of period $ 5.00 Income from investment operations: Net investment income .10 Net realized and unrealized gain on investments and foreign currency transactions .11 Total income from investment operations .21 Dividends and distributions to shareholders: Dividends from net investment income (.09) Distributions from net realized gain on investments - Total dividends and distributions to shareholders (.09) Net asset value, end of period $ 5.12 TOTAL RETURN, AT NET ASSET VALUE(2) 4.25% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $9,887 Average net assets (in thousands) $4,259 Number of shares outstanding at end of period (in thousands) 1,930 Ratios to average net assets: Net investment income 5.67%(3) Expenses .96%(3) Portfolio turnover rate(4) 10.9% 1. For the period from May 3, 1993 (commencement of operations) to December 31, 1993. 2. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested inadditional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. 3. Annualized. 4. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during theperiodof acquisition of one year or less are excluded from the calculation.
Performance Information From time to time the "yield" and compounded "effective yield" of Money Fund may be advertised. Money Fund's "yield" is the income generated by an investment in that Fund over a seven-day period, which is then "annualized." In annualizing, the amount of income generated by the investment during that seven days is assumed to be generated each week over a 52-week period, and is shown as a percentage of the investment. The compounded "effective yield" is calculated similarly, but the annualized income earned by an investment in Money Fund is assumed to be reinvested. The compounded effective yield will therefore be slightly higher than the yield because of the effect of the assumed reinvestment. From time to time, the yield of High Income Fund, Strategic Bond Fund or Bond Fund may be advertised. Yield for these Funds will be computed in a standardized manner for mutual funds, by dividing that Fund's net investment income per share earned during a 30-day base period by the maximum offering price (equal to the net asset value) per share on the last day of the period. This yield calculation is compounded on a semi-annual basis, and multiplied by 2 to provide an annualized yield. The Statement of Additional Information describes a dividend yield and a distribution return that may also be quoted for these Funds. From time to time the "total return" and "average annual total return" for any of the Funds other than Money Fund may be adver- tised. Each such Fund's "average annual total return" for a particular period is computed by determining the average annual compounded rate of return over the period, using the initial amount invested at the beginning of the period and the redeemable value of the investment at the end of the period. "Total return" for a particular period is a cumulative rate of return over the entire period, also using the initial amount invested and the redeemable value at the end of the period. The redeemable value of the investment assumes that all dividends and capital gains distribu- tions have been reinvested at net asset value without sales charge. Each such Fund's "total return" and "average annual total return" indicate the investment results an investor would have experienced over the stated period from changes in share price and reinvestment of dividends and distributions. All such performance information is based on historical per share earnings and is not intended to indicate future performance. "Performance and Tax Information" in the Statement of Additional Information contains more detailed information about calculating yield and total return information and other investment returns. The Funds And Their Investment Policies Introduction. The Trust is an open-end, diversified management investment company organized as a Massachusetts business trust in 1984. It consists of eight separate Funds - Money Fund, Bond Fund and Growth Fund, all organized in 1984, High Income Fund, Capital Appreciation Fund and Multiple Strategies Fund, all organized in 1986, Global Securities Fund, organized in 1990 and Strategic Bond Fund, organized in 1993. Each Fund is a separate series of the Trust and has separate assets and liabilities and a separate net asset value per share, and an investor's interest is limited to the Fund in which shares are held. Since market risks are inherent in all securities to varying degrees, assurance cannot be given that the investment objective of any of the Funds will be met. The investment policies and practices described below for each Fund are not "fundamental" policies unless a particular policy is identified as fundamental. "Fundamental" policies are those that cannot be changed without the approval of a "majority," as defined in the Investment Company Act of 1940 (the "Investment Company Act"), of the Fund's outstanding voting securities. The Fund's Board of Trustees may change non-fundamental policies without shareholder approval. Investment Policies - Money Fund. SEC Rule 2a-7 ("Rule 2a-7") of the Investment Company Act of 1940 (the "Investment Company Act") places restrictions on a money market fund's investments. Under Rule 2a-7, Money Fund may purchase only "Eligible Securities," as defined below, that the Trust's Board of Trustees has determined have minimal credit risk. An "Eligible Security" is (a) a security that has received a rating in one of the two highest short-term rating categories by any two "nationally-recognized statistical rating organizations" as defined in Rule 2a-7 ("Rating Organiza- tions"), or, if only one Rating Organization has rated that security, by that Rating Organization, or (b) an unrated security that is judged by the Trust's investment adviser, Oppenheimer Management Corporation (the "Manager") to be of comparable quality to investments that are "Eligible Securities" rated by Rating Organizations. Rule 2a-7 permits Money Fund to purchase "First Tier Securities," which are Eligible Securities rated in the highest category for short-term debt obligations by at least two Rating Organizations, or, if only one Rating Organization has rated a particular security, by that Rating Organization, or comparable unrated securities. Under Rule 2a-7, Money Fund may invest only up to 5% of its assets in "Second Tier Securities," which are Eligible Securities that are not "First Tier Securities." In addition to the overall 5% limit on Second Tier Securities, Money Fund may not invest (i) more than 5% of its total assets in the securities of any one issuer (other than the U.S. Government, its agencies or instrumentalities) or (ii) more than 1% of its total assets or $1 million (whichever is greater) in Second Tier Securities of any one issuer. The Trust's Board must approve or ratify the purchase of Eligible Securities that are unrated or are rated by only one Rating Organization. Additionally, under Rule 2a-7, Money Fund must maintain a dollar-weighted average portfolio maturity of no more than 90 days, and the maturity of any single portfolio investment may not exceed 397 days. The Trust's Board has adopted procedures under Rule 2a-7 pursuant to which the Board has delegated to the Manager the responsibility of conforming Money Fund's investments with the requirements of Rule 2a-7 and those Procedures. Ratings at the time of purchase will determine whether securities may be acquired under the above restrictions. The rating restric- tions described in this Prospectus do not apply to banks in which the Trust's cash is kept. Subsequent downgrades in ratings may require reassessments of the credit risk presented by a security and may require their sale. See "Investment Objective and Policies - -- Money Fund" in the Statement of Additional Information for further details. The Trust intends to exercise due care in the selection of portfolio securities. However, a risk may exist that the issuers of Money Fund's portfolio securities may not be able to meet their duties and obligations on interest or principal payments at the time called for by the instrument. There is also the risk that because of a redemption demand greater than anticipated by management, some of Money Fund's portfolio may have to be liquidat- ed prior to maturity at prices less than the original cost or maturity value. Any of these risks, if encountered, could cause a reduction in the net asset value of Money Fund's shares. The types of instruments that will form the major part of Money Fund's investments are certificates of deposit, bankers' acceptan- ces, commercial paper, U.S. Treasury bills, securities of U.S. government agencies or instrumentalities and other debt instruments (including bonds) issued by corporations, including variable and floating rate instruments, and variable rate master demand notes. Some of such instruments may be supported by letters of credit or may be subject to repurchase transactions (described below). Except as described below, Money Fund will purchase certificates of deposit or bankers' acceptances only if issued or guaranteed by a domestic bank subject to regulation by the U.S. Government or of a foreign bank having total assets at least equal to U.S. $1 billion. Money Fund may invest in certificates of deposit of up to $100,000 of a domestic bank if such certificates of deposit are fully insured as to principal by the Federal Deposit Insurance Corpora- tion. For purposes of this section, the term "bank" includes commercial banks, savings banks, and savings and loan associations and the term "foreign bank" includes foreign branches of U.S. banks (issuers of "Eurodollar" instruments), U.S. branches and agencies of foreign banks (issuers of "Yankee dollar" instruments) and foreign branches of foreign banks. Money Fund also may purchase obligations issued by other entities if they are: (i) guaranteed as to principal and interest by a bank or corporation whose certifi- cates of deposit or commercial paper may otherwise be purchased by Money Fund, or (ii) subject to repurchase agreements (explained below), if the collateral for the agreement complies with Rule 2a-7. In addition, the Fund may also invest in other types of securities described above in accordance with the requirements of the rule. For further information, see "Foreign Securities" and "Investment Restrictions" below. See Appendix A below and "Investment Objectives and Policies" in the Statement of Additional Information for further information on the investments which Money Fund may make. See Appendix B below for a description of the rating categories of the Rating Organizations. Investment Policies - High Income Fund, Bond Fund and Strategic Bond Fund. High Income Fund. The objective of High Income Fund is to earn a high level of current income by investing primarily in a diversi- fied portfolio of high yield, fixed-income securities (long-term debt and preferred stock issues, including convertible securities) believed by the Manager not to involve undue risk. The Fund may also acquire participation interests in loans that are made to corporations (see Participation Interests," below). High Income Fund's investment policy is to assume certain risks (discussed below) in seeking high yield, which is ordinarily associated with high risk securities, commonly known as "junk bonds," in the lower rating categories of the established securities ratings services (i.e., securities rated "Baa" or lower by Moody's Investor Service, Inc. ("Moody's") or "BBB" or lower by Standard & Poor's Corporation ("Standard & Poor's")), and unrated securities. The investments in which High Income Fund will invest principally will be in the lower rating categories; it may invest in securities rated as low as "C" by Moody's or "D" by Standard & Poor's. Such ratings indicate that the obligations are speculative in a high degree and may be in default. Appendix B of this Prospectus describes these rating categories. High Income Fund is not obligated to dispose of securities whose issuers subsequently are in default or if the rating is subsequent- ly downgraded. High Income Fund may invest, without limit, in unrated securities if such securities offer, in the opinion of the Manager, yields and risks comparable to rated securities. Risks of high yield securities are discussed under "Risk Factors" below. High Income Fund's portfolio at December 31, 1993 contained domestic and foreign corporate bonds in the following rating categories as rated by Standard & Poor's (the percentages relate to the weighted average value of the bonds in each rating category as a percentage of that Fund's total assets): AAA, 2.75%; A, 2.73%; BBB, 1.85%; BB, 9.48%; B, 30.50%; CCC, 9.26%; CC, 1.28%; and unrated, 14.74%. If a bond was not rated by Standard & Poor's but was rated by Moody's, it is included in the comparable category. The Manager will not rely principally on the ratings assigned by rating services. The Manager's analysis may include consideration of the financial strength of the issuer, including its historic and current financial condition, the trading activity in its securi- ties, present and anticipated cash flow, estimated current value of assets in relation to historical cost, the issuer's experience and managerial expertise, responsiveness to changes in interest rates and business conditions, debt maturity schedules, current and future borrowing requirements, and any change in the financial condition of the issuer and the issuer's continuing ability to meet its future obligations. The Manager also may consider anticipated changes in business conditions, levels of interest rates of bonds as contrasted with levels of cash dividends, industry and regional prospects, the availability of new investment opportunities and the general economic, legislative and monetary outlook for specific industries, the nation and the world. Bond Fund. Bond Fund's primary objective is also to earn a high level of current income by investing primarily in a diversified portfolio of high yield fixed-income securities. As a secondary objective, Bond Fund seeks capital growth when consistent with its primary objective. As a matter of non-fundamental policy, Bond Fund will, under normal market conditions, invest at least 65% of its total assets in bonds. Bond Fund will invest only in securi- ties rated "Baa" or better by Moody's or "BBB" or better by Standard & Poor's. However, Bond Fund is not obligated to dispose of securities if the rating is reduced, and therefore will from time to time hold securities rated lower than "Baa" by Moody's or "BBB" by Standard & Poor's. Strategic Bond Fund. The investment objective of Strategic Bond Fund is to seek a high level of current income principally derived from interest on debt securities and to enhance such income by writing covered call options on debt securities. Although the premiums received by Strategic Bond Fund from writing covered calls are a form of capital gain, the Fund will not make investments in securities with the objective of seeking capital appreciation. The Fund intends to invest principally in: (i) lower-rated high yield domestic debt securities; (ii) U.S. Government securities, and (iii) foreign government and corporate debt securities. Under normal circumstances, the Fund's assets will be invested in each of these three sectors. However, Strategic Bond Fund may from time to time invest up to 100% of its total assets in any one sector if, in the judgment of the Manager, the Fund has the opportunity of seeking a high level of current income without undue risk to principal. Accordingly, the Fund's investments should be consid- ered speculative. Distributable income will fluctuate as the Fund assets are shifted among the three sectors. High Yield Securities. The higher yields and high income sought by Strategic Bond Fund are generally obtainable from securities in the lower rating categories of the established rating services, commonly known as "junk bonds." Such securities are rated "Baa" or lower by Moody's or "BBB" or lower by Standard & Poor's. Strategic Bond Fund may invest in securities rated as low as "C" by Moody's or "D" by Standard & Poor's. Such ratings indicate that the obligations are speculative in a high degree and may be in default. Risks of high yield, high risk securities are discussed under "Risk Factors" below. Strategic Bond Fund's portfolio at December 31, 1993, contained securities in the following rating categories as rated by Standard & Poor's (the percentages relate to the weighted average of the bonds in each rating category as a percentage of that Fund's total assets): AAA, 35.51%; BB, 7.57%; B, 27.51%, CCC, 2.07%; and unrated 21.18%. Strategic Bond Fund is not obligated to dispose of securities whose issuers subsequently are in default or if the rating of such securities is reduced. Appendix B of this Prospectus describes these rating categories. Strategic Bond Fund may also invest in unrated securities which, in the opinion of the Manager, offer yields and risks comparable to those of securities which are rated. International Securities. The Fund may invest in foreign govern- ment and foreign corporate debt securities (which may be denominat- ed in U.S. dollars or in non-U.S. currencies) issued or guaranteed by foreign corporations, certain supranational entities (such as the World Bank) and foreign governments (including political subdivisions having taxing authority) or their agencies or instrumentalities. These investments may include (i) U.S. dollar-denominated debt obligations known as "Brady Bonds," which are issued for the exchange of existing commercial bank loans to foreign entities for new obligations that are generally collateral- ized by zero coupon Treasury securities having the same maturity, (ii) debt obligations such as bonds (including sinking fund and callable bonds), (iii) debentures and notes (including variable rate and floating rate instruments), and (iv) preferred stocks and zero coupon securities. Further information about investments in foreign securities is set forth below under "Special Investment Methods - Foreign Securities." U.S. Government Securities. U.S. Government Securities are debt obligations issued by or guaranteed by the United States Government or one of its agencies or instrumentalities. Although U.S. Government Securities are considered among the most creditworthy of fixed-income investments and their yields are generally lower than the yields available from corporate debt securities, the values of U.S. Government Securities (and of fixed-income securities generally) will vary inversely to changes in prevailing interest rates. To compensate for the lower yields available on U.S. Government securities, Strategic Bond Fund will attempt to augment these yields by writing covered call options against them. See "Writing Covered Calls," below. Certain of these obligations, including U.S. Treasury notes and bonds, and mortgage-backed securities guaranteed by the Government National Mortgage Associa- tion ("Ginnie Maes"), are supported by the full faith and credit of the United States. Certain other U.S. Government Securities, issued or guaranteed by Federal agencies or government-sponsored enterprises, are not supported by the full faith and credit of the United States. These latter securities may include obligations supported by the right of the issuer to borrow from the U.S. Treasury, such as obligations of Federal Home Loan Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit of the instrumentality, such as Federal National Mortgage Association bonds ("Fannie Maes"). U.S. Government Securities in which the Fund may invest include zero coupon U.S. Treasury securities, mortgage-backed securities and money market instru- ments. Zero coupon Treasury securities are: (i) U.S. Treasury notes and bonds which have been stripped of their unmatured interest coupons and receipts; or (ii) certificates representing interests in such stripped debt obligations or coupons. Because a zero coupon security pays no interest to its holder during its life or for a substantial period of time, it usually trades at a deep discount from its face or par value and will be subject to greater fluctuations of market value in response to changing interest rates than debt obligations of comparable maturities which make current distributions of interest. Because the Fund accrues taxable income from these securities without receiving cash, the Fund may be required to sell portfolio securities in order to pay cash dividends or to meet redemptions. The Fund may invest up to 50% of its total assets at the time of purchase in zero coupon securities issued by either corporations or the U.S. Treasury. Domestic Securities. The Fund's investments in domestic securities may include preferred stocks, participation interests and zero coupon securities. Domestic investments include fixed-income securities and dividend-paying common stocks issued by domestic corporations in any industry which may be denominated in U.S. dollars or non-U.S. currencies. The Fund's investments may include securities which represent participation interests in loans made to corporations (see "Participation Interests," below) and in pools of residential mortgage loans which may be guaranteed by agencies or instrumental- ities of the U.S. Government (e.g. Ginnie Maes, Freddie Macs and Fannie Maes), including collateralized mortgage-backed obligations ("CMOs"), or which may not be guaranteed. Such securities differ from conventional debt securities which provide for periodic payment of interest in fixed amounts (usually semi-annually) with principal payments at maturity or specified call dates. Mortgage-- backed securities provide monthly payments which are, in effect, a "pass-through" of the monthly interest and principal payments (including any prepayments) made by the individual borrowers on the pooled mortgage loans. The Fund's reinvestment of scheduled principal payments and unscheduled prepayments it receives may occur at lower rates than the original investment, thus reducing the yield of the Fund. CMOs in which the Fund may invest are securities issued by a U.S. Government instrumentality or private corporation that are collateralized by a portfolio of mortgages or mortgage-backed securities which may or may not be guaranteed by the U.S. Government. The issuer's obligation to make interest and principal payments is secured by the underlying portfolio of mortgages or mortgage-backed securities. Mortgage-backed securi- ties may be less effective than debt obligations of similar maturity at maintaining yields during periods of declining interest rates. The Fund may invest in CMOs that are "stripped"; that is, the security is divided into two parts, one of which receives some or all of the principal payments and the other which receives some or all of the interest. Stripped securities that receive interest only are subject to increased volatility due to interest rate changes, and have the additional risk that if the principal underlying the CMO is prepaid, which is more likely to happen if interest rates fall, the Fund will lose the anticipated cash flow from the interest on the mortgages that were prepaid. See "Mortgage-Backed Securities" in the Statement of Additional Information for more details. The Fund may also invest in asset-backed securities, which are securities that represent fractional undivided interests in pools of consumer loans and trade receivables, similar in structure to the mortgage-backed securities in which the Fund may invest, described above. Payments of principal and interest are passed through to holders of asset-backed securities and are typically supported by some form of credit enhancement, such as a letter of credit, surety bond, limited guarantee by another entity or having a priority to certain of the borrower's other securities. The degree of credit enhancement varies, and generally applies to only a fraction of the asset-backed security's par value until exhaust- ed. Risk Factors. The securities in which High Income Fund and Strategic Bond Fund principally invest are considered speculative and involve greater risk than lower yielding, higher rated fixed-income securities, while providing higher yield than such securities. Lower rated securities may be less liquid, and significant losses could be experienced if a substantial number of other holders of such securities decide to sell at the same time. Other risks may involve the default of the issuer or price changes in the issuer's securities due to changes in the issuer's financial strength or economic conditions. Issuers of lower rated or unrated securities are generally not as financially secure or creditworthy as issuers of higher-rated securities. These Funds are not obligated to dispose of securities when issuers are in default or if the rating of the security is reduced. These risks are discussed in more detail in the Statement of Additional Informa- tion. Investment Policies - Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund and Global Securities Fund. Capital Appreciation Fund. In seeking its objective of capital appreciation, Capital Appreciation Fund will emphasize investments in securities of "growth-type" companies. Such companies are believed to have relatively favorable long-term prospects for increasing demand for their goods or services, or to be developing new products, services or markets, and normally retain a relatively larger portion of their earnings for research, development and investment in capital assets. "Growth-type" companies may also include companies developing applications for recent scientific advances. Capital Appreciation Fund may also invest in cyclical industries and in "special situations" that the Manager believes present opportunities for capital growth. "Special situations" are anticipated acquisitions, mergers or other unusual developments which, in the opinion of the Manager, will increase the value of an issuer's securities, regardless of general business conditions or market movements. An additional risk is present in this type of investment since the price of the security may be expected to decline if the anticipated development fails to occur. Growth Fund. In seeking its objective of capital appreciation, Growth Fund will emphasize investments in securities of well-known and established companies. Such securities generally have a history of earnings and dividends and are issued by seasoned companies (having an operating history of at least five years, including predecessors). Current income is a secondary consideration in the selection of Growth Fund's portfolio securities. Multiple Strategies Fund. The objective of Multiple Strategies Fund is to seek a high total investment return, which includes current income as well as capital appreciation in the value of its shares. In seeking that objective, Multiple Strategies Fund may invest in equity securities (including common stocks, preferred stocks, convertible securities and warrants), debt securities (including bonds, participation interest, asset-backed securities, private-label mortgage-backed securities and CMO's, zero coupon securities and U.S. government obligations) and cash and cash equivalents (identified above as the types of instruments in which the Money Fund may invest). Multiple Strategies Fund currently intends to invest no more than 5% of its net assets in participa- tion interests of the same issuing bank, which shall be participa- tion interests in senior, fully-secured floating rate loans that are made primarily to U.S. companies. Multiple Strategies Fund may purchase only those participation interests that mature in one year or less, or, if maturing in more than one year, that have a floating rate that is automatically adjusted at least once each year according to a specified rate for such investments, such as a percentage of a bank's prime rate. The composition of Multiple Strategies Fund's portfolio among the different types of permitted investments will vary from time to time based upon the Manager's evaluation of economic and market trends and perceived relative total anticipated return from such types of securities. Accordingly, there is neither a minimum nor a maximum percentage of Multiple Strategies Fund's assets that may, at any given time, be invested in any of the types of investments identified above. In the event future economic or financial conditions adversely affect equity securities, it is expected that Multiple Strategies Fund would assume a defensive position by investing in debt securities (with an emphasis on securities maturing in one year or less from the date of purchase), or cash and cash equivalents. Global Securities Fund. The objective of the Global Securities Fund is to seek long-term capital appreciation. Current income is not an objective. In seeking its objective, the Fund will invest a substantial portion of its invested assets in securities of foreign issuers, "growth-type" companies (those which, in the opinion of the Manager, have relatively favorable long-term prospects for increasing demand or which develop new products and retain a significant part of earnings for research and develop- ment), cyclical industries (e.g. base metals, paper and chemicals) and special investment situations which are considered to have appreciation possibilities (e.g., private placements of start-up companies). The Fund may invest without limit in "foreign securities" (as defined below in "Special Investment Methods - Foreign Securities") and thus the relative amount of such invest- ments will change from time to time. It is currently anticipated that Global Securities Fund may invest as much as 80% or more of its total assets in foreign securities. Under normal market conditions, the Fund will invest its total assets in securities of issuers traded in markets of at least three countries (which may include the United States). See "Special Investment Methods - -Foreign Securities," below, for further discussion as to the possible rewards and risks of investing in foreign securities and as to additional diversification requirements for the Fund's foreign investments. Special Investment Methods Borrowing. From time to time, Capital Appreciation Fund, Strategic Bond Fund, Growth Fund, Multiple Strategies Fund and Global Securities Fund may each increase their ownership of securities by borrowing from banks and investing the borrowed funds (on which that Fund will pay interest). Capital Appreciation Fund, Strategic Bond Fund, and Multiple Strategies Fund may each borrow, subject to the 300% asset coverage requirement of the Investment Company Act. Growth Fund may borrow only up to 5% of the value of its total assets and Global Securities Fund may borrow up to 10% of the value of its total assets. Global Securities Fund will not borrow, if as a result of such borrowing more than 25% of its total assets would consist of investments in when-issued or delayed delivery securi- ties or borrowed funds. Purchasing securities with borrowed funds is a speculative investment method known as "leverage," which may subject a Fund to relatively greater risks and costs than funds that do not use leverage, including possible reduction of income and increased fluctuation of net asset value per share. For further discussion of such risks and other details, see "Investment Objectives and Policies - Borrowing" in the Statement of Additional Information. Pursuant to an undertaking by Capital Appreciation Fund, Strategic Bond Fund, Multiple Strategies Fund and Global Securities Fund, borrowing by each such Fund is limited to 25% of the value of its net assets, which is further limited to 10% if the borrowing is for a purpose other than to facilitate redemptions. Neither percentage limitation is a fundamental policy. Small, Unseasoned Companies. Money Fund, Capital Appreciation Fund, Multiple Strategies Fund, Growth Fund, Global Securities Fund and Strategic Bond Fund may each invest in securities of small, unseasoned companies as well as those of large, well-known companies. It is not currently intended that investments in securities of companies (including predecessors) that have operated less than three years will exceed 5% of the net assets of either Growth Fund or Multiple Strategies Fund. Money Fund, Capital Appreciation Fund, Global Securities Fund and Strategic Bond Fund are not subject to this restriction. Securities of small, unseasoned companies may have a limited trading market and volatile price movements, which may adversely affect their disposition and can result in their being priced lower than might otherwise be the case. Participation Interests. Strategic Bond Fund, Global Securities Fund, High Income Fund and Multiple Strategies Fund may acquire participation interests in U.S. dollar-denominated loans that are made to U.S. or foreign companies (the "borrower"). They may be interests in, or assignments of, the loan, and are acquired from banks or brokers that have made the loan or are members of the lending syndicate. The Manager has set certain creditworthiness standards for issuers of loan participations, and monitors their creditworthiness. Some borrowers may have senior securities rated as low as "C" by Moody's or "D" by Standard & Poor's, but may be deemed acceptable credit risks. Participation interests are considered investments in illiquid securities (see "Restricted and Illiquid Securities,"below). Their value primarily depends upon the creditworthiness of the borrower, and its ability to pay interest and principal. Borrowers may have difficulty making payments. If a borrower fails to make scheduled interest or principal payments, the Funds could experience a reduction in their respective income and a decline in the net asset value of their respective shares. Further details are set forth in the Statement of Additional Information under "Investment Objective and Poli- cies." Foreign Securities. Each Fund may purchase "foreign securities" that is, securities of companies organized under the laws of countries other than the United States that are traded on foreign securities exchanges or in the foreign over-the-counter markets. Securities of foreign issuers that are represented by American Depository Receipts ("ADRs"), or that are listed on a U.S. securities exchange or are traded in the United States over-the-co- unter markets are not considered "foreign securities" for this purpose because they are not subject to many of the special considerations and risks (discussed below and in the Statement of Additional Information) that apply to foreign securities traded and held abroad. If a Fund's securities are held abroad, the countries in which such securities may be held and the sub-custodians holding them must be approved by the Fund's Board of Trustees under applicable SEC rules. Each Fund may also invest in debt obliga- tions issued or guaranteed by foreign corporations, certain supranational entities (such as the World Bank) and foreign governments (including political subdivisions having taxing authority) or their agencies or instrumentalities, subject to the investment policies described above. Foreign securities which the Funds may purchase may be denominated in U.S. dollars or in non-U.S. currencies. The Funds may convert U.S. dollars into foreign currency, but only to effect securities transactions and not to hold such currency as an investment. It is currently intended that each Fund (other than Global Securities Fund, Multiple Strategies Fund or Strategic Bond Fund) will invest no more than 25% of its total assets in foreign securities or in government securities of any foreign country or in obligations of foreign banks. Multiple Strategies Fund will invest no more than 35% of its total assets in foreign securities or in government securities of any foreign country or in obligations of foreign banks. Neither Global Securities Fund nor Strategic Bond Fund has any restrictions on the amount of its assets that may be invested in foreign securities. Investments in securities of issuers in non-industrialized countries generally involve more risk and may be considered highly speculative. The Funds have undertaken to comply with the foreign country diversification guidelines of Section 10506 of the California Insurance Code, as follows: Whenever a Fund's investment in foreign securities exceeds 25% of its net assets, it will invest its assets in securities of issuers located in a minimum of two different foreign countries; this minimum is increased to three foreign countries if foreign investments comprise 40% or more of a Fund's net assets, to four if 60% or more and to five if 80% or more. In addition, no such Fund will have more than 20% of its net assets invested in securities of issuers located in any one foreign country; that limit is increased to 35% for Australia, Canada, France, Japan, the United Kingdom or Germany. The percentage of each Fund's assets that will be allocated to foreign securities will vary depending on the relative yields of foreign and U.S. securities, the economies of foreign countries, the condition of their financial markets, the interest rate climate of such countries, and the relationship of such countries' currency to the U.S. dollar. These factors are judged on the basis of fundamental economic criteria (e.g., relative inflation levels and trends, growth rate forecasts, balance of payments status, and economic policies) as well as technical and political data. Subsequent foreign currency losses may result in a Fund having previously distributed more income in a particular period than was available from investment income, which could result in a return of capital to shareholders. Each such Fund's portfolio of foreign securities may include those of a number of foreign countries or, depending upon market conditions and subject to the above diversi- fication requirements those of a single country. In summary, foreign securities markets may be less liquid and more volatile than the markets in the U.S. Risks of foreign securities investing may include foreign withholding taxation, changes in currency rates or currency blockage, currency exchange costs, difficulty in obtaining and enforcing judgments against foreign issuers, relatively greater brokerage and custodial costs, risk of expropri- ation or nationalization of assets, less publicly available information, and differences between domestic and foreign legal, auditing, brokerage and economic standards. See "Investment Objectives and Policies - Foreign Securities" in the Statement of Additional Information for further details. Warrants and Rights. Each of the Funds (except Money Fund) may invest up to 5% of its total assets in warrants and rights other than those that have been acquired in units or attached to other securities. No more than 2% of each such Fund's total assets may be invested in warrants that are not listed on either the New York or American Stock Exchanges. For further details, see "Warrants and Rights" in the Statement of Additional Information. Repurchase Agreements. Each Fund may acquire securities that are subject to repurchase agreements to generate income while providing liquidity. There is no limit on the amount of any Fund's net assets that may be subject to repurchase agreements having a maturity of seven days or less. No Fund will enter into repurchase agreements which will cause more than 15% of its net assets (10% of net assets for Money Fund) to be invested in repurchase agreements having a maturity beyond seven days. Repurchase agreements must be fully collateralized. However, if the vendor fails to pay the resale price on the delivery date, the Fund may experience costs in disposing of the collateral, and losses if there is any delay in doing so. Restricted and Illiquid Securities. Under the supervision of the Board of Trustees, the Manager determines the liquidity of a Fund's investments. Investments may be illiquid because of the absence of a trading market, making it difficult to value them or dispose of them promptly at an acceptable price. A restricted security is one that has a contractual restriction on resale or cannot be sold publicly until it is registered under the Securities Act of 1933. No Fund will purchase or otherwise acquire any security if, as a result, more than 15% (10% for Money Fund) of its net assets (taken at current value) would be invested in securities that are illiquid by virtue of the absence of a readily available market or because of legal or contractual restrictions on resale ("restricted securities"). This policy applies to participation interests, bank time deposits, master demand notes and repurchase transactions maturing in more than seven days, over-the-counter ("OTC") options held by any Fund and that portion of assets used to cover such OTC options [High Income, Global Securities and Strategic Bond Funds]. This policy is not a fundamental policy and does not limit purchases of restricted securities eligible for resale to qualified institutional purchasers pursuant to Rule 144A under the Securities Act of 1933 that are determined to be liquid by the Board of Trustees or by the Manager under Board-approved guidelines. Such guidelines take into account trading activity for such securities and the availability of reliable pricing information, among other factors. If there is a lack of trading interest in particular Rule 144A securities, a Fund's holdings of those securities may be illiquid. There may be undesirable delays in selling such securities at a price representing their fair value. None of the Funds presently intend to invest more than 10% of its net assets in illiquid or restricted securities; restricted securities eligible for resale pursuant to Rule 144A are not included within this limitation. Loans of Portfolio Securities. To attempt to increase income, each Fund may lend its portfolio securities if the loan is collateral- ized in accordance with applicable regulatory requirements and if after any loan, the value of the securities loaned does not exceed 25% of the value of that Fund's total assets. In connection with securities lending, a Fund might experience risks of delay in receiving additional collateral, or risks of delay in recovery of the securities, or loss of rights in the collateral should the borrower fail financially. The Funds presently do not intend that the value of securities loaned will exceed 5% of each Fund's total assets. See "Loans of Portfolio Securities" in the Statement of Additional Information for further information on securities loans. When-Issued Securities. Each Fund may from time to time purchase securities on a "when-issued" basis, and may purchase or sell securities on a "delayed delivery" basis. Debt securities are often issued on this basis. In those transactions, a Fund obligates itself to purchase or sell securities with delivery and payment to occur at a later date to secure what is considered to be an advantageous price and yield at the time the obligation is entered into. The price, which is generally expressed in yield terms, is fixed at the time the commitment to purchase is made, but delivery and payment for when-issued securities take place at a later date (normally within 45 days of purchase). During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund from the investment. Although the Fund is subject to the risk of adverse market fluctuation during that period, the Manager does not believe that the net asset value or income of a Fund will be significantly adversely affected by its purchase of securities on a "when-issued" basis. See "When-Issued and Delayed Delivery Transactions" in the Statement of Additional Information Statement for further details. Writing Covered Calls. Each Fund except Money Fund may write (i.e., sell) call options ("calls") that are traded on a domestic securities exchange or quoted on NASDAQ, that are traded on foreign securities exchanges and domestic over-the-counter markets or that are traded on foreign over-the-counter markets. All such calls written by these Funds must be "covered" while the call is outstanding (i.e., the Fund must own the securities subject to the call or other securities acceptable for applicable escrow require- ments). Calls on Futures (see "Hedging," below) must be covered by deliverable securities or by liquid assets segregated to satisfy the Futures contract. Covered call writing is an attempt to enhance income through the receipt of premiums from expired calls and any net profits from closing purchase transactions. After any such sale, up to 100% of each such Funds may be subject to calls. If a call written by a Fund is exercised, the Fund forgoes any possible profit from an increase in the market price of the underlying security over the exercise price less the commissions paid on the sale. In addition, the Fund could experience capital losses which might cause previously distributed short-term capital gains to be recharacterized as non-taxable return of capital to shareholders. Hedging. For hedging purposes as a temporary defensive maneuver, Global Securities Fund, Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund and Strategic Bond Fund may use Stock Index Futures; Bond Fund, Global Securities Fund, Strategic Bond Fund and High Income Fund may use Interest Rate Futures and Bond Index Futures (together with Stock Index Futures, referred to as "Futures"); each Fund may enter into Forward Contracts (defined below), and may also buy and sell call and put options on securi- ties, Futures (as applicable), broadly-based indices and foreign currencies; Bond Fund, High Income Fund and Strategic Bond Fund may also enter into Interest Rate Swap transactions (all of the foregoing are referred to as "Hedging Instruments"). Hedging Instruments may be used to attempt to: (i) protect against declines in the market value of a Fund's portfolio securities or Futures, and thus protect that Fund's net asset value per share against downward market trends, (ii) protect a Fund's unrealized gains in the value of its securities which have appreciated, (iii) facili- tate selling portfolio securities for investment reasons, (iv) establish a position in the securities markets as a temporary substitute for purchasing particular securities, or (v) reduce the risk of adverse currency fluctuations. A call or put may be purchased only if, after such purchase, the value of all call and put options held by that Fund would not exceed 5% of its total assets. The Funds will not use Futures and options on Futures for speculation. The Hedging Instruments which Funds may use are described below. Interest Rate Futures. Bond Fund, Global Securities Fund, Strategic Bond Fund and High Income Fund may buy and sell futures contracts that relate to debt securities ("Interest Rate Futures"). An Interest Rate Future obligates the seller to deliver and the purchaser to take a specific type of debt security at a specific future date for a fixed price. That obligation may be satisfied by actual delivery of the debt security or by entering into an offsetting contract. Bond Index Futures. Bond Fund, Global Securities Fund, Strategic Bond Fund and High Income Fund may buy and sell futures contracts that relate to bond indices ("Bond Index Futures"). A bond index assigns relative values to the bonds included in that index and is used as a basis for trading long-term Bond Index Futures contracts. Bond Index Futures reflect the price movements of bonds included in the index. They differ from Interest Rate Futures in that settlement is made in cash rather than by delivery. Stock Index Futures. Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund and Global Securities Fund and Strategic Bond Fund may buy and sell futures contracts that relate to broadly-based stock indices ("Stock Index Futures"). A stock index is "broadly-based" if it includes stocks that are not limited to issuers in any particular industry or group of industries. Stock Index Futures obligate one party to accept, and the other party to make, delivery of cash equal to the difference between the stock index value at the close of trading of the contract and the exercise price of the futures contract times a specified multiple (the "multiplier") which determines the total dollar value for each point of difference. No physical delivery of the underlying stocks in the index is made. Generally, contracts are closed out prior to the expiration date of the contract. Purchasing Calls on Securities and Futures. Each Fund may purchase calls on securities or on Futures that are traded on U.S. and foreign securities or commodities exchanges, the U.S. over-the-cou- nter markets or foreign over-the-counter markets in order to protect against the possibility that its portfolio will not fully participate in an anticipated rise in value of the long-term securities market. The value of debt securities underlying calls will not exceed the value of the portion of the Fund's portfolio invested in cash or cash equivalents (i.e. securities with maturities of less than one year). Puts on Securities and Futures. Each Fund, other than Money Fund, may purchase put options (``puts'') which relate to securities (whether or not it holds such securities in its portfolio) or Futures. They may also write puts on securities, securities indices or Futures only if such puts are covered by segregated liquid assets. None of the Funds will write puts if, as a result, more than 50% of its net assets would be required to be segregated liquid assets. In writing puts, there is the risk that a Fund may be required to buy the underlying securities at a discounted price. Foreign Currency Options. Each Fund may purchase and write puts and calls on foreign currencies that are traded on a securities or commodities exchange or quoted by major recognized dealers in such options, for the purpose of protecting against declines in the dollar value of foreign securities owned by such Fund or in the dollar value of payments on such securities and against increases in the dollar cost of foreign securities to be acquired. If a rise is anticipated in the dollar value of a foreign currency in which securities to be acquired are denominated, the increased cost of such securities may be partially offset by purchasing calls or writing puts on that foreign currency. If a decline in the dollar value of a foreign currency is anticipated, the decline in value of portfolio securities denominated in that currency may be partially offset by writing calls or purchasing puts on that foreign currency. However, in the event of currency rate fluctuations adverse to a Fund's position, it would lose the premium it paid and transactions costs. Forward Contracts. Each Fund, other than Money Fund, may enter into foreign currency exchange contracts (``Forward Contracts''), which obligate the seller to deliver and the purchaser to take a specific amount of foreign currency at a specific future date for a fixed price. The Funds may enter into a Forward Contract in order to ``lock in'' the U.S. dollar price of a security denominat- ed in a foreign currency which it has purchased or sold but which has not yet settled, or to protect against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and a foreign currency. There is a risk that use of Forward Contracts may reduce gain that would otherwise result from a change in the relationship between the U.S. dollar and a foreign currency. Interest Rate Swap Transactions. Bond Fund, High Income Fund and Strategic Bond Fund may enter into interest rate swaps. Interest rate swaps are subject to interest rate risks, in that the Fund could be obligated to pay more under its swap agreements than it receives, as a result of interest rate changes. In an interest rate swap, the Fund and another party exchange their respective commitments to pay or receive interest on a security (e.g., an exchange of floating rate payments for fixed rate payments). These Funds will not use interest rate swaps for leverage. Swap transactions will be entered into only as to security positions held by the Fund. The Funds may not enter into swap transactions with respect to more than 50% of its total assets. The Funds will segregate liquid assets (e.g., cash, U.S. Government securities or other appropriate high grade debt obligations) equal to the net excess, if any, of its obligations over its entitlements under the swap and will mark to market that amount daily. There is a risk of loss on a swap equal to the net amount of interest payments that the Funds are contractually obligated to make. The credit risk of an interest rate swap depends on the counterparty's ability to perform. The value of the swap may decline if the counterparty's creditworthiness deteriorates. If the counterparty defaults, the Fund risks the loss of the net amount of interest payments that it is contractually entitled to receive. The Fund may be able to reduce or eliminate its exposure to losses under swap agreements either by assigning them to another party, or by entering into an offsetting swap agreement with the same counterpa- rty or another creditworthy counterparty. See "Hedging" - Interest Rate Swap Transactions in the Statement of Additional Information for further details. Risks of Options and Futures Trading. The Statement of Additional Information contains more information about options and Futures, Forward Contracts, segregation arrangements for Forward Contracts and Futures, the payment of premiums for option trades, the tax effects, risks and possible benefits to the Funds from options trading and information as to the Fund's other limitations on investments in Futures and options thereon. These limitations and the restrictions described in the preceding paragraph on cross hedging are not fundamental policies of the Funds. There are certain risks in writing calls. If a call written by a Fund is exercised, the Fund foregoes any profit from any increase in the market price above the call price of the underlying investment on which the call was written. In addition, the Fund could experience capital losses that might cause previously distributed short-term capital gains to be re-characterized as non-taxable return of capital to shareholders. In writing puts, there is the risk that the Fund may be required to buy the underlying security at a disadvantageous price. The principal risks of Futures trading are: (a) possible imperfect correlation between the prices of the Futures and the market value of the debt securities in the Fund's portfolio; (b) possible lack of a liquid secondary market for closing out a Futures position; (c) the need for additional skills and techniques beyond those required for normal portfolio manage- ment; and (d) losses on Futures resulting from interest rate movements not anticipated by the Manager. Derivative Investments. Each Fund, other than Money Fund, can invest in a number of different kinds of ``derivative invest- ments.'' In general, a ``derivative investment'' is a specially designed investment whose performance is linked to the performance of another investment or security, such as an option, future, index or currency. In the broadest sense, derivative investments include exchange-traded options and futures contracts (see ``Writing Covered Calls'' and ``Hedging''), as well as the investments discussed in this section. The risks of investing in derivative investments include not only the ability of the company issuing the instrument to pay the amount due on the maturity of the instrument, but also the risk that the underlying investment or security might not perform the way the Manager expected it to perform. The performance of derivative investments may also be influenced by interest rate changes in the U.S. and abroad. All of this can mean that the Funds will realize less principal and/or income than expected. Certain derivative investments held by the Fund may trade in the over-the-counter market and may be illiquid. See ``Restricted and Illiquid Securities.'' Examples of derivative investments the Funds may invest in include, among others, ``index-linked'' notes. These are debt securities of companies that call for payment on the maturity of the note in different terms than the typical note where the borrower agrees to pay a fixed sum on the maturity of the note. The payment on maturity of an index-linked note depends on the performance of one or more market indices, such as the S&P 500 Index. Further examples of derivative investments the Fund may invest in include ``debt exchangeable for common stock'' of an issuer or ``equity-li- nked debt securities'' of an issuer. At maturity, the principal amount of the debt security is exchanged for common stock of the issuer or is payable in an amount based on the issuer's common stock price at the time of maturity. In either case there is a risk that the amount payable at maturity will be less than the principal amount of the debt. Other examples of derivative investments the Funds may invest in are currency-indexed securities. These are typically short-term debt securities whose maturity values or interest rates are determined by reference to one or more specified foreign curren- cies. Certain currency-indexed securities purchased by the Fund may have a payout factor tied to a multiple of the movement of the U.S. dollar (or the foreign currency in which the security is denominated) against the movement in the U.S. dollar, the foreign currency, another currency, or an index. Such securities may be subject to increased principal risk and increased volatility than comparable securities without a payout factor in excess of one, but the Manager believes the increased yield justifies the increased risk. Portfolio Turnover. The Funds may engage frequently in short-term trading. High turnover and short-term trading involve correspond- ingly greater commission expenses and transaction costs for Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund and Global Securities Fund and to a lesser extent, higher transaction costs for Money Fund, Bond Fund, Strategic Bond Fund and High Income Fund. Portfolio turnover rates are set forth under "Financial Highlights" for each Fund. If any Fund derives 30% or more of its gross income from the sale of securities held less than three months, it may fail to qualify under the tax laws as a regulated investment company (see "Dividends, Distributions and Taxes," below). Short Sales Against-the-Box. Each Fund, except Money Fund may sell securities short in "short sales against-the-box." No more than 15% of any Fund's net assets will be held as collateral for such short sales at any one time. See "Investment Objectives and Policies - Short Sales Against-the-Box" in the Statement of Additional Information for further information. Investment Restrictions Each of the Funds has certain investment restrictions which, together with its investment objective, are fundamental policies, that is, subject to change only by approval of a majority of the outstanding voting securities of the appropriate Fund. Under some of those restrictions, each Fund cannot: (1) with respect to 75% of its total assets, invest in securities (except those of the U.S. Government or its agencies or instrumentalities) of any issuer if immediately thereafter, either (a) more than 5% of that Fund's total assets would be invested in securities of that issuer, or (b) that Fund would then own more than 10% of that issuer's voting securities or 10% in principal amount of the outstanding debt securities of that issuer (the latter limitation on debt securities does not apply to Strategic Bond Fund); (2) lend money except in connection with the acquisition of debt securities which a Fund's investment policies and restrictions permit it to purchase; the Funds may also make loans of portfolio securities (see "Loans of Portfolio Securities"); (3) pledge, mortgage or hypothecate any assets to secure a debt; the escrow arrangements which are involved in options trading are not considered to involve such a mortgage, hypothecation or pledge; (4) concentrate investments in any particular industry, other than securities of the U.S. Government or its agencies or instrumentalities [Money Fund, Bond Fund and High Income Fund, only]; therefore these Funds will not purchase the securities of issuers primarily engaged in the same industry if more than 25% of the total value of that Fund's assets would (in the absence of special circumstances) consist of securities of companies in a single industry; however, there is no limitation as to concentration of investments by Money Fund in obligations issued by domestic banks, foreign branches of domestic banks (if guaran- teed by the domestic parent), savings and loan associations or in obligations issued by the federal government and its agencies and instrumentalities; and (5) deviate from the percentage requirements and other restrictions listed under "Warrants and Rights," and the first paragraph under "Borrowing". None of the percentage limita- tions and restrictions described above and in the Statement of Additional Information for the Funds with respect to writing covered calls, Hedging, short sales and derivatives is a fundamen- tal policy. The percentage restrictions described above and in the Statement of Additional Information, other than those described under "Special Investment Methods -- Borrowing," apply only at the time of investment and require no action by a Fund as a result of subse- quent changes in value of the investment or the size of that Fund. Money Fund has separately undertaken to exclude savings and loan associations from the exception to the concentration limitation set forth under investment restriction (4), above. A supplementary list of investment restrictions is contained in the Statement of Additional Information, which also contains further information regarding the Funds' investment policies. The Trustees of the Trust are required to monitor events to identify any irreconcilable conflicts which may arise between the variable life insurance policies and variable annuity contracts that invest in the Funds. Should any conflict arise which ultimately requires that any substantial amount of assets be withdrawn from any Fund, its operating expenses could increase. Management Of The Funds The Board of Trustees has overall responsibility for the management of each Fund under the laws of Massachusetts governing the responsibilities of trustees of business trusts. Subject to the authority of the Board of Trustees, the Manager is responsible for the day-to-day management of the Funds' business, supervises the investment operations of each Fund and the composition of its portfolio and furnishes advice and recommendations with respect to investments, investment policies and the purchase and sale of securities, pursuant to an investment advisory agreement with each Fund (the "Agreements"). Effective September 1, 1994, the monthly management fee payable to the Manager is computed separately on the net assets of each Fund as of the close of business each day. The management fee rates that became effective that day are as follows (i) for Money Fund: 0.450% of the first $500 million of net assets, 0.425% of the next $500 million, 0.400% of the next $500 million, and 0.375% of net assets over $1.5 billion; (ii) for Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund, and Global Securities Fund: 0.75% of the first $200 million of net assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the next $200 million, and 0.60% of net assets over $800 million; and (iii) for High Income Fund, Bond Fund and Strategic Bond Fund: 0.75% of the first $200 million of net assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the next $200 million, 0.60% of the next $200 million, and 0.50% of net assets over $1 billion. The management fee rates in effect during the Funds' fiscal year ended December 31, 1993 are in Note 6 to the financial statements included in the Trust's Statement of Addition- al Information. During the fiscal year ended December 31, 1993, the management fee (computed on an annualized basis as a percentage of the net assets of all the Funds as of the close of business each day) and the total operating expenses as a percentage of average net assets of each Fund, when restated to reflect the current management fee rates described above and the current limitation on expenses described in the Statement of Additional Information, were as follows: Management Total Operating Fund Fees Expenses - -------------------------- ---------- --------------- Money Fund .45% .51% High Income Fund .75 .86 Bond Fund .75 .80 Capital Appreciation Fund .75 .80 Growth Fund .75 .83 Multiple Strategies Fund .75 .81 Global Securities Fund .75 .96 Strategic Bond Fund(1) .75 1.00 (1) Annualized. Total Operating Expenses would have been 1.06% in the absence of the Manager's voluntary expense limitation. The Manager is authorized by the Agreements to employ such brokers or dealers as may in its best judgment, based on all relevant factors, implement the policy of the Funds to obtain, at reasonable expense, the "best execution" (prompt and reliable execution at the most favorable price obtainable) of the Funds' portfolio transac- tions. Subject to the Agreements, the Manager may also consider sales of shares of the Funds and other funds advised by the Manager or its affiliates as a factor in the selection of broker-dealers for portfolio transactions. As most purchases by Money Fund, High Income Fund, Bond Fund and Strategic Bond Fund are principal transactions at net prices, these Funds incur little or no brokerage costs, and the mark-up (the difference or spread between the dealer's purchase and sale price) that they pay on principal transactions is smaller than that paid by most individual inves- tors. "Investment Management Services" in the Statement of Additional Information contains additional information about the Agreements, including a description of expense arrangements, exculpation provisions, and brokerage practices of the Funds. Mr. David Negri is a Vice President of the Manager who serves as a Portfolio Manager of High Income Fund, Bond Fund, Multiple Strategies Fund and Strategic Bond Fund. Since July, 1989, January 1990, July, 1989 and May 1993 respectively, he has been the person principally responsible for the day-to-day management portfolios of those Funds. During the past five years, he has also served as an officer of other OppenheimerFunds. Mr. George Evans is a Vice President of the Manager who serves as a Portfolio Manager of Global Securities Fund. Since February, 1991, he has been the person principally responsible for the day-to-day management of that Fund's portfolio. During the past five years, he has also served as an international equities portfolio manager/analyst with Brown Brothers Harriman & Co. Mr. Arthur Zimmer is a Vice President of the Manager who serves as a Portfolio Manager of Money Fund. Since October, 1990, he has been the person principally responsible for the day-to-day management of that Fund's portfolio. During the past five years, he has also served as an officer of other OppenheimerFunds and formerly served as Vice President of Hanifen Imhoff Management Company (mutual fund investment adviser). Mr. Robert Doll is a Senior Vice President of the Manager who serves as a Portfolio Manager of Growth Fund. Since April, 1991, he has been the person principally responsible for the day-to-day management of that Fund's portfolio. During the past five years, he has also served as an officer of other OppenheimerFunds. Mr. Paul LaRocco is an Assistant Vice President and a Portfolio Manager of the Manager who serves as Portfolio Manager of Capital Apprecia- tion Fund. Since January, 1994, he has been the person principally responsible for the day-to-day management of the Fund's portfolio. During the past five years, he has also served as Associate Portfolio Manager for other OppenheimerFunds and formerly served as a securities analyst with Columbus Circle Investors, prior to which he was an investment analyst for Chicago Title & Trust Co. Messrs. Richard Rubinstein and David Negri are Vice Presidents of the Manager and serve as Portfolio Managers of Multiple Strategies Fund, since April, 1991 and July, 1989, respectively. During the past five years, Mr. Rubinstein has served as an officer of other OppenheimerFunds and was formerly Vice President and Portfolio Manager/Security Analyst for Oppenheimer Capital Corp., an investment adviser. Each of the Portfolio Managers named above are also Vice Presidents of the Trust. For more information about the Trust's other Trustees and Officers, see "Trustees and Officers" in the Statement of Additional Information. The Manager has operated as an investment adviser since April 30, 1959. It and its affiliates currently advise U.S. investment companies with assets aggregating over $27 billion as of December 31, 1993, and having more than 1.8 million shareholder accounts. The Manager is owned by Oppenheimer Acquisition Corp., a holding company owned in part by senior management of the Manager, and ultimately controlled by Massachusetts Mutual Life Insurance Company, a mutual life insurance company which also advises pension plans and investment companies. Management's Discussion of Performance. During the Funds' fiscal year ended December 31, 1993, the Managers emphasized the following investment strategies and techniques. For High Income Fund, bonds of cyclical companies in the automotive, paper and metals indus- tries were emphasized, in expectation that they would benefit from stronger U.S. economic growth, and once a recovery takes hold in Europe and Japan. The strengthening of the U.S. economy and continued low inflation and interest rate levels resulted in favorable performance of high yield, lower rated bonds, which more than offset modest declines in yields as interest rates move lower. For Bond Fund, bonds were emphasized in areas which are expected to experience high growth rates, such as telecommunications, or in areas which are regarded as undervalued, such as oil and gas companies. Intermediate U.S. treasury securities were purchased for that Fund to position it for a possible increase in interest rates. For Capital Appreciation Fund, stocks of companies were emphasized in health care, technology and telecommunications, and specialty retailing, in expectation that an improving economy will support the prospects for stocks of small companies. For Growth Fund, stocks were emphasized in financial service companies positioned to benefit from low interest rates, health care companies, and other global companies regarded as having above-ave- rage long-term prospects. Multiple Strategies Fund's fixed income portfolio emphasized high-yield corporate issues and foreign bonds, notably from Canadian, Australian and Latin American issuers, which are expected to benefit from the improving global economy and be less sensitive to changes in U.S. interest rates. That Fund's equity portfolio focused on health care and technology stocks that are expected to provide new products or services, and international stocks expected to capitalize on the prospects of strong economic growth offshore. For Global Securities Fund, banks and financial services in emerging markets and developed countries, consumer industries servicing emerging markets, telecommunications and energy logistics were emphasized in anticipation of increased capital requirements to support development, growth and demand of emerging consumer markets, and an anticipated pick up in global economies and markets. For Strategic Bond Fund, corporate bonds were emphasized in the paper, metals and automotive industries, to take advantage of price appreciation in the event of economic recovery, and foreign fixed income securities were emphasized to take advantage of growth rates in foreign countries (including Europe, Australia, Canada New Zealand, Latin America, Indonesia and Eastern Europe) that are higher than in the U.S. Comparison of Change in Value of $10,000 Hypothetical Investment in High Income Fund Versus Salomon Brothers High Yield Market Index (Chart comparing total return of High Income Fund shares to performance of Salomon Brothers High Yield Market Index) Average Annual Total Return at 12/31/93 1 year 5 years Life of Fund (1) 26.34% 16.96% 14.70% Comparison of Change in Value of $10,000 Hypothetical Investment in Bond Fund Versus Lehman Brothers Corporate Bond Index (Chart comparing total return of Bond Fund shares to performance of Lehman Brothers Corporate Bond Index) Average Annual Total Return at 12/31/93 1 year 5 years Life of Fund (1) 13.04% 11.61% 11.21% Comparison of Change in Value of $10,000 Hypothetical Investment in Capital Appreciation Fund Versus S&P 500 Index (Chart comparing total return of Capital Appreciation Fund shares to performance of S&P 500 Index) Average Annual Total Return at 12/31/93 1 year 5 years Life of Fund (1) 27.32% 19.26% 16.46% Comparison of Change in Value of $10,000 Hypothetical Investment in Growth Fund Versus S&P 500 Index (Chart comparing total return of Growth Fund shares to performance of S&P 500 Index) Average Annual Total Return at 12/31/93 1 year 5 years Life of Fund (1) 7.25% 11.83% 12.70% Comparison of Change in Value of $10,000 Hypothetical Investment in Multiple Strategies Fund Versus S&P 500 Index and Lehman Brothers Aggregate Bond Index (Chart comparing total return of Multiple Strategies Fund shares to performance of S&P 500 Index and Lehman Brothers Aggregate Bond Index) Average Annual Total Return at 12/31/93 1 year 5 years Life of Fund (1) 15.95% $11.01% 11.67% Comparison of Change in Value of $10,000 Hypothetical Investment in Global Securities Fund Versus Morgan Stanley World Index (Chart comparing total return of Global Securities Fund shares to performance of Morgan Stanley World Index) Average Annual Total Return at 12/31/93 1 year Life of Fund (1) 70.32% 17.14% Comparison of Change in Value of $10,000 Hypothetical Investment in Strategic Bond Fund Versus Lehman Brothers Aggregate Bond Index and Salomon Brothers World Government Bond Index (Chart comparing total return of Strategic Bond Fund to performance of Lehman Brothers Aggregate Bond Index and Salomon Brothers World Government Bond Index) Cumulative Total Return at 12/31/93 Life of Fund (1) 4.25% - ---------------- (1)Inception dates are as follows: April 30, 1986 for High Income Fund; April 3, 1985 for Bond Fund and Growth Fund; August 15, 1986 for Capital Appreciation Fund; February 9, 1987 for Multiple Strategies Fund; November 12, 1990 for Global Securities Fund.; and May 3, 1993 for Strategic Bond Fund. Indices. The Salomon Brothers High Yield Market Index is an unmanaged index of below-investment grade (but rated at least BB+/Ba1 by Standard & Poor's or Moody's) U.S. corporate debt obligations, widely-recognized as a measure of the performance of the high-yield corporate bond market, the market in which High Income Fund principally invests. The Lehman Brothers Corporate Bond Index is an unmanaged index of publicly-issued non-convertible investment grade corporate debt of U.S. issuers, widely recognized as a measure of the U.S. fixed-rate corporate bond market. The S&P 500 Index is an unmanaged index of 500 widely held common stocks traded on the New York and American Stock Exchanges and the over-the-counter market, and is widely recognized as a general measure of stock market performance. The Lehman Brothers Aggregate Bond Index is a broad-based, unmanaged index of U.S. corporate bond issues, U.S. government securities and mortgage-backed securities, widely recognized as a measure of the performance of the domestic debt securities market. The Morgan Stanley World Index is an unmanaged index of issuers listed on the stock exchanges of 20 foreign countries and the U.S., and is widely recognized as a measure of global stock market performance. The Salomon Brothers World Government Bond Index is an unmanaged index of fixed-rate bonds having a maturity of one year or more, and is widely recognized as a benchmark of fixed income performance on a world-wide basis. The performance of each index reflects reinvest- ment of income but not capital gains or transaction costs, and none of the data shown above shows the effect of taxes. While index comparisons may be useful to provide a benchmark for the Funds' performance, it must be noted that the Funds' investments are not limited to the securities in any one index and the index data does not reflect any assessment of the risk of the investments included in the index. Purchase Of Shares Shares of each Fund are offered only for purchase by Accounts as an investment medium for variable life insurance policies and variable annuity contracts, as described in the accompanying Account Prospectus. The sale of shares will be suspended during any period when the determination of net asset value is suspended and may be suspended by the Board of Trustees whenever the Board judges it in that Fund's best interest to do so. Shares of each Fund are offered at their respective offering price, which (as used in this Prospectus and the Statement of Additional Information) is net asset value (without sales charge). Under Rule 2a-7, the amortized cost method is used to value Money Fund's net asset value per share, which is expected to remain fixed at $1.00 per share except under extraordinary circumstances; see "Purchase, Redemption and Pricing of Shares - Money Fund Net Asset Valuation" in the Statement of Additional Information for further information. There can be no assurance that Money Fund's net asset value will not vary. All purchase orders are processed at the offering price next determined after receipt by the Trust of a purchase order in proper form. The offering price (and net asset value) is determined as of 4:00 P.M., New York time, each day the New York Stock Exchange is open. Net asset value per share of each Fund is determined by dividing the value of that Fund's net assets by the number of its shares outstanding. The Board of Trustees has established procedures for valuing each Fund's securities. In general, those valuations are based on market value, with special provisions for: (i) securities not having readily available market quotations; (ii) short-term debt securities; and (iii) calls and Hedging Instru- ments. Further details are in "Purchase, Redemption and Pricing of Shares" in the Statement of Additional Information. Redemption Of Shares Payment for shares tendered by an Account for redemption is made ordinarily in cash and forwarded within seven days after receipt by the Trust's transfer agent, Oppenheimer Shareholder Services (the "Transfer Agent"), of redemption instructions in proper form, except under unusual circumstances as determined by the SEC. The Trust understands that payment to the Account owner will be made in accordance with the terms of the accompanying Account Prospectus. The redemption price will be the net asset value next determined after the receipt by the Transfer Agent of a request in proper form. The market value of the securities in the portfolio of the Funds is subject to daily fluctuations and the net asset value of the Funds' shares (other than shares of the Money Fund) will fluctuate accordingly. Therefore, the redemption value may be more or less than the investor's cost. Dividends, Distributions And Taxes Dividends of the Money Fund. The Trust intends to declare all of Money Fund's net income, defined below, as dividends on each day the New York Stock Exchange is open for business. Such dividends will be payable on shares held of record at the time of the previous determination of net asset value. Daily dividends accrued since the prior dividend payment will be paid to shareholders monthly as of a date selected by the Board of Trustees. Money Fund's net income for dividend purposes consists of all interest income accrued on portfolio assets, less all expenses of that Fund for such period. Accrued market discount is included in interest income; amortized market premium is treated as an expense. Although distributions from net realized gains on securities, if any, will be paid at least once each year, and may be made more frequently, Money Fund does not expect to realize long-term capital gains, and therefore does not contemplate payment of any capital gains distribution. Distributions from net realized gains will not be distributed unless Money Fund's capital loss carry forwards, if any, have been used or have expired. Money Fund seeks to maintain a net asset value of $1.00 per share for purchases and redemptions. To effect this policy, under certain circumstances the Money Fund may withhold dividends or make distributions from capital or capital gains (see "Purchase, Redemption and Pricing of Shares" in the Statement of Additional Information). Dividends and Distributions of High Income Fund, Bond Fund, Strategic Bond Fund and Multiple Strategies Fund. The Trust intends to declare High Income Fund, Bond Fund, Strategic Bond Fund and Multiple Strategies Fund dividends quarterly, payable in March, June, September and December. Dividends and Distributions of Capital Appreciation Fund, Growth Fund and Global Securities Fund. The Trust intends to declare Capital Appreciation Fund, Growth Fund and Global Securities Fund dividends on an annual basis. Dividends and Distributions: General. Any Fund (other than Money Fund) may make a supplemental distribution annually in December out of any net short-term or long-term capital gains derived from the sale of securities, premiums from expired calls written by the Fund, and net profits from hedging transactions, realized from November 1 of the prior year through October 31 of the current year. Each such Fund may also make a supplemental distribution of capital gains and ordinary income following the end of its fiscal year. All dividends and capital gains distributions paid on shares of any of the Funds are automatically reinvested in additional shares of that Fund at net asset value determined on the distribu- tion date. There are no fixed dividend rates and there can be no assurance as to the payment of any dividends or the realization of any capital gains. Tax Treatment to the Account As Shareholder. Dividends paid by each Fund from its ordinary income and distributions of each Fund's net realized short-term or long-term capital gains are includable in gross income of the Accounts holding such shares. The tax treatment of such dividends and distributions depends on the tax status of that Account. Tax Status of the Funds. If the Funds qualify as "regulated investment companies" under the Internal Revenue Code, the Trust will not be liable for Federal income taxes on amounts paid as dividends and distributions from any of the Funds. The Funds did qualify during their last fiscal year and the Trust intends that they will qualify in current and future years. However, the Code contains a number of complex tests relating to qualification which any Fund might not meet in any particular year (see, e.g., "The Funds and Their Investment Policies - Portfolio Turnover"). If any Fund does not so qualify, it would be treated for tax purposes as an ordinary corporation and would receive no tax deduction for payments made to shareholders of that Fund. The above discussion relates solely to Federal tax laws. This discussion is not exhaustive and a qualified tax adviser should be consulted. Additional Information Description of the Trust and its Shares. The Declaration of Trust permits the Board of Trustees to issue an unlimited number of full and fractional shares of beneficial interest of separate series, without par value, and from time to time to create additional series and to fix and determine the relative rights and preferences among the different series. Shares of eight series have been authorized, which constitute interests in the Funds described herein; the Trustees have authority to create additional series (without shareholder approval) which would constitute new funds. Shares of each Fund represent an interest in that Fund proportion- ately equal to the interest of each other share of that Fund and entitle their holders to one vote per share (with proportionate voting for fractional shares) on matters submitted to their vote, as explained in the Statement of Additional Information. Shares do not have cumulative voting rights, or conversion, preemptive or subscription rights, and are fully transferable. Shares of each Fund have liquidation rights as to the assets of that Fund. It is not contemplated that regular annual meetings of shareholders will be held. Under certain circumstances, shareholders have the right to remove a Trustee. See "Additional Information - Description of the Trust" in the Statement of Additional Information for details. As of December 31, 1993, Monarch Life Insurance Company's Variable Account B may be deemed to control Money Fund and Growth Fund; Bankers Security Variable Annuity Funds P and Q may be deemed to control High Income Fund and Capital Appreciation Fund; Nationwide- 's Separate Accounts I and II may be deemed to control Bond Fund, Multiple Strategies Fund and Global Securities Fund; Confederation Life Insurance and Annuity Company's Separate Account A may be deemed to control High Income Fund, Capital Appreciation Fund, Global Securities Fund, Growth Fund and Strategic Bond Fund; in each case by virtue of owning more than 25% of the shares of such Fund. See "Trustees and Officers - Fund Shareholders" in the Statement of Additional Information. Except as provided under the Investment Company Act, the Accounts will vote their shares in accordance with instructions received from Account Policyowners; this is explained further in the accompanying Account Prospectus. Shareholder Inquiries. Inquiries by policyowners for Account information are to be directed to the insurance company issuing the Account at the address or telephone number shown on the first page of the accompanying Account Prospectus. The Custodian and the Transfer Agent. The Custodian of the assets of the Trust is The Bank of New York. The Manager and its affiliates have banking relationships with the Custodian. See "Additional Information" in the Statement of Additional Information for further details. Cash balances with the Custodian in excess of $100,000 are not protected by Federal deposit insurance. Such uninsured balances may at times be substantial. Oppenheimer Shareholder Services, a division of the Manager, acts as transfer agent on an at-cost basis for the Trust. It also acts as transfer agent and shareholder servicing agent for certain other open-end funds advised by the Manager. From time to time the "total return" and "average annual total return" for any of the Funds may be advertised. Each such Fund's "average annual total return" for a particular period is computed by determining the average annual compounded rate of return over the period, using the initial amount invested at the beginning of the period and the redeemable value of the investment at the end of the period. "Total return" for a particular period is a cumulative rate of return over the entire period, also using the initial amount invested and the redeemable value at the end of the period. The redeemable value of the investment assumes that all dividends and capital gains distributions have been reinvested at net asset value without sales charge. Each such Fund's "total return" and "average annual total return" indicate the investment results an investor would have experienced over the stated period from changes in share price and reinvestment of dividends and distributions. Appendix A - Description of Terms Some of the terms used in the Prospectus and the Statement of Addi- tional Information are described below: Bank obligations include certificates of deposit which are negotia- ble certificates evidencing the indebtedness of a commercial bank to repay funds deposited with it for a definite period of time (usually 14 days to one year) at a stated interest rate. Bankers' acceptances are credit instruments evidencing the obligation of a bank to pay a draft which has been drawn on it by a customer; these instruments reflect the obligation both of the bank and of the drawer to pay the face amount of the instrument upon maturity. Time deposits are non-negotiable deposits maintained in a banking institution for a specified period of time at a stated interest rate. Bank notes are short-term direct credit obligations of the issuing bank or bank holding company. Commercial paper consists of short-term (usually 1 to 270 days) unsecured promissory notes issued by corporations in order to finance their current operations. Variable rate master demand notes are obligations that permit the investment of fluctuating amounts at varying rates of interest pursuant to direct arrangement between the holder and the borrower. The holder has the right to increase the amount under the note at any time up to the face amount, or to decrease the amount borrowed, and the borrower may repay up to the face amount of the note without penalty. Corporate obligations are bonds and notes issued by corporations and other business organizations, including business trusts, in order to finance their long-term credit needs. Letters of credit are obligations by the issuer (a bank or other person) to honor drafts or other demands for payment upon compli- ance with specified conditions. Securities issued or guaranteed by the United States Government or its agencies or instrumentalities include issues of the United States Treasury, such as bills, certificates of indebtedness, notes and bonds, and issues of agencies and instrumentalities established under the authority of an act of Congress. Such agencies and instrumentalities include, but are not limited to, Bank for Cooperatives, Federal Financing Bank, Federal Home Loan Bank, Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage Association and Tennessee Valley Authority. Issues of the United States Treasury are direct obligations of the United States Government. Issues of agencies or instrumentalities are (i) guaranteed by the United States Treasury, or (ii) supported by the issuing agency's or instrumentality's right to borrow from the United States Treasury, or (iii) supported by the issuing agency's or instrumentality's own credit. Appendix B - Description of Securities Ratings This is a description of (i) the two highest rating categories for Short Term Debt and Long Term Debt by the Rating Organizations re- ferred to under "Investment Policies - Money Fund", and (ii) addi- tional rating categories that apply principally to investments by High Income Fund, Strategic Bond Fund and Bond Fund. The rating descriptions are based on information supplied by the Rating Organizations to subscribers. Short Term Debt Ratings. Moody's Investors Service, Inc. ("Moody's"): The following rating designations for commercial paper (defined by Moody's as promissory obligations not having original maturity in excess of nine months), are judged by Moody's to be investment grade, and indicate the relative repayment capacity of rated issuers: Prime-1: Superior capacity for repayment. Capacity will normally be evidenced by the following characteristics: (a) leveling market positions in well-established industries; (b) high rates of return on funds employed; (c) conservative capitalization structures with moderate reliance on debt and ample asset protection; (d) broad margins in earning coverage of fixed financial charges and high internal cash generation; and (e) well established access to a range of financial markets and assured sources of alternate liquidity. Prime-2: Strong capacity for repayment. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external condi- tions. Ample alternate liquidity is maintained. Standard & Poor's Corporation ("S&P"): The following ratings by S&P for commercial paper (defined by S&P as debt having an original maturity of no more than 365 days) assess the likelihood of payment: A-1: Strong capacity for timely payment. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. A-2: Satisfactory capacity for timely payment. However, the rela- tive degree of safety is not as high as for issues designated "A-- 1". Fitch Investors Service, Inc. ("Fitch"): Fitch assigns the following short-term ratings to debt obligations that are payable on demand or have original maturities of generally up to three years, including commercial paper, certificates of deposit, medium-term notes, and municipal and investment notes: F-1+: Exceptionally strong credit quality; the strongest degree of assurance for timely payment. F-1: Very strong credit quality; assurance of timely payment is only slightly less in degree than issues rated "F-1+". F-2: Good credit quality; satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for is- sues assigned "F-1+" or "F-1" ratings. Duff & Phelps, Inc. ("Duff & Phelps"): The following ratings are for commercial paper (defined by Duff & Phelps as obligations with maturities, when issued, of under one year), asset-backed commer- cial paper, and certificates of deposit (the ratings cover all obligations of the institution with maturities, when issued, of under one year, including bankers' acceptance and letters of credit): Duff 1+: Highest certainty of timely payment. Short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding, and safety is just below risk-free U.S. Treasury short-term obligations. Duff 1: Very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Duff 1-: High certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small. Duff 2: Good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small. IBCA Limited or its affiliate IBCA Inc. ("IBCA"): Short-term ratings, including commercial paper (with maturities up to 12 months), are as follows: A1+: Obligations supported by the highest capacity for timely repayment. A1: Obligations supported by a very strong capacity for timely repayment. A2: Obligations supported by a strong capacity for timely repay- ment, although such capacity may be susceptible to adverse changes in business, economic, or financial conditions. Thomson BankWatch, Inc. ("TBW"): The following short-term ratings apply to commercial paper, certificates of deposit, unsecured notes, and other securities having a maturity of one year or less. TBW-1: The highest category; indicates the degree of safety regarding timely repayment of principal and interest is very strong. TBW-2: The second highest rating category; while the degree of safety regarding timely repayment of principal and interest is strong, the relative degree of safety is not as high as for issues rated "TBW-1". Long Term Debt Ratings. These rating categories apply principally to investments by High Income Fund, Strategic Bond Fund and Bond Fund. For Money Fund only, the two highest rating categories of each Rating Organization are relevant for securities purchased with a remaining maturity of 397 days or less, or for rating issuers of short-term obligations. Moody's: Bonds (including municipal bonds) are rated as follows: Aaa: Judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong positions of such issues. Aa: Judged to be of high quality by all standards. Together with the "Aaa" group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in "Aaa" securities or fluctuations of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in "Aaa" securities. A: Possess many favorable investment attributes and are to be con- sidered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa: Considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and prin- cipal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and have speculative characteristics as well. Ba: Judged to have speculative elements; their future cannot be considered well-assured. Often the protection of interest and principal payments may be very moderate and not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B: Bonds rated "B" generally lack characteristics of desirable in- vestment. Assurance of interest and principal payments or of main- tenance of other terms of the contract over any long period of time may be small. Caa: Of poor standing and may be in default or there may be present elements of danger with respect to principal or interest. Ca: Represent obligations which are speculative in a high degree and are often in default or have other marked shortcomings. C: Bonds rated "C" can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's applies numerical modifiers "1", "2" and "3" in each generic rating classification from "Aa" through "B" in its corporate bond rating system. The modifier "1" indicates that the security ranks in the higher end of its generic rating category; the modifier "2" indicates a mid-range ranking; and the modifier "3" indicates that the issue ranks in the lower end of its generic rating category. Standard & Poor's: Bonds are rated as follows: AAA: The highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA: A strong capacity to pay interest and repay principal and dif- fer from "AAA" rated issues only in small degree. A: Have a strong capacity to pay principal and interest, although they are somewhat more susceptible to adverse effects of change in circumstances and economic conditions. BBB: Regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit protection parameters, ad- verse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this capacity than for bonds in the "A" category. BB, B, CCC, CC: Regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. "BB" indicates the lowest degree of speculation and"CC" the highest degree. While such bonds will likely have some equality and protective characteristics, these are outweighed by large uncer- tainties or major risk exposures to adverse conditions. C, D: Bonds on which no interest is being paid are rated "C." Bonds rated "D" are in default and payment of interest and/or repayment of principal is in arrears. Fitch: AAA: Considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA: Considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Plus (+) and minus (-) signs are used in the "AA" category to indicate the relative position of a credit within that category. Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+". Duff & Phelps: AAA: The highest credit quality. The risk factors are negligible, being only slightly more than the risk-free U.S. Treasury debt. AA: High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. Plus (+) and minus (-) signs are used in the "AA" category to indicate the relative position of a credit within that category. IBCA: Long-term obligations (with maturities of more than 12 months) are rated as follows: AAA: The lowest expectation for investment risk. Capacity for timely repayment of principal and interest is substantial such that adverse changes in business, economic, or financial conditions are unlikely to increase investment risks significantly. AA: A very low expectation for investment risk. Capacity for tim- ely repayment of principal and interest is substantial. Adverse changes in business, economic, or financial conditions may increase investment risk albeit not very significantly. A plus (+) or minus (-) sign may be appended to a long term rating to denote relative status within a rating category. TBW: TBW issues the following ratings for companies. These ratings assess the likelihood of receiving payment of principal and interest on a timely basis and incorporate TBW's opinion as to the vulnerability of the company to adverse developments, which may impact the market's perception of the company, thereby affecting the marketability of its securities. A: Possesses an exceptionally strong balance sheet and earnings record, translating into an excellent reputation and unquestioned access to its natural money markets. If weakness or vulnerability exists in any aspect of the company's business, it is entirely mitigated by the strengths of the organization. A/B: The company is financially very solid with a favorable track record and no readily apparent weakness. Its overall risk profile, while low, it not quite as favorable as for companies in the high- est rating category. APPENDIX TO PROSPECTUS Graphic material included in Prospectus of Oppenheimer Variable Account Funds: "Comparison of Total Return of Oppenheimer Variable Account Funds with Broad-Based Indices - Changes in Value of a $10,000 Hypothetical Investment" Linear graphs will be included in the Prospectus of Oppenheimer Variable Account Funds (the "Funds") depicting the initial account value and subsequent account value of a hypotheti- cal $10,000 investment in shares of the Funds for the life of each Fund (except Oppenheimer Money Fund) and comparing such values with the same investments over the same time periods in the Broad-Based Indices. Set forth below are the relevant data points that will appear on the linear graphs. Additional information with respect to the foregoing, including a description of the S&P 500 Index, is set forth in the Prospectus under "Fund Performance Information - - Management's Discussion of Performance."
Salomon Brothers Fiscal High Yield Year Ended High Income Fund Market Index 04/30/86(1) $10,000 $10,000 12/31/86 $10,473 $10,510 12/31/87 $11,318 $10,990 12/31/88 $13,081 $12,664 12/31/89 $13,715 $13,012 12/31/90 $14,352 $12,096 12/31/91 $19,220 $16,851 12/31/92 $22,664 $19,859 12/31/93 $28,632 $24,878
Lehman Brothers Fiscal Corporate Year Ended Bond Fund Bond Index 04/03/85(1) $10,000 $10,000 12/31/85 $11,882 $11,819 12/31/86 $13,084 $13,770 12/31/87 $13,415 $14,112 12/31/88 $14,618 $15,352 12/31/89 $16,565 $17,526 12/31/90 $17,877 $18,811 12/31/91 $21,028 $22,325 12/31/92 $22,395 $24,294 12/31/93 $25,315 $27,209
Fiscal Capital Year Ended Appreciation Fund S&P 500 Index 08/15/86(1) $10,000 $10,000 12/31/86 $ 9,835 $ 9,684 12/31/87 $11,245 $10,192 12/31/88 $12,754 $11,880 12/31/89 $16,269 $15,638 12/31/90 $13,530 $15,152 12/31/91 $20,938 $19,758 12/31/92 $24,167 $21,261 12/31/93 $30,770 $23,400
Fiscal Year Ended Growth Fund S&P 500 Index 04/03/85(1) $10,000 $10,000 12/31/85 $10,950 $12,076 12/31/86 $12,894 $14,331 12/31/87 $13,322 $15,083 12/31/88 $16,265 $17,581 12/31/89 $20,101 $23,141 12/31/90 $18,450 $22,422 12/31/91 $23,163 $29,238 12/31/92 $26,528 $31,463 12/31/93 $28,451 $34,628
Lehman Brothers Fiscal Multiple Aggregate Year Ended Strategies Fund S&P 500 Index Bond Index 02/09/87(1) $10,000 $10,000 $10,000 12/31/87 $10,397 $ 8,923 $10,063 12/31/88 $12,700 $10,401 $10,857 12/31/89 $14,701 $13,690 $12,434 12/31/90 $14,421 $13,265 $13,549 12/31/91 $16,941 $17,297 $15,716 12/31/92 $18,463 $18,613 $16,879 12/31/93 $21,408 $20,486 $18,525
Morgan Fiscal Global Stanley Year Ended Securities Fund World Index 11/12/90(1) $10,000 $10,000 12/31/90 $10,040 $10,211 12/31/91 $10,380 $12,148 12/31/92 $ 9,642 $11,582 12/31/93 $16,423 $14,261
Lehman Salomon Brothers Brothers World Fiscal Strategic Aggregate Government Year Ended Bond Fund Bond Index Bond Index 05/03/93(1) $10,000 $10,000 $10,000 12/31/93 $10,425 $10,453 $10,426
________________________ (1) Commencement of operations. OPPENHEIMER VARIABLE ACCOUNT FUNDS Investment Adviser Oppenheimer Management Corporation Two World Trade Center New York, New York 10048-0203 Transfer Agent Oppenheimer Shareholder Services P.O. Box 5270 Denver, Colorado 80217 Custodian of Portfolio Securities The Bank of New York One Wall Street New York, New York 10015 Independent Auditors Deloitte & Touche 1560 Broadway Denver, Colorado 80202 Legal Counsel Myer, Swanson & Adams, P.C. 1600 Broadway Denver, Colorado 80202 No dealer, salesperson or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus or the Statement of Additional Information, and if given or made, such information and representa- tions must not be relied upon as having been authorized by Oppenheimer Variable Account Funds, Oppenheimer Management Corporation or any affiliate thereof. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby in any state to any person to whom it is unlawful to make such an offer in such state. -----END PRIVACY-ENHANCED MESSAGE-----