-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VdYVjx0t5qVaSDyiwT/4R9QIktP18oknTXSxhiK2NZrQvN7tK97ev6WQNkNF6oIz wOE70T38bxm5im1dUDADtg== 0000752737-96-000020.txt : 19960919 0000752737-96-000020.hdr.sgml : 19960919 ACCESSION NUMBER: 0000752737-96-000020 CONFORMED SUBMISSION TYPE: N14AE24 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19960918 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPPENHEIMER VARIABLE ACCOUNT FUNDS CENTRAL INDEX KEY: 0000752737 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 840974272 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N14AE24 SEC ACT: 1933 Act SEC FILE NUMBER: 333-12249 FILM NUMBER: 96631853 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 N14AE24 1 As filed with the Securities and Exchange Commission on September 18, 1996 Registration No. 33- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X / PRE-EFFECTIVE AMENDMENT NO. / / POST-EFFECTIVE AMENDMENT NO. / / OPPENHEIMER VARIABLE ACCOUNT FUNDS (Exact Name of Registrant as Specified in Charter) 3410 South Galena Street, Denver, Colorado 80231-5099 (Address of Principal Executive Offices) 212-323-0200 (Registrant's Telephone Number) Andrew J. Donohue, Esq. Executive Vice President & General Counsel OppenheimerFunds, Inc. Two World Trade Center, New York, New York 10048-0203 (212) 323-0256 (Name and Address of Agent for Service) As soon as practicable after the Registration Statement becomes effective. (Approximate Date of Proposed Public Offering) It is proposed that this filing will become effective on October 20, 1996, pursuant to Rule 488. No filing fee is due because the Registrant has previously registered an indefinite number of shares under Rule 24f-2; a Rule 24f-2 notice for the year ended December 31, 1995 was filed on February 28, 1996. Pursuant to Rule 429, this Registration Statement relates to shares previously registered by the Registrant on Form N-1A (Reg. No. 2-93177; 811-4108). CONTENTS OF REGISTRATION STATEMENT This Registration Statement contains the following pages and documents: Front Cover Contents Page Cross-Reference Sheet Part A Proxy Statement and Prospectus for JP Investment Grade Bond Fund, Inc. and Prospectus for Oppenheimer Bond Fund, a series of Oppenheimer Variable Account Funds Proxy Statement and Prospectus for JP Capital Appreciation Fund, Inc. and Prospectus for Oppenheimer Growth Fund, a series of Oppenheimer Variable Account Funds Part B Statement of Additional Information Part C Other Information Signatures Exhibits FORM N-14 OPPENHEIMER VARIABLE ACCOUNT FUNDS Cross Reference Sheet Proxy Statement and Prospectus of JP Investment Grade Bond Fund, Inc. and Prospectus of Oppenheimer Bond Fund Part A of Form N-14 Item No. Proxy Statement and Prospectus Heading and/or Title of Document - --------- ------------------------------------------------------------- - -- 1 (a) Cross Reference Sheet (b) Front Cover Page (c) * 2 (a) * (b) Table of Contents 3 (a) Comparative Fee Tables (b) Synopsis (c) Principal Risk Factors 4 (a) Synopsis; Approval or Disapproval of the Reorganization; Comparison between Bond Fund and JP Fund; Miscellaneous (b)Approval or Disapproval of the Reorganization - Capitalization Table 5 (a) Registrant's Prospectus; Comparison Between Bond Fund and JP Fund (b) * (c) * (d) * (e) Miscellaneous (f) Miscellaneous 6 (a) Prospectus of JP Investment Grade Bond Fund, Inc.; Annual Report of JP Investment Grade Bond Fund, Inc.; Comparison Between Bond Fund and JP Fund (b) Miscellaneous (c) * (d) * 7 (a) Synopsis; Information Concerning the Meeting (b) * (c) Synopsis; Information Concerning the Meeting 8 (a) Proxy Statement (b) * 9 * Part B of Form N-14 Item No. Statement of Additional Information Heading - --------- ------------------------------------------- 10 Cover Page 11 Table of Contents 12 (a) Registrant's Statement of Additional Information (b) * (c) * 13 (a) Statement of Additional Information about JP Investment Grade Bond Fund, Inc. (b) * (c) * 14 Registrant's Statement of Additional Information; Statement of Additional Information about JP Investment Grade Bond Fund, Inc.; Annual Report of JP Investment Grade Bond Fund, Inc. at 12/31/95; Registrant's Annual Report at 12/31/95; Semi-Annual Report of JP Investment Grade Bond Fund, Inc. at 6/30/96; Registrant's Semi-Annual Report at 6/30/96 Proxy Statement and Prospectus of JP Capital Appreciation Fund, Inc. and Prospectus of Oppenheimer Growth Fund Part A of Form N-14 Item No. Proxy Statement and Prospectus Heading and/or Title of Document - --------- ------------------------------------------------------------- - -- 1 (a) Cross Reference Sheet (b) Front Cover Page (c) * 2 (a) * (b) Table of Contents 3 (a) Comparative Fee Tables (b) Synopsis (c) Principal Risk Factors 4 (a) Synopsis; Approval or Disapproval of the Reorganization; Comparison between Growth Fund and JP Fund; Miscellaneous (b)Approval or Disapproval of the Reorganization - Capitalization Table 5 (a) Registrant's Prospectus; Comparison Between Growth Fund and JP Fund (b) * (c) * (d) * (e) Miscellaneous (f) Miscellaneous 6 (a) Prospectus of JP Capital Appreciation Fund, Inc.; Annual Report of JP Capital Appreciation Fund, Inc.; Comparison Between Growth Fund and JP Fund (b)Miscellaneous (c) * (d) * 7 (a) Synopsis; Information Concerning the Meeting (b) * (c) Synopsis; Information Concerning the Meeting 8 (a) Proxy Statement (b) * 9 * Part B of Form N-14 Item No. Statement of Additional Information Heading - --------- ------------------------------------------- 10 Cover Page 11 Table of Contents 12 (a) Registrant's Statement of Additional Information (b) * (c) * 13 (a)Statement of Additional Information about JP Capital Appreciation Fund, Inc. (b) * (c) * 14 Registrant's Statement of Additional Information; Statement of Additional Information about JP Capital Appreciation Fund, Inc.; Annual Report of JP Capital Appreciation Fund, Inc. at 12/31/95; Semi-Annual Report of JP Capital Appreciation Fund, Inc. at 6/30/96; Registrant's Annual Report at 12/31/95; Registrant's Semi-Annual Report at 6/30/96 Part C of Form N-14 Item No. Other Information Heading - --------- ------------------------- 15 Indemnification 16 Exhibits 17 Undertakings _______________ * Not Applicable or negative answer PRELIMINARY COPY JP INVESTMENT GRADE BOND FUND, INC. 100 North Greene Street, Greensboro, North Carolina 27420 1-800-458-4498 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To Be Held December 3, 1996 To owners of variable annuity contracts issued by Jefferson-Pilot Life Insurance Company ("JPLIC") entitled to give voting instructions in connection with Jefferson-Pilot Separate Account A. Notice is hereby given that a Special Meeting of the Shareholders of JP Investment Grade Bond Fund, Inc. ("JP Fund"), an open-end, management investment company, will be held at the Jefferson-Pilot Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina 27420 at 10:00 A.M., local time, on December 3, 1996, and any adjournments thereof (the "Meeting"), for the following purposes: 1. To consider and vote upon the approval or disapproval of the Agreement and Plan of Reorganization dated as of _________, 1996 (the "Reorganization Agreement") by and among JP Fund, Jefferson- Pilot Corporation, Oppenheimer Variable Account Funds on behalf of its series, Oppenheimer Bond Fund ("Oppenheimer Fund"), and OppenheimerFunds, Inc., and the transactions contemplated thereby (the "Reorganization"), including (i) the transfer of substantially all the assets of JP Fund to Oppenheimer Fund in exchange for shares of Oppenheimer Fund, (ii) the distribution of such shares of Oppenheimer Fund to shareholders of JP Fund in liquidation of JP Fund, and (iii) the cancellation of the outstanding shares of JP Fund ("Proposal 1"); 2. To elect to the Board of Directors five (5) directors to hold office until the earlier of (i) the dissolution of JP Fund or (ii) the next annual meeting of shareholders of JP Fund called for the purpose of electing directors, or until their successors are elected and qualified ("Proposal 2"); 3. To ratify or reject the selection of McGladrey & Pullen LLP as JP Fund's independent auditors for the current fiscal year ("Proposal 3"); and 4. To act upon such other matters as may properly come before the Meeting. JPLIC and Jefferson-Pilot Separate Account A (a separate account of JPLIC) are the only shareholders of JP Fund. However, JPLIC hereby solicits and agrees to vote the shares of JP Fund at the Meeting in accordance with timely instructions received from owners of variable annuity contracts having contract values allocated to Separate Account A invested in such shares. As a variable annuity contract owner of record at the close of business on October __, 1996, you have the right to instruct JPLIC as to the manner in which shares of JP Fund attributable to your variable annuity contract should be voted. To assist you in giving your instructions, a Voting Instruction Form is enclosed that reflects the number of shares of JP Fund for which you are entitled to give voting instructions. In addition, the Proposals are more fully described in the accompanying Proxy Statement and Prospectus and a copy of the Reorganization Agreement is attached thereto. Please read the Proxy Statement and Prospectus carefully before sending JPLIC your Voting Instruction Form. The Board of Directors of JP Fund recommends a vote in favor of each Proposal and to elect each of the nominees as Director. YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED VOTING INSTRUCTION FORM AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. By Order of the Board of Directors, J. Gregory Poole, Secretary October __, 1996 QUESTIONS AND ANSWERS ABOUT THE PROPOSED REORGANIZATION 1. What is the Reorganization? The proposed Reorganization provides for the transfer of substantially all the assets of JP Investment Grade Bond Fund, Inc. ("JP Fund") to Oppenheimer Bond Fund ("Oppenheimer Fund"), the issuance of shares of Oppenheimer Fund to JP Fund for distribution to its shareholders including Jefferson-Pilot Life Insurance Company and Jefferson-Pilot Separate Account A and the cancellation of the outstanding shares of JP Fund. The number of shares of Oppenheimer Fund that will be received by shareholders of JP Fund will be determined on the basis of the relative net asset values of Oppenheimer Fund and JP Fund. Although the number of shares of Oppenheimer Fund issued to a shareholder of JP Fund may be greater or fewer than the number of JP Fund shares that he or she holds, the value of the shares of Oppenheimer Fund issued in the Reorganization will be equal to the value of his or her JP Fund shares. The Reorganization has been proposed in connection with a proposed acquisition by OppenheimerFunds, Inc. ("OFI") of the assets of JP Investment Management Company ("JPM"), the investment adviser to JP Fund. OFI is discussed in greater detail below. Owners of Jefferson-Pilot Life Insurance Company ("JPLIC") variable annuity contracts ("variable contracts") under which contract values are indirectly invested in JP Fund, are directed to read the accompanying Proxy Statement and Prospectus for further information about the Reorganization and related matters. Additional information about Oppenheimer Fund is set forth in its accompanying Prospectus. 2. What are the reasons for the Reorganization? Jefferson-Pilot Corporation ("JPC"), in the course of a review of its business, concluded that it should invest its capital resources in its core insurance business and communications operations rather than investing in the expansion of mutual fund assets being managed by JPM (or another investment management subsidiary). Because managing mutual fund investment portfolios in an efficient and profitable manner can only be achieved by managing aggregate assets significantly in excess of the amount of assets currently being managed by JPM, JPC has decided to sell the assets of JPM and thereby leave the business of managing mutual fund investment portfolios. This decision requires that alternative arrangements be made for the management of the assets of the four mutual funds (including JP Fund) managed by JPM. The Reorganization would result in OFI taking over management of the investment portfolio of JP Fund when JPM is sold. 3. What benefits to owners of variable contracts may result from this Reorganization? The Board of Directors of JP Fund has determined that, among other things, the Reorganization would afford variable contract owners, as indirect investors in Oppenheimer Fund, the capabilities and resources of OFI and its affiliates in the area of fixed income investment management, shareholder services and marketing. 4. Who is paying the expenses of the Reorganization? All expenses of the Reorganization will be paid by the respective investment advisers to JP Fund and Oppenheimer Fund and not JP Fund or Oppenheimer Fund. 5. Who is OppenheimerFunds, Inc.? OFI and its subsidiaries are engaged principally in the business of managing, distributing and servicing registered investment companies. OFI has operated as an investment adviser since 1959. OFI is indirectly controlled by Massachusetts Mutual Life Insurance Company. As of June 30, 1996, OFI and a subsidiary had assets of more than $50 billion under management in more than 60 mutual funds. 6. Where can I get prospectuses and other information on the Oppenheimer Bond Fund or other Oppenheimer Funds available as investment options under my variable contract? Call Jefferson-Pilot Investor Services, Inc. at 1-(800) 448-4498. They will be pleased to supply you with prospectuses and other documentation with respect to such Oppenheimer funds. 7. How will the Reorganization affect my variable contract and my relationship with Jefferson-Pilot Life Insurance Company? As an owner of a variable contract with contract value indirectly invested in JP Fund on the Record Date, the Reorganization will result in such contract value being indirectly invested in Oppenheimer Fund. After the Reorganization, variable contract owners will be able to allocate net purchase payments and transfer contract values to Sub- Accounts of Jefferson-Pilot Separate Account A ("Account A") that invest in Oppenheimer Fund, and JP Fund will not be an investment option under variable contracts. Your variable contract will not change in any other way and your relationship with Jefferson-Pilot will not change at all as a result of the Reorganization. 8. Will this Reorganization result in any tax liability to JP Fund, Oppenheimer Fund or to me as a variable contract owner? The Reorganization is structured in a manner that is intended to qualify for federal income tax purposes as a tax-free reorganization. The aggregate tax basis of Oppenheimer Fund shares received in the Reorganization will be the same as the aggregate tax basis of JP Fund shares held on your behalf prior to the Reorganization, and the holding period of the shares of Oppenheimer Fund received in the Reorganization will include the period during which JP Fund shares were held on your behalf provided that those JP Fund shares were held as capital assets. Moreover, the Reorganization will not have an adverse impact on the status of the variable contracts under which contract values are indirectly invested in JP Fund. You should consult your tax adviser regarding the effect, if any, of the Reorganization in light of your individual circumstances. Since the foregoing only relates to the federal income tax consequences of the Reorganization, you should also consult your tax adviser as to state and local tax consequences, if any, of the Reorganization. PRELIMINARY COPY JP INVESTMENT GRADE BOND FUND, INC. 100 North Greene Street, Greensboro, North Carolina 27420 1-800-458-4498 PROXY STATEMENT OPPENHEIMER BOND FUND 3410 South Galena Street, Denver, Colorado 80231 1-800-525-7048 PROSPECTUS This Proxy Statement and Prospectus is being furnished on behalf of the Board of Directors (the "Board") of JP Investment Grade Bond Fund, Inc. ("JP Fund"), an open-end management investment company, by Jefferson- Pilot Life Insurance Company ("JPLIC") to owners of variable annuity contracts issued by JPLIC and having contract values on the Record Date (as defined below) allocated to Jefferson-Pilot Separate Account A ("Account A") invested in shares of JP Fund ("variable contracts"). This Proxy Statement and Prospectus is being furnished in connection with the solicitation of voting instructions from owners of such variable contracts ("variable contract owners") for use at the Special Meeting of Shareholders of JP Fund to be held at the Jefferson-Pilot Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina, 27420, at 10:00 A.M., local time, on December 3, 1996, and any adjournments thereof (the "Meeting"). The Board has set October 10, 1996, as the date for the determination of JP Fund shareholders entitled to notice of, and to provide voting instructions at, the Meeting (the "Record Date"). It is expected that this Proxy Statement and Prospectus will be mailed to variable contract owners on or about October __, 1996. Although JPLIC is the sole record owner of JP Fund shares, variable contract owners are permitted to give JPLIC voting instructions. Variable contract owners are sometimes referred to in this Proxy Statement and Prospectus as "shareholders". At the Meeting, shareholders of JP Fund will be asked to consider and vote upon the approval or disapproval of the Agreement and Plan of Reorganization, dated as of ________, 1996 (the "Reorganization Agreement"), by and among JP Fund, Jefferson-Pilot Corporation, Oppenheimer Variable Account Funds (the "Trust"), on behalf of its series, Oppenheimer Bond Fund ("Oppenheimer Fund"), and OppenheimerFunds, Inc. and the transactions contemplated by the Reorganization Agreement (the "Reorganization"). The Reorganization Agreement provides for the transfer of substantially all the assets of JP Fund to Oppenheimer Fund in exchange for shares of Oppenheimer Fund having a value equal to the aggregate net asset value of the outstanding shares of JP Fund, the distribution of such shares of Oppenheimer Fund to JPLIC and Account A in liquidation of JP Fund and the cancellation of the outstanding shares of JP Fund. A copy of the Reorganization Agreement is attached hereto as Exhibit A and is incorporated by reference herein. As a result of the proposed Reorganization, each shareholder of JP Fund will receive that number of shares of Oppenheimer Fund having an aggregate net asset value equal to the net asset value of such shareholder's shares of JP Fund. This transaction has been structured in a manner intended to qualify as a tax-free reorganization for federal income tax purposes. See "Approval or Disapproval of the Reorganization." At the Meeting, shareholders of JP Fund will also be asked to elect five directors and ratify the selection of independent auditors. JPLIC and Account A of JPLIC are the sole record holders of shares of JP Fund. However, variable contract owners are the beneficial owners of shares held by Account A. JPLIC will vote the shares of JP Fund at the Meeting in accordance with the timely instructions received from variable contract owners entitled to give voting instructions under variable contracts. JPLIC will vote shares attributable to variable contracts for which no voting instructions are received in proportion (for, against or abstain) to those for which instructions are received. JPLIC also will vote shares not attributable to variable contracts (i.e., representing seed money investments in JP Fund made by JPLIC) in proportion to those for which instructions are received from variable contract owners. If a Voting Instruction Form is received that does not specify a choice, JPLIC will consider its timely receipt as an instruction to vote in favor of the proposal(s) to which it relates and for each nominee as director. In certain circumstances, JPLIC may have the right to disregard voting instructions from certain variable contract owners. JPLIC does not believe that these circumstances exist with respect to matters currently before shareholders. Variable contract owners may revoke voting instructions given to JPLIC at any time prior to the Meeting by notifying the Secretary of JP Fund in writing. Oppenheimer Fund is a mutual fund that primarily seeks a high level of current income from investment in high yield fixed income securities rated "Baa" or better by Moody's Investors Service, Inc. ("Moody's") or "BBB" or better by Standard & Poor's Corporation ("Standard & Poor's"). Secondarily, Oppenheimer Fund seeks capital growth when consistent with its primary objective. JP Fund's primary investment objective is to seek the maximum level of current income as is consistent with prudent risk; a secondary investment objective is to seek growth of income and capital. JP Fund proposes to achieve these objectives by investing primarily in investment grade fixed- income securities. Shareholders of JP Fund should consider the differences in investment objectives and policies of Oppenheimer Fund and JP Fund. See "Investment Objectives and Policies", "Principal Risk Factors" and "Comparison Between Oppenheimer Fund and JP Fund - Comparison of Investment Objectives, Policies and Restrictions." Oppenheimer Fund has filed with the Securities and Exchange Commission (the "SEC") a Registration Statement on Form N-14 (the "Registration Statement") relating to the registration of shares of Oppenheimer Fund to be offered to the shareholders of JP Fund pursuant to the Reorganization Agreement. This Proxy Statement and Prospectus relating to the Reorganization also constitutes a Prospectus of Oppenheimer Fund filed as part of such Registration Statement. Information contained or incorporated by reference herein relating to Oppenheimer Fund has been prepared by and is the responsibility of Oppenheimer Fund. Information contained or incorporated by reference herein relating to JP Fund has been prepared by and is the responsibility of JP Fund. This Proxy Statement and Prospectus sets forth concisely information about Oppenheimer Fund that a prospective investor should know before voting on the Reorganization. The following documents have been filed with the SEC and are available without charge upon written request to JP Investment Management Company, the investment adviser and transfer agent for JP Fund, at 100 North Greene Street, Greensboro, North Carolina 27401, or by calling 1-800-458-4498 (a toll-free number): (i) a Prospectus for JP Fund, dated May 1, 1996 (information about JP Fund is incorporated herein by reference to JP Fund's May 1, 1996 Prospectus), and (ii) a Statement of Additional Information about JP Fund, dated May 1, 1996 (the "JP Fund Additional Statement"). The most recent Annual Report and Semi-Annual Report for JP Fund, dated as of December 31, 1995 and June 30, 1996, respectively, are also available without charge upon request to JPIS by calling 1-800-458-4498 (toll- free). The following documents have been filed with the SEC and are available without charge upon written request to the transfer agent for Oppenheimer Fund, OppenheimerFunds Services ("OFS"), at P.O. Box 5270, Denver, Colorado 80217, or by calling 1-800-525-7048 (a toll free number): (i) a Prospectus for the Trust, dated May 1, 1996 which is incorporated herein by reference as it relates to the Oppenheimer Fund series of the Trust (the shares of the other series of Oppenheimer Variable Account Funds are not being offered pursuant to the Reorganization) and a copy of which also accompanies this Proxy Statement and Prospectus; (ii) a Statement of Additional Information about the Trust, dated May 1, 1996 (the "Trust Additional Statement"), which contains more detailed information about Oppenheimer Fund and its management, and (iii) a Statement of Additional Information relating to the Reorganization described in this Proxy Statement and Prospectus (the "Reorganization Additional Statement"), dated ______, 1996, incorporated herein by reference and filed as part of the Registration Statement, which includes, among other things, the Prospectus for JP Fund, the JP Fund Additional Statement and the Oppenheimer Fund Additional Statement. Investors are advised to read and retain this Proxy Statement and Prospectus for future reference. Shares of Oppenheimer Fund are not deposits or obligations of any bank, are not guaranteed or endorsed by any bank, and are not insured by the F.D.I.C. or any other agency, and involve investment risks, including the possible loss of the principal amount invested. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Proxy Statement and Prospectus is dated October __, 1996. TABLE OF CONTENTS PROXY STATEMENT AND PROSPECTUS COMPARATIVE FEE TABLES SYNOPSIS Purpose of the Meeting Parties to the Reorganization The Reorganization Vote Required Tax Consequences of the Reorganization Dissenters' Rights Investment Objectives and Policies Investment Advisory Fees Purchases and Redemptions PRINCIPAL RISK FACTORS Investment in Debt Securities Foreign Securities Options, Futures and Interest Rate Swaps; Derivatives APPROVAL OR DISAPPROVAL OF THE REORGANIZATION (Proposal 1) Background Acquisition Agreement Board Approval of the Reorganization The Reorganization Tax Aspects of the Reorganization Dissenters' Rights Capitalization Table (Unaudited) COMPARISON BETWEEN OPPENHEIMER FUND AND JP FUND Comparison of Investment Objectives, Policies and Restrictions Special Investment Methods Investment Restrictions Oppenheimer Fund Performance Other Investors in Oppenheimer Fund Additional Comparative Information ELECTION OF DIRECTORS (Proposal 2) Information Concerning the Board Officers of JP Fund Other Information RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT AUDITORS (Proposal 3) INFORMATION CONCERNING THE MEETING The Meeting Record Date; Vote Required; Share Information Voting Instructions Costs of the Solicitation and the Reorganization MISCELLANEOUS Financial Information Public Information SHAREHOLDER PROPOSALS OTHER BUSINESS EXHIBIT A - Agreement and Plan of Reorganization, dated as of ________, 1996, by and among Oppenheimer Variable Account Funds, on behalf of Oppenheimer Bond Fund, JP Investment Grade Bond Fund, Inc., OppenheimerFunds, Inc. and Jefferson-Pilot Corporation ENCLOSURE - Prospectus of the Trust, dated May 1, 1996 COMPARATIVE FEE TABLES Expenses of Oppenheimer Fund and JP Fund; Pro Forma Expenses Shareholders of the funds do not pay any sales load, redemption fee or exchange fee. See the Account A prospectus for fees that apply to variable contract owners. Each fund pays a variety of expenses directly for management of its assets, administration and other services, and those expenses are reflected in the net asset value per share of each of Oppenheimer Fund and JP Fund. The following calculations are based on the expenses of JP Fund and Oppenheimer Fund for the 12 months ended December 31, 1995 and the six months ended June 30, 1996. These amounts are shown as a percentage of the average net assets of JP Fund and Oppenheimer Fund for those periods (for the six months ended June 30, 1996, the percentages are annualized). Proforma expenses for the combined fee after giving effect to the Reorganization are not shown as they do not differ from the fees indicated below for Oppenheimer Fund. The table does not reflect expenses that apply at the separate account level or that are charged by Account A or by JPLIC under the variable contracts.
JP Fund Oppenheimer Fund 12 months 6 months 12 months 6 months ended ended ended ended 12/31/95 6/30/96(1) 12/31/95 6/30/96(1) Management Fees(1) 0.50% 0.50% 0.75% 0.74% Other Expenses 0.20% 0.21% 0.05% 0.04% Total Fund Operating Expenses(1) 0.70% 0.71% 0.80% 0.78%
(1) Annualized Examples To attempt to show these expenses over time, the examples shown below have been created. Assume that you make a $1,000 investment in either JP Fund or Oppenheimer Fund and that the annual return is 5% and that the operating expenses for each fund are the ones shown in the chart above for the six months ended June 30, 1996 and the 12 months ended December 31, 1995. Based on the rate of "Total Fund Operating Expenses" shown above for the six months ended June 30, 1996, if you were to redeem your shares at the end of each period shown below, your investment would incur the following expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years Oppenheimer Fund $8 $25 $43 $97 JP Fund $7 $23 $40 $88
If you did not redeem your investment, it would incur the following expenses by the end of the applicable period:
1 year 3 years 5 years 10 years Oppenheimer Fund $8 $25 $43 $97 JP Fund $7 $23 $40 $88
Based on the rate of "Total Fund Operating Expenses" shown above for the 12 months ended December 31, 1995, if you were to redeem your shares at the end of each period shown below, your investment would incur the following expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years Oppenheimer Fund $8 $26 $44 $99 JP Fund $7 $22 $39 $87
If you did not redeem your investment, it would incur the following expenses by the end of the applicable period:
1 year 3 years 5 years 10 years Oppenheimer Fund $8 $26 $44 $99 JP Fund $7 $22 $39 $87
SYNOPSIS The following is a synopsis of certain information contained in or incorporated by reference in this Proxy Statement and Prospectus and presents key considerations for shareholders of JP Fund to assist them in determining whether to approve or disapprove the Reorganization. This synopsis is only a summary and is qualified in its entirety by the more detailed information contained in or incorporated by reference in this Proxy Statement and Prospectus and the Reorganization Agreement which is Exhibit A hereto. Shareholders should carefully review this Proxy Statement and Prospectus and the Reorganization Agreement in their entirety and, in particular, the current Prospectus of The Trust which accompanies this Proxy Statement and Prospectus and is incorporated by reference herein. Purpose of the Meeting At the Meeting, shareholders of JP Fund will be asked to approve or disapprove the Reorganization. In addition, shareholders will be requested to elect five directors of JP Fund and ratify the selection of JP Fund's independent auditors. Parties to the Reorganization Oppenheimer Fund is a series of the Trust, Oppenheimer Variable Account Funds, a diversified, open-end, management investment company organized in 1984 as a multi-series Massachusetts business trust. Oppenheimer Fund was organized in 1985 and is one of nine separate series of the Trust. Oppenheimer Fund is located at 3410 South Galena Street, Denver, Colorado 80231. OppenheimerFunds, Inc. ("OFI") acts as investment adviser to Oppenheimer Fund. OFI is located at Two World Trade Center, New York, New York 10048-0203. Additional information about Oppenheimer Fund is set forth below. JP Fund is a diversified, open-end, management investment company organized in 1982 as a North Carolina corporation. JP Fund is located at 100 North Greene Street, Greensboro, North Carolina 27420. JP Investment Management Company ("JPM") acts as investment adviser and transfer agent to JP Fund. JPM is located at 100 North Greene Street, Greensboro, North Carolina 27401. Additional information about JP Fund is set forth below. The Reorganization The Reorganization Agreement provides for the transfer of substantially all the assets of JP Fund to Oppenheimer Fund in exchange for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain liabilities of JP Fund. JP Fund will retain a small Cash Reserve sufficient to pay any liabilities and expenses of dissolution. The Reorganization Agreement also provides for the distribution by JP Fund of these shares of Oppenheimer Fund to JP Fund shareholders in liquidation of JP Fund. As a result of the Reorganization, each JP Fund shareholder will receive that number of full and fractional Oppenheimer Fund shares equal in value to such shareholder's pro rata interest in the net assets transferred to Oppenheimer Fund as of the Valuation Date (as hereinafter defined). For further information about the Reorganization see "Approval or Disapproval of the Reorganization" below. For the reasons set forth below under "Approval or Disapproval of the Reorganization - Board Approval of the Reorganization," the Board, including the Directors who are not "interested persons" of JP Fund (the "Independent Directors"), as that term is defined in the Investment Company Act of 1940, as amended (the "1940 Act"), has concluded that the Reorganization is in the best interests of JP Fund and its shareholders and that the interests of existing JP Fund shareholders will not be diluted as a result of the Reorganization, and recommends approval of the Reorganization by JP Fund shareholders. The Board of Trustees of the Trust has also approved the Reorganization and determined that the interests of existing Oppenheimer Fund shareholders will not be diluted as a result of the Reorganization. If the Reorganization is not approved, JP Fund will continue in existence and the Board will determine whether to pursue alternative actions. The section below entitled "Approval or Disapproval of the Reorganization" sets forth certain information with respect to the background of the Reorganization, including other transactions and agreements entered into, or contemplated to be entered into, by OFI, JPM and certain affiliates of JPM. Vote Required Approval of the Reorganization will require the affirmative vote of a majority of the shares of JP Fund entitled to vote at the Meeting. See "Information Concerning the Meeting - Record Date; Vote Required; Share Information." Tax Consequences of the Reorganization As a condition to the closing of the Reorganization, JP Fund and Oppenheimer Fund will have received an opinion to the effect that the Reorganization will qualify as a tax-free reorganization for federal income tax purposes. As a result of such tax-free reorganization, no gain or loss would be recognized by JP Fund, Oppenheimer Fund, or the shareholders of either fund for federal income tax purposes. Moreover, the Reorganization will not have an adverse impact on the tax status of the variable contracts under which contract values are indirectly invested in JP Fund. For further information about the tax consequences of the Reorganization, see "Approval or Disapproval of the Reorganization -Tax Aspects of the Reorganization" below. Dissenters' Rights Dissenters' rights of appraisal are generally not available to shareholders of JP Fund with respect to the Reorganization. See, "The Reorganization - Dissenters' Rights." Investment Objectives and Policies Oppenheimer Fund's investment objective is a fundamental policy, and JP Fund's investment objectives and policies are also fundamental policies. Fundamental policies are those that cannot be changed without the approval of shareholders of that fund. Oppenheimer Fund's investment policies described below are not fundamental unless this Proxy Statement and Prospectus indicates a particular policy is fundamental. As its primary investment objective, Oppenheimer Fund seeks a high level of current income by investing primarily in a diversified portfolio of high yield fixed-income securities. As a secondary objective, Oppenheimer Fund seeks capital growth when consistent with its primary objective. As a matter of non-fundamental policy, Oppenheimer Fund will, under normal market conditions, invest at least 65% of its total assets in bonds. Oppenheimer Fund will invest only in securities rated "Baa" or better by Moody's or "BBB" or better by Standard & Poor's. Oppenheimer Fund's current investment policies are described herein under "Principal Risk Factors" and "Comparison Between Oppenheimer Fund and JP Fund" and in more detail in the Trust's current Prospectus, which accompanies this Proxy Statement and Prospectus, and the Trust Additional Statement. JP Fund's primary investment objective is to seek the maximum level of current income as is consistent with prudent risk. A secondary investment objective is to seek growth of income and capital. JP Fund proposes to achieve these objectives by investing primarily in fixed income securities rated A or better by S&P or Moody's. Oppenheimer Fund's and JP Fund's investments may also include securities of foreign governments and companies (limited, in the case of JP Fund, to securities issued by Canadian companies), U.S. Government obligations, mortgage-backed securities, collateralized mortgage-backed obligations (CMOs), asset-backed securities, zero coupon securities, other fixed-income securities, preferred stock, and dividend-paying common stocks. Oppenheimer Fund and JP Fund may also enter into repurchase agreements subject to certain limitations. Oppenheimer Fund may also write covered call options and use certain derivative investments, including options and futures, to enhance income and may use hedging instruments to try to manage investment risks. Shareholders of JP Fund should consider the differences in investment objectives and policies between JP Fund and Oppenheimer Fund. Oppenheimer Fund invests in a wider variety of securities, some of which have greater investment risks, than the types of securities JP Fund usually holds. See "Principal Risk Factors" and "Comparison Between Oppenheimer Fund and JP Fund - Comparison of Investment Objectives, Policies and Restrictions." Investment Advisory Fees Oppenheimer Fund and JP Fund each obtain investment management services from their respective investment advisers pursuant to the terms of their respective investment advisory agreements. Each agreement provides that a management fee is payable to the investment adviser monthly. Oppenheimer Fund pays a management fee to OFI computed on its net asset value as of the close of business each day, which fee declines on additional assets as Oppenheimer Fund increases its asset base, at the annual rate of 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 payable by JP Fund to JPM is at an annual rate of 1/2 of 1% of JP Fund's average daily net asset value. JPM is reimbursed by JP Fund for performing certain shareholder accounting services. JPM has contractually agreed that if in any fiscal year the total of JP Fund's ordinary business expenses (with specified exceptions) exceeds 1% of JP Fund's average daily net asset value, JPM will pay the excess by reducing its management fee by a corresponding amount. OFI has voluntarily undertaken that the total expenses of Oppenheimer Fund in any fiscal year will not exceed 2.5% of the first $30 million of average net assets, 2.0% the next $70 million and 1.5% of average net assets over $100 million and OFI's management fee will be reduced or eliminated during any fiscal year in which the payment of such fee would cause Oppenheimer Fund's expenses to exceed this limitation. OFI's undertaking to Oppenheimer Fund is revocable and may be changed or eliminated at any time. Neither fund's management fees were reduced during the past fiscal year. Purchases and Redemptions Purchases. Shares of Oppenheimer Fund are currently offered for purchase by separate accounts as an investment medium for variable life insurance policies and variable annuity contracts, and separate accounts for retirement plans. Purchases of JP Fund's shares are currently restricted to the separate accounts that are sponsored by the insurance subsidiaries of Jefferson-Pilot Corporation and any of their affiliates and to pension plans for employees of said companies and their affiliates. Shares of JP Fund and Oppenheimer Fund are offered at their respective offering price which is net asset value (without sales charge.) Redemptions. Shares of Oppenheimer Fund and shares of JP Fund may be redeemed at their respective net asset values per share calculated after the redemption order is received and accepted. Oppenheimer Fund may redeem accounts valued at less than $200 if the account has fallen below such stated amount for reasons other than market value fluctuations. For JP Fund, the corresponding minimum is $250 once the account has been open at least 12 months. PRINCIPAL RISK FACTORS In evaluating whether to approve the Reorganization and invest in Oppenheimer Fund, JP Fund shareholders should carefully consider the following summary of risk factors, relating to both Oppenheimer Fund and JP Fund, in addition to the other information set forth in this Proxy Statement and Prospectus. Additional information on risk factors for each fund is set forth in the respective Prospectus of each fund and in addition for Oppenheimer Fund, the Trust Additional Statement. As a general matter, Oppenheimer Fund and JP Fund are intended for investors seeking high current income. As a secondary objective, such funds also seek capital growth and, as to JP Fund, growth of income. There is no assurance that either Oppenheimer Fund or JP Fund will achieve its investment objectives and investment in the funds is subject to investment risks, including the possible loss of the principal invested. Investment in Debt Securities Each fund pursues its investment objective(s) through investments primarily in debt securities. Debt securities are subject to interest rate risk and credit risk. Certain types of debt securities are also subject to additional investment risks which relate to the specific type of security. These risks are discussed below. These risks can cause the value of the debt securities held by a fund to change which means that the value of a fund's shares will go up or down, and when shares are sold, an investor may receive more or less than the investor paid for them. Interest rate risk relates to fluctuations in market value due to changes in prevailing interest rates. When prevailing interest rates fall, the values of already-issued debt securities generally rise. When interest rates rise, the values of already-issued debt securities generally decline. The magnitude of these fluctuations will often be greater for longer-term debt securities than for shorter-term debt securities. Credit risk relates to the ability of the issuer of a debt security to make interest or principal payments on the security as they become due. Generally, higher-yielding, lower-rated bonds are subject to greater credit risk than higher-rated bonds or securities issued or guaranteed by the U.S. government, which are subject to little, if any, credit risk. Oppenheimer Fund and JP Fund may invest in mortgage-backed securities, including collateralized mortgage-backed obligations ("CMOs"), that are subject to prepayment risks. 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 effective maturity of a mortgage-backed security may be shortened by unscheduled or early payment of principal and interest on the underlying mortgages. This may result in greater price and yield volatility than traditional fixed-income securities that have a fixed maturity and interest rate. The principal that is returned may be invested in instruments having a higher or lower yield than the prepaid instruments depending on then- current market conditions. Such securities therefore may be less effective as a means of "locking in" attractive long-term interest rates and may have less potential for appreciation during periods of declining interest rates than conventional bonds with comparable stated maturities. If a fund buys mortgage-backed securities at a premium, prepayments of principal and foreclosures of mortgages may result in some loss of the fund's principal investment to the extent of the premium paid. The value of mortgage-backed securities may also be affected by changes in the market's perception of the creditworthiness of the entity issuing or guaranteeing them or by changes in government regulations and tax policies. CMOs may be issued in a variety of classes or series ("tranches"). The principal value of certain CMO tranches may be more volatile and less liquid than other types of mortgage-related securities, because of the possibility that the principal value of the CMOs may be prepaid earlier than the maturity of the CMOs as a result of prepayments of the underlying mortgage loans by the borrowers. Oppenheimer Fund may also invest in CMOs that are "stripped." Stripped mortgage-backed securities usually have two classes. The classes receive different proportions of the interest and principal distributions on the pool of mortgage assets that act as collateral for the security. In certain cases, one class will receive all of the interest payments (and is known as an "I/O"), while the other class will receive all of the principal payments (and is known as a "P/O"). The yield to maturity on the class that receives only interest is extremely sensitive to the rate of payment of the principal on the underlying mortgages. Principal prepayments increase that sensitivity. Stripped securities that pay "interest only" are therefore subject to greater price volatility when interest rates change, and they have the additional risk that if the underlying mortgages are prepaid, Oppenheimer Fund will lose the anticipated cash flow from the interest on the prepaid mortgages. That risk is increased when general interest rates fall, and in times of rapidly falling interest rates, the fund might receive back less than its investment in such I/Os. The value of "principal only" securities generally increases as interest rates decline and prepayment rates rise. The price of these securities is typically more volatile than that of coupon-bearing bonds of the same maturity. Stripped securities are generally purchased and sold by institutional investors through investment banking firms. At present, established trading markets have not yet developed for these securities. Therefore, some stripped securities may be deemed "illiquid". If a fund holds illiquid stripped securities, the amount it can hold will be subject to the funds' investment policy limiting investment in illiquid securities. Although JP Fund may invest in I/Os and P/Os, it has not done so to date and JPM has no intention of having JP Fund invest in I/Os or P/Os in the foreseeable future. Oppenheimer Fund and JP Fund may invest in "asset-backed" securities. These represent interests in pools of consumer loans and other trade receivables, similar to mortgage-backed securities. They are issued by trusts and "special purpose corporations." They are backed by a pool of assets, such as credit card or auto loan receivables, which are the obligations of a number of different parties. The income from the underlying pool is passed through to holders, such as Oppenheimer Fund. These securities may be supported by a credit enhancement, such as a letter of credit, a guarantee or a preference right. However, the extent of the credit enhancement may be different for different securities and the credit enhancement generally applies to only a fraction of the security's value. These securities present special risks. For example, in the case of credit card receivables, the issuer of the security may have no security interest in the related collateral. Foreign Securities Oppenheimer Fund currently intends to invest no more than 25% of its total assets in debt securities of foreign governments and foreign companies. JP Fund may not invest in foreign securities other than securities issued by Canadian companies. 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, currency blockage, currency exchange costs, difficulty in obtaining and enforcing judgments against foreign issuers, relatively greater brokerage and custodial costs, risk of expropriation or nationalization of assets, less publicly available information, and differences between domestic and foreign legal, auditing, brokerage and economic standards. In addition, there are risks of changes in foreign currency values. A change in value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of a fund's securities denominated in a foreign currency. The currency rate change will also affect its income available for distribution. Both funds' investment income and proceeds from foreign securities may be received in foreign currencies and the funds will be required to absorb the cost of currency fluctuations. If a fund suffers a loss on foreign currencies after it has distributed its income during the year, the fund may find that it has distributed more income than was available from actual investment income, and the shareholders will have received a return of capital. Options, Futures and Interest Rate Swaps; Derivatives Oppenheimer Fund may purchase and sell certain kinds of futures contracts and options on such contracts for hedging purposes. Oppenheimer Fund may also purchase and sell put and call options, options on broadly-based stock or bond indices and foreign currency and forward contracts and may enter into interest rate swap agreements. Oppenheimer Fund may write (sell) covered call options on up to 100% of its assets. The foregoing instruments, referred to as "hedging instruments," may be considered derivative investments. Oppenheimer Fund may also invest in certain derivative investments to seek to enhance income and capital appreciation. Hedging instruments and derivative investments and their special risks are described below in "Comparison Between Oppenheimer Fund and JP Fund." APPROVAL OR DISAPPROVAL OF THE REORGANIZATION (Proposal 1) Background JPC, in the course of a review of its business, concluded that it should concentrate on its core insurance business and communications operations and not continue, through its existing subsidiaries, in the business of managing mutual fund investment portfolios. JPC is a publicly-held holding company that is the parent of JPM. In addition to JP Fund, JPM manages another mutual fund, JP Capital Appreciation Fund, Inc. (with JP Fund, the "Insurance Funds") that sells its shares exclusively to Account A to support variable annuity contracts. JPM also manages two mutual funds that are sold on a retail basis through a broker-dealer network. In aggregate, these four mutual funds had net assets at June 30, 1996 of approximately $172 million. Managing mutual fund investment portfolios in an efficient and profitable manner requires significant assets per fund and in the aggregate. Usually several billion dollars in aggregate net assets is necessary to cover normal operating costs and provide resources for capital investment in new products and services. With regard to retail mutual funds, financing certain classes of shares and providing sales support to dealers are additional expenses that can only be supported from a relatively large asset base. Consequently, it has become increasingly difficult for a relatively small mutual fund operation such as that managed by JPM to compete. JPC evaluated the capital investment that would be required of it or its subsidiaries to achieve such an asset base and determined that: (1) the best investment of its resources would not be in expanding the mutual fund assets under JPM's management, and (2) if, through JPM (or another subsidiary), it could not be extremely competitive in the business of managing mutual fund investment portfolios, it should sell the assets of JPM and facilitate making other arrangements for the management of the assets of the four mutual funds (including JP Fund) managed by JPM. Sometime after these determinations by JPC were made, representatives of JPC and JPM met with OFI to discuss OFI acquiring JPM's mutual fund-related assets. Representatives of OFI and JPM held meetings beginning in December 1995. Following the negotiation of the terms of an acquisition agreement and related agreements, an acquisition agreement (the "Acquisition Agreement") was executed by OFI, JPC, JPM and JPLIC on _______________, 1996. The Reorganization described in this Proxy Statement and Prospectus is one aspect of the overall Acquisition (as hereinafter defined) contemplated by the Acquisition Agreement described below. The consummation of the Reorganization is one condition, among others, to the closing of the Acquisition. Likewise, the consummation of the Acquisition is one condition, among others, to the closing of the Reorganization. Accordingly, unless the parties otherwise agree, the Reorganization may not be effected, despite shareholder approval, if the Acquisition does not close. In such case, JP Fund will continue in existence and the Board will take such further action as it, in its discretion, deems necessary or advisable. The description of the Acquisition Agreement set forth below is a summary only. Acquisition Agreement The Acquisition Agreement contemplates the sale to OFI of all the assets of JPM (the "Purchased Assets") and the assumption by OFI of certain liabilities of JPM and JPC relating to the Purchased Assets ("Assumed Liabilities") (the foregoing sale and assumption constitute the "Acquisition"). The Acquisition Agreement contemplates that each of the four mutual funds advised by JPM (including JP Fund) (each, a "Reorganized Fund") will be reorganized with a mutual fund currently advised by OFI. A condition to the obligation of the parties to close under the Acquisition Agreement (the "Acquisition Closing") is the approval of the reorganizations of the Reorganized Funds (including the Reorganization described in this Proxy Statement and Prospectus) by their respective shareholders and the approval of the reorganizations of the Insurance Funds by applicable state insurance regulatory authorities. The Acquisition Agreement sets forth certain other conditions to each party's obligation to close. JPM, JPC and JPLIC have agreed pursuant to an Agreement Not to Compete not to, among other things, sell or offer to sell shares of or other security interests in investment companies or investment oriented insurance policies to persons who were shareholders of the Reorganized Funds or owned variable contracts issued by JPLIC invested in the Insurance Funds, in each case, immediately prior to the reorganization of such fund for a period to end on the fourth anniversary of the Acquisition Closing. Further, JPM, JPC and JPLIC may not act as an investment adviser to funds established, formed, sold, sponsored or distributed by them and their affiliates with certain exceptions. OFI, on the one hand, and JPM, JPC and JPLIC, on the other, have agreed to indemnify the other for certain liabilities. Board Approval of the Reorganization At its meeting on August 26, 1996, the Board, including the Independent Directors, unanimously approved the Reorganization and the Reorganization Agreement, determined that the Reorganization is in the best interests of JP Fund and its shareholders and resolved to recommend that JP Fund shareholders vote for approval of the Reorganization. The Board further determined that the Reorganization would not result in dilution of JP Fund's shareholders' interests. In evaluating the Reorganization, the Board requested and reviewed, with the assistance of independent legal counsel, materials furnished by OFI and JPM. These materials included financial statements as well as other written information regarding OFI and its personnel, operations and financial condition. The Board also reviewed the same type of information about JPM. Consideration was given to comparative information concerning other mutual funds with similar investment objectives to JP Fund and Oppenheimer Fund. The Board also considered information with respect to the relative historical performance of JP Fund, Oppenheimer Fund and other mutual funds having similar investment objectives. The Board also reviewed and discussed the terms and provisions of the investment advisory agreement pursuant to which OFI provides investment management services to Oppenheimer Fund and compared and contrasted them to the existing management arrangements for JP Fund as well as the management arrangements of other similar mutual funds, particularly with respect to the allocation of various types of expenses, levels of fees and resulting expense ratios. In reaching its determination, the Board gave careful consideration to the following factors, among others: (1) because JPC intends to sell JPM or otherwise leave the business of managing mutual fund investment portfolios, new arrangements for the management of JP Fund's assets were necessary; (2) the Reorganization would afford variable contract owners, as indirect investors in Oppenheimer Fund the capabilities and resources of OFI and its affiliates in the area of investment management and shareholder servicing; (3) the terms and conditions of the Reorganization, including that (a) there would be no sales charge imposed in effecting the Reorganization, (b) the Reorganization is intended to qualify as a tax-free exchange, and (c) all expenses of the Reorganization would be paid by OFI and JPM and not by Oppenheimer Fund or JP Fund; and (4) the similarities and differences of the investment objectives, policies and methods of JP Fund and Oppenheimer Fund. The Board also considered that the annual operating expenses for Oppenheimer Fund are higher, as a percentage of net assets, and would be higher on a pro forma basis after giving effect to the Reorganization, than the operating expenses of JP Fund due to the fact that Oppenheimer Fund is subject to a higher management fee rate than JP Fund. For operating expenses and other expense information relating to Oppenheimer Fund and JP Fund, see "Comparative Fee Tables - Expenses of Oppenheimer Fund and JP Fund; Pro Forma Expenses." The Board was also advised regarding the provisions of Section 15(f) of the 1940 Act as they relate to the Acquisition. Section 15(f) of the 1940 Act provides, in effect, that an investment adviser of a registered investment company, or an affiliated person of such adviser, may receive any amount or benefit in connection with the sale of the adviser's business provided that two conditions are satisfied. First, an "unfair burden" must not be imposed on the investment company for which the investment adviser acts in such capacity as a result of the sale, or any express or implied terms, conditions or understandings applicable thereto. The term "unfair burden" as defined in the 1940 Act, includes any arrangement during the two-year period after the transaction whereby the investment adviser (or predecessor or successor advisers), or any interested person of such adviser, receives or is entitled to receive any compensation, directly or indirectly, from any person in connection with the purchase or sale of securities or other property to, from or on behalf of the investment company (other than ordinary fees for bona fide principal underwriting services), or from the investment company or its securities holders (other than fees for bona fide investment advisory and other services). Management of the Reorganized Funds (including JP Fund) and management of the mutual funds managed by OFI into which the Reorganized Funds will be reorganized (including Oppenheimer Fund) are aware of no circumstances arising from the Acquisition or preparatory transactions to the Acquisition that might result in the imposition of an "unfair burden" on the Reorganized Funds (including JP Fund) or the mutual funds managed by OFI into which the Reorganized Funds will be reorganized (including Oppenheimer Fund). Moreover, the Acquisition Agreement provides that OFI, JPM and JPC will conduct their businesses (and use their reasonable efforts to cause their respective affiliates to conduct their businesses) so as to assure, insofar as is in their control, that no "unfair burden" will be imposed on the Reorganized Fund (including JP Fund) or any mutual fund managed by OFI into which a Reorganized Fund would be reorganized (including Oppenheimer Fund) as a result of the transactions contemplated by the Acquisition Agreement. The second condition of Section 15(f) is that during the three-year period immediately following a transaction to which Section 15(f) is applicable, at least 75% of the subject investment company's board of directors must not be "interested persons" (as defined in the 1940 Act) of the investment company's investment adviser or predecessor adviser. The current composition of the Board of Trustees of each mutual fund managed by OFI into which a Reorganized Fund would be organized (including Oppenheimer Fund) is in compliance with such condition. After consideration of the above factors, and such other factors and information as the directors deemed relevant, the Board, including the Independent Directors, unanimously approved the Reorganization and the Reorganization Agreement and voted to recommend its approval to the shareholders of JP Fund. The Trust's Board of Trustees, on behalf of Oppenheimer Fund, including the trustees who are not "interested persons" of Oppenheimer Fund, unanimously approved the Reorganization and the Reorganization Agreement and determined that the Reorganization is in the best interests of Oppenheimer Fund and its shareholders. The Board of Trustees further determined that the Reorganization would not result in dilution of the Oppenheimer Fund shareholders' interests. The Board of Trustees considered, among other things, that an increase in Oppenheimer Fund's asset base as a result of the Reorganization could benefit Oppenheimer Fund shareholders due to the economies of scale available to a larger fund. Over time, these economies of scale may result in slightly lower costs per account for each Oppenheimer Fund shareholder through lower operating expenses and transfer agency expenses. The Reorganization The following summary of the Reorganization Agreement is qualified in its entirety by reference to the Reorganization Agreement (a copy of which is set forth in full as Exhibit A to this Proxy Statement and Prospectus). The Reorganization Agreement contemplates a reorganization under which (1) substantially all of the assets of JP Fund would be transferred to Oppenheimer Fund in exchange for shares of Oppenheimer Fund having a value equal to the value of the JP Fund assets transferred, (2) these Oppenheimer Fund shares would be distributed among shareholders of JP Fund in liquidation of JP Fund and (3) the outstanding shares of JP Fund would be cancelled. Prior to the Closing Date (as hereinafter defined), JP Fund will endeavor to discharge all of its liabilities and obligations when and as due prior to such date. Oppenheimer Fund will not assume any liabilities or obligations of JP Fund except for portfolio securities purchased which have not settled in the ordinary course of business. In this regard, JP Fund will retain a cash reserve (the "Cash Reserve") in an amount which is deemed sufficient in the discretion of the Board for the payment of (a) JP Fund's expenses of liquidation (if any) and (b) JP Fund's liabilities, other than those assumed by Oppenheimer Fund. The Cash Reserve will be accounted for as a liability of JP Fund in determining its net asset value. The number of full and fractional shares of Oppenheimer Fund to be issued to JP Fund will be determined on the basis of Oppenheimer Fund's and JP Fund's relative net asset values per share, computed as of the close of business of The New York Stock Exchange Inc. on the business day preceding the Closing Date (the "Valuation Date"). The Closing Date for the Reorganization will be the date of the closing of the Acquisition under the Acquisition Agreement or such other date as may be mutually agreed upon in writing. The valuation procedures set forth in the Trust's Prospectus and the Trust Additional Statement will be utilized to determine the value of JP Fund's assets to be transferred to Oppenheimer Fund pursuant to the Reorganization, the value of Oppenheimer Fund's assets and the net asset value of shares of Oppenheimer Fund. Such values will be computed by JPM and OFI, respectively, as of the Valuation Date in a manner consistent with OFI's regular practice in pricing Oppenheimer Fund. The Reorganization Agreement provides for coordination between the funds as to their respective portfolios so that, on and after the Closing Date, Oppenheimer Fund will be in compliance with all of its investment policies and restrictions. JP Fund will recognize capital gain or loss on any sales made pursuant to this condition. If JP Fund realizes net gain from the sale of securities, such gain, to the extent not offset by capital loss carry-forwards, will be distributed to shareholders prior to the Closing Date and will be taxable to shareholders as long-term capital gain or, if the assets disposed of had not been held for more than one year, as ordinary income. For a discussion of the tax consequences of such distributions to variable contract owners, see "Tax Aspects of the Reorganization" below and "Federal Tax Status" in the Account A current prospectus. Contemporaneously with the closing, JP Fund will be liquidated (except for the Cash Reserve) and JP Fund will distribute or cause to be distributed pro rata to JP Fund shareholders of record on the Valuation Date the full and fractional shares of Oppenheimer Fund received by JP Fund. Upon such liquidation, all issued and outstanding shares of the JP Fund will be cancelled on JP Fund's books and JP Fund shareholders will have no further rights as shareholders of JP Fund. To assist JP Fund in the distribution of Oppenheimer Fund shares, Oppenheimer Fund will, in accordance with a shareholder list supplied by JP Fund, cause Oppenheimer Fund's transfer agent to credit and confirm an appropriate number of shares of Oppenheimer Fund to each shareholder of JP Fund. After the closing of the Reorganization, JP Fund will not conduct any business except in connection with the winding up of its affairs. Under the Reorganization Agreement, within one year after the Closing Date, JP Fund shall either (i) transfer any remaining amount of the Cash Reserve to Oppenheimer Fund, if such remaining amount (as reduced by the estimated cost of distributing it to shareholders) is not material (as defined below), or (ii) distribute such remaining amount to the shareholders of JP Fund who were such on the Valuation Date. Such remaining amount shall be deemed to be material if the amount to be distributed, after deducting the estimated expenses of the distribution, equals or exceeds one cent per share of JP Fund outstanding on the Valuation Date. After this transfer or distribution and after all final reports and tax returns have been filed and the winding up of JP Fund's affairs has been completed, JP will be dissolved as a corporation under North Carolina law. The consummation of the Reorganization is subject to the conditions set forth in the Reorganization Agreement, including, without limitation, approval of the Reorganization by JP Fund's shareholders. Notwithstanding approval of JP Fund's shareholders, the Reorganization may be terminated at any time prior to the Closing Date (1) by mutual written consent of JP Fund, and the Trust, on behalf of Oppenheimer Fund, (2) by JP Fund or the Trust, on behalf of Oppenheimer Fund, if the Closing shall not have occurred on or before December 31, 1996, (3) by JP Fund or the Trust, on behalf of Oppenheimer Fund, if the other party shall fail to perform in any material respect its agreements contained in the Reorganization Agreement required to be performed on or prior to the Closing Date, the other party materially breaches any representation, warranty, or covenant contained in the Reorganization Agreement, the JP Fund shareholders fail to approve the Reorganization Agreement, or if a condition in the Reorganization Agreement expressed to be precedent to the obligations of the terminating party has not been met and it reasonably appears that it will not or cannot be met prior to the Closing Date, or (4) if a suspension in the redemption of shares shall continue for 60 days beyond the Valuation Date. The Reorganization Agreement will automatically terminate prior to the Closing if the Acquisition Agreement is terminated or the Acquisition is not consummated. Termination of the Reorganization Agreement pursuant to (1), (2) or (4) above, or an automatic termination as described in the preceding sentence, will terminate all obligations of the parties thereto and there will be no liability for damages. In such case JP Fund and Oppenheimer Fund will be reimbursed for its expenses incurred with respect to the Reorganization by JPM and OFI, respectively. In the event of a termination pursuant to (3) above, all obligations of Oppenheimer Fund and JP Fund under the Reorganization Agreement will be terminated without liability for damages except that the party in breach (other than a breach due to JP Fund shareholders not approving the Reorganization) of the Reorganization Agreement will, upon demand, reimburse (such reimbursement to be made by such party's investment adviser) the non-breaching party for all expenses and reasonable out- of-pocket fees (if any) incurred in connection with the transactions contemplated by the Reorganization Agreement. Pursuant to the Reorganization Agreement, JPC has agreed to indemnify and hold harmless JP Fund, Oppenheimer Fund, their investment advisers and their respective trustees, officers and shareholders against claims resulting from certain actions or a failure to act by JP Fund and OFI has agreed to indemnify and hold harmless JP Fund and its investment adviser and their respective directors, officers and shareholders against claims resulting from certain actions or a failure to act by Oppenheimer Fund. In addition, JPC has separately agreed with JP Fund and the Independent Directors that, if indemnification from the assets of JP Fund or liability insurance is not available to the Independent Directors after the Closing Date, JPC will indemnify and hold the Independent Directors harmless to the same extent as provided under the JP Fund's Articles of Incorporation. Approval of the Reorganization will require the vote specified below in "Information Concerning the Meeting - Record Date; Vote Required; Share Information." If the Reorganization is not approved by the shareholders of JP Fund, the Board will consider other possible courses of action. Tax Aspects of the Reorganization At or prior to the Closing Date, JP Fund will declare a dividend in an amount large enough so that it will have declared a dividend of all of its investment company taxable income and net capital gain, if any, for the taxable period ending on the Closing Date (determined without regard to any deduction for dividends paid). Such dividends will be included in the taxable income of JP Fund's shareholders as ordinary income and long-term capital gain, respectively. The exchange of the assets of JP Fund for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain liabilities of JP Fund is intended to qualify for federal income tax purposes as a reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). JP Fund has represented to Sutherland, Asbill & Brennan, tax counsel to JP Fund, that there is no plan or intention by any JP Fund shareholder who owns 5% or more of JP Fund's outstanding shares and, to JP Fund's best knowledge, there is no plan or intention on the part of the remaining JP Fund shareholders, to redeem, sell or otherwise dispose of a number of Oppenheimer Fund shares received in the transaction that would reduce JP Fund shareholders' ownership of Oppenheimer Fund shares to a number of shares having a value, as of the Closing Date, of less than 50% of the value of all the formerly outstanding JP Fund shares as of the same date. JP Fund has also represented that Oppenheimer Fund will acquire at least 90% of the fair market value of the net assets and at least 70% of the fair market value of the gross assets held by JP Fund immediately prior to the Reorganization. JP Fund and Oppenheimer Fund have each further represented to Sutherland, Asbill & Brennan the fact that, as of the Closing Date, JP Fund and Oppenheimer Fund will qualify as regulated investment companies or will meet the diversification test of Section 368(a)(2)(F)(ii) of the Code. As of the Record Date, JPLIC and Account A of JPLIC were the only record shareholders of JP Fund. As a condition to the closing of the Reorganization, Oppenheimer Fund and JP Fund will receive the opinion of Sutherland, Asbill & Brennan to the effect that, based on the Reorganization Agreement, information given by JPC, the above representations and other representations as such firm shall reasonably request, existing provisions of the Code, Treasury Regulations issued thereunder, current Revenue Rulings, Revenue Procedures and court decisions, for federal income tax purposes: (a) The reorganization contemplated by the Reorganization Agreement will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code and JP Fund and Oppenheimer Fund will each be a "party to the reorganization" within the meaning of Section 368(b) of the Code. (b) No gain or loss will be recognized by Oppenheimer Fund upon the receipt of the assets transferred to it by JP Fund in exchange for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain identified liabilities of JP Fund. (Section 1032) (c) No gain or loss will be recognized by JP Fund upon the transfer of its assets to Oppenheimer Fund in exchange solely for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain identified liabilities of JP Fund (if any) and the subsequent distribution by JP Fund of such shares to the shareholders of JP Fund. (Section 361) (d) No gain or loss will be recognized by JP Fund shareholders upon the exchange of the JP Fund shares solely for the shares of Oppenheimer Fund. (Section 354) (e) The basis of the shares of Oppenheimer Fund to be received by each JP Fund shareholder pursuant to the reorganization will be the same as the adjusted basis of that shareholder's JP Fund shares surrendered in exchange therefor. (Section 358) (f) The holding period of shares of Oppenheimer Fund to be received by each JP Fund shareholder will include the shareholder's holding period for the JP Fund shares surrendered in exchange therefor, provided such JP Fund shares were held as capital assets on the Closing Date. (Section 1223) (g) Oppenheimer Fund's basis for the assets transferred to it by JP Fund will be the same as JP Fund's tax basis for the assets immediately prior to the reorganization. (Section 362(b)) (h) Oppenheimer Fund's holding period for the transferred assets will include JP Fund's holding period therefor. (Section 1223) (i) Oppenheimer Fund will succeed to and take into account the items of JP Fund described in Section 381(c) of the Code, including the earnings and profits, or deficit therein of JP Fund as of the Closing Date, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code. (j) No gain or loss will be recognized by owners of variable contracts issued by JPLIC through Account A or the transfer of JP Fund's assets to Oppenheimer Fund in exchange solely for the shares of Oppenheimer Fund and Oppenheimer Fund's assumption of certain JP Fund liabilities (if any) and the subsequent distribution by JP Fund of those shares to Account A. Owners of variable contracts should consult their tax advisers regarding the effect, if any, of the Reorganization in light of their individual circumstances, which may be affected the type of variable contract they own or by their status. See also "Federal Tax Status" in the Account A prospectus. Since the foregoing discussion only relates to the federal income tax consequences of the Reorganization, shareholders of JP Fund should also consult their tax advisers as to state and local tax consequences, if any, of the Reorganization. Dissenters' Rights Under the North Carolina Business Corporation Act (the "NCBCA"), the state statute governing JP Fund, shareholders of a company acquired in a reorganization who do not vote to approve the reorganization could have, under certain circumstances, "appraisal rights" (where they may elect to have the "fair value" of their shares as of the day prior to such reorganization, determined in accordance with the NCBCA, judicially appraised and paid to them). Variable contract owners, however, do not have such rights under the NCBCA. Capitalization Table (Unaudited) The table below sets forth the capitalization of Oppenheimer Fund and JP Fund and indicates the pro forma combined capitalization as of June 30, 1996 as if the Reorganization had occurred on that date.
Net Asset Shares Value Net Assets Outstanding Per Share Oppenheimer Fund $317,616,900 27,823,143 $11.42 JP Fund $ 30,338,495 2,788,539 $10.88 Pro Forma Combined Fund* $347,955,395 30,479,754 $11.42 - ------------------
*Reflects issuance of 2,656,611 shares of Oppenheimer Fund in a tax- free exchange for the net assets of JP Fund, aggregating $30,338,495 for shares of JP Fund. The pro forma ratio of expenses to average annual net assets of the combined funds at June 30, 1996 would have been .78%. COMPARISON BETWEEN Oppenheimer Fund AND JP FUND Comparative information about Oppenheimer Fund and JP Fund is presented below. More complete information about Oppenheimer Fund and JP Fund is set forth in their respective Prospectuses (which, as to Oppenheimer Fund, accompanies this Proxy Statement and Prospectus and is incorporated herein by reference) and Statements of Additional Information. To obtain copies of either Prospectus, see "Miscellaneous - - Public Information." Comparison of Investment Objectives, Policies and Restrictions As its primary investment objective, Oppenheimer Fund seeks a high level of current income by primarily investing in a diversified portfolio of high yield fixed-income securities. Oppenheimer Fund seeks capital growth when consistent with its primary objective. JP Fund's primary investment objective is to seek the maximum level of current income as is consistent with prudent risk. A secondary investment objective is to seek growth of income and capital. In seeking their investment objectives, which are fundamental policies, Oppenheimer Fund and JP Fund employ the investment policies as described in detail below. Oppenheimer Fund. As a matter of non-fundamental policy, under normal market conditions, Oppenheimer Fund will invest at least 65% of its total assets in bonds. Oppenheimer Fund will invest only in securities rated "Baa" or better by Moody's or "BBB" or better by Standard & Poor's. However, Oppenheimer Fund is not obligated to dispose of securities if the rating is reduced, and therefore may from time to time hold securities rated lower than "Baa" by Moody's or "BBB" by Standard & Poor's. Oppenheimer Fund currently intends to invest no more than 25% of its total assets in debt securities issued or guaranteed by foreign companies and debt securities of foreign governments or their agencies. These investments may include (i) U.S. dollar-denominated debt obligations known as "Brady Bonds", (ii) debt obligations such as bonds including sinking fund and callable bonds, (iii) debentures and notes (including variable and floating rate instruments) and (iv) preferred stocks and zero coupon securities. However, if Oppenheimer Fund's assets are held abroad, the countries in which they are held and the sub-custodians holding then must be approved by the Trust's Board of Trustees when required to do so under applicable regulations. Oppenheimer Fund may also invest in U.S. Government Securities (including mortgage-related U.S. Government Securities that are issued or guaranteed by federal agencies or government-sponsored entities but are not supported by the full faith and credit of the U.S. Government), mortgage-backed securities, whether issued by the U.S. government or private issuers, CMOs, stripped CMOs, and asset-backed securities and other fixed-income securities, all of which are discussed above. See "Principal Risk Factors." In addition to the foregoing, Oppenheimer Fund may invest in zero coupon securities, participation interests, preferred stocks, warrants and rights and dividend-paying common stocks and may enter into short sales against-the-box. With respect to the percentage of assets that may be invested in particular industries or in the securities of one or more issuers, Oppenheimer Fund is subject to certain concentration and diversification requirements as set forth in "Investment Restrictions" (1) and (4) below. JP Fund. JP Fund proposes to achieve its investment objectives by investing primarily in fixed income securities rated A or better by S&P or Moody's. JP Fund will also purchase dividend paying common stocks. Fixed income securities will include debt securities and preferred stocks, some of which may have a call on common stock by means of conversion privilege or attached warrants. When the incremental yield available on corporate securities is small compared to that available on U.S. Treasury securities, JP Fund may invest substantially in U.S. Treasury securities. JP Fund may also hold cash or invest in short- term securities and may purchase U.S. Government obligations with a simultaneous agreement by the seller to repurchase the securities at the original price plus accrued interest; provided that not more than 10% of JP Fund's net assets may be invested in such repurchase agreements that mature in more than seven days. Although JP Fund may invest to a limited extent in lower-grade securities, its fixed-income investments that are rated are currently all investment grade. JP may invest in other securities including foreign securities (provided they are issued by Canadian companies) and mortgage-backed securities. The percentage of assets invested in different types of securities will vary from time to time depending upon the judgment of JPM as to general market and economic conditions, fiscal and monetary policy and trends in interest rates and yields. JP Fund's investments (other than cash and U.S. Government securities) are diversified among the securities issued by different companies and governments to the extent that no more than 5% of its total assets may be invested in securities issued by any one issuer. In addition, JPM generally selects investments for JP Fund from among many different industries and may invest up to 25% of JP Fund's assets in a single industry. Special Investment Methods Oppenheimer Fund and JP Fund may use certain special investment methods as summarized below. Loans. JP Fund is prohibited from making loans except to the extent of investing in repurchase agreements or purchasing a portion of an issue of a debt security distributed to the public. Oppenheimer Fund may not make loans. It may, however, invest in debt obligations consistent with its investment objective and policies and may enter into repurchase agreements. Oppenheimer Fund may also lend its portfolio securities, but has no present intention of doing so. Repurchase Agreements and Illiquid Securities. Both Oppenheimer Fund and JP Fund may enter into repurchase agreements. Repurchase agreements must be fully collateralized. However, if the vendor fails to pay the resale price on the delivery date, the funds may experience costs or delays in disposing of the collateral and may experience losses to the extent that the proceeds from the sale of the collateral is less than the repurchase price. There is no limit on the amount of either fund's net assets that may be invested subject to repurchase agreements of seven days or less because these investments are liquid and may be disposed of promptly. Neither fund will purchase illiquid or restricted securities (which are subject to legal or contractual restrictions on resale) that will cause more than 10% of its net assets to be invested in such securities. As to Oppenheimer Fund, this percentage limit may increase to 15% with respect to all illiquid or restricted securities if certain state laws are changed or Oppenheimer Fund's shares are no longer sold in those states. Repurchase agreements with maturities longer than seven days are considered illiquid. JP Fund has no present intention of acquiring restricted securities. For Oppenheimer Fund, certain restricted securities, eligible for resale to qualified institutional purchasers, are not subject to the foregoing limitation. However, investing in such restricted securities could have the effect of increasing the level of fund illiquidity to the extent that qualified institutional buyers become, for a time, uninterested in purchasing these securities. Hedging. Oppenheimer Fund may purchase and sell: futures contracts that relate to broadly-based securities indices or to interest rates; certain put and call options; forward contracts; and options on futures, broadly-based stock indices and bond indices. Oppenheimer Fund may also enter into interest rate swap agreements. These are all referred to as "hedging instruments." Oppenheimer Fund does not use hedging instruments for speculative purposes. Up to 100% of Oppenheimer Fund's total assets may be subject to covered calls. Oppenheimer Fund will not write puts if more than 50% of its net assets would have to be segregated to cover put obligations. Oppenheimer Fund may only purchase a call or put if, after such purchase, the value of all call and put options held by Oppenheimer Fund would not exceed 5% of Oppenheimer Fund's total assets. Other limits on the use of hedging instruments are described in the Trust's Prospectus and the Trust Statement of Additional Information. JP Fund does not invest in hedging instruments. Hedging instruments may be used to manage Oppenheimer Fund's exposure to the possibility that the prices of its portfolio securities may decline, or to establish a position in the securities market as a temporary substitute for purchasing individual securities; to try to manage its exposure to changing interest rates; to hedge the Fund's portfolio against price fluctuations; and to increase the Fund's exposure to the securities market. Forward contracts are used to try to manage foreign currency risks on the Fund's foreign investments. Oppenheimer Fund's foreign currency options are used to try to protect against declines in the dollar value of foreign securities Oppenheimer Fund owns, or to protect against an increase in the dollar cost of buying foreign securities. Oppenheimer Fund may write covered call options to provide income for liquidity purposes, defensive reasons, or to raise cash to distribute to shareholders. The use of hedging instruments requires special skills and knowledge of investment techniques that are different than those required for normal portfolio management. If Oppenheimer Fund uses a hedging instrument at the wrong time or judges market conditions incorrectly, hedging strategies may reduce the Fund's return. Oppenheimer Fund could also experience losses if the prices of its futures and options positions were not correlated with its other investments or if it could not close out a position because of an illiquid market for the future or option. Options trading involves the payment of premiums, and options, futures and forward contracts are subject to special tax rules that may affect the amount, timing and character of Oppenheimer Fund's distributions to its shareholders. There are also special risks in particular hedging strategies. If a covered call written by Oppenheimer Fund is exercised on an investment that has increased in value, Oppenheimer Fund will be required to sell the investment at the call price and will not be able to realize any profit if the investment has increased in value above the call price. Interest rate swaps are subject to credit risks (if the other party fails to meet its obligations) and also to interest rate risks. Oppenheimer Fund could be obligated to pay more under its swap agreements than it receives under them, as a result of interest rate changes. Derivative Investments. Oppenheimer Fund can invest in a number of different kinds of "derivative investments." Some types of derivatives are hedging instruments and may be used for hedging purposes, as described above. Oppenheimer Fund may invest in others because they offer the potential for increased income and capital appreciation. In general, a "derivative investment" is a specially-designed security or contract the performance of which is linked to the performance of another investment or security, such as an option contract, futures contract, index, currency or commodity. In the broadest sense, derivative investments include the hedging instruments, mortgage-backed and asset-backed securities and CMOs in which both of the funds may invest. Other types of derivatives in which Oppenheimer Fund may invest include index-linked or commodity-linked notes, debt exchangeable for common stock, equity-linked debt securities and currency-indexed securities. JP Fund does not have a policy with regard to investments in such other types of derivatives investments such as hedging instruments. Nonetheless, JP Fund has never invested in such derivative investments and JPM has no intention of having JP Fund invest in such investments. One risk of investing in derivative investments is that the company issuing the instrument might not pay the amount due on the maturity of the instrument. There is also the risk that the underlying investment or security might not perform the way the investment adviser 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 these risks can mean that Oppenheimer Fund will realize less income than expected from its investments, or that it can lose part or all of the value of its investments, which will affect its share price. When-Issued and Delayed Delivery Transactions. JP Fund and Oppenheimer Fund may purchase securities on a "when-issued" basis and may purchase or sell such securities on a "delayed delivery" basis. These terms refer to securities that have been created and for which a market exists, but which are not available for immediate delivery or are to be delivered at a later date. There may be a risk of loss to either fund if the value of the security changes prior to the settlement date. Although JP Fund may purchase securities on a "when-issued" basis and may purchase or sell such securities on a "delayed delivery" basis, it has not done so to date and JPM has no intention of having JP Fund do so in the foreseeable future. Investment Restrictions Both Oppenheimer Fund and JP Fund have certain investment restrictions that, together with their respective investment objectives are fundamental policies changeable only by shareholder approval. The investment restrictions of Oppenheimer Fund and JP Fund are set forth below. Oppenheimer 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 Oppenheimer Fund's total assets would be invested in securities of that issuer, or (b) Oppenheimer 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; (2) lend money except in connection with the acquisition of debt securities which Oppenheimer Fund's investment policies and restrictions permit it to purchase; Oppenheimer Fund may also make 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; therefore Oppenheimer Fund will not purchase the securities of issuers primarily engaged in the same industry if more than 25% of the total value of Oppenheimer Fund's assets would (in the absence of special circumstances) consist of securities of companies in a single industry; (5) deviate from the percentage requirements and other restrictions listed under "Warrants and Rights," and the first paragraph under "Special Risks-Borrowing for Leverage" of the Trust Prospectus; (6) invest in oil or gas exploration or development programs; (7) invest in real estate or in interests in real estate, but may purchase securities of issuers holding real estate or interests therein; (8) invest in companies for the purpose of acquiring control of management thereof; (9) underwrite securities of other companies, except insofar as it might be deemed to be an underwriter for purposes of the Securities Act of 1933 in the resale of any securities held in its own portfolio; (10) invest or hold securities of any issuer if those officers and trustees or directors of the Trust or its adviser owning individually more than 1/2 of 1% of the securities of such issuer together own more than 5% of the securities of such issuer; or (11) invest in other open-end investment companies, or invest more than 5% of its net assets at the time of purchase in closed-end investment companies, including small business investment companies, nor make any such investments at commission rates in excess of normal brokerage commissions. JP Fund cannot: (1) issue senior securities; (2) purchase securities on margin or sell short, except it may obtain such short-term credits as are necessary for the clearance of transactions; (3) write, purchase or sell puts, calls or combinations thereof; (4) borrow money except that, as a temporary measure for extraordinary or emergency purposes and not for investment purposes, JP Fund may borrow up to 5% of the value of its total assets; (5) act as an underwriter of securities of other issuers, except JP Fund may invest up to 10% of the value of its net assets (at time of investment) in portfolio securities which JP Fund might not be free to sell to the public without registration of such securities under the Securities Act of 1933; (6) purchase or sell real estate or interests in real estate, nor interests in real estate investment trusts or real estate limited partnerships (however, JP Fund may purchase interests in real estate investment trusts whose securities are registered under the Securities Act of 1933 and are readily marketable); (7) engage in the purchase and sale of commodities or commodity contracts; (8) make loans, except to the extent that either of the following is deemed to constitute a loan: (a) purchase of a portion of an issue of a debt security distributed to the public; or (b) investment in "repurchase agreements"; (9) purchase the securities (except U.S. Government securities) of any one issuer if immediately after and as a result of such purchase (a) the value of the holdings of JP Fund in the securities of such issuer exceeds 5% of the value of JP Fund's total assets, or (b) JP Fund owns more than 10% of the outstanding voting securities of any one class of securities of such issuer; (10) purchase the securities of open-end investment companies (except JP Fund may purchase the securities of other investment companies provided that (a) immediately after such purchase JP Fund and companies controlled by JP Fund, or other investment companies having the same investment adviser as JP Fund, do not own more than 10% of the investment company whose securities are being purchased; (b) JP Fund cannot invest more than 10% of its total assets in the securities of other investment companies; and (c) such purchases are made in the open market where no commission or profit to a sponsor or dealer results other than the customary broker's commission; notwithstanding the foregoing, restrictions 10(a), 10(b) and 10(c) do not apply in connection with a merger, consolidation, or plan of reorganization; (11) mortgage, pledge, hypothecate, or in any manner transfer, as security of indebtedness, any securities owned or held by JP Fund; (12) participate on a joint or joint and several basis in any trading account in securities or effect a short sale of any security, except in connection with an underwriting in which it is a participant in the circumstances specified in "5" above; and (13) purchase or retain the securities of any issuer if those officers and directors of JP Fund, its adviser or underwriter owning individually more than 0.5% of the securities of such issuer together own more than 5% of the securities of such issuer. As non-fundamental policies changeable without shareholder approval, JP Fund cannot: (a) invest in companies for the purpose of exercising control or management; (b) invest in foreign securities other than securities issued by Canadian companies; and (c) invest in interests of oil, gas or other mineral exploration or development programs (including oil, gas or mineral leases). Oppenheimer Fund Performance Oppenheimer Fund does not maintain a fixed dividend rate and there can be no assurance as to the payment of any dividends or the realization of any capital gains. During Oppenheimer Fund's fiscal year ended December 31, 1995, Oppenheimer Fund reacted to a strong rally in treasury securities by reducing its treasury allocation in favor of increased allocations in different categories of U.S. Government and corporate bonds. It reduced its holdings in utilities and cyclical companies such as mining and metals companies in favor of companies expected to experience earnings growth, such as cable, communications, broadcasting and media firms. Oppenheimer Fund's investment performance will vary over time depending on market conditions, the composition of the portfolio and expenses. Past performance should not be considered a prediction of future performance. Included in the prospectus for the Trust, a copy of which accompanies this Proxy Statement and Prospectus and those portions that pertain to Oppenheimer Fund being incorporated herein by reference, in the section entitled "Performance of Oppenheimer Fund" is a performance graph which depicts the performance of a hypothetical investment of $10,000 in shares of Oppenheimer Fund held over a ten-year period through December 31, 1995 with all dividends and capital gains distributions reinvested. The average annual total return of shares of Oppenheimer Fund are compared with the performance of Lehman Brothers Corporate Bond Index, a broad-based, unmanaged index of publicly-issued nonconvertible investment grade corporate debt of U.S. issuers, widely recognized as a measure of the U.S. fixed-rate corporate bond market. The Lehman Brothers Corporate Bond Index includes a factor for the reinvestment of interest, but does not consider the effect of expenses, capital gains or transaction costs, and none of the data shows the effect of taxes. Information on JP Fund performance is set forth in JP Fund's current Prospectus and in its Annual Report as of December 31, 1995, which may be obtained without charge as set forth in "Miscellaneous - Public Information." Such information is incorporated herein by reference. Other Investors in Oppenheimer Fund Shares of Oppenheimer Fund are sold to separate accounts of insurance companies that are not affiliated with JPLIC or each other, a practice known as "shared funding." They are also sold to separate accounts to serve as the underlying investment for both variable annuity contracts and variable life insurance contracts, a practice known as "mixed funding." As a result, there is a possibility that a material conflict may arise between the interests of owners of various different types of variable contracts, whose contract values are indirectly invested in Oppenheimer Fund. Likewise, there is a possibility that a material conflict may arise between the interests of owners of variable contracts having contract values indirectly invested in Oppenheimer Fund through a separate account of one insurance company and the interests of owners of other variable contract whose contract values are indirectly invested in the fund through one or more separate accounts or other insurance companies. Shares of Oppenheimer Fund may also be sold to separate accounts of certain pension and retirement plans qualifying under Section 401 of the Code. As a result, there is a possibility that a material conflict may arise between the interests of owners of various types of variable contracts (including variable contracts issued by insurance companies other than JPLIC), and such retirement plans or participants in such retirement plans. There are certain other risks associated with mixed and shared funding and with the sale of shares to qualified pension and retirement plans. These are discussed in Oppenheimer Fund's prospectus under the caption "Other Investment Restrictions". Additional Comparative Information General. For a discussion of the organization and operation of Oppenheimer Fund, including brokerage practices, see "Investment Objectives and Policies" and "How the Funds are Managed" in the Trust's current Prospectus and "Brokerage Policies of the Funds" in the Trust Additional Statement. For a discussion of the organization and operation of JP Fund, including brokerage practices, see "Investment Objectives and Policies," and "Who Manages The Funds" in JP Fund's current Prospectus and "Brokerage" in the JP Fund Additional Statement. Financial Information. For certain financial information about Oppenheimer Fund and JP Fund see, as to Oppenheimer Fund, "Financial Highlights" and "Performance of the Funds" in the Trust's current Prospectus and as to JP Fund "Condensed Financial Information" and "Performance" in JP Fund's current Prospectus. Management of Oppenheimer Fund and JP Fund. For information about the management of Oppenheimer Fund and JP Fund, including their respective Boards of Trustees or Directors, investment adviser, portfolio managers, see as to Oppenheimer Fund "How the Funds are Managed" in the Trust's current Prospectus and "How the Funds are Managed," "Trustees and Officers of the Trust" and "The Manager and Its Affiliates" in the Trust Additional Statement, and as to JP Fund and "Who Manages the Funds" in JP Fund's current Prospectus and "The Investment Adviser," and "The Fund's Directors and Officers" in the JP Fund Additional Statement. Description of Shares of Oppenheimer Fund and JP Fund. Oppenheimer Fund is a series of the Trust, Oppenheimer Variable Account Funds, a Massachusetts business trust. Oppenheimer Fund and its shareholders are governed principally by the Trust's Declaration of Trust, its By- Laws and other governing documents. Each share of Oppenheimer Fund represents an interest in Oppenheimer Fund proportionately equal to the interest of each other share and entitles the holder to one vote per share (and a fractional vote for a fractional share) on matters submitted to a vote at shareholder meetings. Shares of Oppenheimer Fund and of the Trust's other series vote together in the aggregate on certain matters at shareholder meetings, such as the election of Trustees and ratification of appointment of auditors. Shareholders of a particular series vote separately on proposals which affect that series, and shareholders of a series which is not affected by that matter are not entitled to vote on the proposal. Shareholders of Oppenheimer Fund together with the shareholders of the Trust's other series have the right, under certain circumstances, to remove a Trustee and will be assisted in communicating with other shareholders for such purpose. Oppenheimer Fund is authorized to issue an unlimited number of shares of beneficial interest. Shares are freely transferable and shares do not have cumulative voting rights or preemptive or subscription rights. Oppenheimer Fund is governed by a Board of Trustees that has the power, without shareholder approval, to establish and designate one or more series. Oppenheimer Fund has only one class of shares, which are offered for purchase only by separate accounts such as Separate Account A. Under certain circumstances, a shareholder of Oppenheimer Fund may be held personally liable as a partner for the obligations of Oppenheimer Fund, and under the Trust's Declaration of Trust, such a shareholder is entitled to indemnification rights by Oppenheimer Fund; the risk of a shareholder incurring any such loss is limited to the remote circumstances in which Oppenheimer Fund is unable to meet its obligations. For further information about the shares of Oppenheimer Fund, see "How the Fund is Managed" in the Oppenheimer Fund current Prospectus and Oppenheimer Fund Additional Statement. JP Fund is a North Carolina corporation with 100,000,000 shares of common stock, par value $1.00 per share, authorized, which shares are divided initially into two classes, consisting of 50,000,000 shares of Class A and 50,000,000 shares of Class B. JP Fund and its shareholders are governed by its Articles of Incorporation and By-Laws and by the NCBCA. The shares of common stock issued and outstanding on the date Class B shares are first issued will be reclassified as Class A; no Class B shares have been issued as of the date hereof. Each share entitles the holder to participate equally in dividends and distributions declared by JP Fund and in its remaining net assets on liquidation after satisfaction of outstanding liabilities. JP Fund shares are fully paid and nonassessable when issued; have no preemptive or conversion rights; are transferable without restriction; and are redeemable at net asset value. On matters submitted for a shareholder vote, each shareholder is entitled to one vote for each share owned. Fractional shares have proportionately the same rights as do full shares. Oppenheimer Fund is not required to hold, and does not plan to hold, regular annual meetings of shareholders. In contrast, JP Fund is required to hold an annual meeting of shareholders each year or in lieu thereof, a special meeting of shareholders. Dividends, Distributions and Taxes. The Trust intends to declare dividends on Oppenheimer Fund shares from net investment income quarterly, payable in March, June, September and December. Any net long-term and short-term capital gains may be distributed by Oppenheimer Fund annually in December and supplemental distributions of capital gains and ordinary income may be made following the end of Oppenheimer Fund's fiscal year. JP Fund's policy is to pay dividends from net investment income quarterly in February, May, August, and November. Each December each fund makes a distribution of the capital gains, if any, realized during the 12-month period ended the preceding October 31. For a discussion of the policies of Oppenheimer Fund and JP Fund with respect to dividends and distributions, and a discussion of the tax consequences of an investment in Oppenheimer Fund and JP Fund, see as to Oppenheimer Fund "Dividends, Capital Gains and Taxes" in the Oppenheimer Fund current Prospectus and as to JP Fund "Dividends, Distribution and Taxes" in the JP Fund current Prospectus. For a discussion of the tax consequences of an investment in Account A, see "Federal Tax Status" in the Account A prospectus. Purchases and Redemptions of Shares. Information on purchases, exchanges, and redemptions of shares of Oppenheimer Fund and JP Fund is provided under "Synopsis -- Purchases and Redemptions" in this Proxy Statement and Prospectus. For an additional discussion of how shares of Oppenheimer Fund and JP Fund may be purchased and redeemed see, as to Oppenheimer Fund, "How to Buy Shares," and "How to Sell Shares," in the Trust's current Prospectus and the Trust Statement of Additional Information and, as to JP Fund, "How to Purchase Shares," and "How to Redeem Shares" in JP Fund's current Prospectus. Shareholder Inquiries. For a description of how shareholder inquiries should be made, see, as to Oppenheimer Fund, "How the Funds are Managed" in the Trust's current Prospectus and, as to JP Fund, the back cover page of the JP Fund current Prospectus. The Board of Directors recommends that shareholders approve the Reorganization Agreement. ELECTION OF DIRECTORS (Proposal 2) The Board of Directors of JP Fund recommends that shareholders elect the following nominees to serve as the 5 directors of the full Board of directors of JP Fund: John C. Ingram, J. Lee Lloyd, Richard W. McEnally, William E. Moran and E.J. Yelton. Each of the nominees is presently a Director of JP Fund and has been previously elected by shareholders of JP Fund. If elected, the directors will serve until the earlier of the dissolution of JP Fund or the next shareholder meeting called for the purpose of electing directors, or until the election and qualification of their successors. If the enclosed voting instruction is duly executed and received in time for the Meeting, and if no contrary specification is made as provided therein, it will be voted in favor of the election as directors of the foregoing nominees. If any nominee should be unwilling or unable to serve, which is not now anticipated, the Proxy may be voted with discretionary authority for a substitute or substitutes as shall be designated by the Board of Directors. Certain information concerning the directors and executive officers of JP Fund is set forth below. Information Concerning the Board JP Fund's current Board of directors consists of 5 directors, all of whom are elected at annual meetings. The Board of directors does not have a standing audit, nominating or compensation committee. The following list of JP Fund's directors and executive officers, all of whom are also directors and/or officers of JP Capital Appreciation Fund, Inc., Jefferson-Pilot Investment Grade Bond Fund, Inc. and Jefferson-Pilot Capital Appreciation Fund, Inc. (collectively with JP Fund, the "Jefferson-Pilot Funds") includes information as to their principal occupations during the past five years and their principal affiliations.
Name and Other Position/Office Principal Occupation(s) Officer or Information with JP Fund During the Past 5 Years Director Since John C. Ingram* Director Senior Vice President, 1989 3802 Woodcote Dr. JPLIC since November 1988. Greensboro, N.C. Age-52 J. Lee Lloyd Director Managing Director, Lloyd & Company 1994 16 Irving Park Lane since April 1991. Greensboro, NC 27455 Age-36 Richard W. McEnally Director Professor of Investment Banking, 1984 401 Brookside Drive University of North Carolina at Chapel Hill, NC at Chapel Hill. Age-54 William E. Moran Director Senior Vice President, Connors 1983 5206 Barnfield Road Investor Service, Inc. Greensboro, NC since January 1995; prior thereto, Chancellor Age-64 University of North Carolina at Greensboro. W. Hardee Mills, Jr. Vice President Vice President of JPLIC 1987 5 St. Francis Court since February 1994; prior Greensboro, NC 27408 thereto, Second Vice President, Age-46 JPLIC. J. Gregory Poole Secretary Assistant Secretary of JPC and 1994 1805 Gate Post Drive Associate Counsel and Assistant Greensboro, NC 27455 Secretary of JPLIC since February Age-32 1994; prior thereto, various positions at JPC and JPLIC. E.J. Yelton* Director, Senior Vice President - Investments 1994 3204 St. Regis Road President, of JPC and Executive Vice President Greensboro, NC 27408 Treasurer - Investments of JPLIC since October Age-57 1993; prior thereto, President and CEO, ING North America Investment Centre/Member of ING Group (investment banking firm).
* Messrs. Ingram and Yelton are directors that are "interested persons" (as that term is defined in the 1940 Act) of JP Fund due to the following positions with JPM and JPC: Mr. Ingram -Senior Vice President, Treasurer and Director of JPM, and Mr. Yelton - President and Director, JPM and Senior Vice President - Investments, JPC. The nominees for directors are beneficial owners of the following shares in JPC, the parent of JP Fund's investment adviser: Yelton, _____; Ingram, ______; Moran, ____; Lloyd, ____; and McEnally, ____. During the period January 1, 1995 to December 31, 1995, the Directors of JP Fund purchased and/or sold shares of JPM, JPC and subsidiaries of JPC as follows: [identify only if securities purchased/sold exceed 1% of outstanding shares of entity] Officers of JP Fund The following officers of JP Fund also serve as officers and/or directors of JPM and JPIS: E.J. Yelton, President and Treasurer of JP Fund, is President and a Director of JPM and a Director of JPIS; W. Hardee Mills, Jr., Vice President of JP Fund, is Vice President of JPM and J. Gregory Poole, Secretary of JP Fund, is Secretary of JPIS and JPM. Messrs. Yelton, Poole and Mills hold positions with the other Jefferson-Pilot Funds similar to the positions held with JP Fund. The other Jefferson-Pilot Funds have the same investment adviser as JP Fund. The following table provides information regarding the compensation each nominee for director was paid by JP Fund and the other Jefferson- Pilot Funds for the year ended December 31, 1995. COMPENSATION TABLE
(1) (2) (3) (4) (5) Total Compensation Name of Aggregate Pension or Retirement Estimated Annual From Jefferson- Person, Compensation Benefits Accrued as Benefits upon Pilot Position from JP Fund Part of JP Fund Expenses Retirement______ Funds John C. Ingram $0 $0 $0 $0 Director J. Lee Lloyd 1,220 0 0 4,880 Director Richard W. McEnally 1,220 0 0 4,880 Director William E. Moran 1,220 0 0 4,880 Director E.J. Yelton 0 0 0 0 Director, President, Treasurer
Other Information The Board of Directors met five items during the fiscal year ended December 31, 1995 and all of the Directors were present for at least 75% of those meetings. During the year ended December 31, 1995, directors who are not employed by JP Fund or its affiliates received a $100 director's fee for each meeting attended, amounting to an aggregate of $500. In addition, each of the Independent Directors receives a fee of $720 per year payable in equal monthly installments. As of the Record Date, JP Fund's directors and officers owned Account A contracts holding JP Fund shares the amounts indicated: John C. Ingram,______ shares; J. Lee Lloyd, None; Richard W. McEnally, _____ shares; William E. Moran, ______shares; E.J. Yelton, ______shares; W. Hardee Mills, Jr., None; J. Gregory Poole, _______shares; and all directors and officers as a group,_____shares. The percentage of shares beneficially owned by each such individual, and all directors and officers as a group, did not exceed 1% of JP Fund's outstanding shares. JP Fund's investment adviser and transfer agent is JPM, P.O. Box 21008, Greensboro, North Carolina 27420, a North Carolina corporation organized on January 13, 1970. JPM is a wholly-owned subsidiary of JPC, an insurance holding company. JPM presently serves the other Jefferson-Pilot Funds in these capacities as well. Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, MO 64105-1716 (phone: 1-800-292-6701) serves as JP Fund's custodian. RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT AUDITORS (Proposal 3) The Board of Directors of JP Fund recommends that the shareholders ratify the selection of McGladrey & Pullen LLP ("McGladrey & Pullen"), Certified Public Accountants, to continue to serve as the independent auditors of JP Fund for the fiscal year ending December 31, 1996. That firm or its predecessor has served as JP Fund's independent auditors from the time of JP Fund's incorporation on July 19, 1982. JP Fund has been advised by McGladrey & Pullen that neither the said firm nor any of its members have a direct or indirect financial interest in JP Fund. McGladrey & Pullen also serves as independent auditors for JPM. INFORMATION CONCERNING THE MEETING The Meeting The Meeting will be held at the Jefferson-Pilot Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina 27420, at 10:00 A.M., local time, on December 3, 1996. At the Meeting, JP Fund shareholders will be asked to consider and vote upon approval or disapproval of the Reorganization Agreement, and the transactions contemplated thereby, including the transfer of substantially all the assets of JP Fund to Oppenheimer Fund in exchange for shares of Oppenheimer Fund, the distribution by JP Fund of such shares to its shareholders in liquidation of JP Fund and the cancellation of the outstanding shares of JP Fund. At the meeting, shareholders of JP Fund will also be asked to elect five Directors and ratify or reject the selection of independent accountants. Record Date; Vote Required; Share Information The Board has fixed the close of business on October 10, 1996 as the Record Date for the determination of shareholders entitled to notice of, and to vote at, the Meeting. The affirmative vote of a majority of the JP Fund shares entitled to vote at the Meeting is required for approval of Proposal 1. The affirmative vote of a majority of JP Fund shares voted (in person or by proxy) at the Meeting, if a quorum is present at the Meeting, is required to approve Proposal 3. A plurality of all the votes cast at the Meeting, if a quorum is present at the Meeting, is sufficient to elect the nominees for director (Proposal 2). JPLIC will be entitled to one vote for each share and a fractional vote for each fractional share held of record at the close of business on the Record Date. Only JP Fund shareholders will vote on the Reorganization and the other Proposals. The vote of shareholders of Oppenheimer Fund is not being solicited. At the close of business on the Record Date, there were approximately _________ shares of JP Fund issued and outstanding. The presence in person or by proxy of the holders of one-third of JP Fund's shares constitutes a quorum for the transaction of business at the Meeting. As of the Record Date, JPLIC owned of record all of JP Fund's outstanding shares; the beneficial owners of all of JP Fund's outstanding shares with the exception of less than 1% beneficially owned by JPLIC are the owners of variable contracts issued by JPLIC through Account A. To the knowledge of JP Fund, as of the Record Date, none of such beneficial owners owned beneficially 5% or more of the outstanding JP Fund shares. As of the Record Date, the holders of all of the outstanding shares of Oppenheimer Fund were separate accounts of (i) The Life Insurance Company of Virginia, Richmond, VA which owned _____________ shares; (ii) Nationwide Life Insurance Company, Columbus, OH which owned ______________ shares; and (iii) Aetna Life Insurance and Annuity Company, Hartford, CT which owned _____________ shares. In the event a quorum does not exist on the date originally scheduled for the Meeting, or, subject to approval of the Board, for other reasons, one or more adjournments of the Meeting may be sought by the Board. Voting Instructions JPLIC is the sole record holder and JPLIC and Account A of JPLIC are the only beneficial shareholders of JP Fund. JPLIC will vote the shares of JP Fund at the Meeting in accordance with the timely instructions received from persons entitled to give voting instructions under variable contracts. JPLIC will vote shares attributable to variable contracts as to which no voting instructions are received in proportion (for, against or abstain) to those which instructions are received. JPLIC also will vote shares not attributable to variable contracts (i.e., representing seed money investments in JP Fund made by JPLIC) in proportion to those for which instructions are received from owners. If a Voting Instruction Form is received that does not specify a choice, JPLIC will consider its timely receipt as an instruction to vote in favor of the proposal(s) to which it relates. Variable contract owners may revoke voting instructions given to JPLIC at any time prior to the Meeting by notifying the Secretary of JP Fund in writing. Costs of the Solicitation and the Reorganization All expenses of this solicitation, including the cost of printing and mailing this Proxy Statement and Prospectus, will be borne by OFI and JPM. Similarly, any costs associated with documents included in that mailing, such as existing prospectuses or annual reports, will be borne by OFI and JPM. In addition to the solicitation of proxies by mail, proxies may be solicited by officers and employees of JPM or JPM affiliates, personally or by telephone or telecopy. In addition to the proxy solicitation expenses (as described above), OFI and JPM will bear the cost of the tax opinion, as well as any other expenses associated with the Reorganization, including legal and accounting expenses. MISCELLANEOUS Financial Information The Reorganization will be accounted for by Oppenheimer Fund in its financial statements similar to a pooling without restatement. Further financial information as to JP Fund is contained in JP Fund's current Prospectus, which is available without charge upon written request to JPIS at P.O. Box 22086, Greensboro, North Carolina 27420, and in its audited financial statements as of December 31, 1995, which are included in the JP Fund Additional Statement. Financial information for Oppenheimer Fund is contained in its current Prospectus accompanying this Proxy Statement and Prospectus and incorporated herein as to information with respect to Oppenheimer Fund, and in its audited financial statements as of December 31, 1995, which are included in the Trust Additional Statement. Public Information Additional information about Oppenheimer Fund and JP Fund is available, as applicable, in the following documents: (1) the Trust's Prospectus dated May 1, 1996, accompanying this Proxy Statement and Prospectus and incorporated by reference herein as to information with respect to Oppenheimer Fund, (2) JP Fund Prospectus dated May 1, 1996, which may be obtained without charge by writing to JPM at the address indicated above; (3) the Trust's Annual Report as of December 31, 1995 and Semi- Annual Report as of June 30, 1996, which may be obtained without charge by writing to OFS at the address on the cover of this Proxy Statement and Prospectus; and (4) JP Fund's Annual Report as of December 31, 1995 and Semi-Annual Report as June 30, 1996, which may be obtained without charge by writing to JPM at the address indicated above. All of the foregoing documents may be obtained by calling the toll-free number for Oppenheimer Fund and JP Fund, as applicable, on the cover of this Proxy Statement and Prospectus. Additional information about the following matters is contained in the Reorganization Additional Statement, which is incorporated herein by reference and includes Oppenheimer Fund's Additional Statement, the JP Fund Prospectus dated May 1, 1996, the JP Fund Additional Statement and the Annual Reports and Semi-Annual Reports described in the preceding paragraph: the organization and operation of Oppenheimer Fund and JP Fund; more information on investment policies, practices and risks; information about the Board of Trustees of the Trust and the Board of Directors of JP Fund, and their responsibilities; a further description of the services provided by Oppenheimer Fund's and JP Fund's respective investment adviser, and transfer and shareholder servicing agent; dividend policies; tax matters; and an explanation of the method of determining the offering price of the shares of Oppenheimer Fund and JP Fund. The Reorganization Additional Statement may be obtained by calling 1-800-525-7048 (a toll free number). Oppenheimer Fund and JP Fund are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, file reports and other information with the SEC. Proxy material, reports and other information about Oppenheimer Fund and JP Fund which are of public record can be inspected and copied at public reference facilities maintained by the SEC in Washington, D.C. and certain of its regional offices, and copies of such materials can be obtained at prescribed rates from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, Washington, D.C. 20549. SHAREHOLDER PROPOSALS Any shareholder who wishes to present a proposal for action at the next annual meeting of shareholders of JP Fund (if one is held) and who wishes to have it set forth in a proxy statement and identified in the form of proxy prepared by JP Fund must notify JP Fund in such a manner so that such notice is received by JP Fund by ___________, and in such form as is required under the rules and regulations promulgated by the SEC. OTHER BUSINESS Management of JP Fund knows of no business other than the matters specified above which will be presented at the Meeting. Since matters not known at the time of the solicitation may come before the Meeting, the proxy as solicited confers discretionary authority with respect to such matters as properly come before the Meeting, and it is the intention of the persons named as attorneys-in-fact in the proxy to vote this proxy in accordance with their judgment on such matters if no voting instructions are provided. By Order of the Board of Directors J. Gregory Poole, Secretary October __, 1996 EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of ________________, 1996 by and between JP Investment Grade Bond Fund, Inc. ("JP Fund"), a North Carolina corporation, Oppenheimer Variable Account Funds (the "Oppenheimer Trust"), a Massachusetts business trust, on behalf of its series Oppenheimer Bond Fund ("Oppenheimer Fund"), and (solely for purposes of Section 21 of this Agreement) Jefferson-Pilot Corporation ("JPC"), a North Carolina corporation, and OppenheimerFunds, Inc. ("OFI"), a Colorado corporation. W I T N E S S E T H: WHEREAS, JP Fund and Oppenheimer Fund are each open-end investment companies of the management type; and WHEREAS, JP Fund and Oppenheimer Fund desire to provide for the reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), of JP Fund through the acquisition by Oppenheimer Fund of substantially all of the assets of JP Fund in exchange solely for voting shares of beneficial interest ("shares") of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain liabilities of JP Fund, which shares of Oppenheimer Fund are thereafter to be distributed by JP Fund pro rata to its shareholders in complete liquidation of JP Fund and complete cancellation of its shares; NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties hereto agree as follows: 1. JP Fund and Oppenheimer Fund hereby adopt this Agreement and Plan of Reorganization (the "Agreement") pursuant to Section 368(a)(1) of the Code as follows: The reorganization will be comprised of the acquisition by Oppenheimer Fund of substantially all of the assets of JP Fund in exchange for the issuance of shares of Oppenheimer Fund to JP Fund and the assumption by Oppenheimer Fund of certain liabilities of JP Fund, followed by the distribution by JP Fund of such shares of Oppenheimer Fund to the shareholders of JP Fund in exchange for their shares of JP Fund, all upon and subject to the terms hereinafter set forth. 2. On the Closing Date (as hereinafter defined) (i) JP Fund shall transfer and deliver (or cause to be so transferred and delivered) to Oppenheimer Fund, free and clear of all liens, encumbrances, restrictions and claims (other than Assumed Liabilities (as hereinafter defined)), the assets of JP Fund including but not limited to portfolio securities, cash (excluding the Cash Reserve as defined below), cash equivalents and receivables as the same shall exist on that date (the "Assets") and (ii) Oppenheimer Fund shall deliver to JP Fund (in accordance with Section 5 hereof) in exchange therefor, the shares of Oppenheimer Fund to be issued hereunder. The Assets shall exclude a cash reserve (the "Cash Reserve") which shall be retained by JP Fund for the payment by it in respect of the Liabilities (as hereinafter defined) of JP Fund, if any, and which Cash Reserve shall not exceed the amount contemplated by Section 10E. The aggregate number of shares of Oppenheimer Fund to be delivered by Oppenheimer Fund at the Closing (as hereinafter defined) shall be such number as shall have, as of the Valuation Date, an aggregate net asset value equal to the value of the Assets so transferred and delivered. Such Oppenheimer Fund shares shall be issued without the imposition of any sales charge or load. Oppenheimer Fund agrees that, if the reorganization becomes effective, Oppenheimer Fund will treat each shareholder of JP Fund who received any of Oppenheimer Fund's shares as a result of the reorganization as having made the minimum initial purchase of shares of Oppenheimer Fund received by such shareholder for the purpose of making additional investments in shares of Oppenheimer Fund, regardless of the value of the shares of Oppenheimer Fund received. Promptly following the execution of the Agreement, JP Fund shall provide Oppenheimer Fund with a list of the Assets including, as to portfolio securities, a description thereof, units held and their value, as of the most reasonably practicable date. 3. The net asset value of shares of Oppenheimer Fund and the value of the Assets shall in each case be determined as of the close of business of The New York Stock Exchange on the business day immediately preceding the Closing Date (the "Valuation Date"). The foregoing valuations shall be prepared using the procedures set forth in Oppenheimer Fund's then current prospectus and statement of additional information and shall be computed in accordance with the regular practice and pricing services utilized by OppenheimerFunds, Inc. in pricing the Oppenheimer Fund. In accordance with the foregoing, Oppenheimer Fund and JP Fund shall each respectively prepare a report setting forth, as of the Valuation Date, its respective total net assets, the number of its shares outstanding, the net asset value of Oppenheimer Fund shares or the net asset value of JP Fund shares, respectively, and as to each of its portfolio securities, the cusip or ticket number, description thereof, units held and value determined as aforesaid (the "Valuation Report"). A Valuation Report shall be delivered by each of Oppenheimer Fund and JP Fund to the other on the Closing Date. JP Fund shall declare and pay, immediately prior to the Valuation Date, a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to JP Fund's shareholders all of JP Fund's investment company taxable income for taxable years ending on or prior to the Closing Date (computed without regard to any dividends paid) and all of its net capital gain, if any, realized in taxable years ending on or prior to the Closing Date (after reduction for any capital loss carry-forward). 4. The closing of the transactions contemplated herein (the "Closing") shall be at the office of OppenheimerFunds, Inc., Two World Trade Center, Suite 3400, New York, New York 10048, at the date and time of the closing of the acquisition contemplated by that certain Acquisition Agreement (the "Acquisition Agreement") dated [the date of the Agreement] by and among OppenheimerFunds, Inc., JP Investment Management Company, Jefferson-Pilot Life Insurance Company and Jefferson-Pilot Corporation (or such other date, time and place as JP Fund and Oppenheimer Fund may otherwise designate) (the "Closing Date"). In the event that on the Valuation Date either party has, pursuant to the Investment Company Act of 1940, as amended (the "1940 Act"), or any rule, regulation or order thereunder, suspended the redemption of its shares or postponed payment therefor, the Closing Date shall be postponed until the first business day after the date when JP Fund and Oppenheimer Fund have ceased such suspension or postponement; provided, however, that if such suspension shall continue for a period of 60 days beyond the Valuation Date, then the other party to the Agreement shall be permitted to terminate the Agreement as set forth in Section 20. 5. Shares of Oppenheimer Fund representing the number of shares of Oppenheimer Fund being delivered against the Assets, registered in the name of JP Fund, shall be transferred to JP Fund on the Closing Date. In connection with the Closing, JP Fund shall distribute on a pro rata basis to the shareholders of JP Fund on the Valuation Date the shares of Oppenheimer Fund received by JP Fund on the Closing Date in exchange for the Assets in complete liquidation of JP Fund; for the purpose of the distribution by JP Fund of shares of Oppenheimer Fund to its shareholders, Oppenheimer Fund will promptly cause its transfer agent to: (a) credit an appropriate number of shares of Oppenheimer Fund on the books of Oppenheimer Fund to each shareholder of JP Fund in accordance with a list (the "Shareholder List") of JP Fund shareholders received from JP Fund; and (b) confirm an appropriate number of shares of Oppenheimer Fund to each shareholder of JP Fund; certificates for shares of Oppenheimer Fund will be issued upon written request of a former shareholder of JP Fund and surrender of the JP Fund certificates but only for whole shares, with fractional shares credited to the name of the shareholder on the books of Oppenheimer Fund. JP Fund covenants and agrees to cause the cancellation of all of its outstanding shares upon the Closing. The Shareholder List shall be certified by the Secretary of JP Fund and by an authorized signatory of Investors Fiduciary Trust Company, JP Fund's transfer agent, and shall indicate, as of the Valuation Date, the name, address and taxpayer identification number of each shareholder of JP Fund, indicating his or her share balance. JP Fund agrees to supply the Shareholder List to Oppenheimer Fund not later than the Closing Date in such form (including computer diskette) as Oppenheimer Fund shall request. JP Fund further agrees to deliver to Oppenheimer Fund or its designee (i) on or before the Closing Date all such other information and documents available to JP Fund relating to such shareholders as may be necessary for Oppenheimer Fund and its designee to perform all necessary shareholder accounting, communication and related services subsequent to the Closing and (ii) as soon as practicable after the Closing all original documentation (including Internal Revenue Service forms, certificates and correspondence) relating to the taxpayer identification numbers of JP Fund shareholders on the Shareholder List and their liability for or exemption from backup withholding. Shareholders of JP Fund holding certificates representing their shares shall not be required to surrender their certificates to anyone in connection with the reorganization. After the Closing Date, however, it will be necessary for such shareholders to surrender their certificates in order to redeem, transfer, exchange or pledge the shares of Oppenheimer Fund which they received. The share transfer books of JP Fund will be permanently closed as of the Valuation Date and only redemption requests received in proper form on or prior to the Valuation Date shall be fulfilled by JP Fund; redemption requests received by JP Fund after that date shall be treated as requests for the redemption of the shares of Oppenheimer Fund that shall have been distributed to the shareholder in question as set forth in this Section 5. 6. Within one year after the Closing Date, JP Fund shall (a) either pay or make provision for payment of all of its Liabilities (other than Assumed Liabilities) and (b) either (i) transfer any remaining amount of the Cash Reserve to Oppenheimer Fund, if such remaining amount (as reduced by the estimated cost of distributing it to shareholders) is not material (as defined below) or (ii) distribute such remaining amount to the shareholders of JP Fund on the Valuation Date. Such remaining amount shall be deemed to be material if the amount to be distributed, after deduction of the estimated expenses of the distribution, equals or exceeds one cent per share of JP Fund outstanding on the Valuation Date. 7. Prior to the Closing Date, there shall be coordination between JP Fund and Oppenheimer Fund as to their respective portfolios so that, after the Closing, Oppenheimer Fund will not hold assets inconsistent with its investment objectives and will be in compliance with all of its investment policies and restrictions. 8. Portfolio securities or written evidence acceptable to Oppenheimer Fund of record ownership thereof by The Depository Trust Company or through the Federal Reserve Book Entry System or any other depository approved by JP Fund pursuant to Rule 17f-4 and Rule 17f-5 under the 1940 Act shall be endorsed and delivered, or transferred by appropriate transfer or assignment documents, by JP Fund on the Closing Date to Oppenheimer Fund, or at its direction, to Oppenheimer Fund's custodian bank, in proper form for transfer in such condition as to constitute good delivery thereof in accordance with the custom of brokers and shall be accompanied by all necessary state transfer stamps, if any. The cash of JP Fund shall be delivered on the Closing Date to Oppenheimer Fund by bank wire or inter-bank transfer of immediately available funds to Oppenheimer Fund's custodian bank payable to the order of Oppenheimer Fund for the account of Oppenheimer Fund. If, at the Closing Date, JP Fund is unable to make delivery under this Section 8 to Oppenheimer Fund of any of its portfolio securities or cash for the reason that any of such securities purchased by JP Fund, or the cash proceeds of a sale of portfolio securities, prior to the Closing Date have not yet been delivered in the ordinary course of business to it or JP Fund's custodian, then the delivery requirements of this Section 8 with respect to said undelivered securities or cash will be waived and JP Fund will deliver to Oppenheimer Fund by or on the Closing Date and with respect to said undelivered securities or cash executed copies of an agreement or agreements of assignment as to such securities or cash proceeds in a form reasonably satisfactory to Oppenheimer Fund, together with such other documents, including a due bill or due bills and brokers' confirmation slips as may reasonably be required by Oppenheimer Fund. 9. Oppenheimer Fund shall not assume and shall not otherwise be responsible for any liabilities (except the obligations, if any, to pay the purchase price of portfolio securities purchased by JP Fund which have not settled in the ordinary course of business ("Assumed Liabilities")), taxes, obligations, expenses, contracts, claims, commitments, agreements and arrangements relating to (i) the Assets or (ii) JP Fund, its predecessors, affiliates, directors, officers, employees and agents, in each case whether fixed, contingent, accrued or otherwise ("Liabilities"). JP Fund expressly agrees to remain liable for and discharge all its Liabilities whether incurred prior to or subsequent to the Closing Date. With respect to any expenses applicable to, or incurred by JP Fund and Oppenheimer Fund hereto in connection with entering into and carrying out the provisions of the Agreement ("Expenses"), including legal, accounting and registration fees and Blue Sky expenses and expenses of the proxy solicitation, including the cost of printing and mailing the Proxy Statement and Prospectus (as hereinafter defined) and related proxy materials, it is hereby agreed that except as otherwise provided in Section 20 of the Agreement, the respective investment adviser for Oppenheimer Fund and JP Fund shall reimburse the Fund for which it acts as investment adviser for such Fund's Expenses and, as to the rights and obligations of said investment advisers inter se, the terms of the Acquisition Agreement shall govern. It is understood and acknowledged that in no event shall JP Fund or Oppenheimer Fund be liable for the payment of any Expenses. 10. As soon as practicable after it fulfills its obligations set forth in Section 6 hereof, JP Fund shall file Articles of Dissolution with the North Carolina Secretary of State (the "Department") and shall file an application for an order of the Securities and Exchange Commission ("SEC") pursuant to Section 8(f) of the 1940 Act, declaring that it has ceased to be an investment company, and shall take, in accordance with North Carolina law and the 1940 Act, all such other actions as may be necessary or appropriate to effect a complete liquidation and dissolution of JP Fund and to deregister JP Fund under the 1940 Act. 11. Any reporting, filing or other obligation of JP Fund under the federal securities laws and state laws shall remain the responsibility of JP Fund until it is deregistered under the 1940 Act or liquidated and dissolved, respectively. 12. The obligations of Oppenheimer Fund hereunder shall be subject to the following conditions: A. The shareholders of JP Fund shall have approved the Agreement and the transactions contemplated herein; such shareholder approval shall have been by the affirmative vote of a majority of the outstanding voting shares of JP Fund in conformity with the provisions of the North Carolina Business Corporation Act ("NCBCA") at a meeting for which proxies have been solicited by the Proxy Statement and Prospectus (as hereinafter defined); and JP Fund shall have furnished to Oppenheimer Fund copies of resolutions with respect to each of the foregoing and copies of resolutions of the Board of Directors of JP Fund with respect to approvals of the Agreement and the transactions contemplated herein, in each case certified by the Secretary or an Assistant Secretary of JP Fund. B. Oppenheimer Fund shall have received an opinion of counsel to JP Fund dated the Closing Date, to the effect that: (i) JP Fund is a corporation duly incorporated, validly existing and in good standing under the laws of the State of North Carolina with full powers to carry on its business as described by its charter and then being conducted and to enter into and perform the Agreement (North Carolina counsel may be relied upon in delivering such opinion); (ii) all action necessary to make the Agreement, according to its terms, valid, binding and enforceable on JP Fund and to authorize effectively the transactions contemplated by the Agreement have been taken by JP Fund; (iii) the Agreement has been duly authorized, executed and delivered by JP Fund and, assuming due authorization, execution and delivery of the Agreement by Oppenheimer Trust, constitutes a valid and binding obligation of JP Fund, enforceable against JP Fund in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity (the "Bankruptcy Exception")); and (iv) the execution and delivery of the Agreement does not, and the consummation of the transactions contemplated by the Agreement will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under (a) the Certificate of Incorporation or By-Laws of JP Fund, (b) any loan, credit agreement, note, bond, mortgage, indenture, lease or contract applicable to JP Fund, its assets and properties (other than any such conflicts, violations or defaults that individually or in the aggregate would not have a material adverse effect on JP Fund or prevent consummation of the transactions contemplated hereby), or (c) any judgment, order or decree to which JP Fund is subject or any state or federal law or regulation applicable to JP Fund or its assets and properties. C. The representations and warranties of JP Fund contained herein shall be true and correct at and as of the Closing Date (with all representations and warranties that were made as of the date of the Agreement or as of another date being made again as of the Closing Date) and JP Fund shall have performed, in all material respects, each of the covenants required to be performed by JP Fund at or prior to Closing, and Oppenheimer Fund shall have been furnished with a certificate of the President, or a Vice President, or the Secretary or the Assistant Secretary or the Treasurer of JP Fund, dated the Closing Date, to that effect. D. On the Closing Date, JP Fund shall have furnished to Oppenheimer Fund a certificate of the Treasurer or Assistant Treasurer of JP Fund as to the amount of the capital loss carry-over, if any, and net unrealized appreciation or depreciation, if any, with respect to JP Fund as of the Closing Date. E. The Cash Reserve shall not exceed 1% of the value of the net assets, nor 10% in value of the gross assets, of JP Fund at the close of business on the Valuation Date. F. A Registration Statement on Form N-14 (the "N-14 Registration Statement") filed by Oppenheimer Trust under the Securities Act of 1933, as amended (the "1933 Act"), containing a preliminary form of the proxy statement and prospectus required under the 1940 Act to request the approval of shareholders of JP Fund of the reorganization contemplated in the Agreement, shall have become effective under the 1933 Act not later than _________________, 1996. G. On the Closing Date, Oppenheimer Fund shall have received a letter of a senior executive officer of JP Investment Management Company (JP Fund's investment adviser) in form acceptable to Oppenheimer Fund, stating that between the date of the Agreement and the Closing Date there has been no material adverse change in the Assets, the operations or the financial condition of JP Fund (it being understood that a decrease in the size of JP Fund due to a diminution in the value of its portfolio and/or redemption of its shares shall not be considered a material adverse change) and that nothing has come to his or her attention which would indicate that as of the Closing Date there were any Liabilities of JP Fund not fully covered by the Cash Reserve or expected not to be so covered or pending or threatened claims, actions, suits, proceedings or investigations with respect to or affecting JP Fund, or any director, officer, employee or agent of JP Fund. H. Oppenheimer Fund shall have received an opinion, dated the Closing Date, of Sutherland, Asbill & Brennan, to the same effect as the opinion contemplated by Section i of the Agreement. I. Except as otherwise provided in the last paragraph of Section 8, Oppenheimer Fund shall have received at the Closing all of the Assets to be conveyed hereunder, free and clear of all liens, encumbrances, security interests, restrictions and limitations whatsoever except the Assumed Liabilities. J. At or prior to the Closing Date, JP Fund shall have delivered to Oppenheimer Fund two copies of a list setting forth the securities, cash and receivables then owned by JP Fund and the respective federal income tax bases thereof. 13. The obligations of JP Fund hereunder shall be subject to the following conditions: A. Oppenheimer Fund shall have furnished to JP Fund copies of resolutions of the Board of Trustees of Oppenheimer Trust with respect to approvals of the Agreement and the transactions contemplated herein certified by the Secretary or an Assistant Secretary of Oppenheimer Trust. B. JP Fund's shareholders shall have approved the Agreement and the transactions contemplated hereby, by an affirmative vote of a majority of the outstanding voting shares of JP Fund. C. JP Fund shall have received an opinion of counsel to Oppenheimer Fund dated the Closing Date, to the effect that (i) Oppenheimer Fund is a series of Oppenheimer Trust, a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts with full powers to carry on its business as then being conducted and to enter into and perform the Agreement (Massachusetts counsel may be relied upon in delivering such opinion); (ii) all action necessary to make the Agreement, according to its terms, valid, binding and enforceable upon Oppenheimer Trust and to authorize effectively the transactions contemplated by the Agreement have been taken by Oppenheimer Trust; (iii) the shares of Oppenheimer Fund to be issued hereunder are duly authorized and when issued as provided for herein will be validly issued, fully-paid and non-assessable, except as otherwise set forth on Schedule 13C hereto with respect to potential liability of shareholders of a Massachusetts business trust (Massachusetts counsel may be relied upon in delivering such opinion); (iv) the Agreement has been duly authorized, executed and delivered by Oppenheimer Trust on behalf of Oppenheimer Fund and, assuming due authorization, execution and delivery of the Agreement by JP Fund, constitutes a valid and binding obligation of Oppenheimer Trust, enforceable against Oppenheimer Trust in accordance with its terms, subject to the Bankruptcy Exception and (v) the execution and delivery of the Agreement does not, and consummation of the transactions contemplated by the Agreement will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under: (a) the Declaration of Trust or By-Laws of Oppenheimer Trust, (b) any loan, credit agreement, note, bond, mortgage, indenture, lease, or contract applicable to Oppenheimer Fund, its assets and properties (other than any such conflicts, violations or defaults that individually or in the aggregate would not have a material adverse effect on Oppenheimer Fund or prevent consummation of the transactions contemplated hereby), or (c) any judgment, order of decree to which Oppenheimer Fund is subject or any state or federal law or regulation applicable to Oppenheimer Fund or its assets and properties. D. The representations and warranties of Oppenheimer Trust on behalf of Oppenheimer Fund contained herein shall be true and correct at and as of the Closing Date (with all representations and warranties that were made as of the date of the Agreement or as of another date being made again as of the Closing Date), and Oppenheimer Trust shall have performed, in all material respects, each of the covenants required to be performed by Oppenheimer Trust at or prior to Closing, and JP Fund shall have been furnished with a certificate of the President, a Vice President or the Secretary or an Assistant Secretary or the Treasurer of Oppenheimer Trust to that effect dated the Closing Date. E. JP Fund shall have received an opinion of Sutherland, Asbill & Brennan to the effect that the Federal tax consequences of the transaction, if carried out in the manner outlined in the Agreement and in accordance with (i) JP Fund's representation that there is no plan or intention by any JP Fund shareholder who owns 5% or more of JP Fund's outstanding shares, and, to JP Fund's best knowledge, there is no plan or intention on the part of the remaining JP Fund shareholders, to redeem, sell, exchange or otherwise dispose of a number of Oppenheimer Fund shares received in the transaction that would reduce JP Fund shareholders' ownership of Oppenheimer Fund shares to a number of shares having a value, as of the Closing Date, of less than 50% of the value of all of the formerly outstanding JP Fund shares as of the same date, (ii) the representation that Oppenheimer Fund will acquire at least 90% of the fair market value of the net assets and at least 70% of the fair market value of the gross assets held by JP Fund immediately prior to the reorganization, (iii) the representation by each of JP Fund and Oppenheimer Fund that, as of the Closing Date, JP Fund and Oppenheimer Fund will qualify as regulated investment companies and will meet the diversification test of Section 368(a)(2)(F)(ii) of the Code, and (iv) such other representations as shall be made by each of JP Fund and Oppenheimer Fund to Sutherland, Asbill & Brennan and accompany or be set forth in the opinion, will generally be as follows: (a) The reorganization contemplated by the Agreement will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code and JP Fund and Oppenheimer Fund will each be a "party to the reorganization" within the meaning of Section 368(b) of the Code. (b) No gain or loss will be recognized by Oppenheimer Fund upon the receipt of the assets transferred to it by JP Fund in exchange for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain identified liabilities of JP Fund. (Section 1032) (c) No gain or loss will be recognized by JP Fund upon the transfer of its assets to Oppenheimer Fund in exchange solely for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain identified liabilities of JP Fund (if any) and the subsequent distribution by JP Fund of such shares to the shareholders of JP Fund. (Section 361) (d) No gain or loss will be recognized by JP Fund shareholders upon the exchange of the JP Fund shares solely for the shares of Oppenheimer Fund. (Section 354) (e) The basis of the shares of Oppenheimer Fund received by each JP Fund shareholder pursuant to the reorganization will be the same as the adjusted basis of that shareholder's JP Fund shares surrendered in exchange therefor. (Section 358) (f) The holding period of shares of Oppenheimer Fund to be received by each JP Fund shareholder will include the shareholder's holding period for the JP Fund shares surrendered in exchange therefor, provided such JP Fund shares were held as capital assets on the Closing Date. (Section 1223) (g) Oppenheimer Fund's basis for the assets transferred to it by JP Fund will be the same as JP Fund's tax basis for the assets immediately prior to the reorganization. (Section 362(b)) (h) Oppenheimer Fund's holding period for the transferred assets will include JP Fund's holding period therefor. (Section 1223) (i) Oppenheimer Fund will succeed to and take into account the items of JP Fund described in Section 381(c) of the Code, including the earnings and profits, or deficit in earnings and profits, of JP Fund as of the date of the transaction, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code. (j) No gain or loss will be recognized by the owners of variable contracts issued by Jefferson-Pilot Life Insurance Company through the variable account on the transfer of JP Fund's assets to Oppenheimer Fund in exchange solely for shares of Oppenheimer Fund and Oppenheimer Fund's assumption of certain JP Fund liabilities (if any) and the subsequent distribution by JP Fund of those shares to the variable account. Notwithstanding anything herein to the contrary, neither Oppenheimer Fund nor JP Fund may waive the material conditions set forth in this Section 13E although the actual wording of such opinion may differ to the extent agreed to by Oppenheimer Fund and JP Fund. F. The Cash Reserve shall not exceed 1% of the value of the net assets, nor 10% in value of the gross assets, of JP Fund at the close of business on the Valuation Date. G. The N-14 Registration Statement shall have become effective under the 1933 Act not later than ______________________, 1996. H. JP Fund shall acknowledge receipt of the shares of Oppenheimer Fund. I. On the Closing Date, JP Fund shall have received a letter of a senior officer of OFI in form acceptable to it, stating that between the date of the Agreement and the Closing Date there has been no material adverse change in the operations or financial condition of Oppenheimer Fund (it being understood that a decrease in the size of Oppenheimer Fund due to a diminution in the value of its portfolio and/or redemption of its shares shall not be considered a material adverse change) and that nothing has come to his or her attention that would indicate that as of the Closing Date there were any pending or threatened litigation or claims with respect to Oppenheimer Fund. 14. JP Fund hereby represents and warrants that: A. The financial statements of JP Fund as at December 31, 1995 (audited) and June 30, 1996 (unaudited) heretofore furnished to Oppenheimer Fund, present fairly the financial position, results of operations, and changes in net assets of JP Fund as of such dates, in conformity with generally accepted accounting principles applied on a basis consistent with the preceding year and six-month period; and that from December 31, 1995 through the date hereof there has not been any material adverse change in the Assets, the operations or financial condition of JP Fund, it being agreed that a decrease in the size of JP Fund due to a diminution in the value of its portfolio and/or redemption of its shares shall not be considered a material adverse change. B. JP Fund has good and valid title to the Assets, subject to no liens, security interests or other encumbrances, and contingent upon approval of the Agreement and the transactions contemplated hereby by JP Fund's shareholders, JP Fund has authority to transfer the Assets to be conveyed hereunder free and clear of all liens, encumbrances, security interests, restrictions and limitations whatsoever (excluding the Assumed Liabilities). C. The Prospectus of JP Fund dated May 1, 1996, as amended and supplemented on __________, 1996, and Statement of Additional Information of JP Fund dated May 1, 1996, contained in JP Fund's Registration Statement under the 1933 Act, as amended, are true, correct and complete, conform to the requirements of the 1933 Act and the 1940 Act and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Registration Statement of JP Fund, as amended, was, as of the date of the filing of the last Post-Effective Amendment, true, correct and complete, conformed to the requirements of the 1933 Act and the 1940 Act, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and was, as of its filing, and continues to be, in full force and effect. D. There is no material Liability of JP Fund in existence except as set forth in the financial statements of JP Fund as at December 31, 1995 and June 30, 1996 and as of such dates there were no Liabilities of JP Fund (contingent or otherwise) not disclosed therein that would be required in conformity with generally accepted accounting principles to be disclosed therein. No such material Liability of JP Fund has arisen since December 31, 1995 and June 30, 1996 except as set forth on Exhibit 14D hereto. There are no claims, actions, suits, proceedings or investigations pending or, to the knowledge of JP Fund, threatened by, against or involving JP Fund or any director, officer, employee, or agent of JP Fund. JP Fund knows of no facts that might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects, or is likely to materially and adversely affect, its business or its ability to consummate the transactions herein contemplated. E. There are no contracts, agreements or commitments in existence, whether written or oral, to which JP Fund (or a predecessor) is a party or has succeeded to a party by assumption or assignment or in which it has a beneficial interest other than the Agreement and those entered into by JP Fund in the ordinary conduct of its business and JP Fund has delivered or made available to Oppenheimer Fund, as to each such contract, agreement or other commitment, a true and complete copy or description thereof and as to any oral contract, agreement or other commitment, a true and complete description thereof. F. JP Fund is a corporation duly incorporated, validly existing and in good standing under the laws of the State of North Carolina, with the requisite corporate power and authority to enter into and perform the Agreement and, subject to approval of its shareholders, to consummate the transactions contemplated hereby; all corporate action necessary to make the Agreement, according to its terms, valid, binding and enforceable on JP Fund and to authorize the transactions contemplated by the Agreement, including without limitation necessary approvals of the Board of Directors of JP Fund, have been taken by JP Fund subject to approval of the Agreement by the shareholders of JP Fund; the Agreement has been duly executed and delivered by JP Fund and constitutes a valid and binding obligation of JP Fund, enforceable against JP Fund in accordance with its terms, subject to the approval of its shareholders and the Bankruptcy Exception; and the execution and delivery of the Agreement does not, and the consummation of the transactions contemplated by the Agreement will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under (a) the Certificate of Incorporation or By-Laws of JP Fund, or (b) any loan, credit agreement, note, bond, mortgage, indenture, lease or contract applicable to JP Fund, its assets and properties (other than any such conflicts, violations or defaults that individually or in the aggregate would not have a material adverse effect on JP Fund or prevent consummation of the transactions contemplated hereby), or (c) any judgment, order or decree to which JP Fund is subject or any state or federal law or regulation applicable to JP Fund or its assets and properties. G. All Federal and other tax returns and reports of JP Fund required by law to be filed have been filed, and all Federal and other taxes shown due on said returns and reports have been paid or provision shall have been made for the payment thereof and to the best of the knowledge of JP Fund no such return is currently under audit and no assessment has been asserted with respect to such returns and to the extent such tax returns with respect to the taxable year of JP Fund ended December 31, 1995 have not been filed, such returns will be filed when required and the amount of tax shown as due thereon shall be paid when due. There are no claims, levies, liabilities or amounts due for corporate, excise, income or other federal, state or local taxes outstanding or threatened against JP Fund (other than those reflected in its most recent audited financial statements) and to the best of JP Fund's knowledge there are no facts that might form the basis for such claims, levies, liabilities or amounts due. H. JP Fund has elected to be treated as a regulated investment company and, for each fiscal year of its operations, JP Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company and JP Fund intends to meet such requirements with respect to its current taxable year. I. All issued and outstanding shares of common stock of JP Fund, par value $1.00 per share, are, and at the Closing Date will be, duly authorized and validly issued and outstanding, fully paid and non- assessable with no personal liability attaching to the ownership thereof. All such shares will, at the time of Closing, be held by the persons or entities and in the amounts set forth on the Shareholder List submitted to Oppenheimer Fund pursuant to Section 5. There are no outstanding rights, options, warrants, conversion rights, preemptive rights or agreements with respect to shares of JP Fund. Set forth on Exhibit 14I hereto are the names, addresses and share ownership amounts of each shareholder of JP Fund that beneficially (as that term is defined pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) owns 1% or more of JP Fund's outstanding shares. J. The copies of the Certificate of Incorporation and By-laws of JP Fund, and all amendments thereto, previously delivered to Oppenheimer Fund are true, complete and correct. K. There is no plan or intention by any JP Fund shareholder who owns 5% or more of JP Fund's outstanding shares, and, to JP Fund's best knowledge, there is no plan or intention on the part of the remaining JP Fund shareholders, to redeem, sell, exchange or otherwise dispose of a number of Oppenheimer Fund shares received in the transaction that would reduce JP Fund shareholders' ownership of Oppenheimer Fund shares to a number of shares having a value, as of the Closing Date, of less than 50% of the value of all of the formerly outstanding JP Fund shares as of the same date. With respect to the foregoing representation, attached hereto as Exhibit 14K are true and complete copies of representation letters signed by each such 5% or greater shareholder. L. There are no unresolved or outstanding shareholder claims or complaints related to JP Fund other than as disclosed by JP Fund in writing to Oppenheimer Fund and which are determined by Oppenheimer Fund to not be material with respect to the Agreement and the transactions contemplated herein. M. Except as previously disclosed to Oppenheimer Fund in writing, and except as have been corrected as required by applicable law, there have been no miscalculations of the net asset value of JP Fund during the twelve-month period preceding the Closing Date and all such calculations have been done in accordance with the applicable provisions of the 1940 Act. N. All of the issued and outstanding shares of JP Fund have been offered and sold in compliance with applicable registration requirements of the 1933 Act and state securities laws, are registered under the 1933 Act, the 1940 Act and in all jurisdictions in which they are required to be registered under state securities laws and other laws, and said registrations, including any periodic reports or supplemental filings, are complete, current and have been continuously effective, all fees required to be paid have been paid, and JP Fund is not subject to any stop order and is fully qualified to sell its shares in each state in which its shares have been registered. O. JP Fund has maintained or has caused to be maintained on its behalf all books and accounts as required of a registered investment company in compliance with the requirements of Section 31 of the 1940 Act and the Rules thereunder. P. No violation of applicable federal, state and local statute, law or regulation, exists that individually, or in the aggregate, would have a material adverse effect on the business or operations of JP Fund. Q. JP Fund is in compliance with its investment objectives, policies and restrictions as described in its current Prospectus and Statement of Additional Information. R. JP Fund is duly registered under the 1940 Act and such registration has not been revoked or rescinded and is in full force and effect. S. Except for the shareholder approvals specified in Section 12F, no consent, approval, governmental filing, authorization or permit from any person or entity is necessary for the execution and delivery of the Agreement and the consummation of the transactions contemplated by the Agreement. 15. Oppenheimer Trust on behalf of Oppenheimer Fund hereby represents and warrants that: A. The financial statements of Oppenheimer Fund as at December 31, 1995 (audited) and June 30, 1996 (unaudited) heretofore furnished to JP Fund, present fairly the financial position, results of operations, and changes in net assets of Oppenheimer Fund, as of such dates, in conformity with generally accepted accounting principles applied on a basis consistent with the preceding year and six-month period; and that from December 31, 1995 through the date hereof there has not been any material adverse changes in the business or financial condition of Oppenheimer Fund, it being understood that a decrease in the size of Oppenheimer Fund due to a diminution in the value of its portfolio and/or redemption of its shares shall not be considered a material or adverse change. B. The Prospectus of Oppenheimer Fund, dated May 1, 1996, and the Statement of Additional Information of Oppenheimer Fund, dated May 1, 1996, contained in Oppenheimer Trust's Registration Statement under the 1933 Act, are true, correct and complete, conform to the requirements of the 1933 Act and the 1940 Act and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Registration Statement of Oppenheimer Trust, as amended, was, as of the date of the filing of the last Post-Effective Amendment, true, correct and complete, conformed to the requirements of the 1933 Act and the 1940 Act and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. C. Oppenheimer Fund is a series of Oppenheimer Trust, a Massachusetts business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts with the requisite power and authority granted to business trusts to enter into and perform the Agreement and consummate the transactions contemplated hereby; all necessary action necessary to make the Agreement, according to its terms, valid, binding and enforceable on Oppenheimer Trust on behalf of Oppenheimer Fund and to authorize the transactions contemplated by the Agreement, including without limitation necessary approvals of the Board of Trustees of Oppenheimer Trust, have been taken by Oppenheimer Trust; the Agreement has been duly executed and delivered by Oppenheimer Trust on behalf of Oppenheimer Fund and constitutes a valid and binding obligation of Oppenheimer Fund, enforceable against Oppenheimer Trust in accordance with its terms, subject to the Bankruptcy Exception; and the execution and delivery of the Agreement does not, and the consummation of the transactions contemplated by the Agreement will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under (a) the Declaration of Trust or By-Laws of Oppenheimer Trust, or (b) any loan, credit agreement, note, bond, mortgage, indenture, lease or contract applicable to Oppenheimer Fund, its assets and properties (other than any such conflicts, violations or defaults that individually or in the aggregate would not have a material adverse effect on Oppenheimer Fund or prevent consummation of the transactions contemplated hereby), or (c) any judgment, order or decree to which Oppenheimer Fund is subject or any state or federal law or regulation applicable to Oppenheimer Fund or its assets and properties. D. All Federal and other tax returns and reports of Oppenheimer Fund required by law to be filed have been filed, and all Federal and other taxes shown due on said returns and reports have been paid or provision shall have been made for the payment thereof and to the best of the knowledge of Oppenheimer Fund no such return is currently under audit and no assessment has been asserted with respect to such returns and to the extent such tax returns with respect to the taxable year of Oppenheimer Fund ended December 31, 1995 have not been filed, such returns will be filed when required and the amount of tax shown as due thereon shall be paid when due. E. Oppenheimer Fund has elected to be treated as a regulated investment company and, for each fiscal year of its operations, Oppenheimer Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company and Oppenheimer Fund intends to meet such requirements with respect to its current taxable year. F. Oppenheimer Fund (i) at the time of the reorganization will have no plan or intention to dispose of any of the assets transferred by JP Fund, other than in the ordinary course of business, and (ii) has no plan or intention to redeem or reacquire any of the shares issued by it in the reorganization other than pursuant to valid requests of shareholders. G. After consummation of the transactions contemplated by the Agreement and for a period of one year thereafter, Oppenheimer Fund intends to operate its business in a substantially unchanged manner subject to such changes as may be required in the ordinary course of its business or as may be approved by the Board of Trustees of Oppenheimer Trust. H. The copies of the Declaration of Trust and By-Laws of Oppenheimer Trust, and any amendments thereto, previously delivered to JP Fund by Oppenheimer Fund are true, complete and correct. I. The shares of Oppenheimer Fund which it issues to JP Fund pursuant to the Agreement will be duly authorized, validly issued, fully- paid and non-assessable, except as otherwise set forth in Schedule 13C hereto with respect to potential liability of shareholders of a Massachusetts business trust, will conform to the description thereof contained in Oppenheimer Trust's Registration Statement and will be duly registered under the 1933 Act. J. All of the issued and outstanding shares of Oppenheimer Fund have been offered and sold in compliance in all material respects with applicable registration requirements of the 1933 Act and state securities laws, are registered in all jurisdictions in which they are required to be registered and such registrations, including any periodic reports or supplemental filings, are complete and current, all fees required to be paid have been paid, and Oppenheimer Fund is not subject to any stop order and is fully qualified to sell its shares in each state in which its shares are currently sold. K. Oppenheimer Trust is duly registered under the 1940 Act and such registration has not been revoked or rescinded and is in full force and effect. 16. (a) Each party hereby represents to the other that no broker or finder has been employed by it with respect to the Agreement or the transactions contemplated hereby. (b) Oppenheimer Trust on behalf of Oppenheimer Fund represents and warrants that the information concerning it in the Proxy Statement and Prospectus will not as of the date of the Proxy Statement and Prospectus contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements concerning it therein in light of the circumstances in which they are made not misleading. Oppenheimer Trust on behalf of Oppenheimer Fund represents and warrants that its financial statements in the N-14 Registration Statement (described below) fairly present the information shown in accordance with generally accepted accounting principles applied on a basis consistent with previous periods. (c) JP Fund represents and warrants that the information concerning it in the Proxy Statement and Prospectus will not as of the date of the Proxy Statement and Prospectus contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements concerning it therein in light of the circumstances in which they are made not misleading. JP Fund represents and warrants that its financial statements in the N-14 Registration Statement fairly present the information shown in accordance with generally accepted accounting principles applied on a basis consistent with previous periods. 17. Oppenheimer Trust on behalf of Oppenheimer Fund agrees that it will prepare and file the N-14 Registration Statement which shall contain a preliminary form of Proxy Statement and Prospectus contemplated by Rule 145 under the 1933 Act. JP Fund shall be responsible for preparation of the notice of meeting, Proxy Statement and Prospectus and form of proxy to be sent to JP Fund shareholders. The final form of such Proxy Statement and Prospectus is referred to in the Agreement as the "Proxy Statement and Prospectus." Each party agrees that it will use its best efforts to have the N-14 Registration Statement declared effective and to supply such information concerning itself for inclusion in the Proxy Statement and Prospectus as may be necessary or desirable in this connection. JP Fund covenants and agrees to deregister, or cause to have deregistered, the shares of JP Fund under the 1940 Act as soon as practicable. 18. (a) JP Fund covenants and agrees to afford to Oppenheimer Fund, its counsel, accountants and other representatives reasonable access, during normal business hours throughout the period prior to the Closing Date, to the books, records, employees and representatives of JP Fund. (b) JP Fund covenants and agrees that during the period from the date hereof until the Closing Date its investment objectives, investment policies and investment restrictions, as disclosed in its most current Prospectus dated May 1, 1996, as amended and supplemented on __________, 1996, and Statement of Additional Information, dated May 1, 1996, will not be changed in any manner whatsoever except pursuant to a statutory amendment or regulatory requirement during such time and upon prior notice to Oppenheimer Fund. (c) JP Fund covenants that during the period from the date hereof until the Closing Date, except as approved in writing by Oppenheimer Fund or expressly provided for in the Agreement, JP Fund (i) will not conduct its business other than in the ordinary course substantially in the manner heretofore conducted and consistent with JP Fund's investment objectives, policies and restrictions as set forth in its most current Prospectus dated May 1, 1996, as amended and supplemented on _____________, 1996, and Statement of Additional Information, dated May 1, 1996, (ii) will not permit or allow any of the Assets to be subjected to any encumbrance, (iii) will not enter into any material transaction or otherwise incur any material Liability other than in the normal course of business consistent with past practice, (iv) will not declare, set aside or pay any dividend or make any other distribution except for payment of its dividends in ordinary course consistent with past practice and except for the final dividend and distribution to be made pursuant to Section 3 of the Agreement, and (v) will not agree, whether in writing or otherwise, to do any of the foregoing. Notwithstanding the foregoing, JP Fund covenants that (x) between the date of the Agreement and the Closing Date, promptly following any transaction involving an acquisition or disposition by JP Fund of portfolio securities, JP Fund shall provide to Oppenheimer Fund a written report detailing such transaction and (y) upon the written request of Oppenheimer Fund, to promptly sell one or more portfolio securities acquired by JP Fund between the date of the Agreement and the Closing Date and (z) to transfer to Oppenheimer Fund on the Closing Date only those Assets the acquisition of which will permit Oppenheimer Fund to be in compliance with all of its investment policies and restrictions. (d) JP Fund covenants and agrees to comply with all applicable laws, rules and regulations. (e) JP Fund covenants and agrees to maintain in the ordinary course of business consistent with past practice its books and records through to the date of its dissolution and liquidation and to prepare and file all documents, reports and instruments and take such action, including, without limitation, under the federal securities laws and state laws, that is required or appropriate to be filed or taken by it prior to, and/or in connection with, its dissolution and liquidation. 19. (a) Oppenheimer Fund covenants that during the period from the date hereof until the Closing Date it will conduct its business in the ordinary course, it being understood that such ordinary course of business will include customary dividends and other distributions and such changes, if any, that have been approved by trustees of Oppenheimer Fund of which JP Fund has been advised. (b) Oppenheimer Fund covenants and agrees to comply with all applicable laws, rules and regulations. 20. The Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing (i) by the mutual written consent of Oppenheimer Trust on behalf of Oppenheimer Fund and JP Fund, (ii) by either Oppenheimer Trust on behalf of Oppenheimer Fund or JP Fund, by notice in writing to the other, if the Closing shall not have occurred on or before December 31, 1996, (iii) by either Oppenheimer Trust on behalf of Oppenheimer Fund or JP Fund, by notice in writing to the other, if (A) the other party shall fail to perform in any material respect its agreements contained herein required to be performed on or prior to the Closing Date, (B) the other party materially breaches or shall have breached any of its representations, warranties or covenants contained herein, (C) the JP Fund shareholders fail to approve the Agreement or (D) any other condition herein expressed to be precedent to the obligations of the terminating party has not been met (other than through the failure of the terminating party to comply with its obligations under the Agreement) and it reasonably appears that it will not or cannot be met or (iv) pursuant to Section 4 of the Agreement. Termination of the Agreement pursuant to (i), (ii) or (iv) shall terminate all obligations of the parties hereunder and there shall be no liability for damages on the part of Oppenheimer Fund, JP Fund or their respective trustees, directors or officers to any other party or its trustees, directors, or officers and it is understood and agreed that each party shall be reimbursed for its Expenses pursuant to Section 9 of the Agreement. Termination of the Agreement pursuant to (iii) shall terminate all obligations of Oppenheimer Fund and JP Fund hereunder and there shall be no liability for damages on the part of Oppenheimer Fund, Oppenheimer Trust or JP Fund or their respective trustees, directors or officers to any other party or its trustees, directors or officers, except that the party in breach of the Agreement shall, upon demand, reimburse the non- breaching party for all Expenses, including reasonable out-of-pocket expenses and fees incurred in connection with the transactions contemplated by the Agreement, and the provisions of Section 9 as to Expenses shall be of no force or effect. For the purposes of the foregoing sentence, the non-fulfillment of the condition requiring approval of JP Fund shareholders set forth in Sections 10A and 11B shall not be deemed a breach entitling a party to reimbursement of fees and expenses. The Agreement shall automatically terminate prior to the Closing in the event the Acquisition Agreement is terminated or the acquisition contemplated by the Acquisition Agreement is not consummated, and in such event all obligations of Oppenheimer Fund and JP Fund shall terminate and there shall be no liability on the part of Oppenheimer Fund, Oppenheimer Trust or JP Fund or their respective trustees, directors or officers to the other or its respective trustees, directors or officers, it being understood and agreed that each party shall be reimbursed for its Expenses pursuant to Section 9 of the Agreement. 21. (a) JPC shall indemnify and hold harmless JP Fund, Oppenheimer Trust, Oppenheimer Fund, their investment advisers and their respective trustees, officers and shareholders, against any and all claims to the extent such claims are based upon, arise out of or relate to (i) any untruthful or inaccurate representation made by JP Fund in the Agreement or any breach by JP Fund of any warranty or any failure by JP Fund to perform or comply with any of its obligations, covenants, conditions or agreements set forth in the Agreement or (ii) the failure of JP Fund to comply with applicable legal requirements, including, without limitation, registration under the 1933 Act and the 1940 Act and state securities laws. Notwithstanding the foregoing, JPC shall not be obligated to so indemnify any officer or director of JP Fund if such claims result from such person's willful misfeasance, bad faith or gross negligence. (b) OFI shall indemnify and hold harmless JP Fund and its investment adviser and their respective trustees, officers and shareholders, against any and all claims to the extent such claims are based upon, arise out of or relate to any untruthful or inaccurate representation made by Oppenheimer Trust in the Agreement or any breach by Oppenheimer Trust of any warranty or any failure by Oppenheimer Trust to perform or comply with any of its obligations, covenants, conditions or agreements set forth in the Agreement. Notwithstanding the foregoing, OFI shall not be obligated to so indemnify any officer or director of JP Fund or its investment adviser if such claims result from such person's willful misfeasance, bad faith or gross negligence. (c) As used in this section, the word "claim" means any and all liabilities, obligations, losses, damages, deficiencies, demands, claims, penalties, assessments, judgments, actions, proceedings and suits of whatever kind and nature and all costs and expenses (including, without limitation, reasonable attorneys' fees). 22. The Agreement may be executed in several counterparts, each of which shall be deemed an original, but all taken together shall constitute one Agreement. The rights and obligations of each party pursuant to the Agreement shall not be assignable. 23. All prior or contemporaneous agreements and representations are merged into the Agreement, which constitutes the entire contract between the parties hereto. No amendment or modification hereof shall be of any force and effect unless in writing and signed by the parties and no party shall be deemed to have waived any provision herein for its benefit unless it executes a written acknowledgement of such waiver. 24. JP Fund understands that the obligations of Oppenheimer Trust under the Agreement are not binding upon any Trustee or shareholder of Oppenheimer Trust and OppenheImer Fund personally, but bind only Oppenheimer Trust, Oppenheimer Fund and Oppenheimer Fund's property. JP Fund represents that it has notice of the provisions of the Declaration of Trust of Oppenheimer Trust disclaiming shareholder and Trustee liability for acts or obligations of Oppenheimer Trust. 25. Neither of the parties shall make any press release of the transactions contemplated by the Agreement, or any discussion in connection therewith, without the prior written consent of the other party, which consent shall not be unreasonably withheld. The preceding sentence shall not apply to any disclosures required to be made by applicable laws, as determined by counsel; however, the applicable party shall consult with the other party concerning the timing and content of such disclosure before making it. 26. The representations, warranties and covenants set forth in the Agreement shall survive the closing. 27. The Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of laws principles of such State. IN WITNESS WHEREOF, each of the parties has caused the Agreement to be executed and attested by its officers thereunto duly authorized on the date first set forth above. Attest: JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC. __________________________ By: _____________________________ Attest: OPPENHEIMER VARIABLE ACCOUNT FUNDS, ON BEHALF OF OPPENHEIMER BOND FUND __________________________ By: _____________________________ Attest: For purposes of Section 21 only: JEFFERSON-PILOT CORPORATION ___________________________ By: ______________________________ Attest: For purposes of Section 21 only: OPPENHEIMERFUNDS, INC. ____________________________ By: __________________________ Preliminary Copy JP INVESTMENT GRADE BOND FUND, INC. VOTING INSTRUCTIONS FORM FOR SPECIAL SHAREHOLDERS MEETING TO BE HELD DECEMBER 3, 1996 The undersigned variable contract owner indirectly invested in JP Investment Grade Bond Fund, Inc. ("JP Fund"), does hereby direct Jefferson-Pilot Life Insurance Company ("JPLIC") to vote shares of the Fund held to support his or her variable contract at the Special Meeting of Shareholders of JP Fund to be held on December 3, 1996, at the Jefferson-Pilot Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina 27420 at 10:00 A.M., local time, and at all adjournments thereof, and to vote the shares held in the name of JPLIC for the undersigned on the record date for said meeting on the Proposals specified on the reverse side. PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WHO RECOMMENDS A VOTE FOR THE PROPOSALS ON THE REVERSE SIDE AND THE ELECTION OF EACH NOMINEE AS DIRECTOR. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS INDICATED ON THE REVERSE SIDE OR FOR EACH PROPOSAL AND THE ELECTION OF EACH NOMINEE AS DIRECTOR IF NO CHOICE IS INDICATED. Please mark your voting instruction form, date and sign it on the reverse side and return it promptly in the accompanying envelope, which requires no postage if mailed in the United States. Proposal 1: To consider and vote upon the approval or disapproval of the Agreement and Plan of Reorganization dated as of _________, 1996 (the "Reorganization Agreement") by and among JP Fund, Jefferson-Pilot Corporation, Oppenheimer Variable Account Funds, on behalf of its series Oppenheimer Bond Fund ("Oppenheimer Fund"), and Oppenheimer Funds, Inc., and the transactions contemplated thereby, including (i) the transfer of substantially all the assets of JP Fund to Oppenheimer Fund in exchange for shares of Oppenheimer Fund, (ii) the distribution of such shares of Oppenheimer Fund to shareholders of JP Fund in liquidation of JP Fund, and (iii) the cancellation of the outstanding shares of JP Fund. FOR____ AGAINST____ ABSTAIN____ Proposal 2: To elect to the Board of Directors the following five (5) directors to hold office until the earlier of (i) the dissolution of JP Fund or (ii) the next annual meeting of shareholders of JP Fund called for the purpose of electing directors, or until their successors are elected and qualified. A) E.J. Yelton D) William Edward Moran B) John C. Ingram E) J. Lee Lloyd C) Richard Wolcott McEnally _______For all nominees listed ____WITHHOLD AUTHORITY except as marked to the contrary at to vote for all nominees left. Instruction: To withhold listed at left. authority to vote for any individual nominee, line out that nominee's name at left. Proposal 3: To ratify or reject the selection of McGladrey & Pullen as JP Fund's independent auditors for the current fiscal year. FOR____ AGAINST____ ABSTAIN____ Dated:________________________, 1996 (Month) (Day) ______________________________ Signature(s) ______________________________ Signature(s) Please read both sides of this ballot. NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing as custodian, attorney, executor, administrator, trustee, etc., please give your full title as such. All joint owners should sign this proxy. If the account is registered in the name of a corporation, partnership or other entity, a duly authorized individual must sign on its behalf and give his or her title. PRELIMINARY COPY JP CAPITAL APPRECIATION FUND, INC. 100 North Greene Street, Greensboro, North Carolina 27420 1-800-458-4498 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS To Be Held December 3, 1996 To owners of variable annuity contracts issued by Jefferson-Pilot Life Insurance Company ("JPLIC") entitled to give voting instructions in connection with Jefferson-Pilot Separate Account A. Notice is hereby given that a Special Meeting of the Shareholders of JP Capital Appreciation Fund, Inc. ("JP Fund"), an open-end, management investment company, will be held at the Jefferson-Pilot Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina 27420 at 10:00 A.M., local time, on December 3, 1996, and any adjournments thereof (the "Meeting"), for the following purposes: 1. To consider and vote upon the approval or disapproval of the Agreement and Plan of Reorganization dated as of _________, 1996 (the "Reorganization Agreement") by and among JP Fund, Jefferson-Pilot Corporation, Oppenheimer Variable Account Funds, on behalf of its series Oppenheimer Growth Fund ("Oppenheimer Fund"), and OppenheimerFunds, Inc., and the transactions contemplated thereby (the "Reorganization"), including (i) the transfer of substantially all the assets of JP Fund to Growth Fund in exchange for shares of Oppenheimer Fund, (ii) the distribution of such shares of Oppenheimer Fund to shareholders of JP Fund in liquidation of JP Fund, and (iii) the cancellation of the outstanding shares of JP Fund ("Proposal 1"); 2. To elect to the Board of Directors five (5) directors to hold office until the earlier of (i) the dissolution of JP Fund or (ii) the next annual meeting of shareholders of JP Fund called for the purpose of electing directors, or until their successors are elected and qualified ("Proposal 2"); 3. To ratify or reject the selection of McGladrey & Pullen LLP as JP Fund's independent auditors for the current fiscal year ("Proposal 3"); and 4. To act upon such other matters as may properly come before the Meeting. JPLIC and Jefferson-Pilot Separate Account A (a separate account of JPLIC) are the only shareholders of JP Fund. However, JPLIC hereby solicits and agrees to vote the shares of JP Fund at the Meeting in accordance with timely instructions received from owners of variable annuity contracts having contract values allocated to Separate Account A invested in such shares. As a variable annuity contract owner of record at the close of business on October 10, 1996, you have the right to instruct JPLIC as to the manner in which shares of JP Fund attributable to your variable annuity contract should be voted. To assist you in giving your instructions, a Voting Instruction Form is enclosed that reflects the number of shares of JP Fund for which you are entitled to give voting instructions. In addition, the Proposals are more fully described in the accompanying Proxy Statement and Prospectus and a copy of the Reorganization Agreement is attached thereto. Please read the Proxy Statement and Prospectus carefully before sending JPLIC your Voting Instruction Form. The Board of Directors of JP Fund recommends a vote in favor of each Proposal and to elect each of the nominees as Director. YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED VOTING INSTRUCTION FORM AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. By Order of the Board of Directors, J. Gregory Poole, Secretary October __, 1996 QUESTIONS AND ANSWERS ABOUT THE PROPOSED REORGANIZATION 1. What is the Reorganization? The proposed Reorganization provides for the transfer of substantially all the assets of JP Capital Appreciation Fund, Inc. ("JP Fund") to Oppenheimer Growth Fund ("Oppenheimer Fund"), the issuance of shares of Oppenheimer Fund to JP Fund for distribution to its shareholders including Jefferson-Pilot Life Insurance Company and Jefferson-Pilot Separate Account A and the cancellation of the outstanding shares of JP Fund. The number of shares of Oppenheimer Fund that will be received by shareholders of JP Fund will be determined on the basis of the relative net asset values of Oppenheimer Fund and JP Fund. Although the number of shares of Oppenheimer Fund issued to a shareholder of JP Fund may be greater or fewer than the number of JP Fund shares that he or she holds, the value of the shares of Oppenheimer Fund issued in the Reorganization will be equal to the value of his or her JP Fund shares. The Reorganization has been proposed in connection with a proposed acquisition by OppenheimerFunds, Inc. ("OFI") of the assets of JP Investment Management Company ("JPM"), the investment adviser to JP Fund. OFI is discussed in greater detail below. Owners of Jefferson-Pilot Life Insurance Company ("JPLIC") variable annuity contracts ("variable contracts") under which contract values are indirectly invested in JP Fund, are directed to read the accompanying Proxy Statement and Prospectus for further information about the Reorganization and related matters. Additional information about Oppenheimer Fund is set forth in its accompanying Prospectus. 2. What are the reasons for the Reorganization? Jefferson-Pilot Corporation ("JPC"), in the course of a review of its business, concluded that it should invest its capital resources in its core insurance business and communications operations rather than investing in the expansion of mutual fund assets being managed by JPM (or another investment management subsidiary). Because managing mutual fund investment portfolios in an efficient and profitable manner can only be achieved by managing aggregate assets significantly in excess of the amount of assets currently being managed by JPM, JPC has decided to sell the assets of JPM and thereby leave the business of managing mutual fund investment portfolios. This decision requires that alternative arrangements be made for the management of the assets of the four mutual funds (including JP Fund) managed by JPM. The Reorganization would result in OFI taking over management of the investment portfolio of JP Fund when JPM is sold. 3. What benefits to owners of variable contracts may result from this Reorganization? The Board of Directors of JP Fund has determined that, among other things, the Reorganization would afford variable contract owners, as indirect investors in Oppenheimer Fund, the capabilities and resources of OFI and its affiliates in the area of equity investment management, shareholder services and marketing. 4. Who is paying the expenses of the Reorganization? All expenses of the Reorganization will be paid by the respective investment advisers to JP Fund and Oppenheimer Fund and not JP Fund or Oppenheimer Fund. 5. Who is OppenheimerFunds, Inc.? OFI and its subsidiaries are engaged principally in the business of managing, distributing and servicing registered investment companies. OFI has operated as an investment adviser since 1959. OFI is indirectly controlled by Massachusetts Mutual Life Insurance Company. As of June 30, 1996, OFI and a subsidiary had assets of more than $50 billion under management in more than 60 mutual funds. 6. Where can I get prospectuses and other information on Oppenheimer Fund or other Oppenheimer Funds available as investment options under my variable contract? Call Jefferson-Pilot Investor Services, Inc. at 1-(800) 448-4498. They will be pleased to supply you with prospectuses and other documentation with respect to such Oppenheimer funds. 7. How will the Reorganization affect my variable contract and my relationship with Jefferson-Pilot Life Insurance Company? As an owner of a variable contract with contract value indirectly invested in JP Fund on the Record Date, the Reorganization will result in such contract value being indirectly invested in Oppenheimer Fund. After the Reorganization, variable contract owners will be able to allocate net purchase payments and transfer contract values to Sub-Accounts of Jefferson-Pilot Separate Account A ("Account A") that invest in Oppenheimer Fund and JP Fund will not be an investment option under variable contracts. Your variable contract will not change in any other way and your relationship with Jefferson-Pilot will not change at all as a result of the Reorganization. 8. Will this Reorganization result in any tax liability to JP Fund, Oppenheimer Fund or to me as a variable contract owner? The Reorganization is structured in a manner that is intended to qualify for federal income tax purposes as a tax-free reorganization. The aggregate tax basis of Oppenheimer Fund shares received in the Reorganization will be the same as the aggregate tax basis of JP Fund shares held on your behalf prior to the Reorganization, and the holding period of the shares of Oppenheimer Fund received in the Reorganization will include the period during which JP Fund shares were held on your behalf provided that those JP Fund shares were held as capital assets. Moreover, the Reorganization will not have an adverse impact on the status of the variable contracts under which contract values are indirectly invested in JP Fund. You should consult your tax adviser regarding the effect, if any, of the Reorganization in light of your individual circumstances. Since the foregoing only relates to the federal income tax consequences of the Reorganization, you should also consult your tax adviser as to state and local tax consequences, if any, of the Reorganization. PRELIMINARY COPY JP CAPITAL APPRECIATION FUND, INC. 100 North Greene Street, Greensboro, North Carolina 27420 1-800-458-4498 PROXY STATEMENT OPPENHEIMER GROWTH FUND 3410 South Galena Street, Denver, Colorado 80231 1-800-525-7048 PROSPECTUS This Proxy Statement and Prospectus is being furnished on behalf of the Board of Directors (the "Board") of JP Capital Appreciation Fund, Inc. ("JP Fund"), an open-end, management investment company, by Jefferson- Pilot Life Insurance Company ("JPLIC") to owners of variable annuity contracts issued by JPLIC and having contract values on the Record Date (as defined below) allocated to Jefferson-Pilot Separate Account A ("Account A") invested in shares of JP Fund ("variable contracts"). This Proxy Statement and Prospectus is being furnished in connection with the solicitation of voting instructions from owners of such variable contracts ("variable contract owners") for use at the Special Meeting of Shareholders of JP Fund to be held at the Jefferson-Pilot Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina, 27420, at 10:00 A.M., local time, on December 3, 1996, and any adjournments thereof (the "Meeting"). The Board has set October 10, 1996, as the date for the determination of JP Fund shareholders entitled to notice of, and to vote at, the Meeting (the "Record Date"). It is expected that this Proxy Statement and Prospectus will be mailed to variable contract owners on or about October __, 1996. Although JPLIC is the sole record owner of JP Fund shares, variable contract owners are permitted to give JPLIC voting instructions. Variable contract owners are sometimes referred to in this Proxy Statement and Prospectus as "shareholders". At the Meeting, shareholders of JP Fund will be asked to consider and vote upon the approval or disapproval of the Agreement and Plan of Reorganization, dated as of ________, 1996 (the "Reorganization Agreement"), by and among JP Fund, Jefferson-Pilot Corporation, Oppenheimer Variable Account Funds, on behalf of its series, Oppenheimer Growth Fund ("Oppenheimer Fund"), and OppenheimerFunds, Inc., and the transactions contemplated by the Reorganization Agreement (the "Reorganization"). The Reorganization Agreement provides for the transfer of substantially all the assets of JP Fund to Oppenheimer Fund in exchange for shares of Oppenheimer Fund having a value equal to the aggregate net asset value of the outstanding shares of JP Fund, the distribution of such shares of Oppenheimer Fund to JPLIC and Account A in liquidation of JP Fund and the cancellation of the outstanding shares of JP Fund. A copy of the Reorganization Agreement is attached hereto as Exhibit A and is incorporated by reference herein. As a result of the proposed Reorganization, each shareholder of JP Fund will receive that number of shares of Oppenheimer Fund having an aggregate net asset value equal to the net asset value of such shareholder's shares of JP Fund. This transaction has been structured in a manner intended to qualify as a tax- free reorganization for federal income tax purposes. See "Approval or Disapproval of the Reorganization." At the Meeting, shareholders of JP Fund will also be asked to elect five directors and ratify the selection of independent auditors. JPLIC and Account A of JPLIC are the sole record holders of shares of JP Fund. However, variable contract owners are the beneficial owners of shares held by Account A. JPLIC will vote the shares of JP Fund at the Meeting in accordance with the timely instructions received from variable contract owners entitled to give voting instructions under variable contracts. JPLIC will vote shares attributable to variable contracts for which no voting instructions are received in proportion (for, against or abstain) to those for which instructions are received. JPLIC also will vote shares not attributable to variable contracts (i.e., representing seed money investments in JP Fund made by JPLIC) in proportion to those for which instructions are received from variable contract owners. If a Voting Instruction Form is received that does not specify a choice, JPLIC will consider its timely receipt as an instruction to vote in favor of the proposal(s) to which it relates and for each nominee as director. In certain circumstances, JPLIC may have the right to disregard voting instructions, from certain variable contract owners. JPLIC does not believe that these circumstances exist with respect to matters currently before shareholders. Variable contract owners may revoke voting instructions given to JPLIC at any time prior to the Meeting by notifying the Secretary of JP Fund in writing. Oppenheimer Fund's investment objective is to seek capital appreciation by emphasizing investments in securities of well-known and established companies. Current income is a secondary consideration in the selection of portfolio securities for Oppenheimer Fund. JP Fund's primary investment objective is to seek long term capital appreciation; current income through the receipt of interest or dividends from investments is only a secondary objective. JP Fund proposes to achieve these objectives by investing substantially all of its assets in common stocks of companies recognized as leaders in their respective industries as more fully described herein. Shareholders of JP Fund should consider the differences in investment objectives and policies of Oppenheimer Fund and JP Fund. See "Investment Objectives and Policies," "Principal Risk Factors" and "Comparison Between Oppenheimer Fund and JP Fund - Comparison of Investment Objectives, Policies and Restrictions." Oppenheimer Fund has filed with the Securities and Exchange Commission (the "SEC") a Registration Statement on Form N-14 (the "Registration Statement") relating to the registration of shares of Oppenheimer Fund to be offered to the shareholders of JP Fund pursuant to the Reorganization Agreement. This Proxy Statement and Prospectus relating to the Reorganization also constitutes a Prospectus of Oppenheimer Fund filed as part of such Registration Statement. Information contained or incorporated by reference herein relating to Oppenheimer Fund has been prepared by and is the responsibility of Oppenheimer Fund. Information contained or incorporated by reference herein relating to JP Fund has been prepared by and is the responsibility of JP Fund. This Proxy Statement and Prospectus sets forth concisely information about Oppenheimer Fund that a prospective investor should know before voting on the Reorganization. The following documents have been filed with the SEC and are available without charge upon written request to JP Investment Management Company, the investment adviser and transfer agent for JP Fund, at P.O. Box 21008, North Carolina 27420, or by calling 1-800-458-4498 (a toll-free number): (i) a Prospectus for JP Fund, dated May 1, 1996 (information about JP Fund is incorporated herein by reference to JP Fund's May 1, 1996 Prospectus), and (ii) a Statement of Additional Information about JP Fund, dated May 1, 1996 (the "JP Fund Additional Statement"). The most recent Annual Report and Semi-Annual Report for JP Fund, dated as of December 31, 1995 and June 30, 1996, respectively, are also available without charge upon request to JPIS by calling 1-800-458- 4498 (toll-free). The following documents have been filed with the SEC and are available without charge upon written request to the transfer agent for Oppenheimer Fund, OppenheimerFunds Services ("OFS"), at P.O. Box 5270, Denver, Colorado 80217, or by calling 1-800-525-7048 (a toll free number): (i) a Prospectus for the Trust, dated May 1, 1996, which is incorporated herein by reference as it relates to the Oppenheimer Fund series of the Trust (the shares of the owner series of Oppenheimer Variable Account Funds are not being offered pursuant to the Reorganization) and a copy of which also accompanies this Proxy Statement and Prospectus; (ii) a Statement of Additional Information about the Trust, dated May 1, 1996 (the "The Trust Additional Statement"), which contains more detailed information about Oppenheimer Fund and its management, and (iii) a Statement of Additional Information relating to the Reorganization described in this Proxy Statement and Prospectus (the "Reorganization Additional Statement"), dated ______, 1996, incorporated herein by reference and filed as part of the Registration Statement, which includes, among other things, the Prospectus for JP Fund, the JP Fund Additional Statement and the Oppenheimer Fund Additional Statement. Investors are advised to read and retain this Proxy Statement and Prospectus for future reference. Shares of Oppenheimer Fund are not deposits or obligations of any bank, are not guaranteed or endorsed by any bank, and are not insured by the F.D.I.C. or any other agency, and involve investment risks, including the possible loss of the principal amount invested. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This Proxy Statement and Prospectus is dated October __, 1996. TABLE OF CONTENTS PROXY STATEMENT AND PROSPECTUS COMPARATIVE FEE TABLES SYNOPSIS Purpose of the Meeting Parties to the Reorganization The Reorganization Vote Required Tax Consequences of the Reorganization Dissenters' Rights Investment Objectives and Policies Investment Advisory Fees Purchases and Redemptions PRINCIPAL RISK FACTORS Stock Investment Risks Foreign Securities Small, Unseasoned Companies Borrowing for Leverage Options and Futures; Derivatives APPROVAL OR DISAPPROVAL OF THE REORGANIZATION (Proposal 1) Background Acquisition Agreement Board Approval of the Reorganization The Reorganization Tax Aspects of the Reorganization Dissenters' Rights Capitalization Table (Unaudited) COMPARISON BETWEEN OPPENHEIMER FUND AND JP FUND Comparison of Investment Objectives, Policies and Restrictions Special Investment Methods Investment Restrictions Oppenheimer Fund Performance Other Investors in Oppenheimer Fund Additional Comparative Information ELECTION OF DIRECTORS (Proposal 2) Information Concerning the Board Officers of JP Fund Other Information RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT AUDITORS (Proposal 3) INFORMATION CONCERNING THE MEETING The Meeting Record Date; Vote Required; Share Information Voting Instructions Costs of the Solicitation and the Reorganization MISCELLANEOUS Financial Information Public Information SHAREHOLDER PROPOSALS OTHER BUSINESS EXHIBIT A - Agreement and Plan of Reorganization, dated as of ________, 1996, by and among Oppenheimer Variable Account Funds, on behalf of Oppenheimer Growth Fund, JP Capital Appreciation Fund, Inc., OppenheimerFunds, Inc. and Jefferson-Pilot Corporation ENCLOSURE- Prospectus of The Trust, dated May 1, 1996 COMPARATIVE FEE TABLES Expenses of Oppenheimer Fund and JP Fund; Pro Forma Expenses Shareholders of the funds do not pay any sales load, redemption fee or exchange fee. See the Account A prospectus for fees that apply to variable contract owners. Each fund pays a variety of expenses directly for management of its assets, administration, and other services, and those expenses are reflected in the net asset value per share of each of Oppenheimer Fund and JP Fund. The following calculations are based on the expenses of JP Fund and Oppenheimer Fund for the 12 months ended December 31, 1995 and the six months ended June 30, 1996. These amounts are shown as a percentage of the average net assets of JP Fund and Oppenheimer Fund for those periods (for the six months ended June 30, 1996, the percentages are annualized). Proforma expenses for the combined fee after giving effect to the Reorganization are not shown as they do not differ from the fees indicated below for Oppenheimer Fund. The table does not reflect expenses that apply at the separate account level or that are charged by Account A or by JPLIC under the variable contracts.
JP Fund Oppenheimer Fund 12 months 6 months 12 months 6 months ended ended ended ended 12/31/95 6/30/96(1) 12/31/95 6/30/96(1) Management Fees(1) 0.50% 0.50% 0.75% 0.75% Other Expenses 0.12% 0.10% 0.04% 0.03% Total Fund Operating Expenses(1) 0.62% 0.60% 0.79% 0.78%
(1) Annualized Examples To attempt to show these expenses over time, the examples shown below have been created. Assume that you make a $1,000 investment in either JP Fund or Oppenheimer Fund and that the annual return is 5% and that the operating expenses for each fund are the ones shown in the chart above for the six months ended June 30, 1996 and the 12 months ended December 31, 1995. Based on the rate of "Total Fund Operating Expenses" shown above for the six months ended June 30, 1996, if you were to redeem your shares at the end of each period shown below, your investment would incur the following expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years Oppenheimer Fund $8 $25 $43 $97 JP Fund $6 $19 $33 $75
If you did not redeem your investment, it would incur the following expenses by the end of the applicable period:
1 year 3 years 5 years 10 years Oppenheimer Fund $8 $25 $43 $97 JP Fund $6 $19 $33 $75
Based on the rate of "Total Fund Operating Expenses" shown above for the 12 months ended December 31, 1995, if you were to redeem your shares at the end of each period shown below, your investment would incur the following expenses by the end of 1, 3, 5 and 10 years:
1 year 3 years 5 years 10 years Oppenheimer Fund $8 $25 $44 $98 JP Fund $6 $20 $35 $77
If you did not redeem your investment, it would incur the following expenses by the end of the applicable period:
1 year 3 years 5 years 10 years Oppenheimer Fund $8 $25 $44 $98 JP Fund $6 $20 $35 $77
SYNOPSIS The following is a synopsis of certain information contained in or incorporated by reference in this Proxy Statement and Prospectus and presents key considerations for shareholders of JP Fund to assist them in determining whether to approve or disapprove the Reorganization. This synopsis is only a summary and is qualified in its entirety by the more detailed information contained in or incorporated by reference in this Proxy Statement and Prospectus and the Reorganization Agreement which is Exhibit A hereto. Shareholders should carefully review this Proxy Statement and Prospectus and the Reorganization Agreement in their entirety and, in particular, the current Prospectus of the Trust which accompanies this Proxy Statement and Prospectus and is incorporated by reference herein. Purpose of the Meeting At the Meeting, shareholders of JP Fund will be asked to approve or disapprove the Reorganization. In addition, shareholders will be requested to elect five directors of JP Fund and ratify the selection of JP Fund's independent auditors. Parties to the Reorganization Oppenheimer Fund is a series of the Trust, Oppenheimer Variable Account Funds, a diversified, open-end, management investment company organized in 1984 as a multi-series Massachusetts business trust. Oppenheimer Fund was organized in 1984 and is one of nine separate series of the Trust. Oppenheimer Fund is located at 3410 South Galena Street, Denver, Colorado 80231. OppenheimerFunds, Inc. ("OFI") acts as investment adviser to Oppenheimer Fund. OFI is located at Two World Trade Center, New York, New York 10048-0203. Additional information about Oppenheimer Fund is set forth below. JP Fund is a diversified, open-end, management investment company organized in 1982 as a North Carolina corporation. JP Fund is located at 100 North Greene Street, Greensboro, North Carolina 27420. JP Investment Management Company ("JPM") acts as investment adviser and transfer agent to JP Fund. JPM is located at 100 North Greene Street, Greensboro, North Carolina 27401. Additional information about JP Fund is set forth below. The Reorganization The Reorganization Agreement provides for the transfer of substantially all the assets of JP Fund to Oppenheimer Fund in exchange for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain liabilities of JP Fund. JP Fund will retain a small Cash Reserve sufficient to pay any liabilities and expenses of dissolution. The Reorganization Agreement also provides for the distribution by JP Fund of these shares of Oppenheimer Fund to JP Fund shareholders in liquidation of JP Fund. As a result of the Reorganization, each JP Fund shareholder will receive that number of full and fractional Oppenheimer Fund shares equal in value to such shareholder's pro rata interest in the net assets transferred to Oppenheimer Fund as of the Valuation Date (as hereinafter defined). For further information about the Reorganization see "Approval or Disapproval of the Reorganization" below. For the reasons set forth below under "Approval or Disapproval of the Reorganization - Board Approval of the Reorganization," the Board, including the Directors who are not "interested persons" of JP Fund (the "Independent Directors"), as that term is defined in the Investment Company Act of 1940, as amended (the "1940 Act"), has concluded that the Reorganization is in the best interests of JP Fund and its shareholders and that the interests of existing JP Fund shareholders will not be diluted as a result of the Reorganization, and recommends approval of the Reorganization by JP Fund shareholders. The Board of Trustees of the Trust has also approved the Reorganization and determined that the interests of existing Oppenheimer Fund shareholders will not be diluted as a result of the Reorganization. If the Reorganization is not approved, JP Fund will continue in existence and the Board will determine whether to pursue alternative actions. The section below entitled "Approval or Disapproval of the Reorganization" sets forth certain information with respect to the background of the Reorganization, including other transactions and agreements entered into, or contemplated to be entered into, by OFI, JPM and certain affiliates of JPM. Vote Required Approval of the Reorganization will require the affirmative vote of a majority of the shares of JP Fund entitled to vote at the Meeting. See "Information Concerning the Meeting - Record Date; Vote Required; Share Information." Tax Consequences of the Reorganization As a condition to the closing of the Reorganization, JP Fund and Oppenheimer Fund will have received an opinion to the effect that the Reorganization will qualify as a tax-free reorganization for federal income tax purposes. As a result of such tax-free reorganization, no gain or loss would be recognized by JP Fund, Oppenheimer Fund, or the shareholders of either fund for federal income tax purposes. Moreover, the Reorganization will not have an adverse impact on the tax status of the variable contracts under which contract values are indirectly invested in JP Fund. For further information about the tax consequences of the Reorganization, see "Approval or Disapproval of the Reorganization -Tax Aspects of the Reorganization" below. Dissenters' Rights Dissenters' rights of appraisal are generally not available to shareholders of JP Fund with respect to the Reorganization. See, "The Reorganization - Dissenters' Rights." Investment Objectives and Policies Oppenheimer Fund's investment objective is a fundamental policy, and JP Fund's investment objectives and policies are also fundamental policies. Fundamental policies are those that cannot be changed without the approval of shareholders of that fund. Oppenheimer Fund's investment policies described below are not fundamental unless this Proxy Statement and Prospectus indicates a particular policy is fundamental. Oppenheimer Fund seeks to achieve capital appreciation by emphasizing 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 Oppenheimer Fund's portfolio securities. Oppenheimer Fund's investments may also include securities of "growth- type" companies. JP Fund's primary investment objective is long-term capital appreciation. Current income through the receipt of interest or dividends from investments is only a secondary objective. JP Fund proposes to achieve these objectives by investing substantially all its assets in publicly- held common stocks of companies recognized as leaders in their respective industries with proven and capable management and that are providing significant products and services to their customers. JP Fund's investments will be made predominantly in securities listed on registered securities exchanges, but it may purchase securities traded in the over- the-counter market. Investments may be made in other equity securities, including rights, warrants, preferred stock and those debt securities convertible into or carrying rights, warrants, or options to purchase common stock or to participate in earnings. JP Fund may also hold cash or invest in short-term securities. Oppenheimer Fund's and JP Fund's investments may also include securities of foreign governments and companies (limited, in the case of JP Fund, to securities issued by Canadian companies) and, subject to certain limitations, repurchase agreements. Oppenheimer Fund may also write covered call options and use certain derivative investments, including options and futures, because they offer the potential for increased income and principal value, and may use hedging instruments to try to manage investment risks. Shareholders of JP Fund should consider the differences in investment objectives and policies between JP Fund and Oppenheimer Fund. Oppenheimer Fund invests in a wider variety of securities, some of which have greater investment risks than the types of securities JP Fund usually holds. See "Principal Risk Factors" and "Comparison Between Oppenheimer Fund and JP Fund - Comparison of Investment Objectives, Policies and Restrictions." Investment Advisory Fees Oppenheimer Fund and JP Fund each obtain investment management services from their respective investment advisers pursuant to the terms of their respective investment advisory agreements. Each agreement provides that a management fee is payable to the investment adviser monthly. Oppenheimer Fund pays a management fee to OFI computed on its net asset value as of the close of business each day, which fee declines on additional assets as Oppenheimer Fund increases its asset base, at the annual rate of 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. The management fee payable by JP Fund to JPM is at an annual rate of 1/2 of 1% of JP Fund's average daily net asset value. JPM is reimbursed by JP Fund for performing certain shareholder accounting services. JPM has contractually agreed that if in any fiscal year the total of JP Fund's ordinary business expenses (with specified exceptions) exceeds 1% of JP Fund's average daily net asset value, JPM will pay the excess by reducing its management fee by a corresponding amount. OFI has voluntarily undertaken that the total expenses of Oppenheimer Fund in any fiscal year will not exceed 2.5% of the first $30 million of average net assets, 2.0% of the next $70 million and 1.5% of average net assets over $100 million and OFI's management fee will be reduced or eliminated during any fiscal year in which the payment of such fee would cause Oppenheimer Fund's expenses to exceed this limitation. OFI's undertaking to Oppenheimer Fund is revocable and may be changed or eliminated at any time. Neither fund's management fees were reduced during the past fiscal year. Purchases and Redemptions Purchases. Shares of Oppenheimer Fund are currently offered only for purchase by separate accounts as an investment medium for variable life insurance policies and variable annuity contracts, and separate accounts for retirement plans. Purchases of JP Fund's shares are currently restricted to the separate accounts that are sponsored by the insurance subsidiaries of JPC and any of their affiliates and to pension plans for employees of said companies and their affiliates. Shares of JP Fund and Oppenheimer Fund are offered at their respective offering price, which is net asset value (without sales charge). Redemptions. Shares of Oppenheimer Fund and shares of JP Fund may be redeemed at their respective net asset values per share calculated after the redemption order is received and accepted. Oppenheimer Fund may redeem accounts valued at less than $200 if the account has fallen below such stated amount for reasons other than market value fluctuations. For JP Fund, the corresponding minimum is $250 once the account has been open at least 12 months. PRINCIPAL RISK FACTORS In evaluating whether to approve the Reorganization and invest in Oppenheimer Fund, JP Fund shareholders should carefully consider the following summary of risk factors, relating to both Oppenheimer Fund and JP Fund, in addition to the other information set forth in this Proxy Statement and Prospectus. Additional information of risk factors for each fund is set forth in the respective Prospectus of each fund and in addition for Oppenheimer Fund, the Trust Additional Statement. As a general matter, Oppenheimer Fund and JP Fund are intended for investors seeking capital appreciation and, secondarily, current income, who are willing to accept greater risks of loss in the hopes of greater gains. There is no assurance that either Oppenheimer Fund or JP Fund will achieve its investment objectives and investment in the funds is subject to investment risks, including the possible loss of the principal invested. Stock Investment Risks Because the funds may invest a substantial portion of their assets in stocks, the value of a fund's portfolio will be affected by changes in the stock markets. At times, the stock markets can be volatile, and stock prices can change substantially. This market risk will affect the fund's net asset value per share, which will fluctuate as the values of the fund's portfolio securities change. Foreign Securities Oppenheimer Fund may invest in equity (and debt) securities issued or guaranteed by foreign governments or foreign companies or other agencies; it is currently intended that such investments will not exceed 25% of Oppenheimer Fund's total assets. JP Fund may not invest in foreign securities other than securities issued by Canadian companies. 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, currency blockage, currency exchange costs, difficulty in obtaining and enforcing judgments against foreign issuers, relatively greater brokerage and custodial costs, risk of expropriation or nationalization of assets, less publicly available information, and differences between domestic and foreign legal, auditing, brokerage and economic standards. In addition, there are risks of changes in foreign currency values. A change in value of a foreign currency against the U.S. dollar will result in a change in the U.S. dollar value of a fund's securities denominated in a foreign currency. Both funds' investment income and proceeds from foreign securities may be received in foreign currencies and the funds will be required to absorb the cost of currency fluctuations. If a fund suffers a loss on foreign currencies after it has distributed its income during the year, the fund may find that it has distributed more income than was available from actual investment income, and the shareholders will have received a return of capital. The foreign securities Oppenheimer Fund may invest in, such as emerging market securities, have speculative characteristics and involve more risk than other foreign securities, including extended settlement periods for securities transactions, increased illiquidity and increased volatility. Small, Unseasoned Companies The funds may invest in securities of companies that have been in operation for less than three years (including the operations of predecessors). Securities of these companies may have limited liquidity (which means that a fund may have difficulty selling them at an acceptable price when it wants to) and the prices of these securities may be volatile. Oppenheimer Fund currently intends to invest no more than 5% of its net assets in the next year in the securities of small, unseasoned issuers. JP Fund is prohibited from investing more than 5% of its assets in the securities of such issuers. Borrowing for Leverage Oppenheimer Fund may borrow up to 5% of the value of its total assets from banks to buy securities, but only if it can do so without putting up assets as security for a loan. This is a speculative investment method known as "leverage." This investment technique may subject Oppenheimer Fund to greater risks and costs than funds that do not borrow. These risks may include the possibility that Oppenheimer Fund's net asset value per share will fluctuate more than the net asset value of funds that do not borrow, since Oppenheimer Fund pays interest on borrowings and interest expense affects Oppenheimer Fund's share price. JP Fund is not permitted to borrow for leverage and may only borrow money in an amount up to 5% of its total assets for extraordinary or emergency purposes. Options and Futures; Derivatives Oppenheimer Fund may purchase and sell certain kinds of futures contracts, put and call options, forward contracts and options on securities, broadly-based stock indices, stock index futures and foreign currency. The foregoing instruments, referred to as "hedging instruments," may be considered derivative investments. Oppenheimer Fund may also invest in certain derivative investments because they offer the potential for increased income and principal value. Hedging instruments and derivative investments and their special risks are described below in "Comparison Between Oppenheimer Fund and JP Fund." APPROVAL OR DISAPPROVAL OF THE REORGANIZATION (Proposal 1) Background JPC, in the course of a review of its business, concluded that it should concentrate on its core insurance business and communications operations and not continue, through its existing subsidiaries, in the business of managing mutual fund investment portfolios. JPC is a publicly-held holding company that is the parent of JPM. In addition to JP Fund, JPM manages another mutual fund, JP Investment Grade Bond Fund, Inc. (with JP Fund, the "Insurance Funds") that sells its shares exclusively to Account A to support variable annuity contracts. JPM also manages two mutual funds that are sold on a retail basis through a broker-dealer network. In aggregate, these four mutual funds had net assets at June 30, 1996 of approximately $172 million. Managing mutual fund investment portfolios in an efficient and profitable manner requires significant assets per fund and in the aggregate. Usually several billion dollars in aggregate net assets is necessary to cover normal operating costs and provide resources for capital investment in new products and services. With regard to retail mutual funds, financing certain classes of shares and providing sales support to dealers are additional expenses that can only be supported from a relatively large asset base. Consequently, it has become increasingly difficult for a relatively small mutual fund operation such as that managed by JPM to compete. JPC evaluated the capital investment that would be required of it or its subsidiaries to achieve such an asset base and determined that: (1) the best investment of its resources would not be in expanding the mutual fund assets under JPM's management, and (2) if, through JPM (or another subsidiary), it could not be extremely competitive in the business of managing mutual fund investment portfolios, it should sell the assets of JPM and facilitate making other arrangements for the management of the assets of the four mutual funds (including JP Fund) managed by JPM. Sometime after these determinations by JPC were made, representatives of JPC and JPM met with OFI to discuss OFI acquiring JPM's mutual fund-related assets. Representatives of OFI and JPM held meetings beginning in December 1995. Following the negotiation of the terms of an acquisition agreement and related agreements, an acquisition agreement (the "Acquisition Agreement") was executed by OFI, JPC, JPM and JPLIC on _______________, 1996. The Reorganization described in this Proxy Statement and Prospectus is one aspect of the overall Acquisition (as hereinafter defined) contemplated by the Acquisition Agreement described below. The consummation of the Reorganization is one condition, among others, to the closing of the Acquisition. Likewise, the consummation of the Acquisition is one condition, among others, to the closing of the Reorganization. Accordingly, unless the parties otherwise agree, the Reorganization may not be effected, despite shareholder approval, if the Acquisition does not close. In such case, JP Fund will continue in existence and the Board will take such further action as it, in its discretion, deems necessary or advisable. The description of the Acquisition Agreement set forth below is a summary only. Acquisition Agreement The Acquisition Agreement contemplates the sale to OFI of all the assets of JPM (the "Purchased Assets") and the assumption by OFI of certain liabilities of JPM and JPC relating to the Purchased Assets ("Assumed Liabilities") (the foregoing sale and assumption constitute the "Acquisition"). The Acquisition Agreement contemplates that each of the four mutual funds advised by JPM (including JP Fund) (each, a "Reorganized Fund") will be reorganized with a mutual fund currently advised by OFI. A condition to the obligation of the parties to close under the Acquisition Agreement (the "Acquisition Closing") is the approval of the reorganizations of the Reorganized Funds (including the Reorganization described in this Proxy Statement and Prospectus) by their respective shareholders and the approval of the reorganizations of the Insurance Funds by applicable state insurance regulatory authorities. The Acquisition Agreement sets forth certain other conditions to each party's obligation to close. JPM, JPC and JPLIC have agreed pursuant to an Agreement Not to Compete not to, among other things, sell or offer to sell shares of or other security interests in investment companies or investment oriented insurance policies to persons who were shareholders of a Reorganized Fund or owned variable annuity contracts issued by JPLIC invested in the Insurance Funds, in each case, immediately prior to the reorganization of such fund for a period to end on the fourth anniversary of the Acquisition Closing. Further, JPM, JPC and JPLIC may not act as an investment adviser to funds established, formed, sold, sponsored or distributed by them and their affiliates with certain exceptions. OFI, on the one hand, and JPM, JPC and JPLIC, on the other, have agreed to indemnify the other for certain liabilities. Board Approval of the Reorganization At its meeting on August 26, 1996, the Board, including the Independent Directors, unanimously approved the Reorganization and the Reorganization Agreement, determined that the Reorganization is in the best interests of JP Fund and its shareholders and resolved to recommend that JP Fund shareholders vote for approval of the Reorganization. The Board further determined that the Reorganization would not result in dilution of JP Fund's shareholders' interests. In evaluating the Reorganization, the Board requested and reviewed, with the assistance of independent legal counsel, materials furnished by OFI and JPM. These materials included financial statements as well as other written information regarding OFI and its personnel, operations and financial condition. The Board also reviewed the same type of information about JPM. Consideration was given to comparative information concerning other mutual funds with similar investment objectives to JP Fund and Oppenheimer Fund. The Board also considered information with respect to the relative historical performance of JP Fund, Oppenheimer Fund and other mutual funds having similar investment objectives. The Board also reviewed and discussed the terms and provisions of the investment advisory agreement pursuant to which OFI provides investment management services to Oppenheimer Fund and compared and contrasted them to the existing management arrangements for JP Fund as well as the management arrangements of other similar mutual funds, particularly with respect to the allocation of various types of expenses, levels of fees and resulting expense ratios. In reaching its determination, the Board gave careful consideration to the following factors, among others: (1) because JPC intends to sell JPM or otherwise leave the business of managing mutual fund investment portfolios, new arrangements for the management of JP Fund's assets were necessary; (2) the Reorganization would afford variable contract owners, as indirect investors in Oppenheimer Fund, the capabilities and resources of OFI and its affiliates in the area of investment management and shareholder servicing and marketing; (3) the terms and conditions of the Reorganization, including that (a) there would be no sales charge imposed in effecting the Reorganization, (b) the Reorganization is intended to qualify as a tax-free exchange, and (c) all expenses of the Reorganization would be paid by OFI and JPM and not by Oppenheimer Fund or JP Fund; and (4) the similarities and differences of the investment objectives, policies and methods of JP Fund and Oppenheimer Fund. The Board also considered that the annual operating expenses for Oppenheimer Fund are higher, as a percentage of net assets, and would be higher on a pro forma basis after giving effect to the Reorganization, than the operating expenses of JP Fund due to the fact that Oppenheimer Fund is subject to a higher management fee rate than JP Fund. For operating expenses and other expense information relating to Oppenheimer Fund and JP Fund, see "Comparative Fee Tables - Expenses of Oppenheimer Fund and JP Fund; Pro Forma Expenses." The Board was also advised regarding the provisions of Section 15(f) of the 1940 Act as they relate to the Acquisition. Section 15(f) of the 1940 Act provides, in effect, that an investment adviser of a registered investment company, or an affiliated person of such adviser, may receive any amount or benefit in connection with the sale of the adviser's business provided that two conditions are satisfied. First, an "unfair burden" must not be imposed on the investment company for which the investment adviser acts in such capacity as a result of the sale, or any express or implied terms, conditions or understandings applicable thereto. The term "unfair burden" as defined in the 1940 Act, includes any arrangement during the two-year period after the transaction whereby the investment adviser (or predecessor or successor advisers), or any interested person of such adviser, receives or is entitled to receive any compensation, directly or indirectly, from any person in connection with the purchase or sale of securities or other property to, from or on behalf of the investment company (other than ordinary fees for bona fide principal underwriting services), or from the investment company or its securities holders (other than fees for bona fide investment advisory and other services). Management of the Reorganized Funds (including JP Fund) and management of the mutual funds managed by OFI into which the Reorganized Funds will be reorganized (including Oppenheimer Fund) are aware of no circumstances arising from the Acquisition or preparatory transactions to the Acquisition that might result in the imposition of an "unfair burden" on the Reorganized Funds (including JP Fund) or the mutual funds managed by OFI into which the Reorganized Funds will be reorganized (including Oppenheimer Fund). Moreover, the Acquisition Agreement provides that OFI, JPM and JPC will conduct their businesses (and use their reasonable efforts to cause their respective affiliates to conduct their businesses) so as to assure, insofar as is in their control, that no "unfair burden" will be imposed on the Reorganized Fund (including JP Fund) or any mutual fund managed by OFI into which a Reorganized Fund would be reorganized (including Oppenheimer Fund) as a result of the transactions contemplated by the Acquisition Agreement. The second condition of Section 15(f) is that during the three-year period immediately following a transaction to which Section 15(f) is applicable, at least 75% of the subject investment company's board of directors must not be "interested persons" (as defined in the 1940 Act) of the investment company's investment adviser or predecessor adviser. The current composition of the Board of Trustees of each mutual fund managed by OFI into which a Reorganized Fund would be organized (including Oppenheimer Fund) is in compliance with such condition. After consideration of the above factors, and such other factors and information as the directors deemed relevant, the Board, including the Independent Directors, unanimously approved the Reorganization and the Reorganization Agreement and voted to recommend its approval to the shareholders of JP Fund. The Trust's Board of Trustees, on behalf of Oppenheimer Fund, including the trustees who are not "interested persons" of Oppenheimer Fund, unanimously approved the Reorganization and the Reorganization Agreement and determined that the Reorganization is in the best interests of Oppenheimer Fund and its shareholders. The Board of Trustees further determined that the Reorganization would not result in dilution of the Oppenheimer Fund shareholders' interests. The Board of Trustees considered, among other things, that an increase in Oppenheimer Fund's asset base as a result of the Reorganization could benefit Oppenheimer Fund shareholders due to the economies of scale available to a larger fund. Over time, these economies of scale may result in slightly lower costs per account for each Oppenheimer Fund shareholder through lower operating expenses and transfer agency expenses. The Reorganization The following summary of the Reorganization Agreement is qualified in its entirety by reference to the Reorganization Agreement (a copy of which is set forth in full as Exhibit A to this Proxy Statement and Prospectus). The Reorganization Agreement contemplates a reorganization under which (1) substantially all of the assets of JP Fund would be transferred to Oppenheimer Fund in exchange for shares of Oppenheimer Fund having a value equal to the value of the JP Fund assets transferred, (2) these shares would be distributed among shareholders of JP Fund in liquidation of JP Fund and (3) the outstanding shares of JP Fund would be cancelled. Prior to the Closing Date (as hereinafter defined), JP Fund will endeavor to discharge all of its liabilities and obligations when and as due prior to such date. Oppenheimer Fund will not assume any liabilities or obligations of JP Fund except for portfolio securities purchased which have not settled in the ordinary course of business. In this regard, JP Fund will retain a cash reserve (the "Cash Reserve") in an amount which is deemed sufficient in the discretion of the Board for the payment of (a) JP Fund's expenses of liquidation (if any) and (b) JP Fund's liabilities, other than those assumed by Oppenheimer Fund. The Cash Reserve will be accounted for as a liability of JP Fund in determining its net asset value. The number of full and fractional shares of Oppenheimer Fund to be issued to JP Fund will be determined on the basis of Oppenheimer Fund's and JP Fund's relative net asset values per share, computed as of the close of business of The New York Stock Exchange Inc. on the business day preceding the Closing Date (the "Valuation Date"). The Closing Date for the Reorganization will be the date of the closing of the Acquisition under the Acquisition Agreement or such other date as may be mutually agreed upon in writing. The valuation procedures set forth in the Trust's Prospectus and the Trust Additional Statement will be utilized to determine the value of JP Fund's assets to be transferred to Oppenheimer Fund pursuant to the Reorganization, the value of Oppenheimer Fund's assets and the net asset value of shares of Oppenheimer Fund. Such values will be computed by JPM and OFI, respectively, as of the Valuation Date in a manner consistent with OFI's regular practice in pricing Oppenheimer Fund. The Reorganization Agreement provides for coordination between the funds as to their respective portfolios so that, on and after the Closing Date, Oppenheimer Fund will be in compliance with all of its investment policies and restrictions. JP Fund will recognize capital gain or loss on any sales made pursuant to this condition. If JP Fund realizes net gain from the sale of securities, such gain, to the extent not offset by capital loss carry-forwards, will be distributed to shareholders prior to the Closing Date and will be taxable to shareholders as long-term capital gain or, if the assets disposed of had not been held for more than one year, as ordinary income. For a discussion of the tax consequences of such distributions to variable contract owners, see "Tax Aspects of the Reorganization" below and "Federal Tax Status" in the Account A current prospectus. Contemporaneously with the closing, JP Fund will be liquidated (except for the Cash Reserve) and JP Fund will distribute or cause to be distributed pro rata to JP Fund shareholders of record on the Valuation Date the full and fractional shares of Oppenheimer Fund received by JP Fund. Upon such liquidation, all issued and outstanding shares of the JP Fund will be cancelled on JP Fund's books and JP Fund shareholders will have no further rights as shareholders of JP Fund. To assist JP Fund in the distribution of Oppenheimer Fund shares, Oppenheimer Fund will, in accordance with a shareholder list supplied by JP Fund, cause Oppenheimer Fund's transfer agent to credit and confirm an appropriate number of shares of Oppenheimer Fund to each shareholder of JP Fund. After the closing of the Reorganization, JP Fund will not conduct any business except in connection with the winding up of its affairs. Under the Reorganization Agreement, within one year after the Closing Date, JP Fund shall either (i) transfer any remaining amount of the Cash Reserve to Oppenheimer Fund, if such remaining amount (as reduced by the estimated cost of distributing it to shareholders) is not material (as defined below), or (ii) distribute such remaining amount to the shareholders of JP Fund who were such on the Valuation Date. Such remaining amount shall be deemed to be material if the amount to be distributed, after deducting the estimated expenses of the distribution, equals or exceeds one cent per share of JP Fund outstanding on the Valuation Date. After this transfer or distribution and after all final reports and tax returns have been filed and the winding up of JP Fund's affairs has been completed, JP Fund will be dissolved as a corporation under North Carolina law. The consummation of the Reorganization is subject to the conditions set forth in the Reorganization Agreement, including, without limitation, approval of the Reorganization by JP Fund's shareholders. Notwithstanding approval of JP Fund's shareholders, the Reorganization may be terminated at any time prior to the Closing Date (1) by mutual written consent of JP Fund, and the Trust, on behalf of Oppenheimer Fund, (2) by JP Fund or the Trust, on behalf of Oppenheimer Fund, if the Closing shall not have occurred on or before December 31, 1996, (3) by JP Fund or the Trust, on behalf of Oppenheimer Fund, if the other party shall fail to perform in any material respect its agreements contained in the Reorganization Agreement required to be performed on or prior to the Closing Date, the other party materially breaches any representation, warranty, or covenant contained in the Reorganization Agreement, the JP Fund shareholders fail to approve the Reorganization Agreement, or if a condition in the Reorganization Agreement expressed to be precedent to the obligations of the terminating party has not been met and it reasonably appears that it will not or cannot be met prior to the Closing Date, or (4) if a suspension in the redemption of shares shall continue for 60 days beyond the Valuation Date. The Reorganization Agreement will automatically terminate prior to the Closing if the Acquisition Agreement is terminated or the Acquisition is not consummated. Termination of the Reorganization Agreement pursuant to (1), (2) or (4) above, or an automatic termination as described in the preceding sentence, will terminate all obligations of the parties thereto and there will be no liability for damages. In such case JP Fund and Oppenheimer Fund will be reimbursed for its expenses incurred with respect to the Reorganization by JPM and OFI, respectively. In the event of a termination pursuant to (3) above, all obligations of Oppenheimer Fund and JP Fund under the Reorganization Agreement will be terminated without liability for damages except that the party in breach (other than a breach due to JP Fund shareholders not approving the Reorganization) of the Reorganization Agreement will, upon demand, reimburse (such reimbursement to be made by such party's investment adviser) the non-breaching party for all expenses and reasonable out-of- pocket fees (if any) incurred in connection with the transactions contemplated by the Reorganization Agreement. Pursuant to the Reorganization Agreement, JPC has agreed to indemnify and hold harmless JP Fund, Oppenheimer Fund, their investment advisers and their respective trustees, officers and shareholders against claims resulting from certain actions or a failure to act by JP Fund and OFI has agreed to indemnify and hold harmless JP Fund and its investment adviser and their respective directors, officers and shareholders against claims resulting from certain actions or a failure to act by Oppenheimer Fund. In addition, JPC has separately agreed with JP Fund and the Independent Directors that, if indemnification from the assets of JP Fund or liability insurance is not available to the Independent Directors after the Closing Date, JPC will indemnify and hold the Independent Directors harmless to the same extent as provided under the JP Fund's Articles of Incorporation. Approval of the Reorganization will require the vote specified below in "Information Concerning the Meeting - Record Date; Vote Required; Share Information." If the Reorganization is not approved by the shareholders of JP Fund, the Board will consider other possible courses of action. Tax Aspects of the Reorganization At or prior to the Closing Date, JP Fund will declare a dividend in an amount large enough so that it will have declared a dividend of all of its investment company taxable income and net capital gain, if any, for the taxable period ending on the Closing Date (determined without regard to any deduction for dividends paid). Such dividends will be included in the taxable income of JP Fund's shareholders as ordinary income and long-term capital gain, respectively. The exchange of the assets of JP Fund for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain liabilities of JP Fund is intended to qualify for federal income tax purposes as a reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). JP Fund has represented to Sutherland, Asbill & Brennan, tax counsel to JP Fund, that there is no plan or intention by any JP Fund shareholder who owns 5% or more of JP Fund's outstanding shares and, to JP Fund's best knowledge, there is no plan or intention on the part of the remaining JP Fund shareholders, to redeem, sell or otherwise dispose of a number of Oppenheimer Fund shares received in the transaction that would reduce JP Fund shareholders' ownership of Oppenheimer Fund shares to a number of shares having a value, as of the Closing Date, of less than 50% of the value of all the formerly outstanding JP Fund shares as of the same date. JP Fund has also represented that Oppenheimer Fund will acquire at least 90% of the fair market value of the net assets and at least 70% of the fair market value of the gross assets held by JP Fund immediately prior to the Reorganization. JP Fund and Oppenheimer Fund have each further represented to Sutherland, Asbill & Brennan the fact that, as of the Closing Date, JP Fund and Oppenheimer Fund will qualify as regulated investment companies or will meet the diversification test of Section 368(a)(2)(F)(ii) of the Code. As of the Record Date, JPLIC and Account A of JPLIC were the only record shareholders of JP Fund. As a condition to the closing of the Reorganization, Oppenheimer Fund and JP Fund will receive the opinion of Sutherland, Asbill & Brennan to the effect that, based on the Reorganization Agreement, information given by JPC, the above representations and other representations as such firm shall reasonably request, existing provisions of the Code, Treasury Regulations issued thereunder, current Revenue Rulings, Revenue Procedures and court decisions, for federal income tax purposes: (a) The reorganization contemplated by the Reorganization Agreement will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code and JP Fund and Oppenheimer Fund will each be a "party to the reorganization" within the meaning of Section 368(b) of the Code. (b) No gain or loss will be recognized by Oppenheimer Fund upon the receipt of the assets transferred to it by JP Fund in exchange for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain identified liabilities of JP Fund. (Section 1032) (c) No gain or loss will be recognized by JP Fund upon the transfer of its assets to Oppenheimer Fund in exchange solely for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain identified liabilities of JP Fund (if any) and the subsequent distribution by JP Fund of such shares to the shareholders of JP Fund. (Section 361) (d) No gain or loss will be recognized by JP Fund shareholders upon the exchange of the JP Fund shares solely for the shares of Oppenheimer Fund. (Section 354) (e) The basis of the shares of Oppenheimer Fund to be received by each JP Fund shareholder pursuant to the reorganization will be the same as the adjusted basis of that shareholder's JP Fund shares surrendered in exchange therefor. (Section 358) (f) The holding period of shares of Oppenheimer Fund to be received by each JP Fund shareholder will include the shareholder's holding period for the JP Fund shares surrendered in exchange therefor, provided such JP Fund shares were held as capital assets on the Closing Date. (Section 1223) (g) Oppenheimer Fund's basis for the assets transferred to it by JP Fund will be the same as JP Fund's tax basis for the assets immediately prior to the reorganization. (Section 362(b)) (h) Oppenheimer Fund's holding period for the transferred assets will include JP Fund's holding period therefor. (Section 1223) (i) Oppenheimer Fund will succeed to and take into account the items of JP Fund described in Section 381(c) of the Code, including the earnings and profits, or deficit therein, of JP Fund as of the Closing Date, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code. (j) No gain or loss will be recognized by owners of variable contracts issued by JPLIC through Account A or the transfer of JP Fund's assets to Oppenheimer Fund in exchange solely for the shares of Oppenheimer Fund and Oppenheimer Fund's assumption of certain JP Fund liabilities (if any) and the subsequent distribution by JP Fund of those shares to Account A. Owners of variable contracts should consult their tax advisers regarding the effect, if any, of the Reorganization in light of their individual circumstances, which may be affected by the type of variable contract they own or by their status. See also "Federal Tax Status" in the Account A prospectus. Since the foregoing discussion only relates to the federal income tax consequences of the Reorganization, shareholders of JP Fund should also consult their tax advisers as to state and local tax consequences, if any, of the Reorganization. Dissenters' Rights Under the North Carolina Business Corporation Act (the "NCBCA"), the state statute governing JP Fund, shareholders of a company acquired in a reorganization who do not vote to approve the reorganization could have, under certain circumstances, "appraisal rights" (where they may elect to have the "fair value" of their shares as of the day prior to such reorganization, determined in accordance with the NCBCA, judicially appraised and paid to them). Variable contract owners, however, do not have such rights under the NCBCA. Capitalization Table (Unaudited) The table below sets forth the capitalization of Oppenheimer Fund and JP Fund and indicates the pro forma combined capitalization as of June 30, 1996 as if the Reorganization had occurred on that date.
Net Asset Shares Value Net Assets Outstanding Per Share Oppenheimer Fund $144,722,208 5,972,737 $24.23 JP Fund $ 81,751,500 4,205,010 $19.44 Pro Forma Combined Fund* $226,473,708 9,346,716 $24.23
- ------------------ *Reflects issuance of 3,373,979 shares of Oppenheimer Fund in a tax-free exchange for the net assets of JP Fund, aggregating $81,751,500 for shares of JP Fund. The pro forma ratio of expenses to average annual net assets of the combined funds at June 30, 1996 would have been .78%. COMPARISON BETWEEN Oppenheimer FUND AND JP FUND Comparative information about Oppenheimer Fund and JP Fund is presented below. More complete information about Oppenheimer Fund and JP Fund is set forth in their respective Prospectuses (which, as to Oppenheimer Fund, accompanies this Proxy Statement and Prospectus and is incorporated herein by reference) and Statements of Additional Information. To obtain copies of either Prospectus, see "Miscellaneous - Public Information." Comparison of Investment Objectives, Policies and Restrictions As its investment objective, Oppenheimer Fund seeks to achieve capital appreciation by investing in securities of well-known and established companies. Current income is a secondary consideration in the selection of Oppenheimer Fund's portfolio securities. JP Fund's primary investment objective is long-term capital appreciation; current income through the receipt of interest or dividends from investments is only a secondary objective. In seeking their investment objectives, which are fundamental policies, Oppenheimer Fund and JP Fund employ the investment policies as described in detail below. Oppenheimer Fund. Oppenheimer Fund seeks its investment objective by emphasizing investment in common stocks issued by 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). Oppenheimer Fund may also invest in securities of "growth-type companies". Such issuers typically are those whose goods or services have relatively favorable long-term prospects for increasing demand, or ones which develop new products, services or markets and normally retain a relatively large part of their earnings for research, development and investment in capital assets. They may include companies in the natural resources fields or those developing industrial applications for new scientific knowledge having potential for technological innovation, such as nuclear energy, oceanography, business services and new customer products. With respect to the percentage of assets that may be invested in the securities of one or more issuers, Oppenheimer Fund is subject to certain diversification requirements as set forth in "Investment Restrictions" below. JP Fund. JP Fund proposes to achieve its investment objectives by investing substantially all its assets in common stocks of companies recognized as leaders in their respective industries with proven and capable management and that are providing significant products and services to their customers. JP Fund's investments will be made predominantly in securities listed on registered securities exchanges, but it may purchase securities traded in the over-the-counter market. Investments may be made in other equity securities, including rights, warrants, preferred stock and those debt securities convertible into or carrying rights, warrants, or options to purchase common stock or to participate in earnings. JP Fund may also hold cash or invest in short- term securities. JP Fund's investments (other than cash and U.S. Government securities) are diversified among the securities issued by different companies and governments to the extent that no more than 5% of its total assets may be invested in securities issued by any one issuer. In addition, JPM generally selects investments for JP Fund from among many different industries and may invest up to 25% of JP Fund's assets in a single industry. Special Investment Methods Oppenheimer Fund and JP Fund may use certain special investment methods as summarized below. Loans. Oppenheimer Fund may lend its portfolio securities to brokers, dealers and other financial institutions, subject to certain conditions. Oppenheimer Fund must receive collateral for the loans. Oppenheimer Fund presently does not intend that the value of portfolio securities loaned will exceed 5% of the value of the total assets of Oppenheimer Fund in the coming year and is otherwise subject to a 25% limit with respect to such loans. JP Fund is prohibited from making loans except to the extent of investing in repurchase agreements or purchasing a portion of an issue of a debt security distributed to the public. Repurchase Agreements. Both Oppenheimer Fund and JP Fund may enter into repurchase agreements. Repurchase agreements must be fully collateralized. However, if the vendor fails to pay the resale price on the delivery date, the funds may experience costs or delays in disposing of the collateral and may experience losses to the extent that the proceeds from the sale of the collateral is less than the repurchase price. There is no limit on the amount of either fund's net assets that may be subject to repurchase agreements of seven days or less. Neither fund will purchase illiquid or restricted securities (which are subject to legal or contractual restrictions on resale) that will cause more than 10% of its net assets to be invested in such securities. As to Oppenheimer Fund, this percentage limit may increase to 15% with respect to all illiquid or restricted securities if certain state laws are change or Oppenheimer Fund's shares are no longer sold in those states. Repurchase agreements with maturities longer than seven days are considered illiquid. JP Fund has no present intention of acquiring restricted securities. For Oppenheimer Fund, certain restricted securities, eligible for resale to qualified institutional purchasers, are not subject to the foregoing limitation. However, investing in such restricted securities could have the effect of increasing the level of fund illiquidity to the extent that qualified institutional buyers become, for a time uninterested in purchasing thee securities. Short Sales Against-the Box. In a short sale, the seller does not own the security that is sold, but normally borrows the security to fulfill its delivery obligation. The seller later buys the security to repay the loan, in the expectation that the price of the security will be lower when the purchase is made, resulting in a gain. Oppenheimer Fund may not sell securities short except that it may sell securities short in collateralized transactions referred to as "short sales against-the-box." No more than 15% of Oppenheimer Fund's net assets will be held as collateral for such short sales at any one time. JP Fund may not enter into these transactions. Hedging. Oppenheimer Fund may purchase and sell: futures contracts that relate to broadly-based securities indices; certain put and call options; and options on securities, stock index futures, broadly-based stock indices, and foreign currency. These are all referred to as "hedging instruments." Oppenheimer Fund does not use hedging instruments for speculative purposes. Up to 100% of Oppenheimer Fund's total assets may be subject to covered calls. Oppenheimer Fund may only purchase a call or put if, after such purchase, the value of all call and put options held by Oppenheimer Fund would not exceed 5% of Oppenheimer Fund's total assets. Further, Oppenheimer Fund will not write puts if, as a result, more than 50% of its net assets would be required to be segregated to cover the puts. Other limits on the use of hedging instruments are described in the Trust's Prospectus and the Trust Additional Statement. JP Fund does not invest in hedging instruments. Hedging instruments may be used to manage Oppenheimer Fund's exposure to the possibility that the prices of its portfolio securities may decline, or to establish a position in the securities market as a temporary substitute for purchasing individual securities; to hedge the Fund's portfolio against price fluctuations; and to increase the Fund's exposure to the securities market. Forward contracts are used to try to manage foreign currency risks on the Fund's foreign investments. Oppenheimer Fund's foreign currency options are used to try to protect against declines in the dollar value of foreign securities Oppenheimer Fund owns, or to protect against an increase in the dollar cost of buying foreign securities. Oppenheimer Fund may write covered call options to provide income for liquidity purposes or to raise cash to distribute to shareholders. The use of hedging instruments requires special skills and knowledge of investment techniques that are different than those required for normal portfolio management. If Oppenheimer Fund uses a hedging instrument at the wrong time or judges market conditions incorrectly, hedging strategies may reduce the Fund's return. Oppenheimer Fund could also experience losses if the prices of its futures and options positions were not correlated with its other investments or if it could not close out a position because of an illiquid market for the future or option. Options trading involves the payment of premiums, and options, futures and forward contracts are subject to special tax rules that may affect the amount, timing and character of Oppenheimer Fund's distributions to its shareholders. There are also special risks in particular hedging strategies. If a covered call written by Oppenheimer Fund is exercised on an investment that has increased in value, Oppenheimer Fund will be required to sell the investment at the call price and will not be able to realize any profit if the investment has increased in value above the call price. Derivative Investments. Oppenheimer Fund can invest in a number of different kinds of "derivative investments." Some types of derivatives are hedging instruments and may be used for hedging purposes, as described above. Oppenheimer Fund may invest in others because they offer the potential for increased income and principal value. In general, a "derivative investment" is a specially-designed security or contract the performance of which is linked to the performance of another investment or security, such as an option contract, futures contract, index, currency or commodity. In the broadest sense, derivative investments include the hedging instruments in which Oppenheimer Fund may invest. Other types of derivatives in which Oppenheimer Fund may invest include index-linked or commodity-linked notes, debt exchangeable for common stock, equity-linked debt securities and currency indexed securities. JP fund does not have a policy with regard to investments in such other types of derivatives investments such as hedging instruments. Nonetheless, JP Fund has never invested in such derivative investments and JPM has no intention of having JP Fund invest in such investments. One risk of investing in derivative investments is that the company issuing the instrument might not pay the amount due on the maturity of the instrument. There is also the risk that the underlying investment or security might not perform the way the investment adviser 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 these risks can mean that Oppenheimer Fund will realize less income than expected from its investments, or that it can lose part or all of the value of its investments, which will affect its share price. When-Issued and Delayed Delivery Transactions. JP Fund and Oppenheimer Fund may purchase securities on a "when-issued" basis and may purchase or sell such securities on a "delayed delivery" basis. These terms refer to securities that have been created and for which a market exists, but which are not available for immediate delivery or are to be delivered at a later date. There may be a risk of loss to either fund if the value of the security changes prior to the settlement date. Although JP Fund may purchase securities on a "when-issued" basis and may purchase or sell such securities on a "delayed delivery" basis, it has not done so to date and JPM has no intention of having JP Fund do so in the foreseeable future. Investment Restrictions Both Oppenheimer Fund and JP Fund have certain investment restrictions that, together with their respective investment objectives are fundamental policies changeable only by shareholder approval. The investment restrictions of Oppenheimer Fund and JP Fund are set forth below. Oppenheimer 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 Oppenheimer Fund's total assets would be invested in securities of that issuer, or (b) Oppenheimer 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; (2) lend money except in connection with the acquisition of debt securities which Oppenheimer Fund's investment policies and restrictions permit it to purchase; Oppenheimer Fund may also make 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) deviate from the percentage requirements and other restrictions listed under "Warrants and Rights," and the first paragraph under "Special Risks-Borrowing for Leverage" of the Trust Prospectus; (5) invest in oil or gas exploration or development programs; (6) invest in real estate or in interests in real estate, but may purchase securities of issuers holding real estate or interests therein; (7) invest in companies for the purpose of acquiring control of management thereof; (8) underwrite securities of other companies, except insofar as it might be deemed to be an underwriter for purposes of the Securities Act of 1933 in the resale of any securities held in its own portfolio; (9) invest or hold securities of any issuer if those officers and trustees or directors of the Trust or its adviser owning individually more than 1/2 of 1% of the securities of such issuer together own more than 5% of the securities of such issuer; or (10) invest in other open-end investment companies, or invest more than 5% of its net assets at the time of purchase in closed-end investment companies, including small business investment companies, nor make any such investments at commission rates in excess of normal brokerage commissions. JP Fund cannot: (1) issue senior securities; (2) purchase securities on margin or sell short, except it may obtain such short-term credits as are necessary for the clearance of transactions; (3) write, purchase or sell puts, calls or combinations thereof; (4) borrow money except that, as a temporary measure for extraordinary or emergency purposes and not for investment purposes, JP Fund may borrow up to 5% of the value of its total assets; (5) act as an underwriter of securities of other issuers, except JP Fund may invest up to 10% of the value of its net assets (at time of investment) in portfolio securities which JP Fund might not be free to sell to the public without registration of such securities under the Securities Act of 1933; (6) purchase or sell real estate or interests in real estate, nor interests in real estate investment trusts or real estate limited partnerships (however, JP Fund may purchase interests in real estate investment trusts whose securities are registered under the Securities Act of 1933 and are readily marketable); (7) engage in the purchase and sale of commodities or commodity contracts; (8) make loans, except to the extent that either of the following is deemed to constitute a loan: (a) purchase of a portion of an issue of a debt security distributed to the public; or (b) investment in "repurchase agreements"; (9) purchase the securities (except U.S. Government securities) of any one issuer if immediately after and as a result of such purchase (a) the value of the holdings of JP Fund in the securities of such issuer exceeds 5% of the value of JP Fund's total assets, or (b) JP Fund owns more than 10% of the outstanding voting securities of any one class of securities of such issuer; (10) purchase the securities of open-end investment companies (except JP Fund may purchase the securities of other investment companies provided that (a) immediately after such purchase JP Fund and companies controlled by JP Fund, or other investment companies having the same investment adviser as JP Fund, do not own more than 10% of the investment company whose securities are being purchased; (b) JP Fund cannot invest more than 10% of its total assets in the securities of other investment companies; and (c) such purchases are made in the open market where no commission or profit to a sponsor or dealer results other than the customary broker's commission; notwithstanding the foregoing, restrictions 10(a), 10(b) and 10(c) do not apply in connection with a merger, consolidation, or plan of reorganization); (11) mortgage, pledge, hypothecate, or in any manner transfer, as security for indebtedness, any securities owned or held by JP Fund; (12) participate on a joint or joint and several basis in any trading account in securities or effect a short sale of any security, except in connection with an underwriting in which it is a participant in the circumstances specified in "5" above; and (13) purchase or retain the securities of any issuer if those officers and directors of JP Fund, its adviser or underwriter owning individually more than 0.5% of the securities of such issuer together own more than 5% of the securities of such issuer. As non-fundamental policies changeable without shareholder approval, JP Fund cannot: (a) invest in companies for the purpose of exercising control or management; (b) invest in foreign securities other than securities issued by Canadian companies; and (c) invest in interests of oil, gas or other mineral exploration or development programs (including oil, gas or mineral leases). Oppenheimer Fund Performance Oppenheimer Fund does not maintain a fixed dividend rate and there can be no assurance as to the payment of any dividends or the realization of any capital gains. During Oppenheimer Fund's fiscal year ended December 31, 1995, Oppenheimer Fund's strategy of looking for growth at reasonable prices lead it to invest substantially in the technology and financial services sectors. Oppenheimer Fund's investment performance will vary over time depending on market conditions, the composition of the portfolio and expenses. Past performance should not be considered a prediction of future performance. Included in the prospectus for the Trust, a copy of which accompanies this Proxy Statement and Prospectus and those portions that pertain to Oppenheimer Fund being incorporated herein by reference, in the section entitled "Performance of the Funds," is a performance graph which depicts the performance of a hypothetical $10,000 investment in shares of Oppenheimer Fund over a ten-year period through December 31, 1995. Oppenheimer Fund's performance is compared to the performance of the S&P 500 Index, a broad-based index of equity securities widely regarded as a general measurement of the performance of the U.S. equity securities market. Index performance reflects the reinvestment of dividends but does not consider the effect of capital gains or transaction costs, and none of the data below shows the effect of taxes. Oppenheimer Fund's performance data reflects reinvestment of all dividends and capital gains distributions, and the effect of fund business and operating expenses. While index comparisons may be useful to provide a benchmark for Oppenheimer Fund's performance, it must be noted that Oppenheimer Fund's investments are not limited to the securities in the S&P 500 index. Moreover, the index data does not reflect any assessment of the risk of the investments included in the index. Information on JP Fund performance is set forth in JP Fund's current Prospectus and in its Annual Report as of December 31, 1995, which may be obtained without charge as set forth in "Miscellaneous - Public Information." Such information is incorporated herein by reference. Other Investors in Oppenheimer Fund Shares of Oppenheimer Fund are sold to separate accounts of insurance companies that are not affiliated with JPLIC or each other, a practice known as "shared funding." They are also sold to separate accounts to serve as the underlying investment for both variable annuity contracts and variable life insurance contracts, a practice known as "mixed funding." As a result, there is a possibility that a material conflict may arise between the interests of owners of various different types of variable contracts, whose contract values are indirectly invested in Oppenheimer Fund. Likewise, there is a possibility that a material conflict may arise between the interests of owners of variable contracts having contract values indirectly invested in Oppenheimer Fund through a separate account of one insurance company and the interests of owners of other variable contract whose contract values are indirectly invested in the fund through one or more separate accounts or other insurance companies. Shares of Oppenheimer Fund may also be sold to separate accounts of certain pension and retirement plans qualifying under Section 401 of the Code. As a result, there is a possibility that a material conflict may arise between the interests of owners of various types of variable contracts (including variable contracts issued by insurance companies other than JPLIC), and such retirement plans or participants in such retirement plans. There are certain other risks associated with mixed and shared funding and with the sale of shares to qualified pension and retirement plans. These are discussed in Oppenheimer Fund's prospectus under the caption "Other Investment Restrictions". Additional Comparative Information General. For a discussion of the organization and operation of Oppenheimer Fund, including brokerage practices, see "Investment Objectives and Policies" and "How the Funds are Managed" in the Trust's current Prospectus and "Brokerage Policies of the Funds" in the Trust Additional Statement. For a discussion of the organization and operation of JP Fund, including brokerage practices, see "Investment Objectives and Policies," and "Who Manages The Funds" in JP Fund's current Prospectus and "Brokerage" in the JP Fund Additional Statement. Financial Information. For certain financial information about Oppenheimer Fund and JP Fund, see as to Oppenheimer Fund "Financial Highlights" and "Performance of the Funds" in Oppenheimer Fund's current Prospectus, and as to JP Fund, "Condensed Financial Information" and "Performance" in JP Fund's current Prospectus. Management of Oppenheimer Fund and JP Fund. For information about the management of Oppenheimer Fund and JP Fund, including their respective Boards of Trustees or Directors, investment adviser and portfolio managers, see, as to Oppenheimer Fund, "How the Funds are Managed" in the Trust's current Prospectus and "How the Funds are Managed," "Trustees and Officers of the Trust" and "The Manager and Its Affiliates" in the Trust's Additional Statement, and as to JP Fund "Portfolio Managers" and "Who Manages the Funds" in JP Fund's current Prospectus and "The Investment Adviser," and "The Fund's Directors and Officers" in the JP Fund Additional Statement. Description of Shares of Oppenheimer Fund and JP Fund. Oppenheimer Fund is a series of the Trust, Oppenheimer Variable Account Funds, a Massachusetts business trust. Oppenheimer Fund and its shareholders are governed principally by the Trust's Declaration of Trust, and ByLaws and other governing documents. Each share of Oppenheimer Fund represents an interest in Oppenheimer Fund proportionately equal to the interest of each other share and entitles the holder to one vote per share (and a fractional vote for a fractional share) on matters submitted to a vote at shareholder meetings. Shares of Oppenheimer Fund and of the Trust's other series vote together in the aggregate on certain matters at shareholder meetings, such as the election of Trustees and ratification of appointment of auditors. Shareholders of a particular series vote separately on proposals which affect that series, and shareholders of a series which is not affected by that matter are not entitled to vote on the proposal. Shareholders of Oppenheimer Fund together with shareholders of the Trust's other series have the right, under certain circumstances, to remove a Trustee and will be assisted in communicating with other shareholders for such purpose. Oppenheimer Fund is authorized to issue an unlimited number of shares of beneficial interest. Shares are freely transferable and shares do not have cumulative voting rights or preemptive or subscription rights. Oppenheimer Fund is governed by a Board of Trustees that has the power, without shareholder approval, to establish and designate one or more series. Oppenheimer Fund has only one class of shares which are offered for purchase only by separate accounts such as Separate Account A. Under certain circumstances, a shareholder of Oppenheimer Fund may be held personally liable as a partner for the obligations of Oppenheimer Fund, and under the Trust's Declaration of Trust, such a shareholder is entitled to indemnification rights by Oppenheimer Fund; the risk of a shareholder incurring any such loss is limited to the remote circumstances in which Oppenheimer Fund is unable to meet its obligations. For further information about the shares of Oppenheimer Fund, see "How the Fund is Managed" in the Trust's current Prospectus and the Trust Additional Statement. JP Fund is a North Carolina corporation with 100,000,000 shares of common stock, par value $1.00 per share, authorized, which shares are divided initially into two classes, consisting of 50,000,000 shares of Class A and 50,000,000 shares of Class B. JP Fund and its shareholders are governed by its Articles of Incorporation and ByLaws and by the NCBCA. The shares of common stock issued and outstanding on the date Class B shares are first issued will be reclassified as Class A; no Class B shares have been issued as of the date hereof. Each share entitles the holder to participate equally in dividends and distributions declared by JP Fund and in its remaining net assets on liquidation after satisfaction of outstanding liabilities. JP Fund shares are fully paid and nonassessable when issued; have no preemptive or conversion rights; are transferable without restriction; and are redeemable at net asset value. On matters submitted for a shareholder vote, each shareholder is entitled to one vote for each share owned. Fractional shares have proportionately the same rights as do full shares. Oppenheimer Fund is not required to hold, and does not plan to hold, regular annual meetings of shareholders. In contrast, JP Fund is required to hold an annual meeting of shareholders each year or in lieu thereof, a special meeting of shareholders. Dividends, Distributions and Taxes. The Trust intends to declare dividends from net investment income on an annual basis. Any net long- term and short-term capital gains may be distributed by Oppenheimer Fund annually in December and supplemental distributions of capital gains and ordinary income may be made following the end of Oppenheimer Fund's fiscal year. JP Fund's policy is to pay dividends from net investment income semi-annually in February and August. Each December each Fund makes a distribution of the capital gains, if any realized during the 12-month period ended the preceding October 31. For a discussion of the policies of Oppenheimer Fund and JP Fund with respect to dividends and distributions, and a discussion of the tax consequences of an investment in Oppenheimer Fund and JP Fund, see as to Oppenheimer Fund "Dividends, Capital Gains and Taxes" in the Oppenheimer Fund current Prospectus and as to JP Fund "Dividends, Distribution and Taxes" in the JP Fund current Prospectus. For a discussion of the tax consequences of an investment in Account A, see "Federal Tax Status" in the Account A current Prospectus. Purchases and Redemptions of Shares. Information on purchases and redemptions of shares of Oppenheimer Fund and JP Fund is provided under "Synopsis -- Purchases and Redemptions" in this Proxy Statement and Prospectus. For an additional discussion of how shares of Oppenheimer Fund and JP Fund may be purchased and redeemed, see, as to Oppenheimer Fund, "How to Buy Shares," and "How to Sell Shares," in the Trust's current Prospectus and the Trust Additional Statement and, as to JP Fund, "How to Purchase Shares," and "How to Redeem Shares" in JP Fund's current Prospectus. Shareholder Inquiries. For a description of how shareholder inquiries should be made, see as to Oppenheimer Fund, "How the Funds are Managed" in the Trust's current Prospectus and, as to JP Fund, the back cover page of the JP Fund current Prospectus. The Board of Directors recommends that shareholders approve the Reorganization Agreement. ELECTION OF DIRECTORS (Proposal 2) The Board of directors of JP Fund recommends that shareholders elect the following nominees to serve as the 5 directors of the full Board of directors of JP Fund: John C. Ingram, J. Lee Lloyd, Richard W. McEnally, William E. Moran and E.J. Yelton. Each of the nominees is presently a Director of JP Fund and has been previously elected by shareholders of JP Fund. If elected, the directors will serve until the earlier of the dissolution of JP Fund or the next shareholder meeting called for the purpose of electing directors, or until the election and qualification of their successors. If the enclosed voting instructions is duly executed and received in time for the Meeting, and if no contrary specification is made as provided therein, it will be voted in favor of the election as directors of the foregoing nominees. If any nominee should be unwilling or unable to serve, which is not now anticipated, the Proxy may be voted with discretionary authority for a substitute or substitutes as shall be designated by the Board of Directors. Certain information concerning the directors and executive officers of JP Fund is set forth below. Information Concerning the Board JP Fund's current Board of directors consists of 5 directors, all of whom are elected at annual meetings. The Board of directors does not have a standing audit, nominating or compensation committee. The following list of JP Fund's directors and executive officers, all of whom are also directors and/or officers of JP Investment Grade Bond Fund, Inc., Jefferson-Pilot Investment Grade Bond Fund, Inc., and Jefferson-Pilot Capital Appreciation Fund, Inc. (collectively with JP Fund, the "Jefferson-Pilot Funds"), includes information as to their principal occupations during the past five years and their principal affiliations.
Name and Other Position/Office Principal Occupation(s) Officer or Information with JP Fund During the Past 5 Years Director Since John C. Ingram* Director Senior Vice President, 1989 3802 Woodcote Dr. JPLIC since November 1988. Greensboro, N.C. Age-52 J. Lee Lloyd Director Managing Director, Lloyd & Company 1994 16 Irving Park Lane since April 1991. Greensboro, NC 27455 Age-36 Richard W. McEnally Director Professor of Investment Banking, 1984 401 Brookside Drive University of North Carolina at Chapel Hill, NC at Chapel Hill. Age-54 William E. Moran Director Senior Vice President, Connors 1983 5206 Barnfield Road Investor Service, Inc. Greensboro, NC since January 1995; prior thereto, Chancellor Age-64 University of North Carolina at Greensboro. W. Hardee Mills, Jr. Vice President Vice President of JPLIC 1987 5 St. Francis Court since February 1994; prior Greensboro, NC 27408 thereto, Second Vice President, Age-46 JPLIC. J. Gregory Poole Secretary Assistant Secretary of JPC and 1994 1805 Gate Post Drive Associate Counsel and Assistant Greensboro, NC 27455 Secretary of JPLIC since February Age-32 1994; prior thereto, various positions at JPC and JPLIC. E.J. Yelton* Director, Senior Vice President - Investments 1994 3204 St. Regis Road President, of JPC and Executive Vice President Greensboro, NC 27408 Treasurer - Investments of JPLIC since October Age-57 1993; prior thereto, President and CEO, ING North America Investment Centre/Member of ING Group (investment banking firm).
* Messrs. Ingram and Yelton are directors that are "interested persons" (as that term is defined in the 1940 Act) of JP Fund due to the following positions with JPM and JPC: Mr. Ingram -Senior Vice President, Treasurer and Director of JPM, and Mr. Yelton - President and Director, JPM and Senior Vice President - Investments, JPC. The nominees for directors are beneficial owners of the following shares in JPC, the parent of JP Fund's investment adviser: Yelton, _____; Ingram, ______; Moran, ____; Lloyd, ____; and McEnally, ____. During the period January 1, 1995 to December 31, 1995, the Directors of JP Fund purchased and/or sold shares of JPM, JPC and subsidiaries of JPC as follows: [identify only if securities purchased/sold exceed 1% of outstanding shares of entity] Officers of JP Fund The following officers of JP Fund also serve as officers and/or directors of JPM and JPIS: E.J. Yelton, President and Treasurer of JP Fund, is President and a Director of JPM and a Director of JPIS; W. Hardee Mills, Jr., Vice President of JP Fund, is Vice President of JPM and J. Gregory Poole, Secretary of JP Fund, is Secretary of JPIS and JPM. Messrs. Yelton, Poole and Mills hold positions with the other Jefferson-Pilot Funds similar to the positions held with JP Fund. The other Jefferson- Pilot Funds have the same investment adviser as JP Fund. The following table provides information regarding the compensation each nominee for director was paid by JP Fund and the other Jefferson-Pilot Funds for the year ended December 31, 1995. COMPENSATION TABLE
(1) (2) (3) (4) (5) Name of Aggregate Pension or Retirement Estimated Annual Total Compensation Person, Compensation Benefits Accrued as Benefits upon From Jefferson-Pilot Position from JP Fund Part of JP Fund Expenses Retirement______ Funds John C. Ingram $0 $0 $0 $0 Director J. Lee Lloyd 1,220 0 0 4,880 Director Richard W. McEnally 1,220 0 0 4,880 Director William E. Moran 1,220 0 0 4,880 Director E.J. Yelton 0 0 0 0 Director, President, Treasurer
Other Information The Board of Directors met five items during the fiscal year ended December 31, 1995 and all of the Directors were present for at least 75% of those meetings. During the year ended December 31, 1995, directors who are not employed by JP Fund or its affiliates received a $100 director's fee for each meeting attended, amounting to an aggregate of $500. In addition, each of the Independent Directors receives a fee of $720 per year payable in equal monthly installments. As of the Record Date, JP Fund's directors and officers owned Account A contracts holding JP Fund shares in the amounts indicated: John C. Ingram,______ shares; J. Lee Lloyd, None; Richard W. McEnally, _____ shares; William E. Moran, ______shares; E.J. Yelton, ______shares; W. Hardee Mills, Jr., None; J. Gregory Poole, _______shares; and all directors and officers as a group,_____shares. The percentage of shares beneficially owned by each such individual, and all directors and officers as a group, did not exceed 1% of JP Fund's outstanding shares. JP Fund's investment adviser and transfer agent is JPM, P.O. Box 21008, Greensboro, North Carolina 27420, a North Carolina corporation organized on January 13, 1970. JPM is a wholly-owned subsidiary of JPC, an insurance holding company. JPM presently serves the other Jefferson-Pilot Funds in these capacities as well. Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, MO 64105-1716 (phone: 1-800-292-6701), serves as JP Fund's custodian. RATIFICATION OR REJECTION OF SELECTION OF INDEPENDENT AUDITORS (Proposal 3) The Board of Directors of JP Fund recommends that the shareholders ratify the selection of McGladrey & Pullen LLP ("McGladrey & Pullen"), Certified Public Accountants, to continue to serve as the independent auditors of JP Fund for the fiscal year ending December 31, 1996. That firm or its predecessor has served as JP Fund's independent auditors from the time of JP Fund's incorporation on July 19, 1982. JP Fund has been advised by McGladrey & Pullen that neither the said firm nor any of its members have a direct or indirect financial interest in JP Fund. McGladrey & Pullen also serves as independent auditors for JPM. INFORMATION CONCERNING THE MEETING The Meeting The Meeting will be held at the Jefferson-Pilot Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina 27420, at 10:00 A.M., local time, on December 3, 1996. At the Meeting, JP Fund shareholders will be asked to consider and vote upon approval or disapproval of the Reorganization Agreement, and the transactions contemplated thereby, including the transfer of substantially all the assets of JP Fund to Oppenheimer Fund in exchange for shares of Oppenheimer Fund, the distribution by JP Fund of such shares to its shareholders in liquidation of JP Fund and the cancellation of the outstanding shares of JP Fund. At the meeting, shareholders of JP Fund will also be asked to elect five directors and ratify or reject the selection of independent accountants. Record Date; Vote Required; Share Information The Board has fixed the close of business on October 10, 1996 as the Record Date for the determination of shareholders entitled to notice of, and to vote at, the Meeting. The affirmative vote of a majority of the JP Fund shares entitled to vote at the Meeting is required for approval of Proposal 1. The affirmative vote of a majority of JP Fund shares voted (in person or by proxy) at the Meeting, if a quorum is present at the Meeting, is required to approve Proposal 3. A plurality of all the votes cast at the Meeting, if a quorum is present at the Meeting, is sufficient to elect the nominees for director (Proposal 2). JPLIC will be entitled to one vote for each share and a fractional vote for each fractional share held of record at the close of business on the Record Date. Only JP Fund shareholders will vote on the Reorganization and the other Proposals. The vote of shareholders of Oppenheimer Fund is not being solicited. At the close of business on the Record Date, there were approximately _________ shares of JP Fund issued and outstanding. The presence in person or by proxy of the holders of one-third of JP Fund's shares constitutes a quorum for the transaction of business at the Meeting. As of the Record Date, JPLIC owned of record all of JP Fund's outstanding shares; the beneficial owners of all of JP Fund's outstanding shares (with the exception of less than 1% beneficially owned by JPLIC) are the owners of variable contracts issued by JPLIC through Account A.) To the knowledge of JP Fund, as of the Record Date, none of such beneficial owners owned beneficially 5% or more of the outstanding JP Fund shares. As of the close of business on the Record Date, there were approximately ____ shares of Oppenheimer Fund issued and outstanding. As of the Record Date, the holders of 5% or more of the outstanding shares of Oppenheimer Fund were separate accounts of (i) Monarch Life Insurance Company, Springfield, MA which owned _____________ shares; (ii) The Life Insurance Company of Virginia, Richmond, VA which owned _____________ shares; (iii) Aetna Life Insurance and Annuity Company, Hartford, CT which owned ____________ shares; and (iv) Massachusetts Mutual Life Insurance Company, Springfield, MA ("MassMutual") and subsidiary insurance companies of MassMutual which owned ___________ shares. OFI is wholly-owned by Oppenheimer Acquisition Corp., a holding company controlled by MassMutual. As of the Record Date, the officers and Trustees of the Trust beneficially owned as a group less than 1% of the outstanding shares of the Trust and Oppenheimer Fund. [In the event a quorum does not exist on the date originally scheduled for the Meeting, or, subject to approval of the Board, for other reasons, one or more adjournments of the Meeting may be sought by the Board.] Voting Instructions JPLIC is the sole record holder and JPLIC and Account A of JPLIC are the only beneficial shareholders of JP Fund. JPLIC will vote the shares of JP Fund at the Meeting in accordance with the timely instructions received from persons entitled to give voting instructions under variable contracts. JPLIC will vote shares attributable to variable contracts as to which no voting instructions are received in proportion (for, against or abstain) to those for which instructions are received. JPLIC also will vote shares not attributable to variable contracts (i.e, representing seed money investments in JP Fund made by JPLIC) in proportion to those for which instructions are received from owners. If a Voting Instruction Form is received that does not specify a choice, JPLIC will consider its timely receipt as an instruction to vote in favor of the proposal(s) to which it relates. Variable contract owners may revoke voting instructions given to JPLIC at any time prior to the Meeting by notifying the Secretary of JP Fund in writing. Costs of the Solicitation and the Reorganization All expenses of this solicitation, including the cost of printing and mailing this Proxy Statement and Prospectus, will be borne by OFI and JPM. Similarly, any costs associated with documents included in that mailing, such as existing prospectuses or annual reports, will be borne by OFI and JPM. In addition to the solicitation of proxies by mail, proxies may be solicited by officers and employees of JPM or JPM affiliates, personally or by telephone or telecopy. In addition to the proxy solicitation expenses (as described above), OFI and JPM will bear the cost of the tax opinion, as well as any other expenses associated with the Reorganization, including legal and accounting expenses. MISCELLANEOUS Financial Information The Reorganization will be accounted for by Oppenheimer Fund in its financial statements similar to a pooling without restatement. Further financial information as to JP Fund is contained in JP Fund's current Prospectus, which is available without charge upon written request to JPIS at P.O. Box 22086, Greensboro, North Carolina 27420, and in its audited financial statements as of December 31, 1995, which are included in the JP Fund Additional Statement. Financial information for Oppenheimer Fund is contained in its current Prospectus accompanying this Proxy Statement and Prospectus and incorporated herein as to information with respect to Oppenheimer Fund, and in its audited financial statements as of December 31, 1995, which are included in the Trust Additional Statement. Public Information Additional information about Oppenheimer Fund and JP Fund is available, as applicable, in the following documents: (1) the Trust's Prospectus dated May 1, 1996 accompanying this Proxy Statement and Prospectus and incorporated by reference herein as to information with respect to Oppenheimer Fund; (2) JP Fund Prospectus dated May 1, 1996, which may be obtained without charge by writing to [JPM] at the address indicated above; (3) the Trust's Annual Report as of December 31, 1995 and Semi- Annual Report as of June 30, 1996, which may be obtained without charge by writing to OFS at the address on the cover of this Proxy Statement and Prospectus; and (4) JP Fund's Annual Report as of December 31, 1995 and Semi-Annual Report as of June 30, 1996, which may be obtained without charge by writing to [JPM] at the address indicated above. All of the foregoing documents may be obtained by calling the toll-free number for Oppenheimer Fund and JP Fund, as applicable, on the cover of this Proxy Statement and Prospectus. Additional information about the following matters is contained in the Reorganization Additional Statement, which is incorporated herein by reference and includes the Trust Additional Statement, the JP Fund Prospectus dated May 1, 1996, the JP Fund Additional Statement and the Annual Reports and Semi-Annual Reports described in the preceding paragraph: the organization and operation of Oppenheimer Fund and JP Fund; more information on investment policies, practices and risks; information about the Board of Trustees of the Trust and the Board of Directors of JP Fund, and their responsibilities; a further description of the services provided by Oppenheimer Fund's and JP Fund's respective investment adviser and transfer and shareholder servicing agent; dividend policies; tax matters; and an explanation of the method of determining the offering price of the shares of Oppenheimer Fund and JP Fund. The Reorganization Additional Statement may be obtained by calling 1-800-525-7098 ( a toll- free number). Oppenheimer Fund and JP Fund are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, file reports and other information with the SEC. Proxy material, reports and other information about Oppenheimer Fund and JP Fund which are of public record can be inspected and copied at public reference facilities maintained by the SEC in Washington, D.C. and certain of its regional offices, and copies of such materials can be obtained at prescribed rates from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, Washington, D.C. 20549. SHAREHOLDER PROPOSALS Any shareholder who wishes to present a proposal for action at the next annual meeting of shareholders of JP Fund (if one is held) and who wishes to have it set forth in a proxy statement and identified in the form of proxy prepared by JP Fund must notify JP Fund in such a manner so that such notice is received by JP Fund by ___________, and in such form as is required under the rules and regulations promulgated by the SEC. OTHER BUSINESS Management of JP Fund knows of no business other than the matters specified above which will be presented at the Meeting. Since matters not known at the time of the solicitation may come before the Meeting, the proxy as solicited confers discretionary authority with respect to such matters as properly come before the Meeting, and it is the intention of the persons named as attorneys-in-fact in the proxy to vote this proxy in accordance with their judgment on such matters if no voting instructions are provided. By Order of the Board of Directors J. Gregory Poole, Secretary October __, 1996 EXHIBIT A AGREEMENT AND PLAN OF REORGANIZATION AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of ________________, 1996 by and between JP Capital Appreciation Fund, Inc. ("JP Fund"), a North Carolina corporation, Oppenheimer Variable Account Funds (the "Oppenheimer Trust"), a Massachusetts business trust, on behalf of its series Oppenheimer Growth Fund ("Oppenheimer Fund"), and (solely for purposes of Section 21 of this Agreement) Jefferson-Pilot Corporation ("JPC"), a North Carolina corporation, and OppenheimerFunds, Inc. ("OFI"), a Colorado corporation. W I T N E S S E T H: WHEREAS, JP Fund and Oppenheimer Fund are each open-end investment companies of the management type; and WHEREAS, JP Fund and Oppenheimer Fund desire to provide for the reorganization pursuant to Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), of JP Fund through the acquisition by Oppenheimer Fund of substantially all of the assets of JP Fund in exchange solely for voting shares of beneficial interest ("shares") of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain liabilities of JP Fund, which shares of Oppenheimer Fund are thereafter to be distributed by JP Fund pro rata to its shareholders in complete liquidation of JP Fund and complete cancellation of its shares; NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties hereto agree as follows: 1. JP Fund and Oppenheimer Fund hereby adopt this Agreement and Plan of Reorganization (the "Agreement") pursuant to Section 368(a)(1) of the Code as follows: The reorganization will be comprised of the acquisition by Oppenheimer Fund of substantially all of the assets of JP Fund in exchange for the issuance of shares of Oppenheimer Fund to JP Fund and the assumption by Oppenheimer Fund of certain liabilities of JP Fund, followed by the distribution by JP Fund of such shares of Oppenheimer Fund to the shareholders of JP Fund in exchange for their shares of JP Fund, all upon and subject to the terms hereinafter set forth. 2. On the Closing Date (as hereinafter defined) (i) JP Fund shall transfer and deliver (or cause to be so transferred and delivered) to Oppenheimer Fund, free and clear of all liens, encumbrances, restrictions and claims (other than Assumed Liabilities (as hereinafter defined)), the assets of JP Fund including but not limited to portfolio securities, cash (excluding the Cash Reserve as defined below), cash equivalents and receivables as the same shall exist on that date (the "Assets") and (ii) Oppenheimer Fund shall deliver to JP Fund (in accordance with Section 5 hereof) in exchange therefor, the shares of Oppenheimer Fund to be issued hereunder. The Assets shall exclude a cash reserve (the "Cash Reserve") which shall be retained by JP Fund for the payment by it in respect of the Liabilities (as hereinafter defined) of JP Fund, if any, and which Cash Reserve shall not exceed the amount contemplated by Section 10E. The aggregate number of shares of Oppenheimer Fund to be delivered by Oppenheimer Fund at the Closing (as hereinafter defined) shall be such number as shall have, as of the Valuation Date, an aggregate net asset value equal to the value of the Assets so transferred and delivered. Such Oppenheimer Fund shares shall be issued without the imposition of any sales charge or load. Oppenheimer Fund agrees that, if the reorganization becomes effective, Oppenheimer Fund will treat each shareholder of JP Fund who received any of Oppenheimer Fund's shares as a result of the reorganization as having made the minimum initial purchase of shares of Oppenheimer Fund received by such shareholder for the purpose of making additional investments in shares of Oppenheimer Fund, regardless of the value of the shares of Oppenheimer Fund received. Promptly following the execution of the Agreement, JP Fund shall provide Oppenheimer Fund with a list of the Assets including, as to portfolio securities, a description thereof, units held and their value, as of the most reasonably practicable date. 3. The net asset value of shares of Oppenheimer Fund and the value of the Assets shall in each case be determined as of the close of business of The New York Stock Exchange on the business day immediately preceding the Closing Date (the "Valuation Date"). The foregoing valuations shall be prepared using the procedures set forth in Oppenheimer Fund's then current prospectus and statement of additional information and shall be computed in accordance with the regular practice and pricing services utilized by OppenheimerFunds, Inc. in pricing the Oppenheimer Fund. In accordance with the foregoing, Oppenheimer Fund and JP Fund shall each respectively prepare a report setting forth, as of the Valuation Date, its respective total net assets, the number of its shares outstanding, the net asset value of Oppenheimer Fund shares or the net asset value of JP Fund shares, respectively, and as to each of its portfolio securities, the cusip or ticket number, description thereof, units held and value determined as aforesaid (the "Valuation Report"). A Valuation Report shall be delivered by each of Oppenheimer Fund and JP Fund to the other on the Closing Date. JP Fund shall declare and pay, immediately prior to the Valuation Date, a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to JP Fund's shareholders all of JP Fund's investment company taxable income for taxable years ending on or prior to the Closing Date (computed without regard to any dividends paid) and all of its net capital gain, if any, realized in taxable years ending on or prior to the Closing Date (after reduction for any capital loss carry-forward). 4. The closing of the transactions contemplated herein (the "Closing") shall be at the office of OppenheimerFunds, Inc., Two World Trade Center, Suite 3400, New York, New York 10048, at the date and time of the closing of the acquisition contemplated by that certain Acquisition Agreement (the "Acquisition Agreement") dated [the date of the Agreement] by and among OppenheimerFunds, Inc., JP Investment Management Company, Jefferson-Pilot Life Insurance Company and Jefferson-Pilot Corporation (or such other date, time and place as JP Fund and Oppenheimer Fund may otherwise designate) (the "Closing Date"). In the event that on the Valuation Date either party has, pursuant to the Investment Company Act of 1940, as amended (the "1940 Act"), or any rule, regulation or order thereunder, suspended the redemption of its shares or postponed payment therefor, the Closing Date shall be postponed until the first business day after the date when JP Fund and Oppenheimer Fund have ceased such suspension or postponement; provided, however, that if such suspension shall continue for a period of 60 days beyond the Valuation Date, then the other party to the Agreement shall be permitted to terminate the Agreement as set forth in Section 20. 5. Shares of Oppenheimer Fund representing the number of shares of Oppenheimer Fund being delivered against the Assets, registered in the name of JP Fund, shall be transferred to JP Fund on the Closing Date. In connection with the Closing, JP Fund shall distribute on a pro rata basis to the shareholders of JP Fund on the Valuation Date the shares of Oppenheimer Fund received by JP Fund on the Closing Date in exchange for the Assets in complete liquidation of JP Fund; for the purpose of the distribution by JP Fund of shares of Oppenheimer Fund to its shareholders, Oppenheimer Fund will promptly cause its transfer agent to: (a) credit an appropriate number of shares of Oppenheimer Fund on the books of Oppenheimer Fund to each shareholder of JP Fund in accordance with a list (the "Shareholder List") of JP Fund shareholders received from JP Fund; and (b) confirm an appropriate number of shares of Oppenheimer Fund to each shareholder of JP Fund; certificates for shares of Oppenheimer Fund will be issued upon written request of a former shareholder of JP Fund and surrender of the JP Fund certificates but only for whole shares, with fractional shares credited to the name of the shareholder on the books of Oppenheimer Fund. JP Fund covenants and agrees to cause the cancellation of all of its outstanding shares upon the Closing. The Shareholder List shall be certified by the Secretary of JP Fund and by an authorized signatory of Investors Fiduciary Trust Company, JP Fund's transfer agent, and shall indicate, as of the Valuation Date, the name, address and taxpayer identification number of each shareholder of JP Fund, indicating his or her share balance. JP Fund agrees to supply the Shareholder List to Oppenheimer Fund not later than the Closing Date in such form (including computer diskette) as Oppenheimer Fund shall request. JP Fund further agrees to deliver to Oppenheimer Fund or its designee (i) on or before the Closing Date all such other information and documents available to JP Fund relating to such shareholders as may be necessary for Oppenheimer Fund and its designee to perform all necessary shareholder accounting, communication and related services subsequent to the Closing and (ii) as soon as practicable after the Closing all original documentation (including Internal Revenue Service forms, certificates and correspondence) relating to the taxpayer identification numbers of JP Fund shareholders on the Shareholder List and their liability for or exemption from backup withholding. Shareholders of JP Fund holding certificates representing their shares shall not be required to surrender their certificates to anyone in connection with the reorganization. After the Closing Date, however, it will be necessary for such shareholders to surrender their certificates in order to redeem, transfer, exchange or pledge the shares of Oppenheimer Fund which they received. The share transfer books of JP Fund will be permanently closed as of the Valuation Date and only redemption requests received in proper form on or prior to the Valuation Date shall be fulfilled by JP Fund; redemption requests received by JP Fund after that date shall be treated as requests for the redemption of the shares of Oppenheimer Fund that shall have been distributed to the shareholder in question as set forth in this Section 5. 6. Within one year after the Closing Date, JP Fund shall (a) either pay or make provision for payment of all of its Liabilities (other than Assumed Liabilities) and (b) either (i) transfer any remaining amount of the Cash Reserve to Oppenheimer Fund, if such remaining amount (as reduced by the estimated cost of distributing it to shareholders) is not material (as defined below) or (ii) distribute such remaining amount to the shareholders of JP Fund on the Valuation Date. Such remaining amount shall be deemed to be material if the amount to be distributed, after deduction of the estimated expenses of the distribution, equals or exceeds one cent per share of JP Fund outstanding on the Valuation Date. 7. Prior to the Closing Date, there shall be coordination between JP Fund and Oppenheimer Fund as to their respective portfolios so that, after the Closing, Oppenheimer Fund will not hold assets inconsistent with its investment objectives and will be in compliance with all of its investment policies and restrictions. 8. Portfolio securities or written evidence acceptable to Oppenheimer Fund of record ownership thereof by The Depository Trust Company or through the Federal Reserve Book Entry System or any other depository approved by JP Fund pursuant to Rule 17f-4 and Rule 17f-5 under the 1940 Act shall be endorsed and delivered, or transferred by appropriate transfer or assignment documents, by JP Fund on the Closing Date to Oppenheimer Fund, or at its direction, to Oppenheimer Fund's custodian bank, in proper form for transfer in such condition as to constitute good delivery thereof in accordance with the custom of brokers and shall be accompanied by all necessary state transfer stamps, if any. The cash of JP Fund shall be delivered on the Closing Date to Oppenheimer Fund by bank wire or inter-bank transfer of immediately available funds to Oppenheimer Fund's custodian bank payable to the order of Oppenheimer Fund for the account of Oppenheimer Fund. If, at the Closing Date, JP Fund is unable to make delivery under this Section 8 to Oppenheimer Fund of any of its portfolio securities or cash for the reason that any of such securities purchased by JP Fund, or the cash proceeds of a sale of portfolio securities, prior to the Closing Date have not yet been delivered in the ordinary course of business to it or JP Fund's custodian, then the delivery requirements of this Section 8 with respect to said undelivered securities or cash will be waived and JP Fund will deliver to Oppenheimer Fund by or on the Closing Date and with respect to said undelivered securities or cash executed copies of an agreement or agreements of assignment as to such securities or cash proceeds in a form reasonably satisfactory to Oppenheimer Fund, together with such other documents, including a due bill or due bills and brokers' confirmation slips as may reasonably be required by Oppenheimer Fund. 9. Oppenheimer Fund shall not assume and shall not otherwise be responsible for any liabilities (except the obligations, if any, to pay the purchase price of portfolio securities purchased by JP Fund which have not settled in the ordinary course of business ("Assumed Liabilities")), taxes, obligations, expenses, contracts, claims, commitments, agreements and arrangements relating to (i) the Assets or (ii) JP Fund, its predecessors, affiliates, directors, officers, employees and agents, in each case whether fixed, contingent, accrued or otherwise ("Liabilities"). JP Fund expressly agrees to remain liable for and discharge all its Liabilities whether incurred prior to or subsequent to the Closing Date. With respect to any expenses applicable to, or incurred by JP Fund and Oppenheimer Fund hereto in connection with entering into and carrying out the provisions of the Agreement ("Expenses"), including legal, accounting and registration fees and Blue Sky expenses and expenses of the proxy solicitation, including the cost of printing and mailing the Proxy Statement and Prospectus (as hereinafter defined) and related proxy materials, it is hereby agreed that except as otherwise provided in Section 20 of the Agreement, the respective investment adviser for Oppenheimer Fund and JP Fund shall reimburse the Fund for which it acts as investment adviser for such Fund's Expenses and, as to the rights and obligations of said investment advisers inter se, the terms of the Acquisition Agreement shall govern. It is understood and acknowledged that in no event shall JP Fund or Oppenheimer Fund be liable for the payment of any Expenses. 10. As soon as practicable after it fulfills its obligations set forth in Section 6 hereof, JP Fund shall file Articles of Dissolution with the North Carolina Secretary of State (the "Department") and shall file an application for an order of the Securities and Exchange Commission ("SEC") pursuant to Section 8(f) of the 1940 Act, declaring that it has ceased to be an investment company, and shall take, in accordance with North Carolina law and the 1940 Act, all such other actions as may be necessary or appropriate to effect a complete liquidation and dissolution of JP Fund and to deregister JP Fund under the 1940 Act. 11. Any reporting, filing or other obligation of JP Fund under the federal securities laws and state laws shall remain the responsibility of JP Fund until it is deregistered under the 1940 Act or liquidated and dissolved, respectively. 12. The obligations of Oppenheimer Fund hereunder shall be subject to the following conditions: A. The shareholders of JP Fund shall have approved the Agreement and the transactions contemplated herein; such shareholder approval shall have been by the affirmative vote of a majority of the outstanding voting shares of JP Fund in conformity with the provisions of the North Carolina Business Corporation Act ("NCBCA") at a meeting for which proxies have been solicited by the Proxy Statement and Prospectus (as hereinafter defined); and JP Fund shall have furnished to Oppenheimer Fund copies of resolutions with respect to each of the foregoing and copies of resolutions of the Board of Directors of JP Fund with respect to approvals of the Agreement and the transactions contemplated herein, in each case certified by the Secretary or an Assistant Secretary of JP Fund. B. Oppenheimer Fund shall have received an opinion of counsel to JP Fund dated the Closing Date, to the effect that: (i) JP Fund is a corporation duly incorporated, validly existing and in good standing under the laws of the State of North Carolina with full powers to carry on its business as described by its charter and then being conducted and to enter into and perform the Agreement (North Carolina counsel may be relied upon in delivering such opinion); (ii) all action necessary to make the Agreement, according to its terms, valid, binding and enforceable on JP Fund and to authorize effectively the transactions contemplated by the Agreement have been taken by JP Fund; (iii) the Agreement has been duly authorized, executed and delivered by JP Fund and, assuming due authorization, execution and delivery of the Agreement by Oppenheimer Trust, constitutes a valid and binding obligation of JP Fund, enforceable against JP Fund in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity (the "Bankruptcy Exception")); and (iv) the execution and delivery of the Agreement does not, and the consummation of the transactions contemplated by the Agreement will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under (a) the Certificate of Incorporation or By-Laws of JP Fund, (b) any loan, credit agreement, note, bond, mortgage, indenture, lease or contract applicable to JP Fund, its assets and properties (other than any such conflicts, violations or defaults that individually or in the aggregate would not have a material adverse effect on JP Fund or prevent consummation of the transactions contemplated hereby), or (c) any judgment, order or decree to which JP Fund is subject or any state or federal law or regulation applicable to JP Fund or its assets and properties. C. The representations and warranties of JP Fund contained herein shall be true and correct at and as of the Closing Date (with all representations and warranties that were made as of the date of the Agreement or as of another date being made again as of the Closing Date) and JP Fund shall have performed, in all material respects, each of the covenants required to be performed by JP Fund at or prior to Closing, and Oppenheimer Fund shall have been furnished with a certificate of the President, or a Vice President, or the Secretary or the Assistant Secretary or the Treasurer of JP Fund, dated the Closing Date, to that effect. D. On the Closing Date, JP Fund shall have furnished to Oppenheimer Fund a certificate of the Treasurer or Assistant Treasurer of JP Fund as to the amount of the capital loss carry-over, if any, and net unrealized appreciation or depreciation, if any, with respect to JP Fund as of the Closing Date. E. The Cash Reserve shall not exceed 1% of the value of the net assets, nor 10% in value of the gross assets, of JP Fund at the close of business on the Valuation Date. F. A Registration Statement on Form N-14 (the "N-14 Registration Statement") filed by Oppenheimer Trust under the Securities Act of 1933, as amended (the "1933 Act"), containing a preliminary form of the proxy statement and prospectus required under the 1940 Act to request the approval of shareholders of JP Fund of the reorganization contemplated in the Agreement, shall have become effective under the 1933 Act not later than _________________, 1996. G. On the Closing Date, Oppenheimer Fund shall have received a letter of a senior executive officer of JP Investment Management Company (JP Fund's investment adviser) in form acceptable to Oppenheimer Fund, stating that between the date of the Agreement and the Closing Date there has been no material adverse change in the Assets, the operations or the financial condition of JP Fund (it being understood that a decrease in the size of JP Fund due to a diminution in the value of its portfolio and/or redemption of its shares shall not be considered a material adverse change) and that nothing has come to his or her attention which would indicate that as of the Closing Date there were any Liabilities of JP Fund not fully covered by the Cash Reserve or expected not to be so covered or pending or threatened claims, actions, suits, proceedings or investigations with respect to or affecting JP Fund, or any director, officer, employee or agent of JP Fund. H. Oppenheimer Fund shall have received an opinion, dated the Closing Date, of Sutherland, Asbill & Brennan, to the same effect as the opinion contemplated by Section i of the Agreement. I. Except as otherwise provided in the last paragraph of Section 8, Oppenheimer Fund shall have received at the Closing all of the Assets to be conveyed hereunder, free and clear of all liens, encumbrances, security interests, restrictions and limitations whatsoever except the Assumed Liabilities. J. At or prior to the Closing Date, JP Fund shall have delivered to Oppenheimer Fund two copies of a list setting forth the securities, cash and receivables then owned by JP Fund and the respective federal income tax bases thereof. 13. The obligations of JP Fund hereunder shall be subject to the following conditions: A. Oppenheimer Fund shall have furnished to JP Fund copies of resolutions of the Board of Trustees of Oppenheimer Trust with respect to approvals of the Agreement and the transactions contemplated herein certified by the Secretary or an Assistant Secretary of Oppenheimer Trust. B. JP Fund's shareholders shall have approved the Agreement and the transactions contemplated hereby, by an affirmative vote of a majority of the outstanding voting shares of JP Fund. C. JP Fund shall have received an opinion of counsel to Oppenheimer Fund dated the Closing Date, to the effect that (i) Oppenheimer Fund is a series of Oppenheimer Trust, a business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts with full powers to carry on its business as then being conducted and to enter into and perform the Agreement (Massachusetts counsel may be relied upon in delivering such opinion); (ii) all action necessary to make the Agreement, according to its terms, valid, binding and enforceable upon Oppenheimer Trust and to authorize effectively the transactions contemplated by the Agreement have been taken by Oppenheimer Trust; (iii) the shares of Oppenheimer Fund to be issued hereunder are duly authorized and when issued as provided for herein will be validly issued, fully-paid and non-assessable, except as otherwise set forth on Schedule 13C hereto with respect to potential liability of shareholders of a Massachusetts business trust (Massachusetts counsel may be relied upon in delivering such opinion); (iv) the Agreement has been duly authorized, executed and delivered by Oppenheimer Trust on behalf of Oppenheimer Fund and, assuming due authorization, execution and delivery of the Agreement by JP Fund, constitutes a valid and binding obligation of Oppenheimer Trust, enforceable against Oppenheimer Trust in accordance with its terms, subject to the Bankruptcy Exception and (v) the execution and delivery of the Agreement does not, and consummation of the transactions contemplated by the Agreement will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under: (a) the Declaration of Trust or By-Laws of Oppenheimer Trust, (b) any loan, credit agreement, note, bond, mortgage, indenture, lease, or contract applicable to Oppenheimer Fund, its assets and properties (other than any such conflicts, violations or defaults that individually or in the aggregate would not have a material adverse effect on Oppenheimer Fund or prevent consummation of the transactions contemplated hereby), or (c) any judgment, order of decree to which Oppenheimer Fund is subject or any state or federal law or regulation applicable to Oppenheimer Fund or its assets and properties. D. The representations and warranties of Oppenheimer Trust on behalf of Oppenheimer Fund contained herein shall be true and correct at and as of the Closing Date (with all representations and warranties that were made as of the date of the Agreement or as of another date being made again as of the Closing Date), and Oppenheimer Trust shall have performed, in all material respects, each of the covenants required to be performed by Oppenheimer Trust at or prior to Closing, and JP Fund shall have been furnished with a certificate of the President, a Vice President or the Secretary or an Assistant Secretary or the Treasurer of Oppenheimer Trust to that effect dated the Closing Date. E. JP Fund shall have received an opinion of Sutherland, Asbill & Brennan to the effect that the Federal tax consequences of the transaction, if carried out in the manner outlined in the Agreement and in accordance with (i) JP Fund's representation that there is no plan or intention by any JP Fund shareholder who owns 5% or more of JP Fund's outstanding shares, and, to JP Fund's best knowledge, there is no plan or intention on the part of the remaining JP Fund shareholders, to redeem, sell, exchange or otherwise dispose of a number of Oppenheimer Fund shares received in the transaction that would reduce JP Fund shareholders' ownership of Oppenheimer Fund shares to a number of shares having a value, as of the Closing Date, of less than 50% of the value of all of the formerly outstanding JP Fund shares as of the same date, (ii) the representation that Oppenheimer Fund will acquire at least 90% of the fair market value of the net assets and at least 70% of the fair market value of the gross assets held by JP Fund immediately prior to the reorganization, (iii) the representation by each of JP Fund and Oppenheimer Fund that, as of the Closing Date, JP Fund and Oppenheimer Fund will qualify as regulated investment companies and will meet the diversification test of Section 368(a)(2)(F)(ii) of the Code, and (iv) such other representations as shall be made by each of JP Fund and Oppenheimer Fund to Sutherland, Asbill & Brennan and accompany or be set forth in the opinion, will generally be as follows: (a) The reorganization contemplated by the Agreement will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code and JP Fund and Oppenheimer Fund will each be a "party to the reorganization" within the meaning of Section 368(b) of the Code. (b) No gain or loss will be recognized by Oppenheimer Fund upon the receipt of the assets transferred to it by JP Fund in exchange for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain identified liabilities of JP Fund. (Section 1032) (c) No gain or loss will be recognized by JP Fund upon the transfer of its assets to Oppenheimer Fund in exchange solely for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain identified liabilities of JP Fund (if any) and the subsequent distribution by JP Fund of such shares to the shareholders of JP Fund. (Section 361) (d) No gain or loss will be recognized by JP Fund shareholders upon the exchange of the JP Fund shares solely for the shares of Oppenheimer Fund. (Section 354) (e) The basis of the shares of Oppenheimer Fund received by each JP Fund shareholder pursuant to the reorganization will be the same as the adjusted basis of that shareholder's JP Fund shares surrendered in exchange therefor. (Section 358) (f) The holding period of shares of Oppenheimer Fund to be received by each JP Fund shareholder will include the shareholder's holding period for the JP Fund shares surrendered in exchange therefor, provided such JP Fund shares were held as capital assets on the Closing Date. (Section 1223) (g) Oppenheimer Fund's basis for the assets transferred to it by JP Fund will be the same as JP Fund's tax basis for the assets immediately prior to the reorganization. (Section 362(b)) (h) Oppenheimer Fund's holding period for the transferred assets will include JP Fund's holding period therefor. (Section 1223) (i) Oppenheimer Fund will succeed to and take into account the items of JP Fund described in Section 381(c) of the Code, including the earnings and profits, or deficit in earnings and profits, of JP Fund as of the date of the transaction, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code. (j) No gain or loss will be recognized by the owners of variable contracts issued by Jefferson-Pilot Life Insurance Company through the variable account on the transfer of JP Fund's assets to Oppenheimer Fund in exchange solely for shares of Oppenheimer Fund and Oppenheimer Fund's assumption of certain JP Fund liabilities (if any) and the subsequent distribution by JP Fund of those shares to the variable account. Notwithstanding anything herein to the contrary, neither Oppenheimer Fund nor JP Fund may waive the material conditions set forth in this Section 13E although the actual wording of such opinion may differ to the extent agreed to by Oppenheimer Fund and JP Fund. F. The Cash Reserve shall not exceed 1% of the value of the net assets, nor 10% in value of the gross assets, of JP Fund at the close of business on the Valuation Date. G. The N-14 Registration Statement shall have become effective under the 1933 Act not later than ______________________, 1996. H. JP Fund shall acknowledge receipt of the shares of Oppenheimer Fund. I. On the Closing Date, JP Fund shall have received a letter of a senior officer of OFI in form acceptable to it, stating that between the date of the Agreement and the Closing Date there has been no material adverse change in the operations or financial condition of Oppenheimer Fund (it being understood that a decrease in the size of Oppenheimer Fund due to a diminution in the value of its portfolio and/or redemption of its shares shall not be considered a material adverse change) and that nothing has come to his or her attention that would indicate that as of the Closing Date there were any pending or threatened litigation or claims with respect to Oppenheimer Fund. 14. JP Fund hereby represents and warrants that: A. The financial statements of JP Fund as at December 31, 1995 (audited) and June 30, 1996 (unaudited) heretofore furnished to Oppenheimer Fund, present fairly the financial position, results of operations, and changes in net assets of JP Fund as of such dates, in conformity with generally accepted accounting principles applied on a basis consistent with the preceding year and six-month period; and that from December 31, 1995 through the date hereof there has not been any material adverse change in the Assets, the operations or financial condition of JP Fund, it being agreed that a decrease in the size of JP Fund due to a diminution in the value of its portfolio and/or redemption of its shares shall not be considered a material adverse change. B. JP Fund has good and valid title to the Assets, subject to no liens, security interests or other encumbrances, and contingent upon approval of the Agreement and the transactions contemplated hereby by JP Fund's shareholders, JP Fund has authority to transfer the Assets to be conveyed hereunder free and clear of all liens, encumbrances, security interests, restrictions and limitations whatsoever (excluding the Assumed Liabilities). C. The Prospectus of JP Fund dated May 1, 1996, as amended and supplemented on __________, 1996, and Statement of Additional Information of JP Fund dated May 1, 1996, contained in JP Fund's Registration Statement under the 1933 Act, as amended, are true, correct and complete, conform to the requirements of the 1933 Act and the 1940 Act and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Registration Statement of JP Fund, as amended, was, as of the date of the filing of the last Post-Effective Amendment, true, correct and complete, conformed to the requirements of the 1933 Act and the 1940 Act, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and was, as of its filing, and continues to be, in full force and effect. D. There is no material Liability of JP Fund in existence except as set forth in the financial statements of JP Fund as at December 31, 1995 and June 30, 1996 and as of such dates there were no Liabilities of JP Fund (contingent or otherwise) not disclosed therein that would be required in conformity with generally accepted accounting principles to be disclosed therein. No such material Liability of JP Fund has arisen since December 31, 1995 and June 30, 1996 except as set forth on Exhibit 14D hereto. There are no claims, actions, suits, proceedings or investigations pending or, to the knowledge of JP Fund, threatened by, against or involving JP Fund or any director, officer, employee, or agent of JP Fund. JP Fund knows of no facts that might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that materially and adversely affects, or is likely to materially and adversely affect, its business or its ability to consummate the transactions herein contemplated. E. There are no contracts, agreements or commitments in existence, whether written or oral, to which JP Fund (or a predecessor) is a party or has succeeded to a party by assumption or assignment or in which it has a beneficial interest other than the Agreement and those entered into by JP Fund in the ordinary conduct of its business and JP Fund has delivered or made available to Oppenheimer Fund, as to each such contract, agreement or other commitment, a true and complete copy or description thereof and as to any oral contract, agreement or other commitment, a true and complete description thereof. F. JP Fund is a corporation duly incorporated, validly existing and in good standing under the laws of the State of North Carolina, with the requisite corporate power and authority to enter into and perform the Agreement and, subject to approval of its shareholders, to consummate the transactions contemplated hereby; all corporate action necessary to make the Agreement, according to its terms, valid, binding and enforceable on JP Fund and to authorize the transactions contemplated by the Agreement, including without limitation necessary approvals of the Board of Directors of JP Fund, have been taken by JP Fund subject to approval of the Agreement by the shareholders of JP Fund; the Agreement has been duly executed and delivered by JP Fund and constitutes a valid and binding obligation of JP Fund, enforceable against JP Fund in accordance with its terms, subject to the approval of its shareholders and the Bankruptcy Exception; and the execution and delivery of the Agreement does not, and the consummation of the transactions contemplated by the Agreement will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under (a) the Certificate of Incorporation or By-Laws of JP Fund, or (b) any loan, credit agreement, note, bond, mortgage, indenture, lease or contract applicable to JP Fund, its assets and properties (other than any such conflicts, violations or defaults that individually or in the aggregate would not have a material adverse effect on JP Fund or prevent consummation of the transactions contemplated hereby), or (c) any judgment, order or decree to which JP Fund is subject or any state or federal law or regulation applicable to JP Fund or its assets and properties. G. All Federal and other tax returns and reports of JP Fund required by law to be filed have been filed, and all Federal and other taxes shown due on said returns and reports have been paid or provision shall have been made for the payment thereof and to the best of the knowledge of JP Fund no such return is currently under audit and no assessment has been asserted with respect to such returns and to the extent such tax returns with respect to the taxable year of JP Fund ended December 31, 1995 have not been filed, such returns will be filed when required and the amount of tax shown as due thereon shall be paid when due. There are no claims, levies, liabilities or amounts due for corporate, excise, income or other federal, state or local taxes outstanding or threatened against JP Fund (other than those reflected in its most recent audited financial statements) and to the best of JP Fund's knowledge there are no facts that might form the basis for such claims, levies, liabilities or amounts due. H. JP Fund has elected to be treated as a regulated investment company and, for each fiscal year of its operations, JP Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company and JP Fund intends to meet such requirements with respect to its current taxable year. I. All issued and outstanding shares of common stock of JP Fund, par value $1.00 per share, are, and at the Closing Date will be, duly authorized and validly issued and outstanding, fully paid and non- assessable with no personal liability attaching to the ownership thereof. All such shares will, at the time of Closing, be held by the persons or entities and in the amounts set forth on the Shareholder List submitted to Oppenheimer Fund pursuant to Section 5. There are no outstanding rights, options, warrants, conversion rights, preemptive rights or agreements with respect to shares of JP Fund. Set forth on Exhibit 14I hereto are the names, addresses and share ownership amounts of each shareholder of JP Fund that beneficially (as that term is defined pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules thereunder) owns 1% or more of JP Fund's outstanding shares. J. The copies of the Certificate of Incorporation and By-laws of JP Fund, and all amendments thereto, previously delivered to Oppenheimer Fund are true, complete and correct. K. There is no plan or intention by any JP Fund shareholder who owns 5% or more of JP Fund's outstanding shares, and, to JP Fund's best knowledge, there is no plan or intention on the part of the remaining JP Fund shareholders, to redeem, sell, exchange or otherwise dispose of a number of Oppenheimer Fund shares received in the transaction that would reduce JP Fund shareholders' ownership of Oppenheimer Fund shares to a number of shares having a value, as of the Closing Date, of less than 50% of the value of all of the formerly outstanding JP Fund shares as of the same date. With respect to the foregoing representation, attached hereto as Exhibit 14K are true and complete copies of representation letters signed by each such 5% or greater shareholder. L. There are no unresolved or outstanding shareholder claims or complaints related to JP Fund other than as disclosed by JP Fund in writing to Oppenheimer Fund and which are determined by Oppenheimer Fund to not be material with respect to the Agreement and the transactions contemplated herein. M. Except as previously disclosed to Oppenheimer Fund in writing, and except as have been corrected as required by applicable law, there have been no miscalculations of the net asset value of JP Fund during the twelve-month period preceding the Closing Date and all such calculations have been done in accordance with the applicable provisions of the 1940 Act. N. All of the issued and outstanding shares of JP Fund have been offered and sold in compliance with applicable registration requirements of the 1933 Act and state securities laws, are registered under the 1933 Act, the 1940 Act and in all jurisdictions in which they are required to be registered under state securities laws and other laws, and said registrations, including any periodic reports or supplemental filings, are complete, current and have been continuously effective, all fees required to be paid have been paid, and JP Fund is not subject to any stop order and is fully qualified to sell its shares in each state in which its shares have been registered. O. JP Fund has maintained or has caused to be maintained on its behalf all books and accounts as required of a registered investment company in compliance with the requirements of Section 31 of the 1940 Act and the Rules thereunder. P. No violation of applicable federal, state and local statute, law or regulation, exists that individually, or in the aggregate, would have a material adverse effect on the business or operations of JP Fund. Q. JP Fund is in compliance with its investment objectives, policies and restrictions as described in its current Prospectus and Statement of Additional Information. R. JP Fund is duly registered under the 1940 Act and such registration has not been revoked or rescinded and is in full force and effect. S. Except for the shareholder approvals specified in Section 12F, no consent, approval, governmental filing, authorization or permit from any person or entity is necessary for the execution and delivery of the Agreement and the consummation of the transactions contemplated by the Agreement. 15. Oppenheimer Trust on behalf of Oppenheimer Fund hereby represents and warrants that: A. The financial statements of Oppenheimer Fund as at December 31, 1995 (audited) and June 30, 1996 (unaudited) heretofore furnished to JP Fund, present fairly the financial position, results of operations, and changes in net assets of Oppenheimer Fund, as of such dates, in conformity with generally accepted accounting principles applied on a basis consistent with the preceding year and six-month period; and that from December 31, 1995 through the date hereof there has not been any material adverse changes in the business or financial condition of Oppenheimer Fund, it being understood that a decrease in the size of Oppenheimer Fund due to a diminution in the value of its portfolio and/or redemption of its shares shall not be considered a material or adverse change. B. The Prospectus of Oppenheimer Fund, dated May 1, 1996, and the Statement of Additional Information of Oppenheimer Fund, dated May 1, 1996, contained in Oppenheimer Trust's Registration Statement under the 1933 Act, are true, correct and complete, conform to the requirements of the 1933 Act and the 1940 Act and do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Registration Statement of Oppenheimer Trust, as amended, was, as of the date of the filing of the last Post-Effective Amendment, true, correct and complete, conformed to the requirements of the 1933 Act and the 1940 Act and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. C. Oppenheimer Fund is a series of Oppenheimer Trust, a Massachusetts business trust duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts with the requisite power and authority granted to business trusts to enter into and perform the Agreement and consummate the transactions contemplated hereby; all necessary action necessary to make the Agreement, according to its terms, valid, binding and enforceable on Oppenheimer Trust on behalf of Oppenheimer Fund and to authorize the transactions contemplated by the Agreement, including without limitation necessary approvals of the Board of Trustees of Oppenheimer Trust, have been taken by Oppenheimer Trust; the Agreement has been duly executed and delivered by Oppenheimer Trust on behalf of Oppenheimer Fund and constitutes a valid and binding obligation of Oppenheimer Fund, enforceable against Oppenheimer Trust in accordance with its terms, subject to the Bankruptcy Exception; and the execution and delivery of the Agreement does not, and the consummation of the transactions contemplated by the Agreement will not, conflict with, or result in any violation of, or constitute a default (with or without notice or lapse of time, or both) under (a) the Declaration of Trust or By-Laws of Oppenheimer Trust, or (b) any loan, credit agreement, note, bond, mortgage, indenture, lease or contract applicable to Oppenheimer Fund, its assets and properties (other than any such conflicts, violations or defaults that individually or in the aggregate would not have a material adverse effect on Oppenheimer Fund or prevent consummation of the transactions contemplated hereby), or (c) any judgment, order or decree to which Oppenheimer Fund is subject or any state or federal law or regulation applicable to Oppenheimer Fund or its assets and properties. D. All Federal and other tax returns and reports of Oppenheimer Fund required by law to be filed have been filed, and all Federal and other taxes shown due on said returns and reports have been paid or provision shall have been made for the payment thereof and to the best of the knowledge of Oppenheimer Fund no such return is currently under audit and no assessment has been asserted with respect to such returns and to the extent such tax returns with respect to the taxable year of Oppenheimer Fund ended December 31, 1995 have not been filed, such returns will be filed when required and the amount of tax shown as due thereon shall be paid when due. E. Oppenheimer Fund has elected to be treated as a regulated investment company and, for each fiscal year of its operations, Oppenheimer Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company and Oppenheimer Fund intends to meet such requirements with respect to its current taxable year. F. Oppenheimer Fund (i) at the time of the reorganization will have no plan or intention to dispose of any of the assets transferred by JP Fund, other than in the ordinary course of business, and (ii) has no plan or intention to redeem or reacquire any of the shares issued by it in the reorganization other than pursuant to valid requests of shareholders. G. After consummation of the transactions contemplated by the Agreement and for a period of one year thereafter, Oppenheimer Fund intends to operate its business in a substantially unchanged manner subject to such changes as may be required in the ordinary course of its business or as may be approved by the Board of Trustees of Oppenheimer Trust. H. The copies of the Declaration of Trust and By-Laws of Oppenheimer Trust, and any amendments thereto, previously delivered to JP Fund by Oppenheimer Fund are true, complete and correct. I. The shares of Oppenheimer Fund which it issues to JP Fund pursuant to the Agreement will be duly authorized, validly issued, fully- paid and non-assessable, except as otherwise set forth in Schedule 13C hereto with respect to potential liability of shareholders of a Massachusetts business trust, will conform to the description thereof contained in Oppenheimer Trust's Registration Statement and will be duly registered under the 1933 Act. J. All of the issued and outstanding shares of Oppenheimer Fund have been offered and sold in compliance in all material respects with applicable registration requirements of the 1933 Act and state securities laws, are registered in all jurisdictions in which they are required to be registered and such registrations, including any periodic reports or supplemental filings, are complete and current, all fees required to be paid have been paid, and Oppenheimer Fund is not subject to any stop order and is fully qualified to sell its shares in each state in which its shares are currently sold. K. Oppenheimer Trust is duly registered under the 1940 Act and such registration has not been revoked or rescinded and is in full force and effect. 16. (a) Each party hereby represents to the other that no broker or finder has been employed by it with respect to the Agreement or the transactions contemplated hereby. (b) Oppenheimer Trust on behalf of Oppenheimer Fund represents and warrants that the information concerning it in the Proxy Statement and Prospectus will not as of the date of the Proxy Statement and Prospectus contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements concerning it therein in light of the circumstances in which they are made not misleading. Oppenheimer Trust on behalf of Oppenheimer Fund represents and warrants that its financial statements in the N-14 Registration Statement (described below) fairly present the information shown in accordance with generally accepted accounting principles applied on a basis consistent with previous periods. (c) JP Fund represents and warrants that the information concerning it in the Proxy Statement and Prospectus will not as of the date of the Proxy Statement and Prospectus contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements concerning it therein in light of the circumstances in which they are made not misleading. JP Fund represents and warrants that its financial statements in the N-14 Registration Statement fairly present the information shown in accordance with generally accepted accounting principles applied on a basis consistent with previous periods. 17. Oppenheimer Trust on behalf of Oppenheimer Fund agrees that it will prepare and file the N-14 Registration Statement which shall contain a preliminary form of Proxy Statement and Prospectus contemplated by Rule 145 under the 1933 Act. JP Fund shall be responsible for preparation of the notice of meeting, Proxy Statement and Prospectus and form of proxy to be sent to JP Fund shareholders. The final form of such Proxy Statement and Prospectus is referred to in the Agreement as the "Proxy Statement and Prospectus." Each party agrees that it will use its best efforts to have the N-14 Registration Statement declared effective and to supply such information concerning itself for inclusion in the Proxy Statement and Prospectus as may be necessary or desirable in this connection. JP Fund covenants and agrees to deregister, or cause to have deregistered, the shares of JP Fund under the 1940 Act as soon as practicable. 18. (a) JP Fund covenants and agrees to afford to Oppenheimer Fund, its counsel, accountants and other representatives reasonable access, during normal business hours throughout the period prior to the Closing Date, to the books, records, employees and representatives of JP Fund. (b) JP Fund covenants and agrees that during the period from the date hereof until the Closing Date its investment objectives, investment policies and investment restrictions, as disclosed in its most current Prospectus dated May 1, 1996, as amended and supplemented on __________, 1996, and Statement of Additional Information, dated May 1, 1996, will not be changed in any manner whatsoever except pursuant to a statutory amendment or regulatory requirement during such time and upon prior notice to Oppenheimer Fund. (c) JP Fund covenants that during the period from the date hereof until the Closing Date, except as approved in writing by Oppenheimer Fund or expressly provided for in the Agreement, JP Fund (i) will not conduct its business other than in the ordinary course substantially in the manner heretofore conducted and consistent with JP Fund's investment objectives, policies and restrictions as set forth in its most current Prospectus dated May 1, 1996, as amended and supplemented on _____________, 1996, and Statement of Additional Information, dated May 1, 1996, (ii) will not permit or allow any of the Assets to be subjected to any encumbrance, (iii) will not enter into any material transaction or otherwise incur any material Liability other than in the normal course of business consistent with past practice, (iv) will not declare, set aside or pay any dividend or make any other distribution except for payment of its dividends in ordinary course consistent with past practice and except for the final dividend and distribution to be made pursuant to Section 3 of the Agreement, and (v) will not agree, whether in writing or otherwise, to do any of the foregoing. Notwithstanding the foregoing, JP Fund covenants that (x) between the date of the Agreement and the Closing Date, promptly following any transaction involving an acquisition or disposition by JP Fund of portfolio securities, JP Fund shall provide to Oppenheimer Fund a written report detailing such transaction and (y) upon the written request of Oppenheimer Fund, to promptly sell one or more portfolio securities acquired by JP Fund between the date of the Agreement and the Closing Date and (z) to transfer to Oppenheimer Fund on the Closing Date only those Assets the acquisition of which will permit Oppenheimer Fund to be in compliance with all of its investment policies and restrictions. (d) JP Fund covenants and agrees to comply with all applicable laws, rules and regulations. (e) JP Fund covenants and agrees to maintain in the ordinary course of business consistent with past practice its books and records through to the date of its dissolution and liquidation and to prepare and file all documents, reports and instruments and take such action, including, without limitation, under the federal securities laws and state laws, that is required or appropriate to be filed or taken by it prior to, and/or in connection with, its dissolution and liquidation. 19. (a) Oppenheimer Fund covenants that during the period from the date hereof until the Closing Date it will conduct its business in the ordinary course, it being understood that such ordinary course of business will include customary dividends and other distributions and such changes, if any, that have been approved by trustees of Oppenheimer Fund of which JP Fund has been advised. (b) Oppenheimer Fund covenants and agrees to comply with all applicable laws, rules and regulations. 20. The Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing (i) by the mutual written consent of Oppenheimer Trust on behalf of Oppenheimer Fund and JP Fund, (ii) by either Oppenheimer Trust on behalf of Oppenheimer Fund or JP Fund, by notice in writing to the other, if the Closing shall not have occurred on or before December 31, 1996, (iii) by either Oppenheimer Trust on behalf of Oppenheimer Fund or JP Fund, by notice in writing to the other, if (A) the other party shall fail to perform in any material respect its agreements contained herein required to be performed on or prior to the Closing Date, (B) the other party materially breaches or shall have breached any of its representations, warranties or covenants contained herein, (C) the JP Fund shareholders fail to approve the Agreement or (D) any other condition herein expressed to be precedent to the obligations of the terminating party has not been met (other than through the failure of the terminating party to comply with its obligations under the Agreement) and it reasonably appears that it will not or cannot be met or (iv) pursuant to Section 4 of the Agreement. Termination of the Agreement pursuant to (i), (ii) or (iv) shall terminate all obligations of the parties hereunder and there shall be no liability for damages on the part of Oppenheimer Fund, JP Fund or their respective trustees, directors or officers to any other party or its trustees, directors, or officers and it is understood and agreed that each party shall be reimbursed for its Expenses pursuant to Section 9 of the Agreement. Termination of the Agreement pursuant to (iii) shall terminate all obligations of Oppenheimer Fund and JP Fund hereunder and there shall be no liability for damages on the part of Oppenheimer Fund, Oppenheimer Trust or JP Fund or their respective trustees, directors or officers to any other party or its trustees, directors or officers, except that the party in breach of the Agreement shall, upon demand, reimburse the non- breaching party for all Expenses, including reasonable out-of-pocket expenses and fees incurred in connection with the transactions contemplated by the Agreement, and the provisions of Section 9 as to Expenses shall be of no force or effect. For the purposes of the foregoing sentence, the non-fulfillment of the condition requiring approval of JP Fund shareholders set forth in Sections 10A and 11B shall not be deemed a breach entitling a party to reimbursement of fees and expenses. The Agreement shall automatically terminate prior to the Closing in the event the Acquisition Agreement is terminated or the acquisition contemplated by the Acquisition Agreement is not consummated, and in such event all obligations of Oppenheimer Fund and JP Fund shall terminate and there shall be no liability on the part of Oppenheimer Fund, Oppenheimer Trust or JP Fund or their respective trustees, directors or officers to the other or its respective trustees, directors or officers, it being understood and agreed that each party shall be reimbursed for its Expenses pursuant to Section 9 of the Agreement. 21. (a) JPC shall indemnify and hold harmless JP Fund, Oppenheimer Trust, Oppenheimer Fund, their investment advisers and their respective trustees, officers and shareholders, against any and all claims to the extent such claims are based upon, arise out of or relate to (i) any untruthful or inaccurate representation made by JP Fund in the Agreement or any breach by JP Fund of any warranty or any failure by JP Fund to perform or comply with any of its obligations, covenants, conditions or agreements set forth in the Agreement or (ii) the failure of JP Fund to comply with applicable legal requirements, including, without limitation, registration under the 1933 Act and the 1940 Act and state securities laws. Notwithstanding the foregoing, JPC shall not be obligated to so indemnify any officer or director of JP Fund if such claims result from such person's willful misfeasance, bad faith or gross negligence. (b) OFI shall indemnify and hold harmless JP Fund and its investment adviser and their respective trustees, officers and shareholders, against any and all claims to the extent such claims are based upon, arise out of or relate to any untruthful or inaccurate representation made by Oppenheimer Trust in the Agreement or any breach by Oppenheimer Trust of any warranty or any failure by Oppenheimer Trust to perform or comply with any of its obligations, covenants, conditions or agreements set forth in the Agreement. Notwithstanding the foregoing, OFI shall not be obligated to so indemnify any officer or director of JP Fund or its investment adviser if such claims result from such person's willful misfeasance, bad faith or gross negligence. (c) As used in this section, the word "claim" means any and all liabilities, obligations, losses, damages, deficiencies, demands, claims, penalties, assessments, judgments, actions, proceedings and suits of whatever kind and nature and all costs and expenses (including, without limitation, reasonable attorneys' fees). 22. The Agreement may be executed in several counterparts, each of which shall be deemed an original, but all taken together shall constitute one Agreement. The rights and obligations of each party pursuant to the Agreement shall not be assignable. 23. All prior or contemporaneous agreements and representations are merged into the Agreement, which constitutes the entire contract between the parties hereto. No amendment or modification hereof shall be of any force and effect unless in writing and signed by the parties and no party shall be deemed to have waived any provision herein for its benefit unless it executes a written acknowledgement of such waiver. 24. JP Fund understands that the obligations of Oppenheimer Trust under the Agreement are not binding upon any Trustee or shareholder of Oppenheimer Trust and OppenheImer Fund personally, but bind only Oppenheimer Trust, Oppenheimer Fund and Oppenheimer Fund's property. JP Fund represents that it has notice of the provisions of the Declaration of Trust of Oppenheimer Trust disclaiming shareholder and Trustee liability for acts or obligations of Oppenheimer Trust. 25. Neither of the parties shall make any press release of the transactions contemplated by the Agreement, or any discussion in connection therewith, without the prior written consent of the other party, which consent shall not be unreasonably withheld. The preceding sentence shall not apply to any disclosures required to be made by applicable laws, as determined by counsel; however, the applicable party shall consult with the other party concerning the timing and content of such disclosure before making it. 26. The representations, warranties and covenants set forth in the Agreement shall survive the closing. 27. The Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of laws principles of such State. IN WITNESS WHEREOF, each of the parties has caused the Agreement to be executed and attested by its officers thereunto duly authorized on the date first set forth above. Attest: JEFFERSON-PILOT CAPITAL APPRECIATION FUND, INC. __________________________ By: _____________________________ Attest: OPPENHEIMER VARIABLE ACCOUNT FUNDS, ON BEHALF OF OPPENHEIMER GROWTH FUND __________________________ By: _____________________________ Attest: For purposes of Section 21 only: JEFFERSON-PILOT CORPORATION ___________________________ By: ______________________________ Attest: For purposes of Section 21 only: OPPENHEIMERFUNDS, INC. ____________________________ By: __________________________ Preliminary Copy JP Capital Appreciation Fund, Inc. VOTING INSTRUCTIONS FORM FOR SPECIAL SHAREHOLDERS MEETING TO BE HELD DECEMBER 3, 1996 The undersigned variable contract owner indirectly invested in JP Capital Appreciation Fund, Inc. ("JP Fund"), does hereby direct Jefferson-Pilot Life Insurance Company "JPLIC") to vote shares of JP Fund held to support his or her variable contract at the Special Meeting of Shareholders of JP Fund to be held on December 3, 1996, at the Jefferson-Pilot Building (4th Floor, Room B-2), 100 North Greene Street, Greensboro, North Carolina 27420 at 10:00 A.M., local time, and at all adjournments thereof, and to vote the shares held in the name of JPLIC for the undersigned on the record date for said meeting on the Proposals specified on the reverse side. PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WHO RECOMMENDS A VOTE FOR THE PROPOSALS ON THE REVERSE SIDE AND THE ELECTION OF EACH NOMINEE AS DIRECTOR. THE SHARES REPRESENTED HEREBY WILL BE VOTED AS INDICATED ON THE REVERSE SIDE OR FOR EACH PROPOSAL AND THE ELECTION OF EACH NOMINEE AS DIRECTOR IF NO CHOICE IS INDICATED. Please mark your voting instructions form, date and sign it on the reverse side and return it promptly in the accompanying envelope, which requires no postage if mailed in the United States. Proposal 1: To consider and vote upon the approval or disapproval of the Agreement and Plan of Reorganization dated as of _________, 1996 (the "Reorganization Agreement") by and among JP Fund, Jefferson-Pilot Corporation, Oppenheimer Variable Account Funds, on behalf of its series Oppenheimer Growth Fund ("Oppenheimer Fund"), and OppenheimerFunds, Inc., and the transactions contemplated thereby, including (i) the transfer of substantially all the assets of JP Fund to Oppenheimer Fund in exchange for shares of Oppenheimer Fund, (ii) the distribution of such shares of Oppenheimer Fund to shareholders of JP Fund in liquidation of JP Fund, and (iii) the cancellation of the outstanding shares of JP Fund. FOR____ AGAINST____ ABSTAIN____ Proposal 2: To elect to the Board of Directors the following five (5) directors to hold office until the earlier of (i) the dissolution of JP Fund or (ii) the next annual meeting of shareholders of JP Fund called for the purpose of electing directors, or until their successors are elected and qualified. A) E.J. Yelton D) William Edward Moran B) John C. Ingram E) J. Lee Lloyd C) Richard Wolcott McEnally _______For all nominees listed ____WITHHOLD AUTHORITY except as marked to the contrary at to vote for all nominees left. Instruction: To withhold listed at left. authority to vote for any individual nominee, line out that nominee's name at left. Proposal 3: To ratify or reject the selection of McGladrey & Pullen LLP as JP Fund's independent auditors for the current fiscal year. FOR____ AGAINST____ ABSTAIN____ Dated:________________________, 1996 (Month) (Day) ______________________________ Signature(s) ______________________________ Signature(s) Please read both sides of this ballot. NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR HEREON. When signing as custodian, attorney, executor, administrator, trustee, etc., please give your full title as such. All joint owners should sign this proxy. If the account is registered in the name of a corporation, partnership or other entity, a duly authorized individual must sign on its behalf and give his or her title. OPPENHEIMER VARIABLE ACCOUNT FUNDS Prospectus dated May 1, 1996 OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is a diversified open-end investment company consisting of nine separate funds, seven of which (collectively, the "Funds") are as follows: 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 securities 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 its assets in securities of foreign issuers, "growth-type" companies, 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. This Prospectus may be used to offer or sell shares of only those Funds listed above. 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 explains concisely what you should know before investing in the Trust and the Funds. Please read this Prospectus carefully and keep it for future reference. You can find more detailed information about the Funds in the May 1, 1996 Statement of Additional Information. For a free copy, call OppenheimerFunds Services, the Funds' Transfer Agent, at 1-800-525-7048, or write to the Transfer Agent at the address on the back cover. The Statement of Additional Information has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference (which means that it is legally part of this Prospectus). THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION 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. Contents About the Funds Overview of the Funds Financial Highlights Investment Objectives and Policies How the Funds are Managed Performance of the Funds About Your Account How to Buy Shares How to Sell Shares Dividends, Capital Gains and Taxes Appendix A: Description of Terms Appendix B: Description of Securities Ratings ABOUT THE FUNDS Overview of the Funds Some of the important facts about the Funds are summarized below, with references to the section of this Prospectus where more complete information can be found. You should carefully read the entire Prospectus before making a decision about investing. Keep the Prospectus for reference after you invest. - What Are the Funds' Investment Objectives? Money Fund's investment objective is to seek current income from investments in "money market" securities consistent with low capital risk and the maintenance of liquidity. High Income Fund's investment objective is to seek a high level of current income from investment in high yield fixed-income securities. Bond Fund's investment objective is to seek a high level of current income from investment in high yield fixed-income securities rate "Baa" or better by Moody's or "BBB" or better by Standard & Poor's. As a secondary investment objective, Bond Fund seeks capital growth when consistent with its primary objective. Capital Appreciation Fund's investment objective is to achieve capital appreciation by investing in "growth-type" companies. Growth Fund's investment objective is to seek to achieve capital appreciation by investing in securities of well-known established companies. Multiple Strategies Fund's investment objective is to seek a total investment return (which includes current income and capital appreciation in the value of its shares) from investment in common stocks and other equity securities, bonds and other debt securities, and "money market" securities. Global Securities Fund's investment objective is to seek long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations which are considered to have appreciation possibilities. - What Do the Funds Invest In? To seek their respective investment objectives, the Funds invest as follows. Money Fund primarily invests in money market securities. High Income Fund primarily invests in high yield fixed-income securities, including unrated securities or high risk securities in the lower rating categories, commonly known as "junk bonds." Bond Fund primarily invests in high yield fixed-income securities rated "Baa" or better by Moody's or "BBB" or better by Standard & Poor's. Capital Appreciation Fund primarily invests in "growth-type" companies. Growth Fund primarily invests in securities of well-known established companies. Multiple Strategies Fund primarily invests in common stocks and other equity securities, bonds and other debt securities, and money market securities. Global Securities Fund primarily invests in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations. These investments are more fully explained for each Fund in "Investment Objectives and Policies," starting on page ___. - Who Manages the Funds? The Funds' investment adviser is OppenheimerFunds, Inc., which (including a subsidiary) advises investment company portfolios having over $50 billion in assets. Each Fund's portfolio manager is primarily responsible for the selection of securities of that Fund. The portfolio managers are as follows: for Money Fund, Dorothy Warmack; for High Income Fund, Bond Fund and Multiple Strategies Fund, David Negri (joined by Richard Rubinstein for Multiple Strategies Fund); for Capital Appreciation Fund, Paul LaRocco; for Growth Fund, Jane Putnam; for Global Securities Fund, William Wilby. The Manager is paid an advisory fee by each Fund, based on its assets. The Trust's Board of Trustees, elected by shareholders, oversees the investment adviser and the portfolio manager. Please refer to "How The Funds Are Managed," starting on page ____ for more information about the Manager and its fees. - How Risky Are The Funds? While different types of investments have risks that differ in type and magnitude, all investments carry risk to some degree. Changes in overall market movements or interest rates, or factors affecting a particular industry or issuer, can affect the value of the Funds' investments and their price per share. Equity investments are generally subject to a number of risks including the risk that values will fluctuate as a result of changing expectations for the economy and individual issuers. For both equity and income investments, foreign investments are subject to the risk of adverse currency fluctuation and additional risks and expenses in comparison to domestic investments. In comparing levels of risk among the equity and equity- income funds, Growth Fund is most conservative, followed by Multiple Strategies Fund, Capital Appreciation Fund and Global Securities Fund. Fixed-income investments are generally subject to the risk that values will fluctuate with inflation, with lower-rated fixed-income investments being subject to a greater risk that the issuer will default in its interest or principal payment obligations. In comparing levels of risk among the fixed-income funds, Bond Fund is most conservative, followed by High Income Fund. Money Fund is the most conservative of all seven Funds in that Money Fund intends to maintain a stable net asset value, although there is no assurance that it will be able to do so. - How Can I Buy or Sell 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. Account owners should refer to the accompanying Account Prospectus on how to buy or sell shares of the Funds. - How Have the Funds Performed? Money Fund, High Income Fund and Bond Fund measure their performance by quoting their yields. All of the Funds with the exception of Money Fund may measure their performance by quoting average annual total return and cumulative total return, which measure historical performance. Those returns can be compared to the returns (over similar periods) of other funds. Of course, other funds may have different objectives, investments, and levels of risk. The performance of all the Funds except Money Fund can also be compared to broad market indices, which we have done starting on page ___. Please remember that past performance does not guarantee future results. Financial Highlights The tables on the following pages present selected financial information, including per share data and expense ratios and other data about the Funds, and is based on each Fund's average net assets. This information has been audited by Deloitte & Touche LLP, the Funds' independent auditors, whose report on the Funds' financial statements for the fiscal year ended December 31, 1995, is included in the Statement of Additional Information.
Oppenheimer Bond Fund ----------------------------------------------------------------------------- Year Ended December 31, 1995 1994 1993 1992 1991 ----------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $10.78 $11.65 $10.99 $11.15 $10.33 Income (loss) from investment operations: Net investment income .72 .76 .65 .87 .95 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.07 (.98) .76 (.17) .80 ----------------------------------------------------------------------------- Total income (loss) from investment operations 1.79 (.22) 1.41 .70 1.75 ----------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.73) (.62) (.75) (.86) (.93) Distributions from net realized gain on investments and foreign currency transactions -- (.03) -- -- -- ----------------------------------------------------------------------------- Total dividends and distributions to shareholders (.73) (.65) (.75) (.86) (.93) ----------------------------------------------------------------------------- Net asset value, end of period $11.84 $10.78 $11.65 $10.99 $11.15 ========================================================== =================== TOTAL RETURN, AT NET ASSET VALUE(1) 17.00% (1.94)% 13.04% 6.50% 17.63% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $211,232 $135,067 $111,846 $63,354 $32,762 Average net assets (in thousands) $170,929 $121,884 $ 87,215 $45,687 $22,169 Ratios to average net assets: Net investment income 6.91% 7.30% 7.20% 7.81% 8.73% Expenses .80% .57% .46% .56% .64% Portfolio turnover rate(2) 79.4% 35.1% 36.3% 41.3% 7.6% ---------------------------------------------------------------------------- 1990 1989 1988 1987 1986 ---------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $10.49 $10.15 $10.19 $11.15 $11.27 Income (loss) from investment operations: Net investment income .97 .98 .94 .97 .97 Net realized and unrealized gain (loss) on investments and foreign currency transactions (.18) .32 (.05) (.71) .09 ---------------------------------------------------------------------------- Total income (loss) from investment operations .79 1.30 .89 .26 1.06 ---------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.95) (.96) (.93) (1.17) (1.03) Distributions from net realized gain on investments and foreign currency transactions -- -- -- (.05) (.15) ---------------------------------------------------------------------------- Total dividends and distributions to shareholders (.95) (.96) (.93) (1.22) (1.18) ---------------------------------------------------------------------------- Net asset value, end of period $10.33 $10.49 $10.15 $10.19 $11.15 ========================================================== ================== TOTAL RETURN, AT NET ASSET VALUE(1) 7.92% 13.32% 8.97% 2.53% 10.12% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $16,576 $13,422 $ 9,989 $10,415 $7,377 Average net assets (in thousands) $15,088 $11,167 $11,028 $ 8,748 $4,647 Ratios to average net assets: Net investment income 9.30% 9.34% 9.08% 9.17% 8.71% Expenses .61% .64% .70% .75% .75% Portfolio turnover rate(2) 7.4% 5.4% 36.3% 5.9% 27.7%
1. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods of less than one full year. Total return information does not reflect expenses that apply at the separate account level or to related insurance products. Inclusion of these charges would reduce the total return figures for all periods shown. 2. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. Oppenheimer Variable Account Funds FINANCIAL HIGHLIGHTS (Continued)
Oppenheimer Growth Fund ----------------------------------------------------------------------------- Year Ended December 31, 1995 1994 1993 1992 1991 ----------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $17.68 $17.70 $16.96 $15.17 $12.54 Income (loss) from investment operations: Net investment income .25 .22 .46 .16 .30 Net realized and unrealized gain (loss) on investments 6.10 (.05) .74 1.99 2.82 ----------------------------------------------------------------------------- Total income (loss) from investment operations 6.35 .17 1.20 2.15 3.12 ----------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.22) (.15) (.14) (.36) (.49) Distributions from net realized gain on investments and foreign currency transactions (.26) (.04) (.32) -- -- ----------------------------------------------------------------------------- Total dividends and distributions to shareholders (.48) (.19) (.46) (.36) (.49) ----------------------------------------------------------------------------- Net asset value, end of period $23.55 $17.68 $17.70 $16.96 $15.17 ========================================================== =================== TOTAL RETURN, AT NET ASSET VALUE(1) 36.65% .97% 7.25% 14.53% 25.54% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $117,710 $63,283 $56,701 $36,494 $22,032 Average net assets (in thousands) $88,803 $59,953 $46,389 $25,750 $18,810 Ratios to average net assets: Net investment income 1.46% 1.38% 1.13% 1.36% 2.82% Expenses .79% .58% .50% .61% .70% Portfolio turnover rate(2) 58.2% 53.8% 12.6% 48.7% 133.9% Average brokerage commission rate(3) $0.07 -- -- -- -- --------------------------------------------------------------------------- 1990 1989 1988 1987 1986 --------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $16.38 $13.64 $11.21 $12.53 $10.95 Income (loss) from investment operations: Net investment income .56 .66 .29 .20 .13 Net realized and unrealized gain (loss) on investments (1.79) 2.50 2.19 .24 1.76 --------------------------------------------------------------------------- Total income (loss) from investment operations (1.23) 3.16 2.48 .44 1.89 --------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.62) (.35) -- (.34) (.15) Distributions from net realized gain on investments and foreign currency transactions (1.99) (.07) (.05) (1.42) (.16) --------------------------------------------------------------------------- Total dividends and distributions to shareholders (2.61) (.42) (.05) (1.76) (.31) --------------------------------------------------------------------------- Net asset value, end of period $12.54 $16.38 $13.64 $11.21 $12.53 ========================================================== ================ TOTAL RETURN, AT NET ASSET VALUE(1) (8.21)% 23.59% 22.09% 3.32% 17.76% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $15,895 $19,301 $17,746 $14,692 $8,287 Average net assets (in thousands) $17,235 $18,596 $15,585 $15,121 $3,744 Ratios to average net assets: Net investment income 4.09% 3.72% 2.39% 1.56% 2.62% Expenses .71% .70% .70% .75% .75% Portfolio turnover rate(2) 267.9% 148.0% 132.5% 191.0% 100.9% Average brokerage commission rate(3) -- -- -- -- --
1. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods of less than one full year. Total return information does not reflect expenses that apply at the separate account level or to related insurance products. Inclusion of these charges would reduce the total return figures for all periods shown. 2. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. 3. Total brokerage commissions paid on purchases and sales of portfolio securities for the period divided by the total number of related shares purchased and sold. Investment Objectives and Policies Investment Objective and Policies - Money Fund. The objective of Money Fund is to seek the maximum current income from investments in "money market" securities consistent with low capital risk and the maintenance of liquidity. The Securities and Exchange Commission Rule 2a-7 ("Rule 2a- 7") under 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 Organizations"), 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, OppenheimerFunds, Inc. (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 restrictions described in this Prospectus do not apply to banks in which the Trust's cash is kept. Subsequent downgrades in ratings may require reassessment of the credit risk presented by a security and may require its sale. See "Investment Objectives 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 liquidated 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' acceptances, 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 by 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 Corporation. For purposes of this section, the term "bank" includes commercial banks, savings banks, and savings and loan associations and the term "foreign bank" includes foreign branches of U.S. banks (issuers of "Eurodollar" instruments), U.S. branches and agencies of foreign banks (issuers of "Yankee dollar" instruments) and foreign branches of foreign banks. Money Fund also may purchase obligations issued by other entities if they are: (i) guaranteed as to principal and interest by a bank or corporation whose certificates of deposit or commercial paper may otherwise be purchased by Money Fund, 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 "Other 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 Objectives and Policies - High Income Fund and 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 diversified 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 Investors 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 subsequently 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, 1995 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, 0.34%; AA, 0.22%; BBB, 1.85%; BB, 9.14%; B, 39.45%; CCC, 13.37%; C, 0.93%; and D, 0.53%. 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 securities, 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 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 securities 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. Other Fixed-Income Strategies and Techniques. High Income Fund and Bond Fund (collectively, the "Income Funds") can also use the investment techniques and strategies described below. The Statement of Additional Information contains more information about these practices. - International Securities. The Income Funds may invest in foreign government and foreign corporate debt securities (which may be denominated 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 collateralized 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 and special risks of "emerging markets" is set forth below under "Other Investment Techniques and Strategies - 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. Certain of these obligations, including U.S. Treasury notes and bonds, and mortgage-backed securities guaranteed by the Government National Mortgage Association ("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 instruments. 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 Income Funds 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 Income Funds' 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 Income Funds' 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 instrumentalities 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 Funds' reinvestment of scheduled principal payments and unscheduled prepayments they receive may occur at lower rates than the original investment, thus reducing the Funds' yields. CMOs in which the Funds 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 securities may be less effective than debt obligations of similar maturity at maintaining yields during periods of declining interest rates. The Income Funds may also invest in CMOs that are "stripped." That means that the security is divided into two parts, one of which receives some or all of the principal payments (and is known as a "P/O") and the other which receives some or all of the interest (and is known as an "I/O"). P/Os and I/Os are generally referred to as "derivative investments," discussed further below. The yield to maturity on the class that receives only interest is extremely sensitive to the rate of payment of the principal on the underlying mortgages. Principal prepayments increase that sensitivity. Stripped securities that pay "interest only" are therefore subject to greater price volatility when interest rates change, and they have the additional risk that if the underlying mortgages are prepaid, the Fund will lose the anticipated cash flow from the interest on the prepaid mortgages. That risk is increased when general interest rates fall, and in times of rapidly falling interest rates, the Fund might receive back less than its investment. The value of "principal only" securities generally increases as interest rates decline and prepayment rates rise. The price of these securities is typically more volatile than that of coupon-bearing bonds of the same maturity. Stripped securities are generally purchased and sold by institutional investors through investment banking firms. At present, established trading markets have not yet developed for these securities. Therefore, some stripped securities may be deemed "illiquid." If any Fund holds illiquid stripped securities, the amount it can hold will be subject to the Funds' investment policy limiting investments in illiquid securities to 15% of that Fund's assets. The Income Funds may also enter into "forward roll" transactions with banks or other buyers that provide for future delivery of the mortgage- backed securities in which the Funds may invest. The Funds are required to identify cash, U.S. Government securities or other high-grade debt securities to its custodian bank in an amount equal to its obligation under the forward roll. The main risk of this investment strategy is risk of default by the counterparty. The Income Funds 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 exhausted. Risk Factors. The securities in which High Income Fund principally invests are considered speculative and involve greater risk than lower yielding, higher rated fixed-income securities, while providing higher yields 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. This Fund is 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 Information. Investment Objectives and 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 interests, asset-backed securities, private-label mortgage-backed securities and CMOs, zero coupon securities and U.S. government obligations, described above under "Investment Objectives and Policies - High Income Fund and Bond Fund" and under "Participation Interests" below) and cash and cash equivalents (identified above as the types of instruments in which the Money Fund may invest). 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 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 development), 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 "Other Investment Techniques and Strategies - Foreign Securities") and thus the relative amount of such investments 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. See "Investment Policies and Strategies - 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. - Can the Funds' Investment Objectives and Policies Change? The Funds have investment objectives, described above, as well as investment policies each follows to try to achieve its objectives. Additionally, the Funds use certain investment techniques and strategies in carrying out those investment policies. The Funds' investment policies and techniques are not "fundamental" unless this Prospectus or the Statement of Additional Information says that a particular policy is "fundamental." Each Fund's investment objectives are fundamental policies. The Trust's Board of Trustees may change non-fundamental policies without shareholder approval, although significant changes will be described in amendments to this Prospectus. Fundamental policies are those that cannot be changed without the approval of a "majority" of the Fund's outstanding voting shares. The term "majority" is defined in the Investment Company Act to be a particular percentage of outstanding voting shares (and this term is explained in the Statement of Additional Information). Other Investment Techniques and Strategies. Some of the Funds can also use the investment techniques and strategies described below. These techniques involve certain risks. The Statement of Additional Information contains more information about these practices, including limitations on their use that are designed to reduce some of the risks. - Special Risks - Borrowing for Leverage. From time to time, Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund and Global Securities Fund may borrow money from banks to buy securities. These Funds will borrow only if they can do so without putting up assets as security for a loan. This is a speculative investment method known as "leverage." This investing technique may subject the Fund to greater risks and costs than funds that do not borrow. These risks may include the possibility that a Fund's net asset value per share will fluctuate more than funds that don't borrow, since a Fund pays interest on borrowings and interest expense affects a Fund's share price and yield. 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 securities or borrowed funds. Borrowing for Leverage is subject to regulatory limits described in more detail in "Borrowing" in the Statement of Additional Information. Each of the above Funds has undertaken to limit borrowing by that Fund 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. - Investments In Small, Unseasoned Companies. Money Fund, Capital Appreciation Fund, Multiple Strategies Fund, Growth Fund and Global Securities Fund may each invest in securities of small, unseasoned companies. These are companies that have been in operation for less than three years, counting the operations of any predecessors. Securities of these companies may have limited liquidity (which means that the Fund may have difficulty selling them at an acceptable price when it wants to) and the prices of these securities may be volatile. 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 and Global Securities Fund are not subject to this restriction. - Participation Interests. 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 the banks or brokers that have made the loan or are members of the lending syndicate. No more than 5% of a Fund's net assets can be invested in participation interests of the same borrower. The Manager has set certain creditworthiness standards for issuers of loan participations, and monitors their creditworthiness. The value of loan participation interests 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 Fund could experience a decline in the net asset value of its shares. 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 subject to each Fund's limitations on investments in illiquid securities. See "Illiquid and Restricted Securities" below. - 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, and securities issued by U.S. corporations denominated in non-U.S. currencies. 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-counter 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. Each Fund may also invest in debt obligations 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, other than in hedging transactions (see "Hedging" below). It is currently intended that each Fund (other than Global Securities Fund and Multiple Strategies 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. Global Securities Fund has no 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' currencies 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 diversification 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 expropriation 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. - Special Risks of "Emerging Markets". Investments in securities traded in "emerging markets" (which are trading markets that are relatively new in counties with developing economies) involve more risks than other foreign securities. Emerging markets may have extended settlement periods for securities transactions so that a Fund might not receive the repayment of principal or income on its investments on a timely basis, which could affect its net asset value. There may be a lack of liquidity for emerging market securities. Interest rates and foreign currency exchange rates may be more volatile. Government limitations on foreign investments may be more likely to be imposed than in more developed countries. Emerging markets may respond in a more volatile manner to economic changes than those of more developed countries. - Warrants and Rights. Warrants basically are options to purchase stock at set prices that are valid for a limited period of time. Rights are options to purchase securities, normally granted to current holders by the issuer. Each of the Funds (except Money Fund) may invest up to 5% of its total assets in warrants and rights. That 5% does not apply to warrants and rights that have been acquired as part of units with other securities or that were 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 about these investments, 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. In a repurchase transaction, the Fund buys a security and simultaneously sells it to the vendor for delivery at a future date. Repurchase agreements must be fully collateralized. However, if the vendor fails to pay the resale price on the delivery date, the Fund may incur costs in disposing of the collateral and may experience losses if there is any delay in its ability to do so. No Fund will enter into a repurchase agreement that causes more than 15% of its net assets (10% of net assets for Money Fund) to be subject to repurchase agreements having a maturity beyond seven days. There is no limit on the amount of a Fund's net assets that may be subject to repurchase agreements of seven days or less. - Illiquid and Restricted Securities. Under the policies and procedures established by the Board of Trustees, the Manager determines the liquidity of certain 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 invest more than 15% of its net assets in illiquid or restricted securities; no Fund presently intends to invest more than 10% of its net assets in illiquid or 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 and Global Securities Funds); it does not apply to certain restricted securities that are eligible for resale to qualified institutional purchasers. - Loans of Portfolio Securities. To attempt to increase its income, each Fund may lend its portfolio securities to brokers, dealers and other financial institutions. Each Fund must receive collateral for such loans. These loans are limited to 25% of the Fund's net assets and are subject to other conditions described in the Statement of Additional Information. The Funds presently do not intend to lend portfolio securities, but if any Fund does, the value of securities loaned is not expected to exceed 5% of the value of that Fund's total assets. - "When-Issued" or Delayed Delivery Transactions. Each Fund may purchase securities on a "when-issued" basis and may purchase or sell securities on a "delayed delivery" basis. These terms refer to securities that have been created and for which a market exists, but which are not available for immediate delivery. There may be a risk of loss to a Fund if the value of the security changes prior to the settlement date. - Hedging. As described below, the Funds (other than Money Fund) may purchase and sell certain kinds of futures contracts, put and call options, forward contracts, and options on futures and broadly-based stock or bond indices, or enter into interest rate swap agreements. These are all referred to as "hedging instruments." The Funds do not use hedging instruments for speculative purposes, and have limits on the use of them, described below. The hedging instruments the Funds may use are described below and in greater detail in "Other Investment Techniques and Strategies" in the Statement of Additional Information. The Funds may buy and sell options, futures and forward contracts for a number of purposes. They may do so to try to manage their exposure to the possibility that the prices of their portfolio securities may decline, or to establish a position in the securities market as a temporary substitute for purchasing individual securities. High Income Fund, Bond Fund and Multiple Strategies Fund may do so to try to manage their exposure to changing interest rates. Some of these strategies, such as selling futures, buying puts and writing covered calls, hedge the Funds' portfolios against price fluctuations. Other hedging strategies, such as buying futures and call options, tend to increase the Funds' exposure to the securities market. Forward contracts are used to try to manage foreign currency risks on Funds' foreign investments. Foreign currency options are used to try to protect against declines in the dollar value of foreign securities the Funds own, or to protect against an increase in the dollar cost of buying foreign securities. Writing covered call options may also provide income to the Funds for liquidity purposes or to raise cash to distribute to shareholders. - Futures. Global Securities Fund, Capital Appreciation Fund, Growth Fund and Multiple Strategies Fund may buy and sell futures contracts that relate to broadly-based stock indices (these are referred to as Stock Index Futures). Multiple Strategies Fund, Global Securities Fund, Bond Fund and High Income Fund may buy and sell futures contracts that relate to broadly-based securities indices (these are referred to as Stock Index Futures and Bond Index Futures) or to interest rates (these are referred to as Interest Rate Futures). These types of Futures are described in "Hedging" in the Statement of Additional Information. - Put and Call Options. The Funds may buy and sell certain kinds of put options (puts) and call options (calls). The Funds may buy calls only on securities, broadly-based stock and bond indices, foreign currencies and Futures that the Fund is permitted to buy and sell (as explained above) or to terminate their obligation on a call that the Fund previously wrote. Each Fund may write (that is, sell) covered call options on up to 100% of its assets. When a Fund writes a call, it receives cash (called a premium). The call gives the buyer the ability to buy the investment on which the call was written from that Fund at the call price during the period in which the call may be exercised. If the value of the investment does not rise above the call price, it is likely that the call will lapse without being exercised, while the Fund keeps the cash premium (and the investment). The Funds may purchase put options. Buying a put on an investment gives that Fund the right to sell the investment at a set price to a seller of a put on that investment. The Funds can buy only those puts that relate to (1) securities (whether or not that Fund owns such securities), (2) Futures that the Fund is permitted to buy and sell (as explained above), (3) broadly-based stock or bond indices or (4) foreign currencies. A Fund can buy a put on a Future whether or not that Fund owns the particular Future in its portfolio. A Fund may not sell a put other than a put that it previously purchased. The Funds may buy and sell puts and calls only if certain conditions are met: (1) calls the Funds buy or sell must be listed on a securities or commodities exchange, or quoted on the Automated Quotation System of the National Association of Securities Dealers, Inc. ("NASDAQ"); (2) in the case of puts and calls on foreign currency, they must be traded on a securities or commodities exchange, or in the over-the-counter market, or quoted by recognized dealers in those options; (3) 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; (4) each call the Funds write must be "covered" while it is outstanding: that means a Fund must own the security on which the call was written; calls on Futures must be covered by securities or other liquid assets a Fund owns and segregates to enable it to satisfy its obligations if the call is exercised; (5) a Fund may write calls on Futures contracts it owns, but these calls must be covered by securities or other liquid assets the Fund owns and segregates to enable it to satisfy its obligations if the call is exercised; (6) a call or put option may not be purchased if the value of all of a Fund's put and call options would exceed 5% of that Fund's total assets. 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. - Forward Contracts. Forward contracts are foreign currency exchange contracts. They are used to buy or sell foreign currency for future delivery at a fixed price. The Funds (other than Money Fund) use them to "lock-in" the U.S. dollar price of a security denominated in a foreign currency that a Fund has bought or sold, or to protect against losses from changes in the relative values of the U.S. dollar and a foreign currency. Such Funds may also use "cross hedging," where a Fund hedges against changes in currencies other than the currency in which a security it holds is denominated. - Interest Rate Swaps. High Income Fund and Bond Fund can also enter into interest rate swap transactions. In an interest rate swap, a Fund and another party exchange their right to receive or their obligation to pay interest on a security. For example, they may swap a right to receive floating rate payments for fixed rate payments. A Fund enters into swaps only on securities it owns. Each of these Funds may not enter into swaps with respect to more than 50% of its total assets. Also, each Fund will segregate liquid assets (such as cash or U.S. Government securities) to cover any amounts it could owe under swaps that exceed the amounts it is entitled to receive, and it will adjust that amount daily, as needed. Hedging instruments can be volatile investments and may involve special risks. The use of hedging instruments requires special skills and knowledge of investment techniques that are different than what is required for normal portfolio management. If the Manager uses a hedging instrument at the wrong time or judges market conditions incorrectly, hedging strategies may reduce that Fund's return. A Fund could also experience losses if the prices of its futures and options positions were not correlated with its other investments or if it could not close out a position because of an illiquid market for the future or option. Options trading involves the payment of premiums and has special tax effects on the Funds. There are also special risks in particular hedging strategies. If a covered call written by a Fund is exercised on a security that has increased in value, that Fund will be required to sell the security at the call price and will not be able to realize any profit if the security has increased in value above the call price. The use of forward contracts may reduce the gain that would otherwise result from a change in the relationship between the U.S. dollar and a foreign currency. To limit its exposure in foreign currency exchange contracts, each Fund limits its exposure to the amount of its assets denominated in the foreign currency. Interest rate swaps are subject to credit risks (if the other party fails to meet its obligations) and also to interest rate risks. The Funds could be obligated to pay more under their swap agreements they receive under them, as a result of interest rate changes. These risks are described in greater detail in the Statement of Additional Information. - Derivative Investments. Each Fund (other than Money Fund) can invest in a number of different kinds of "derivative investments." Such Funds may use some types of derivatives for hedging purposes, and may invest in others because they offer the potential for increased income and principal value. 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 (please refer to "Hedging"). One risk of investing in derivative investments is that the company issuing the instrument might not pay the amount due on the maturity of the instrument. There is 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 these risks can mean that a Fund will realize less income than expected from its investments, or that it can lose part of the value of its investments, which will affect that Fund's share price. Certain derivative investments held by the Funds may trade in the over-the-counter markets and may be illiquid. If that is the case, the Funds' investment in them will be limited, as discussed in "Illiquid and Restricted Securities." Another type of derivative the Funds (other than Money Fund) may invest in is an "index-linked" note. On the maturity of this type of debt security, payment is made based on the performance of an underlying index, rather than based on a set principal amount for a typical note. Another derivative investment such Funds may invest in are currency-indexed securities. These are typically short-term or intermediate-term debt securities. Their value at maturity or the interest rates at which they pay income are determined by the change in value of the U.S. dollar against one or more foreign currencies or an index. In some cases, these securities may pay an amount at maturity based on a multiple of the amount of the relative currency movements. This variety of index security offers the potential for greater income but at a greater risk of loss. Other derivative investments the Funds (other than Money Fund) may invest in include "debt exchangeable for common stock" of an issuer or "equity-linked debt securities" of an issuer. At maturity, the debt security is exchanged for common stock of the issuer or is payable in an amount based on the price of the issuer's common stock 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 (because the price of the issuer's common stock is not as high as was expected). - Portfolio Turnover. A change in the securities held by the Fund is known as "portfolio turnover." The Funds may engage frequently in short-term trading to try to achieve their objectives. High turnover and short-term trading involve correspondingly 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 and High Income Fund. The "Financial Highlights," above show the portfolio turnover for the past fiscal years 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, Capital Gains and Taxes," below). - Short Sales Against-the-Box. In a short sale, the seller does not own the security that is sold, but normally borrows the security to fulfill its delivery obligation. The seller later buys the security to repay the loan, in the expectation that the price of the security will be lower when the purchase is made, resulting in a gain. The Funds may not sell securities short except that each Fund (except Money Fund) may sell securities short in collateralized transactions referred to as "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. Other Investment Restrictions Each of the Funds has certain investment restrictions which, together with its investment objective, are fundamental policies. 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'; (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 guaranteed 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 "Special Risks-Borrowing for Leverage." None of the percentage limitations 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 fundamental policy. All of the percentage restrictions described above and elsewhere in this Prospectus, other than those described under "Other Investment Techniques and Strategies--Special Risks-Borrowing for Leverage," apply only at the time a Fund purchases a security. A Fund need not dispose of a security merely because the size of the Fund's assets has changed or the security has increased in value relative to the size of the 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. There are other fundamental policies discussed in the Statement of Additional Information. 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. How the Funds are Managed Organization and History. The Trust was organized in 1984 as a Massachusetts business trust. The Trust is an open-end, diversified management investment company, with an unlimited number of authorized shares of beneficial interest. It consists of nine separate Funds; as noted above, this Prospectus describes seven of them: 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 and Global Securities Fund, organized in 1990. The Trust is governed by a Board of Trustees, which is responsible for protecting the interests of shareholders under Massachusetts law. The Trustees meet periodically throughout the year to oversee the Funds' activities, review performance, and review the actions of the Manager. "Trustees and Officers of the Trust" in the Statement of Additional Information names the Trustees and provides more information about them and the officers of the Trust. Although the Trust will normally not hold annual meetings of its shareholders, it may hold shareholder meetings from time to time on important matters, and shareholders have the right to call a meeting to remove a Trustee or to take other action described in the Trust's Declaration of Trust. The Manager and Its Affiliates. The Funds are managed by the Manager, OppenheimerFunds, Inc., which is responsible for selecting the Funds' investments and handles its day-to-day business. The Manager carries out its duties, subject to the policies established by the Board of Trustees, under Investment Advisory Agreements for each Fund which state the Manager's responsibilities. The Agreements set forth the fees paid by each Fund to the Manager and describe the expenses that each Fund is responsible to pay to conduct its business. The Manager has operated as an investment adviser since 1959. The Manager (including a subsidiary) currently manages investment companies, including other Oppenheimer funds, with assets of more than $50 billion as of March 31, 1996, held in more than 2.8 million shareholder accounts. The Manager is owned by Oppenheimer Acquisition Corp., a holding company that is owned in part by senior officers of the Manager and controlled by Massachusetts Mutual Life Insurance Company. - Portfolio Managers. The Portfolio Manager of High Income Fund, Bond Fund and Multiple Strategies Fund is David P. Negri, joined by Richard H. Rubinstein for Multiple Strategies Fund. They are the persons principally responsible for the day-to-day management of those Funds since July 1989, January 1990 and July 1989 (April 1991 for Mr. Rubinstein), respectively. During the past five years, Mr. Negri has also served as an officer of other Oppenheimer funds. During the past five years, Mr. Rubinstein has served as an officer of other Oppenheimer funds and was formerly Vice President and Portfolio Manager/Security Analyst for Oppenheimer Capital Corp., an investment adviser. The Portfolio Manager of Global Securities Fund is William Wilby. He has been the person principally responsible for the day-to-day management of that Fund's portfolio since December, 1995. During the past five years, Mr. Wilby has also served as an officer and portfolio manager for other Oppenheimer funds, prior to which he was an international investment strategist at Brown Brothers Harriman & Co., and a Managing Director and Portfolio Manager at AIG Global Investors. The Portfolio Manager of the Money Fund is Dorothy G. Warmack. On May 1, 1996, she became the person principally responsible for the day-to-day management of that Fund's portfolio. During the past five years, she has served as an officer of other Oppenheimer funds. The Portfolio Manager of Growth Fund is Jane Putnam. She has been the person principally responsible for the day-to-day management of that Fund's portfolio since May 1994. During the past five years, Ms. Putnam has also served as an Associate Portfolio Manager for other Oppenheimer funds and formerly served as a portfolio manager and equity research analyst for Chemical Bank. The Portfolio Manager of Capital Appreciation Fund is Paul LaRocco. He has been the person principally responsible for the day-to-day management of that Fund's portfolio since January 1994. During the past five years, he has also served as an Associate Portfolio Manager for other Oppenheimer funds 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. Negri, LaRocco and Rubinstein and Ms. Warmack are Vice Presidents of the Manager, Mr. Wilby is a Senior Vice President of the Manager, and Ms. Putnam is an Assistant Vice President of the Manager. Each of the Portfolio Managers named above are also Vice Presidents of the Trust. - Fees and Expenses. 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 feerates 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 and 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. During the fiscal year ended December 31, 1995, 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:
Total Management Operating Fees Expenses(1) Money Fund .45% .51% High Income Fund .75% .81% Bond Fund .75% .80% Capital Appreciation.74% .78% Fund Growth Fund .75% .79% Multiple Strategies .74% .77% Fund Global Securities Fund .74% .89%
____________________ (1) This table does not reflect expenses that apply at the separate account level or to related insurance products. The Funds pay expenses related to their daily operations, such as custodian fees, Trustees' fees, transfer agency fees, legal and auditing costs. Those expenses are paid out of the Funds' assets and are not paid directly by shareholders. However, those expenses reduce the net asset value of shares, and therefore are indirectly borne by shareholders through their investment. More information about the investment advisory agreement is contained in the Statement of Additional Information. There is also information about the Funds' brokerage policies and practices in "Brokerage Policies of the Funds" in the Statement of Additional Information. That section discusses how brokers and dealers are selected for the Funds' portfolio transactions. When deciding which brokers to use, the Manager is permitted by the investment advisory agreements to consider whether brokers have sold shares of the Funds or any other funds for which the Manager serves as investment adviser. - 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 in the accompanying Account Prospectus. Performance of the Funds Explanation of Performance Terminology. Money Fund uses the term "yield" to illustrate its performance. High Income Fund and Bond Fund use the terms "yield," "total return," and "average annual total return" to illustrate performance. All the Funds, except Money Fund, use the terms "average annual total return" and "total return" to illustrate their performance. This performance information may be useful to help you see how well your investment has done and to compare it to other funds or market indices, as we have done below. It is important to understand that the Funds' total returns and yields represent past performance and should not be considered to be predictions of future returns or performance. This performance data is described below, but more detailed information about how total returns and yields are calculated is contained in the Statement of Additional Information, which also contains information about other ways to measure and compare the Funds' performance. Each Fund's investment performance will vary over time, depending on market conditions, the composition of the portfolio and expenses. - Yields. 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. Yield for High Income Fund or Bond Fund 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. - Total Returns. There are different types of total returns used to measure each Fund's performance. Total return is the change in value of a hypothetical investment in the Fund over a given period, assuming that all dividends and capital gains distributions are reinvested in additional shares. The cumulative total return measures the change in value over the entire period (for example, ten years). An average annual total return shows the average rate of return for each year in a period that would produce the cumulative total return over the entire period. However, average annual total returns do not show the Funds' actual year-by-year performance. How Have the Funds Performed? Below is a discussion by the Manager of the Funds' performance during their last fiscal year ended December 31, 1995, followed by a graphical comparison of each Fund's performance (except Money Fund) to an appropriate broad-based market index. Management's Discussion of Performance. During the Fund's fiscal year ended December 31, 1995, the bond markets and the equity markets experienced overall price increases in response to declines in interest rates and favorable corporate profits in the face of slower economic growth. During that period, the Manager emphasized the following investment strategies and techniques. High Income Fund focused on the higher quality tiers of below-investment grade bonds and sought value in the housing, gaming and energy sectors, and invested in bonds of growth companies such as foreign cable companies. Bond Fund reacted to a strong rally in treasury securities by reducing its treasury allocation in favor of increased allocations in different categories of U.S. Government and corporate bonds. It reduced its holdings in utilities and cyclical companies such as mining and metals companies in favor of companies expected to experience earnings growth, such as cable, communications, broadcasting and media firms. Capital Appreciation Fund experienced increased investor interest in small-cap stocks beginning in the third quarter of 1995, prior to which small-cap stocks were not participating fully in the stock market rally. Its focus throughout the fiscal year was on individual companies that appear to have carved out a unique market niche rather than on broad industry sectors. Growth Fund's strategy of looking for growth at reasonable price lead it to invest substantially in the technology and financial services sectors. Multiple Strategies Fund's equity investments reflected large positions in technology and health care stocks while its fixed-income positions were strategically positioned at year-end fairly equally across U.S. treasuries, foreign bonds and corporate high yield bonds, in part in reaction to higher yields available outside of the U.S. Global Securities Fund's investments reflected perceived worldwide trends such as telecommunications expansion, emerging consumer markets, infrastructure development and global integration, with increased exposure to Japanese and European export-oriented companies and high-quality technology stocks. - Comparing each Fund's Performance to the Market. The charts below show the performance of hypothetical $10,000 investments in each Fund (except for Money Fund) held until December 31, 1995. Performance information does not reflect charges that apply to separate accounts investing in the Funds; if these charges were taken into account, performance would be lower. High Income Fund's performance is compared to the performance of the Salomon Brothers High Yield Market Index which 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. Bond Fund's performance is compared to the performance of the Lehman Brothers Corporate Bond Index, which 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 performance of Capital Appreciation Fund and Growth Fund is compared to the performance of the S&P 500 Index, a broad-based index of equity securities widely regarded as a general measurement of the performance of the U.S. equity securities market. Multiple Strategies Fund's performance is compared to the S&P 500 Index and the Lehman Brothers Aggregate Bond Index, 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. Global Securities Fund's performance is compared to the Morgan Stanley World Index, 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. Index performance reflects the reinvestment of dividends but does not consider the effect of capital gains or transaction costs, and none of the data below shows the effect of taxes. Also, a Fund's performance reflects the effect of that Fund's business and operating expenses. While index comparisons may be useful to provide a benchmark for a Fund's performance, it must be noted that the Fund's investments are not limited to the securities in the one index. Moreover, the index performance data does not reflect any assessment of the risk of the investments included in the index. Comparison of Change in Value of $10,000 Hypothetical Investments in High Income Fund Versus Salomon Brothers High Yield Market Index (Graph comparing total return of High Income Fund shares to performance of Salomon Brothers High Yield Market Index) Average Annual Total Return at 12/31/95(1) 1 year 5 years Life of Fund 20.37% 18.38% 13.27% (1) The inception date of the Fund was 4/30/86. The average annual total returns and the ending account value in the graph reflect reinvestment of all dividends and capital gains distributions. Past performance is not predictive of future performance. Graphs are not drawn to same scale. Comparison of Change in Value of $10,000 Hypothetical Investments in Bond Fund Versus Lehman Brothers Corporate Bond Index (Graph comparing total return of Bond Fund shares to performance of Lehman Brothers Corporate Bond Index) Average Annual Total Returns at 12/31/95(1) 1 year 5 years Life of Fund 17% 10.19% 9.35% (1) The inception date of the Fund was 4/3/85. The average annual total returns and the ending account value in the graph reflect reinvestment of all dividends and capital gains distributions. Past performance is not predictive of future performance. Graphs are not drawn to same scale. Comparison of Change in Value of $10,000 Hypothetical Investments in Capital Appreciation Fund Versus S&P 500 Index (Graph comparing total return of Capital Appreciation Fund shares to performance of S&P 500 Index) Average Annual Total Returns at 12/31/95(1) 1 year 5 years Life of Fund 32.52% 22.73% 15.20% (1) The inception date of the Fund was 8/15/86. The average annual total returns and the ending account value in the graph reflect reinvestment of all dividends and capital gains distributions. Past performance is not predictive of future performance. Graphs are not drawn to same scale. Comparison of Change in Value of $10,000 Hypothetical Investments in Growth Fund Versus S&P 500 Index (Graph comparing total return of Growth Fund shares to performance of S&P 500 Index) Average Annual Total Returns at 12/31/95(1) 1 year 5 years Life of Fund 36.65% 16.30% 13.57% (1) The inception date of the Fund was 4/3/85. The average annual total returns and the ending account value in the graph reflect reinvestment of all dividends and capital gains distributions. Past performance is not predictive of future performance. Graphs are not drawn to same scale. Comparison of Change in Value of $10,000 Hypothetical Investments in Multiple Strategies Fund Versus S&P 500 Index and Lehman Brothers Aggregate Bond Index (Graph comparing total return of Multiple Strategies Fund shares to performance of S&P 500 Index and Lehman Brothers Aggregate Bond Index) Average Annual Total Returns at 12/31/95(1) 1 year 5 years Life of Fund 21.36% 12.05% 11.09% (1) The inception date of the Fund was 2/9/87. The average annual total returns and the ending account value in the graph reflect reinvestment of all dividends and capital gains distributions. Past performance is not predictive of future performance. Graphs are not drawn to same scale. Comparison of Change in Value of $10,000 Hypothetical Investments in Global Securities Fund Versus Morgan Stanley World Index (Graph comparing total return of Global Securities Fund shares to performance of Morgan Stanley World Index) Average Annual Total Returns at 12/31/95(1) 1 year 5 years Life of Fund 2.24% 9.53% 9.36% (1) The inception date of the Fund was 11/12/90. The average annual total returns and the ending account value in the graph reflect reinvestment of all dividends and capital gains distributions. Past performance is not predictive of future performance. Graphs are not drawn to same scale. ABOUT YOUR ACCOUNT How to Buy 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). 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 the close of The New York Stock Exchange, which is normally 4:00 P.M., New York time, but may be earlier on some days. 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. 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; there can be no assurance that Money Fund's net asset value will not vary. Further details are in "About Your Account- How to Buy Shares - Money Fund Net Asset Valuation" in the Statement of Additional Information. How to Sell 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, OppenheimerFunds Services (the "Transfer Agent"), of redemption instructions in proper form, except under unusual circumstances as determined by the Securities and Exchange Commission. 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, Capital Gains And Taxes Dividends of Money Fund. The Trust intends to declare Money Fund's dividends from its net investment income 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 "Dividends, Capital Gains and Taxes" in the Statement of Additional Information). Dividends and Distributions of High Income Fund, Bond Fund and Multiple Strategies Fund. The Trust intends to declare High Income Fund, 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. Capital Gains. 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. 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 distribution date. There are no fixed dividend rates and there can be no assurance as to 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., "Other Investment Techniques and Strategies - 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. APPENDIX A - DESCRIPTION OF TERMS Some of the terms used in the Prospectus and the Statement of Additional Information are described below: Bank obligations include certificates of deposit which are negotiable 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 compliance 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 referred to under "Investment Objectives and Policies -- Money Fund", and (ii) additional rating categories that apply principally to investments by High Income 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 conditions. 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 relative 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 issues 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 commercial 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 repayment, 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 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 considered as upper-medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa: Considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and have speculative characteristics as well. Ba: 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 investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa: 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 differ 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, adverse 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 uncertainties 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 timely 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 highest 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 hypothetical $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 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 Broad-Based Indices, is set forth in the Prospectus under "How Have the Funds Performed? - Management's Discussion of Performance."
Lehman Brothers Fiscal Corporate Year Ended Bond Fund Bond Index 04/03/85 $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 12/31/94 $24,825 $26,139 12/31/95 $24,444 $27,063
Fiscal Year Ended Growth Fund S&P 500 Index 04/30/85 $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 $34,668 12/31/94 $28,726 $35,081 12/31/95 $35,851 $39,495
Oppenheimer Variable Account Funds 3410 South Galena Street Denver, Colorado 80231 1-800-525-7048 Investment Adviser OppenheimerFunds, Inc. Two World Trade Center New York, New York 10048-0203 Transfer Agent OppenheimerFunds 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 LLP 555 Seventeenth Street Denver, Colorado 80202 Legal Counsel Myer, Swanson, Adams & Wolf, P.C. 1600 Broadway Denver, Colorado 80202 No dealer, broker, 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 representations must not be relied upon as having been authorized by the Trust, OppenheimerFunds, Inc. 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. Oppenheimer Variable Account Funds 3410 South Galena Street, Denver, Colorado 80231-5099 1-800-525-7048 PART B STATEMENT OF ADDITIONAL INFORMATION ________, 1996 ___________________________________ This Statement of Additional Information of Variable Account Funds consists of this cover page and the following documents: 1. Statement of Additional Information of Oppenheimer Variable Account Funds dated May 1, 1996, filed herewith and incorporated herein by reference. 2. Oppenheimer Variable Account Funds' Annual Report as of December 31, 1995, filed herewith and incorporated herein by reference. 3. Oppenheimer Variable Account Funds' Semi-Annual Report as of June 30, 1996, filed herewith and incorporated herein by reference. 4. Prospectus of JP Family of Funds dated May 1, 1996, filed herewith and incorporated by reference. 5. Statement of Additional Information of JP Capital Appreciation Fund, Inc., dated May 1, 1996, filed herewith and incorporated herein by reference. 6. Statement of Additional Information of JP Investment Grade Bond Fund, Inc., dated May 1, 1996, filed herewith and incorporated by reference. 7. Annual Report of JP Family of Funds as of December 31, 1995, filed herewith and incorporated herein by reference. 8. Semi-Annual Report of JP Family of Funds as of June 30, 1996, filed herewith and incorporated herein by reference. 9. Pro Forma Financial Statements. This Statement of Additional Information (the "Statement of Additional Information") is not a Prospectus. This Statement of Additional Information should be read in conjunction with the Proxy Statement and Prospectus, which may be obtained by written request to OppenheimerFunds Services ("OFS"), P.O. Box 5270, Denver, Colorado 80217, or by calling OFS at the toll-free number shown above. Oppenheimer Variable Account Funds 3410 South Galena Street, Denver, Colorado 80231 1-800-525-7048 Statement of Additional Information dated May 1, 1996. OPPENHEIMER VARIABLE ACCOUNT FUNDS (the "Trust") is an investment company consisting of nine separate Funds (the "Funds"): Oppenheimer Money Fund ("Money Fund") Oppenheimer High Income Fund ("High Income Fund") Oppenheimer Bond Fund ("Bond Fund") Oppenheimer Capital Appreciation Fund ("Capital Appreciation Fund") Oppenheimer Growth Fund ("Growth Fund") Oppenheimer Multiple Strategies Fund ("Multiple Strategies Fund") Oppenheimer Growth & Income Fund ("Growth & Income Fund") Oppenheimer Global Securities Fund ("Global Securities Fund") Oppenheimer Strategic Bond Fund ("Strategic Bond Fund") Shares of the Funds are sold only to provide benefits under variable life insurance policies and variable annuity contracts (collectively the "Accounts"), as described in the Account Prospectus. This Statement of Additional Information is not a Prospectus. This document contains additional information about the Fund and supplements information in the Prospectus dated May 1, 1996. It should be read together with the Trust's Prospectus, which may be obtained by writing to the Funds' Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217, or by calling the Transfer Agent at the toll-free number shown above, and the Account Prospectus. TABLE OF CONTENTS Page About the Funds Investment Objectives and Policies 2 Investment Policies and Strategies 2 Other Investment Techniques and Strategies 11 Other Investment Restrictions 19 How the Funds are Managed 20 Organization and History 20 Trustees and Officers of the Trust 20 The Manager and Its Affiliates 26 Brokerage Policies of the Funds 28 Performance of the Funds 30 About Your Account How to Buy Shares 33 Dividends, Capital Gains and Taxes 36 Additional Information About the Funds 36 Financial Information About the Funds Independent Auditors' Report 38 Financial Statements 39 Appendix A: Industry Classifications A-1 ABOUT THE FUNDS Investment Objectives and Policies Investment Policies and Strategies. The investment objectives and policies of each of the Funds are described in the Prospectus. Set forth below is supplemental information about those policies. Certain capitalized terms used in this Additional Statement are defined in the Prospectus. -- Money Fund. The Prospectus describes "Eligible Securities" in which Money Fund may invest and indicates that if a security's rating is downgraded, the Manager and/or the Board may have to reassess the security's credit risk. If a security has ceased to be a First Tier Security, the Manager will promptly reassess whether the security continues to present "minimal credit risk." If the Manager becomes aware that any Rating Organization has downgraded its rating of a Second Tier Security or rated an unrated security below its second highest rating category, the Trust's Board of Trustees shall promptly reassess whether the security presents minimal credit risk and whether it is in Money Fund's best interests to dispose of it; but if Money Fund disposes of the security within 5 days of OppenheimerFunds, Inc. (the "Manager") learning of the downgrade, the Manager will provide the Board with subsequent notice of such downgrade. If a security is in default, or ceases to be an Eligible Security, or is determined no longer to present minimal credit risks, the Board must determine whether it would be in Money Fund's best interests to dispose of the security. The Rating Organizations currently designated as such by the Securities and Exchange Commission ("SEC") are Standard & Poor's Corporation, Moody's Investors Service, Inc., Fitch Investors Service, L.P., Duff & Phelps, Inc., IBCA Limited and its affiliate, IBCA, Inc., and Thomson BankWatch, Inc. See Appendix B to the Prospectus for a description of the rating categories of the Rating Organizations. -- Time Deposits. The Fund may invest in fixed time deposits, which are non-negotiable deposits in a bank for a specified period of time at a stated interest rate, whether or not subject to withdrawal penalties; however, such deposits which are subject to such penalties, other than deposits maturing in less than 7 days, are subject to the 10% investment limitation for illiquid securities set forth in "Other Investment Techniques and Strategies - Illiquid and Restricted Securities" in the Prospectus. -- Floating Rate/Variable Rate Notes. Money Fund may invest in instruments with floating or variable interest rates. The interest rate on a floating rate obligation is based on a stated prevailing market rate, such as a bank's prime rate, the 90-day U.S. Treasury Bill rate, the rate of return on commercial paper or bank certificates of deposit, or some other standard, and is adjusted automatically each time such market rate is adjusted. The interest rate on a variable rate obligation is also based on a stated prevailing market rate but is adjusted automatically at a specified interval of no less than one year. Some variable rate or floating rate obligations in which Money Fund may invest have a demand feature entitling the holder to demand payment at an amount approximately equal to amortized cost or the principal amount thereof plus accrued interest at any time, or at specified intervals not exceeding one year. These notes may or may not be backed by bank letters of credit. The interest rates on these notes fluctuate from time to time. The issuer of such obligations normally has a corresponding right, after a given period, to prepay in its discretion the outstanding principal amount of the obligations plus accrued interest upon a specified number of days' notice to the holders of such obligations. Generally, the changes in the interest rate on such securities reduce the fluctuation in their market value. As interest rates decrease or increase, the potential for capital appreciation or depreciation is less than that for fixed-rate obligations of the same maturity. -- Master Demand Notes. Master demand notes are corporate obligations that permit the investment of fluctuating amounts by Money Fund at varying rates of interest pursuant to direct arrangements between Money Fund, as lender, and the corporate borrower that issues the note. These notes permit daily changes in the amounts borrowed. Money Fund has the right to increase the amount under the note at any time up to the full amount provided by the note agreement, or to decrease the amount. The borrower may repay up to the full amount of the note at any time without penalty. It is not generally contemplated that master demand notes will be traded because they are direct lending arrangements between the lender and the borrower. There is no secondary market for these notes, although they are redeemable and thus immediately repayable by the borrower at face value, plus accrued interest, at any time. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, Money Fund's right to redeem is dependent upon the ability of the borrower to pay principal and interest on demand. In evaluating the master demand arrangements, the Manager considers the earning power, cash flow, and other liquidity ratios of the issuer. If they are not rated by Rating Organizations, Money Fund may invest in them only if, at the time of an investment, they are Eligible Securities. The Manager will continuously monitor the borrower's financial ability to meet all of its obligations because Money Fund's liquidity might be impaired if the borrower were unable to pay principal and interest on demand. There is no limit on the amount of the Money Fund's assets that may be invested in floating rate and variable rate obligations. Floating rate or variable rate obligations which do not provide for recovery of principal and interest within seven days' notice will be subject to the limitations applicable to illiquid securities described in "Other Investment Techniques and Strategies -Illiquid and Restricted Securities" in the Prospectus. -- Money Fund, High Income Fund, Bond Fund and Strategic Bond Fund. The market value of fixed income securities in which Money Fund, High Income Fund, Bond Fund and Strategic Bond Fund may invest generally will be affected by changes in the level of interest rates. An increase in interest rates will tend to reduce the market value of fixed income investments, and a decline in interest rates will tend to increase their value. In order to take advantage of differences in securities prices and yields or of fluctuations in interest rates, consistent with their respective investment objectives, these Funds may trade for short-term profits. -- High Yield Securities. As stated in the Prospectus, the corporate debt in which High Income Fund and Strategic Bond Fund will principally invest may be in the lower rating categories. Risks of high yield securities include: (i) limited liquidity and secondary market support, (ii) substantial market price volatility resulting from changes in prevailing interest rates, (iii) subordination to the prior claims of banks and other senior lenders, (iv) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates which may cause the Fund to invest premature redemption proceeds in lower yielding portfolio securities, (v) the possibility that earnings of the issuer may be insufficient to meet its debt service, and (vi) the issuer's low creditworthiness and potential for insolvency during periods of rising interest rates and economic downturn. As a result of the limited liquidity of high yield securities, their prices have at times experienced significant and rapid decline when a substantial number of holders decided to sell. A decline is also likely in the high yield bond market during an economic downturn. An economic downturn or an increase in interest rates could severely disrupt the market for high yield bonds and adversely affect the value of outstanding bonds and the ability of the issuers to repay principal and interest. In addition, there have been several Congressional attempts to limit the use of tax and other advantages of high yield bonds which, if enacted, could adversely affect the value of these securities and the net asset value of these two Funds. For example, federally-insured savings and loan associations have been required to divest their investments in high yield bonds. -- Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund, Growth & Income Fund, Strategic Bond Fund and Global Securities Fund. The investment risks and rewards of certain of the investment policies of these six Funds are discussed below. -- Securities of Growth-Type Companies. Capital Appreciation Fund, Growth Fund and Global Securities Fund may emphasize securities of "growth-type" companies. Such issuers typically are those whose goods or services have relatively favorable long-term prospects for increasing demand, or ones which develop new products, services or markets and normally retain a relatively large part of their earnings for research, development and investment in capital assets. They may include companies in the natural resources fields or those developing industrial applications for new scientific knowledge having potential for technological innovation, such as nuclear energy, oceanography, business services and new customer products. -- Small, Unseasoned Companies. Each of these six Funds may invest in securities of small unseasoned companies. These are companies that have been in operation for less than three years, even after including the operations of any of their predecessors. Securities of these companies may have a limited liquidity (which means that a Fund may have difficulty selling them at an acceptable price when it wants to) and the price of those securities may be volatile. -- Domestic Securities. Investments by Strategic Bond Fund, Growth & Income Fund and Multiple Strategies Fund in fixed-income securities issued by domestic corporations may include participation interests, asset-backed securities and other debt obligations (bonds, debentures, notes, mortgage-backed securities and CMOs) together with preferred stocks. -- Investment Policies - Collateralized Securities. Each of these Funds may invest in the collateralized securities described below. High Income Fund, Bond Fund and Strategic Bond Fund are most likely to make such investments. -- Asset-Backed Securities. The value of an asset-backed security is affected by changes in the market's perception of the asset backing the security, the creditworthiness of the servicing agent for the loan pool, the originator of the loans, or the financial institution providing any credit enhancement, and is also affected if any credit enhancement has been exhausted. The risks of investing in asset-backed securities are ultimately dependent upon payment of consumer loans by the individual borrowers. As a purchaser of an asset-backed security, the Fund would generally have no recourse to the entity that originated the loans in the event of default by a borrower. The underlying loans are subject to prepayments, which shorten the weighted average life of asset-backed securities and may lower their return, in the same manner as described above for prepayments of a pool of mortgage loans underlying mortgage- backed securities. -- Mortgage-Backed Securities. These securities represent participation interests in pools of residential mortgage loans which may or may not be guaranteed by agencies or instrumentalities of the U.S. Government. Such securities differ from conventional debt securities which generally provide for periodic payment of interest in fixed or determinable amounts (usually semi-annually) with principal payments at maturity or specified call dates. Mortgage-backed securities may be backed by the full faith and credit of the U.S. Treasury (e.g., direct pass-through certificates of Government National Mortgage Association); some are supported by the right of the issuer to borrow from the U.S. Government (e.g., obligations of Federal Home Loan Mortgage Corporation); and some are backed by only the credit of the issuer itself. Those guarantees do not extend to the value or yield of the mortgage-backed securities themselves or to the net asset value of the Fund's shares. Any of those government agencies may also issue collateralized mortgage-backed obligations, discussed below. The yield on mortgage-backed securities is based on the average expected life of the underlying pool of mortgage loans. The actual life of any particular pool will be shortened by any unscheduled or early payments of principal and interest. Principal prepayments generally result from the sale of the underlying property or the refinancing or foreclosure of underlying mortgages. The occurrence of prepayments is affected by a wide range of economic, demographic and social factors and, accordingly, it is not possible to predict accurately the average life of a particular pool. Yield on such pools is usually computed by using the historical record of prepayments for that pool, or, in the case of newly- issued mortgages, the prepayment history of similar pools. The actual prepayment experience of a pool of mortgage loans may cause the yield realized by the Fund to differ from the yield calculated on the basis of the expected average life of the pool. Prepayments tend to increase during periods of falling interest rates, while during periods of rising interest rates prepayments will most likely decline. When prevailing interest rates rise, the value of a pass- through security may decrease as do the values of other debt securities, but, when prevailing interest rates decline, the value of a pass-through security is not likely to rise to the extent that the values of other debt securities rise, because of the prepayment feature of pass-through securities. The Fund's reinvestment of scheduled principal payments and unscheduled prepayments it receives may occur at times when available investments offer higher or lower rates than the original investment, thus affecting the yield of the Fund. Monthly interest payments received by the Fund have a compounding effect which may increase the yield to the Fund more than debt obligations that pay interest semi-annually. Because of those factors, mortgage-backed securities may be less effective than Treasury bonds of similar maturity at maintaining yields during periods of declining interest rates. The Fund may purchase mortgage-backed securities at a premium or at a discount. Accelerated prepayments adversely affect yields for pass-through securities purchased at a premium (i.e., at a price in excess of their principal amount) and may involve additional risk of loss of principal because the premium may not have been fully amortized at the time the obligation is repaid. The opposite is true for pass-through securities purchased at a discount. The Fund may purchase mortgage-backed securities at a premium or at a discount. The Fund may invest in "stripped" mortgage backed securities, in which the principal and interest portions of the security are separated and sold. Stripped mortgage-backed securities usually have at least two classes each of which receives different proportions of interest and principal distributions on the underlying pool of mortgage assets. One common variety of stripped mortgage-backed security has one class that receives some of the interest and most of the principal, while the other class receives most of the interest and remainder of the principal. In some cases, one class will receive all of the interest (the "interest- only" or "IO" class), while the other class will receive all of the principal (the "principal-only" or "PO" class). Interest only securities are extremely sensitive to interest rate changes, and prepayments of principal on the underlying mortgage assets. An increase in principal payments or prepayments will reduce the income available to the IO security. In other types of CMOs, the underlying principal payments may apply to various classes in a particular order, and therefore the value of certain classes or "tranches" of such securities may be more volatile that the value of the pool as a whole, and losses may be more severe than on other classes. -- Collateralized Mortgage-Backed Obligations ("CMOs"). CMOs are fully-collateralized bonds that are the general obligations of the issuer thereof, either the U.S. Government, a U.S. Government instrumentality, or a private issuer. Such bonds generally are secured by an assignment to a trustee (under the indenture pursuant to which the bonds are issued) of collateral consisting of a pool of mortgages. Payments with respect to the underlying mortgages generally are made to the trustee under the indenture. Payments of principal and interest on the underlying mortgages are not passed through to the holders of the CMOs as such (i.e., the character of payments of principal and interest is not passed through, and therefore payments to holders of CMOs attributable to interest paid and principal repaid on the underlying mortgages do not necessarily constitute income and return of capital, respectively, to such holders), but such payments are dedicated to payment of interest on and repayment of principal of the CMOs. CMOs often are issued in two or more classes with different characteristics such as varying maturities and stated rates of interest. Because interest and principal payments on the underlying mortgages are not passed through to holders of CMOs, CMOs of varying maturities may be secured by the same pool of mortgages, the payments on which are used to pay interest on each class and to retire successive maturities (known as "tranches") in sequence. Unlike other mortgage- backed securities (discussed above), CMOs are designed to be retired as the underlying mortgages are repaid. In the event of prepayment on such mortgages, the class of CMO first to mature generally will be paid down. Therefore, although in most cases the issuer of CMOs will not supply additional collateral in the event of such prepayment, there will be sufficient collateral to secure CMOs that remain outstanding. -- Participation Interests. Strategic Bond Fund, Global Securities Fund, High Income Fund, Multiple Strategies Fund and Growth & Income Fund may invest in participation interests, subject to the limitation, described in "Illiquid and Restricted Securities" in the Prospectus, on investments by the Fund in illiquid investments. Participation interests provide the Fund an undivided interest in a loan made by the issuing financial institution in the proportion that the Fund's participation interest bears to the total principal amount of the loan. It is currently intended that no more than 5% of the net assets of Multiple Strategies Fund, Growth & Income Fund or Strategic Bond Fund can be invested in participation interests of the same borrower. Participation interests are primarily dependent upon the creditworthiness of the borrowing corporation, which is obligated to make payments of principal and interest on the loan, and there is a risk that such borrowers may have difficulty making payments. In the event the borrower fails to pay scheduled interest or principal payments, the Fund could experience a reduction in its income and might experience a decline in the net asset value of its shares. In the event of a failure by the financial institution to perform its obligation in connection with the participation agreement, the Fund might incur certain costs and delays in realizing payment or may suffer a loss of principal and/or interest. -- Foreign Securities. As noted in the Prospectus, each Fund, other than Money Fund, may invest in securities (which may be denominated in U.S. dollars or non-U.S. currencies) issued or guaranteed by foreign corporations, certain supranational entities (described below) and foreign governments or their agencies or instrumentalities, and in securities issued by U.S. corporations denominated in non-U.S. currencies. All of these are considered to be "foreign securities." Money Fund may invest in certain U.S. dollar-denominated foreign securities, as described in the Prospectus. The obligations of foreign governmental entities may or may not be supported by the full faith and credit of a foreign government. Obligations of supranational entities include those of international organizations designated or supported by governmental entities to promote economic reconstruction or development and of international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Coal and Steel Community, the Asian Development Bank and the Inter-American Development Bank. The governmental members, or "stockholders," usually make initial capital contributions to the supranational entity and in many cases are committed to make additional capital contributions if the supranational entity is unable to repay its borrowings. Each supranational entity's lending activities are limited to a percentage of its total capital (including "callable capital" contributed by members at the entity's call), reserves and net income. There is no assurance that foreign governments will be able or willing to honor their commitments. Investing in foreign securities involves considerations and possible risks not typically associated with investing in securities in the U.S. The values of foreign securities will be affected by changes in currency rates or exchange control regulations or currency blockage, application of foreign tax laws, including withholding taxes, changes in governmental administration or economic or monetary policy (in the U.S. or abroad) or changed circumstances in dealings between nations. Costs will be incurred in connection with conversions between various currencies. Foreign brokerage commissions are generally higher than commissions in the U.S., and foreign securities markets may be less liquid, more volatile and less subject to governmental regulation than in the U.S. Investments in foreign countries could be affected by other factors not generally thought to be present in the U.S., including expropriation or nationalization, confiscatory taxation and potential difficulties in enforcing contractual obligations, and could be subject to extended settlement periods. Because each Fund, other than Money Fund, may purchase securities denominated in foreign currencies, a change in the value of any such currency against the U.S. dollar will result in a change in the U.S. dollar value of each Fund's assets and each Fund's income available for distribution. In addition, although a portion of each Fund's investment income may be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars, and absorb the cost of currency fluctuations. High Income Fund, Strategic Bond Fund, Multiple Strategies Fund, Growth & Income Fund and Global Securities Fund may engage in foreign currency exchange transactions for hedging purposes to attempt to protect against changes in future exchange rates. See "Hedging - Forward Contracts," below. The values of foreign investments and the investment income derived from them may also be affected unfavorably by changes in currency exchange control regulations. Although each Fund, other than Money Fund, will invest only in securities denominated in foreign currencies that at the time of investment do not have significant government-imposed restrictions on conversion into U.S. dollars, there can be no assurance against subsequent imposition of currency controls. In addition, the values of foreign securities will fluctuate in response to changes in U.S. and foreign interest rates. Investments in foreign securities offer potential benefits not available from investments solely in securities of domestic issuers by offering the opportunity to invest in foreign issuers that appear to offer growth potential, or in foreign countries with economic policies or business cycles different from those of the U.S., or to reduce fluctuations in portfolio value by taking advantage of foreign stock markets that do not move in a manner parallel to U.S. markets. From time to time, U.S. government policies have discouraged certain investments abroad by U.S. investors, through taxation or other restrictions, and it is possible that such restrictions could be reimposed. If a Fund's portfolio securities are held abroad, the countries in which they may be held and the sub-custodians or depositories holding them must be approved by the Trust's Board of Trustees to the extent that the approval is required under applicable rules of the Securities and Exchange Commission. Under normal market conditions, Global Fund will invest its assets in securities of issuers located in a minimum of five different foreign countries; this minimum may be reduced to four foreign countries when foreign country investments comprise less than 80% of the Fund's net assets; to three foreign countries when such investments comprise less than 60% of its net assets, to two foreign countries when such investments comprise less than 40% of its net assets and to one foreign country when such investments comprise less than 20% of its net assets. In addition, no more than 20% of Global Fund's net assets shall be invested in securities of issuers located in any one foreign country; that limit shall be increased to 35% for securities located in Australia, Canada, France, Japan, the United Kingdom or Germany. None of the above percentage limits are fundamental policies. -- Warrants and Rights. As described in the Prospectus, each Fund other than Money Fund may invest in warrants and rights. Warrants basically are options to purchase equity securities at set prices valid for a specified period of time. Their prices do not necessarily move in a manner parallel to the prices of the underlying securities. Any price paid for a warrant will be lost unless the warrant is exercised prior to its expiration. Rights are similar to warrants, but normally have a short duration and are distributed directly by the issuer to its shareholders. Warrants and rights have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer. -- Repurchase Agreements. These Funds may acquire securities that are subject to repurchase agreements in order to generate income while providing liquidity as set forth in the prospectus. Money Fund's repurchase agreements must comply with the collateral requirements of Rule 2a-7 under the Investment Company Act. In a repurchase transaction, a Fund acquires a security from, and simultaneously resells it to, an approved vendor (a U.S. commercial bank or the U.S. branch of a foreign bank or broker-dealer which has been designated a primary dealer in government securities which must meet the credit requirements set by the Trust's Board of Trustees from time to time) for delivery on an agreed- upon future date. The resale price exceeds the purchase price by an amount that reflects an agreed-upon interest rate effective for the period during which the repurchase agreement is in effect. The majority of these transactions run from day to day, and delivery pursuant to resale typically will occur within one to five days of the purchase. Repurchase agreements are considered "loans" under the Investment Company Act, collateralized by the underlying security. The Funds' repurchase agreements require that at all times while the repurchase agreement is in effect, the value of the collateral must equal or exceed the repurchase price to fully collateralize the repayment obligation. Additionally, the Funds' Manager will impose creditworthiness requirements to confirm that the vendor is financially sound and will continuously monitor the collateral's value. -- Loans of Portfolio Securities. Each Fund may lend its respective portfolio securities subject to the restrictions stated in the Prospectus. Under applicable regulatory requirements (which are subject to change), the loan collateral must, on each business day, at least equal the value of the loaned securities and must consist of cash, bank letters of credit, U.S. Government securities, or certain other cash equivalents. To be acceptable as collateral, letters of credit must obligate a bank to pay amounts demanded by the Trust if the demand meets the terms of the letter. Such terms and the issuing bank must be satisfactory to the Trust. Any Fund lending its securities receives amounts equal to the dividends declared or interest paid on the loaned securities during the term of the loan as well as the interest on the collateral securities, less any finders', administrative or other fees the Fund pays in connection with the loan. A Fund may share the interest it receives on the collateral securities with the borrower as long as it realizes at least a minimum amount of interest required by the lending guidelines established by the Board of Trustees. The lending Fund will not lend its portfolio securities to any officer, trustee, employee or affiliate of the Fund or its Manager. The terms of a Fund's loans must meet certain tests under the Internal Revenue Code and permit it to reacquire loaned securities on five days' notice or in time to vote on any important matter. -- Borrowing. From time to time, each of Capital Appreciation Fund, Strategic Bond Fund, Growth Fund, Multiple Strategies Fund, Growth & Income Fund and Global Fund may borrow from banks on an unsecured basis to invest the borrowed funds in portfolio securities. Borrowing is subject to the restrictions stated in the Prospectus. Any such borrowing will be made only from banks. In addition to the percentage restrictions stated in the Prospectus, the Investment Company Act requires that any such borrowing will be made only to the extent that the value of that Fund's assets, less its liabilities other than borrowings, is equal to at least 300% of all borrowings including the proposed borrowing. If the value of such Fund's assets, when computed in that manner, should fail to meet the 300% asset coverage requirement, that Fund is required within three days to reduce its bank debt to the extent necessary to meet such requirement. To do so, the Fund may have to sell a portion of its investments at a time when it would otherwise not want to sell the securities. Borrowing for investment increases both investment opportunity and risk. Interest on money borrowed is an expense these six Funds would not otherwise incur, so that they may have little or no net investment income during periods of substantial borrowings. Since substantially all of these Funds' assets fluctuate in value whereas borrowing obligations are fixed, when a Fund has outstanding borrowings, its net asset value will tend to increase and decrease more when its portfolio assets increase or decrease than would otherwise be the case. -- When-Issued and Delayed Delivery Transactions. Each Fund may purchase securities on a "when-issued" basis, and may purchase or sell such securities on a "delayed delivery" basis. Although a Fund will enter into such transactions for the purpose of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement. "When- issued" or "delayed delivery" refers to securities whose terms and indenture are available and for which a market exists, but which are not available for immediate delivery. When such transactions are negotiated the price (which is generally expressed in yield terms) is fixed at the time the commitment is made, but delivery and payment for the securities take place at a later date. The commitment to purchase a security for which payment will be made on a future date may be deemed a separate security and involve risk of loss if the value of the security declines prior to the settlement date. During the period between commitment by a Fund and settlement (generally within two months but not to exceed 120 days), no payment is made for the securities purchased by the purchaser, and no interest accrues to the purchaser from the transaction. Such securities are subject to market fluctuation; the value at delivery may be less than the purchase price. The Fund will identify assets to its Custodian, consisting of cash, U.S. Government securities, or other high grade debt securities rated "A" or better by Moody's or Standard & Poor's at least equal to the value of purchase commitments until payment is made. The Funds will engage in when-issued transactions in order to secure what is considered to be an advantageous price and yield at the time of entering into the obligation. When a Fund engages in when-issued or delayed delivery transactions, it relies on the buyer or seller, as the case may be, to consummate the transaction. Failure to do so may result in the Fund losing the opportunity to obtain a price and yield considered to be advantageous. If any of the Funds chooses to (i) dispose of the right to acquire a when-issued security prior to its acquisition or (ii) dispose of its right to deliver or receive against a forward commitment, it may incur a gain or loss. At the time the Fund makes a commitment to purchase or sell a security on a when-issued or forward commitment basis, it records the transaction and reflects the value of the security purchased, or if a sale, the proceeds to be received in determining its net asset value. To the extent any Fund engages in when-issued and delayed delivery transactions, it will do so for the purpose of acquiring or selling securities consistent with its investment objective and policies and not for the purposes of investment leverage. Each Fund enters into such transactions only with the intention of actually receiving or delivering the securities, although (as noted above), when-issued securities and forward commitments may be sold prior to settlement date. In addition, changes in interest rates in a direction other than that expected by the Manager before settlement will affect the value of such securities and may cause loss to that Fund. When-issued transactions and forward commitments allow a Fund a technique to use against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, the Fund might sell securities in its portfolio on a forward commitment basis to attempt to limit its exposure to anticipated falling prices. In periods of falling interest rates and rising prices, a Fund might sell portfolio securities and purchase the same or similar securities on a when-issued or forward commitment basis, thereby obtaining the benefit of currently higher cash yields. Other Investment Techniques and Strategies Covered Calls and Hedging As described in the Prospectus, each Fund (except Money Fund) may each write covered calls and may also employ one or more types of Hedging Instruments, including the futures identified in the Prospectus ("Futures"). The Funds' strategy of hedging with Futures and options on Futures will be incidental to each such Fund's activities in the underlying cash market. When hedging to attempt to protect against declines in the market value of the Fund's portfolio, to permit the Fund to retain unrealized gains in the value of portfolio securities which have appreciated, or to facilitate selling securities for investment reasons, a given Fund would: (i) sell Futures, (ii) purchase puts on such Futures or securities, or (iii) write covered calls on securities or on Futures. When hedging to permit a Fund to establish a position in the securities markets as a temporary substitute for purchasing individual securities (which that Fund will normally purchase, and then terminate that hedging position), or to attempt to protect against the possibility that a Fund's portfolio debt securities are not fully included in a rise in the securities market, these Funds may: (i) purchase Futures, or (ii) purchase calls on such Futures or on securities. When hedging to attempt to protect against declines in the dollar value of a foreign currency-denominated security or in a payment on such security, a Fund would: (a) purchase puts on that foreign currency or on foreign currency Futures, (b) write calls on that currency or on such Futures, or (c) enter into Forward Contracts at a lower or higher rate than the spot ("cash") rate. Additional information about the Hedging Instruments these Funds may use is provided below. At present, the Funds do not intend to purchase or sell Futures or related options if, after any such purchase, the sum of initial margin deposits on Futures and premiums paid for related options exceeds 5% of the value of that Fund's total assets. Certain options on foreign currencies are considered related options for this purpose. In the future, a Fund may employ Hedging Instruments and strategies that are not presently contemplated but which may be developed, to the extent such investment methods are consistent with that Fund's investment objective, legally permissible and adequately disclosed. Writing Covered Call Options. When any of the Funds (except Money Fund) write a call on a security, it receives a premium and agrees to sell the underlying security to a purchaser of a corresponding call on the same security during the call period (usually not more than 9 months) at a fixed exercise price (which may differ from the market price of the underlying security), regardless of market price changes during the call period. Such Fund has retained the risk of loss should the price of the underlying security decline during the call period, which may be offset to some extent by the premium. To terminate its obligation on a call it has written, each such Fund may purchase a corresponding call in a "closing purchase transaction." A profit or loss will be realized, depending upon whether the net of the amount of the option transaction costs and the premium received on the call written was more or less than the price of the call subsequently purchased. A profit may also be realized if the call expires unexercised, because a Fund retains the underlying security and the premium received. Any such profits are considered short-term capital gains for Federal income tax purposes, and when distributed by each such Fund are taxable as ordinary income. If the Fund could not effect a closing purchase transaction due to lack of a market, it would have to hold the callable securities until the call expired or was exercised. Call writing may affect a Fund's turnover rate and brokerage commissions. The exercise of calls written by a Fund may cause that Fund to sell related portfolio securities, thus increasing its turnover rate in a manner beyond its control. The Funds may also write (and purchase) calls on foreign currencies. A call written on a foreign currency by any of the Funds is "covered" if the Fund owns the underlying foreign currency covered by the call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other foreign currency held in its portfolio. A call written by any of the Funds on a foreign currency is for cross-hedging purposes if it is not covered, but is designed to provide a hedge against a decline (due to an adverse change in the exchange rate) in the U.S. dollar value of a security which the Fund owns or has the right to acquire and which is denominated in the currency underlying the option. In such circumstances, the Fund collateralizes the option by maintaining in a segregated account with the Funds' custodian, cash or U.S. Government securities in an amount not less than the value of the underlying foreign currency in U.S. dollars marked-to-market daily. A Fund may also write calls on Futures without owning a futures contract (or, with respect to the High Income Fund, a deliverable bond) provided that at the time the call is written, the Fund covers the call by segregating in escrow an equivalent dollar amount of liquid assets. The Fund will segregate additional liquid assets if the value of the escrowed assets drops below 100% of the current value of the Future. In no circumstances would an exercise notice require a Fund to deliver a futures contract; it would simply put the Fund in a short futures position, which is permitted by each Fund's hedging policies. Hedging. Set forth below are the Hedging Instruments which the Funds (except Money Fund) may use. Writing Put Options. A put option on securities gives the purchaser the right to sell, and the writer the obligation to buy, the underlying investment at the exercise price during the option period. Writing a put covered by segregated liquid assets equal to the exercise price of the put has the same economic effect to a Fund as writing a covered call. The premium the Fund receives from writing a put option represents a profit, as long as the price of the underlying investment remains above the exercise price. However, a Fund has also assumed the obligation during the option period to buy the underlying investment from the buyer of the put at the exercise price, even though the value of the investment may fall below the exercise price. If the put expires unexercised, the Fund (as the writer of the put) realizes a gain in the amount of the premium less transaction costs. If the put is exercised, the Fund must fulfill its obligation to purchase the underlying investment at the exercise price, which will usually exceed the market value of the investment at that time. In that case, the Fund may incur a loss, equal to the sum of the sale price of the underlying investment and the premium received minus the sum of the exercise price and any transaction costs incurred. When writing put options on securities or on foreign currencies, to secure its obligation to pay for the underlying security, the Fund will deposit in escrow liquid assets with a value equal to or greater than the exercise price of the underlying securities. The Fund therefore forgoes the opportunity of investing the segregated assets or writing calls against those assets. As long as the obligation of the Fund as the put writer continues, it may be assigned an exercise notice by the exchange or broker-dealer through whom such option was sold, requiring the Fund to take delivery of the underlying security against payment of the exercise price. The Fund may be assigned an exercise notice at any time prior to the termination of its obligation as the writer of the put. This obligation terminates upon expiration of the put, or such earlier time at which the Fund effects a closing purchase transaction by purchasing a put of the same series as that previously sold. Once the Fund has been assigned an exercise notice, it is thereafter not allowed to effect a closing purchase transaction. The Fund may effect a closing purchase transaction to realize a profit on an outstanding put option it has written or to prevent an underlying security from being put. Furthermore, effecting such a closing purchase transaction will permit the Fund to write another put option to the extent that the exercise price thereof is secured by the deposited assets, or to utilize the proceeds from the sale of such assets for other investments by that Fund. The Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from writing the option. As above for writing covered calls, any and all such profits described herein from writing puts are considered short-term gains for Federal tax purposes, and when distributed by the Fund, are taxable as ordinary income. Purchasing Calls and Puts. When a Fund purchases a call (other than in a closing purchase transaction), it pays a premium and has the right to buy the underlying investment from a seller of a corresponding call on the same investment during the call period at a fixed exercise price. The Fund benefits only if the call is sold at a profit or if, during the call period, the market price of the underlying investment is above the sum of the call price plus the transaction costs and the premium paid for the call and the call is exercised. If the call is not exercised or sold (whether or not at a profit), it will become worthless at its expiration date and the Fund will lose its premium payment and the right to purchase the underlying investment. When such Fund purchases a put, it pays a premium and has the right to sell the underlying investment to a seller of a put on a corresponding investment during the put period at a fixed exercise price. Buying a put on securities or Futures a Fund owns enables the Fund to attempt to protect itself during the put period against a decline in the value of the underlying investment below the exercise price by selling the underlying investment at the exercise price to a seller of a corresponding put. If the market price of the underlying investment is equal to or above the exercise price and, as a result, the put is not exercised or resold, the put will become worthless at its expiration date and the Fund will lose its premium payment and the right to sell the underlying investment; the put may, however, be sold prior to expiration (whether or not at a profit). Purchasing a put on either Futures or on securities it does not own permits a Fund either to resell the put or, if applicable, to buy the underlying investment and sell it at the exercise price. The resale price of the put will vary inversely with the price of the underlying investment. If the market price of the underlying investment is above the exercise price, and, as a result, the put is not exercised, the put will become worthless on its expiration date. In the event of a decline in price of the underlying investment, the Fund could exercise or sell the put at a profit to attempt to offset some or all of its loss on its portfolio securities. When the Fund purchases a put on a Future or security not held by it, the put protects the Fund to the extent that the prices of the underlying Future or securities move in a similar pattern to the prices of the securities in a Fund's portfolio. Futures. No price is paid or received upon the purchase or sale of a Future. Upon entering into a Futures transaction, a Fund will be required to deposit an initial margin payment with the futures commission merchant (the "futures broker"). The initial margin will be deposited with the Fund's Custodian in an account registered in the futures broker's name; however the futures broker can gain access to that account only under specified conditions. As the Future is marked to market to reflect changes in its market value, subsequent margin payments, called variation margin, will be paid to or by the futures broker on a daily basis. Prior to expiration of the Future, if the Fund elects to close out its position by taking an opposite position, a final determination of variation margin is made, additional cash is required to be paid by or released to the Fund, and any loss or gain is realized for tax purposes. All futures transactions are effected through a clearinghouse associated with the exchange on which the contracts are traded. Forward Contracts. A Forward Contract involves bilateral obligations of one party to purchase, and another party to sell, a specific currency at a future date (which may be any fixed number of days from the date of the contract agreed upon by the parties), at a price set at the time the contract is entered into. These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. The Funds may use Forward Contracts to protect against uncertainty in the level of future exchange rates. The use of Forward Contracts does not eliminate fluctuations in the prices of the underlying securities the Fund owns or intends to acquire, but it does fix a rate of exchange in advance. In addition, although Forward Contracts limit the risk of loss due to a decline in the value of the hedged currencies, at the same time they limit any potential gain that might result should the value of the currencies increase. These Funds may enter into Forward Contracts with respect to specific transactions. For example, when a Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when a Fund anticipates receipt of dividend payments in a foreign currency, a Fund may desire to "lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of such payment by entering into a Forward Contract, for a fixed amount of U.S. Dollars per unit of foreign currency, for the purchase or sale of the amount of foreign currency involved in the underlying transaction. A Fund will thereby be able to protect itself against a possible loss resulting from an adverse change in the relationship between the currency exchange rates during the period between the date on which the security is purchased or sold, or on which the payment is declared, and the date on which such payments are made or received. These Funds may also use Forward Contracts to lock in the U.S. dollar value of portfolio positions ("position hedge"). In a position hedge, for example, when a Fund believes that foreign currency may suffer a substantial decline against the U.S. dollar, it may enter into a forward sale contract to sell an amount of that foreign currency approximating the value of some or all of that Fund's portfolio securities denominated in such foreign currency, or when a Fund believes that the U.S. dollar may suffer a substantial decline against a foreign currency, it may enter into a forward purchase contract to buy that foreign currency for a fixed dollar amount. In this situation the Fund may, in the alternative, enter into a Forward Contract to sell a different foreign currency for a fixed U.S. dollar amount where that Fund believes that the U.S. dollar value of the currency to be sold pursuant to the Forward Contract will fall whenever there is a decline in the U.S. dollar value of the currency in which portfolio securities of that Fund are denominated ("cross-hedge"). These Funds will not enter into such Forward Contracts or maintain a net exposure to such contracts where the consummation of the contracts would obligate that Fund to deliver an amount of foreign currency in excess of the value of the Fund's portfolio securities or other assets denominated in that currency. The Fund, however, in order to avoid excess transactions and transaction costs, may maintain a net exposure to Forward Contracts in excess of the value of the Fund's portfolio securities or other assets denominated in that currency provided the excess amount is "covered" by liquid, high-grade debt securities, denominated in that foreign currency or U.S. dollars, at least equal at all times to the amount of such excess. As an alternative, the Fund may purchase a call option permitting the Fund to purchase the amount of foreign currency being hedged by a forward sale contract at a price no higher than the forward contract price or the Fund may purchase a put option permitting the Fund to sell the amount of foreign currency subject to a forward purchase contract at a price as high or higher than the forward contract price. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. The precise matching of the Forward Contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of these securities between the date the Forward Contract is entered into and the date it is sold. Accordingly, it may be necessary for a Fund to purchase additional foreign currency on the spot (i.e., cash) market (and bear the expense of such purchase), if the market value of the security is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency a Fund is obligated to deliver. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Forward Contracts involve the risk that anticipated currency movements will not be accurately predicted, causing a Fund to sustain losses on these contracts and transactions costs. At or before the maturity of a Forward Contract requiring any Fund to sell a currency, the Fund may either sell a portfolio security and use the sale proceeds to make delivery of the currency or retain the security and offset its contractual obligation to deliver the currency by purchasing a second contract pursuant to which the Fund will obtain, on the same maturity date, the same amount of the currency that it is obligated to deliver. Similarly, the Fund may close out a Forward Contract requiring it to purchase a specified currency by entering into a second contract entitling it to sell the same amount of the same currency on the maturity date of the first contract. The Fund would realize a gain or loss as a result of entering into such an offsetting Forward Contract under either circumstance to the extent the exchange rate or rates between the currencies involved moved between the execution dates of the first contract and offsetting contract. The cost to the Fund of engaging in Forward Contracts varies with factors such as the currencies involved, the length of the contract period and the market conditions then prevailing. Because Forward Contracts are usually entered into on a principal basis, no fees or commissions are involved. Because such contracts are not traded on an exchange, a Fund must evaluate the credit and performance risk of each particular counterparty under a Forward Contract. Although each Fund values its assets daily in terms of U.S. dollars, it does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. The Fund may convert foreign currency from time to time, and investors should be aware of the costs of currency conversion. Foreign exchange dealers do not charge a fee for conversion, but they do seek to realize a profit based on the difference between the prices at which they buy and sell various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should that Fund desire to resell that currency to the dealer. Interest Rate Swap Transactions. The risk incurred by Bond Fund, High Income Fund and Strategic Bond Fund in entering into a swap agreement is twofold: interest rate risk and credit risk. There is a risk that, based on movements of interest rates in the future, the payments made by the Fund under a swap agreement will have been greater than those received by it. Credit risk arises from the possibility that the counterparty will default. If the counterparty to an interest rate swap defaults, the Fund's loss will consist of the net amount of contractual interest payments that the Fund has not yet received. The Manager will monitor the creditworthiness of counterparties to the Fund's interest rate swap transactions on an ongoing basis. These Funds will enter into swap transactions with appropriate counterparties pursuant to master netting agreements. A master netting agreement provides that all swaps done between the Fund and that counterparty under the master agreement shall be regarded as parts of an integral agreement. If on any date amounts are payable in the same currency in respect of one or more swap transactions, the net amount payable on that date in that currency shall be paid. In addition, the master netting agreement may provide that if one party defaults generally or on one swap, the counterparty may terminate the swaps with that party. Under such agreements, if there is a default resulting in a loss to one party, the measure of that party's damages is calculated by reference to the average cost of a replacement swap with respect to each swap (i.e., the mark-to-market value at the time of the termination of each swap). The gains and losses on all swaps are then netted, and the result is the counterparty's gain or loss on termination. The termination of all swaps and the netting of gains and losses on termination is generally referred to as "aggregation." Additional Information About Hedging Instruments and Their Use. Each Fund's Custodian, or a securities depository acting for the Custodian, will act as that Fund's escrow agent, through the facilities of the Options Clearing Corporation ("OCC"), as to the securities on which the Fund has written options or as to other acceptable escrow securities, so that no margin will be required for such transactions. OCC will release the securities on the expiration of the option or upon the Fund's entering into a closing transaction. An option position may be closed out only on a market which provides secondary trading for options of the same series, and there is no assurance that a liquid secondary market will exist for any particular option. When a Fund writes an over-the-counter ("OTC") option, it will enter into an arrangement with a securities dealer, which would establish a formula price at which that Fund would have the absolute right to repurchase that OTC option. This formula price would generally be based on a multiple of the premium received for the option, plus the amount by which the option is exercisable below for a put, above for a call, the market price of the underlying security ("in-the-money"). For any OTC option which any of these three Funds writes, it will treat as illiquid (for purposes of the 15% of net assets restriction on illiquid securities, stated in the Prospectus) the mark-to-market value of any OTC option held by it. The SEC is evaluating the general issue of whether or not OTC options should be considered as liquid securities, and the procedure described above could be affected by the outcome of that evaluation. Each Fund's option activities may affect its turnover rate and brokerage commissions. As noted above, the exercise of calls written by a Fund may cause that Fund to sell related portfolio securities, thus increasing its turnover rate in a manner beyond a Fund's control. The exercise by a Fund of puts on securities or Futures may cause the sale of related investments, also increasing portfolio turnover. Although such exercise is within the Fund's control, holding a put might cause the Fund to sell the underlying investment for reasons which would not exist in the absence of the put. Each Fund will pay a brokerage commission each time it buys or sells a call, buys a put or sells an underlying investment in connection with the exercise of a put or call. Such commissions may be higher than those which would apply to direct purchases or sales of the underlying investments. Premiums paid for options are small in relation to the market value of such investments and consequently, put and call options offer large amounts of leverage. The leverage offered by trading in options could result in a Fund's net asset value being more sensitive to changes in the value of the underlying investment. Regulatory Aspects of Hedging Instruments. These Funds must each operate within certain restrictions as to its long and short positions in Futures and options thereon under a rule (the "CFTC Rule") adopted by the Commodity Futures Trading Commission (the "CFTC") under the Commodity Exchange Act (the "CEA"), which excludes the Fund from registration with the CFTC as a "commodity pool operator" (as defined in the CEA) if it complies with the CFTC Rule. The Rule does not limit the percentage of each Fund's assets that may be used for Futures margin and related options premiums for a bona fide hedging position. However, under the Rule each Fund must limit its aggregate initial futures margin and related option premiums to no more than 5% of that Fund's net assets for hedging strategies that are not considered bona fide hedging strategies under the Rule. Under the restrictions, each Fund also must, as to its short positions, use Futures and options thereon solely for bona-fide hedging purposes within the meaning and intent of the applicable provisions under the CEA. Certain options on foreign currencies are considered related options for this purpose. Transactions in options by these Funds are subject to limitations established by each of the exchanges governing the maximum number of options which may be written or held by a single investor or group of investors acting in concert, regardless of whether the options were written or purchased on the same or different exchanges or are held in one or more accounts or through one or more exchanges or brokers. Thus, the number of options which the Fund may write or hold may be affected by options written or held by other entities, including other investment companies having the same or an affiliated investment adviser. Position limits also apply to Futures. An exchange may order the liquidation of positions found to be in violation of those limits and may impose certain other sanctions. Due to requirements under the Investment Company Act, when a Fund purchases a Future, the Fund will maintain, in a segregated account or accounts with its custodian bank, cash or readily-marketable, short-term (maturing in one year or less) debt instruments in an amount equal to the market value of the securities underlying such Future, less the margin deposit applicable to it. Tax Aspects of Hedging Instruments and Covered Calls. Each Fund intends to qualify as a "regulated investment company" under the Internal Revenue Code of 1986. That qualification enables each Fund to "pass- through" its income and realized capital gains to shareholders without the Fund having to pay tax on them. One of the tests for each Fund's qualification is that less than 30% of its gross income must be derived from gains realized on the sale of securities held for less than three months. To comply with that 30% cap, the Funds will limit the extent to which they engage in the following activities, but will not be precluded from them: (i) selling investments, including Futures, held for less than three months, whether or not they were purchased on the exercise of a call held by that Fund; (ii) purchasing calls or puts which expire in less than three months; (iii) effecting closing transactions with respect to calls or puts purchased less than three months previously; (iv) exercising puts held by that Fund for less than three months; and (v) writing calls on investments held for less than three months. Possible Risk Factors in Hedging. In addition to the risks with respect to options discussed in the Prospectus and above, there is a risk in using short hedging by: (i) selling Futures or (ii) purchasing puts on broadly-based indices or Futures to attempt to protect against declines in the value of the Fund's securities that the prices of the Futures or applicable index (thus the prices of the Hedging Instruments) will correlate imperfectly with the behavior of the cash (i.e., market value prices) of the Fund's securities. The ordinary spreads between prices in the cash and futures markets are subject to distortions due to differences in the natures of those markets. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures markets depend on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures markets could be reduced, thus producing distortion. Third, from the point of view of speculators, the deposit requirements in the futures markets are less onerous than margin requirements in the securities markets. Therefore, increased participation by speculators in the futures markets may cause temporary price distortions. The risk of imperfect correlation increases as the composition of a Fund's portfolio diverges from the securities included in the applicable index. To compensate for the imperfect correlation of movements in the price of the securities being hedged and movements in the price of the Hedging Instruments, each Fund may use Hedging Instruments in a greater dollar amount than the dollar amount of securities being hedged if the historical volatility of the prices of such securities being hedged is more than the historical volatility of the applicable index. It is also possible that where a Fund has used Hedging Instruments in a short hedge, the market may advance and the value of securities held in the Fund's portfolio may decline. If this occurred, the Fund would lose money on the Hedging Instruments and also experience a decline in value in its securities. However, while this could occur for a very brief period or to a very small degree, over time the value of a diversified portfolio of equity securities will tend to move in the same direction as the indices upon which the Hedging Instruments are based. If a Fund uses Hedging Instruments to establish a position in the securities markets as a temporary substitute for the purchase of individual securities (long hedging) by buying Futures and/or calls on such Futures, on securities, or on stock indices, it is possible that the market may decline. If either Fund then concludes not to invest in such securities at that time because of concerns as to possible further market decline or for other reasons, that Fund will realize a loss on the Hedging Instruments that is not offset by a reduction in the price of the equity securities purchased. -- Short Sales Against-the-Box. Each Fund (except Money Fund) may sell securities short in "short sales against-the-box." In a short sale, the seller does not own the security that is sold, but normally borrows the security to fulfill the delivery obligation. The seller later buys the security to repay the loan, in the expectation that the price of the security will be lower when the purchase is made, resulting in a gain. In a short sale against-the-box, the Fund owns an equivalent amount of the securities sold short. This technique is primarily used for tax purposes. Other Investment Restrictions The significant investment restrictions of all the Funds are set forth in the Prospectus. The following investment restrictions are also fundamental policies. Fundamental policies and the Funds' investment objectives cannot be changed without the vote of a "majority" of the outstanding shares of the Trust (or of the Fund, as to matters affecting only that Fund). Under the Investment Company Act, such a "majority" vote is defined as the vote of the holders of the lesser of: (1) 67% or more of the shares present or represented by proxy at such meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) more than 50% of the outstanding shares. Under these additional restrictions, each of the Funds cannot: (1) invest in oil or gas exploration or development programs; (2) invest in real estate or in interests in real estate, but may purchase securities of issuers holding real estate or interests therein; (3) invest in companies for the purpose of acquiring control of management thereof; (4) underwrite securities of other companies, except insofar as it might be deemed to be an underwriter for purposes of the Securities Act of 1933 in the resale of any securities held in its own portfolio; (5) invest or hold securities of any issuer if those officers and trustees or directors of the Trust or its adviser owning individually more than 1/2 of 1% of the securities of such issuer together own more than 5% of the securities of such issuer; or (6) invest in other open-end investment companies, or invest more than 5% of its net assets at the time of purchase in closed- end investment companies, including small business investment companies, nor make any such investments at commission rates in excess of normal brokerage commissions. For purposes of the Funds' policy not to concentrate described under investment restriction number four in the Prospectus, the Funds have adopted the industry classifications set forth in Appendix A to the Statement of Additional Information. This is not a fundamental policy. New York's insurance laws require that investments of each Fund be made with a degree of care of an "ordinarily prudent person." The Manager believes that compliance with this standard will not have a negative impact on the performance of any of the Funds. In addition, each Fund's investments must comply with the diversification requirements contained in Section 817(h) of the Internal Revenue Code, and each Fund has undertaken to comply with the diversification requirements of Section 10506 of the California Insurance Code (see "Other Investment Techniques and Strategies -- Foreign Securities" in the Prospectus) and with the regulations adopted under those statutes. How the Funds are Managed Organization and History. As a Massachusetts business trust, the Trust is not required to hold, and does not plan to hold, regular annual meetings of shareholders. The Trust will hold meetings when required to do so by the Investment Company Act or other applicable law, or when a shareholder meeting is called by the Trustees or upon proper request of the shareholders. At all shareholder meetings, shareholders only vote on matters affecting their Fund. Shareholders have the right, upon the declaration in writing or vote of two-thirds of the outstanding shares of the Trust, to remove a Trustee. The Trustees will call a meeting of shareholders to vote on the removal of a Trustee upon the written request of the record holders of 10% of its outstanding shares. In addition, if the Trustees receive a request from at least 10 shareholders (who have been shareholders for at least six months) holding shares of the Trust valued at $25,000 or more or holding at least 1% of the Trust's outstanding shares, whichever is less, stating that they wish to communicate with other shareholders to request a meeting to remove a Trustee, the Trustees will then either make the Trust's shareholder list available to the applicants or mail their communication to all other shareholders at the applicants' expense, or the Trustees may take such other action as set forth under Section 16(c) of the Investment Company Act. At all shareholder meetings, shareholders only vote on matters affecting their Fund, and each Fund votes separately on such matters. However, matters that require a vote by all shareholders of the Trust are submitted to all the shareholders, without individual voting by Fund. The Trust's Declaration of Trust contains an express disclaimer of shareholder or Trustee liability for the Trust's obligations, and provides for indemnification and reimbursement of expenses out of its property for any shareholder held personally liable for its obligations. The Declaration of Trust also provides that the Trust shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Trust and satisfy any judgment thereon. Thus, while Massachusetts law permits a shareholder of a business trust (such as the Trust) to be held personally liable as a "partner" under certain circumstances, the risk of a Trust shareholder incurring financial loss on account of shareholder liability is limited to the relatively remote circumstances in which the Trust would be unable to meet its obligations described above. Any person doing business with the Trust, and any shareholder of the Trust, agrees under the Trust's Declaration of Trust to look solely to the assets of the Trust for satisfaction of any claim or demand which may arise out of any dealings with the Trust, and the Trustees shall have no personal liability to any such person, to the extent permitted by law. Trustees and Officers of the Trust. The Trust's Trustees and officers and their principal occupations and business affiliations during the past five years are set forth below. Each Trustee is also a Trustee, Director or Managing General Partner of Daily Cash Accumulation Fund, Inc., Centennial Money Market Trust, Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York Tax Exempt Trust, Centennial California Tax Exempt Trust, Oppenheimer Total Return Fund, Inc., Oppenheimer Equity Income Fund, Oppenheimer Champion Income Fund, Oppenheimer High Yield Fund, Oppenheimer Cash Reserves, Oppenheimer Main Street Funds, Inc., Oppenheimer International Bond Fund, Oppenheimer Integrity Funds, Oppenheimer Strategic Income Fund, Oppenheimer Strategic Income & Growth Fund, Centennial America Fund, L.P., Oppenheimer Tax-Exempt Fund, Oppenheimer Limited-Term Government Fund, and The New York Tax-Exempt Income Fund, Inc. (collectively, the "Denver-based Oppenheimer Funds") except for Ms. Macaskill and Mr. Fossel, who are Trustees, Directors of Managing General Partners of all the Denver-based Oppenheimer funds except Oppenheimer Integrity Funds and Oppenheimer Strategic Income Fund. Ms. Macaskill is President and Mr. Swain is Chairman of each of the Denver- based Oppenheimer funds. As of March 31, 1996, none of the Trustees or officers were Account owners and thus none owned any Fund shares. Robert G. Avis, Trustee*, Age: 64 One North Jefferson Ave., St. Louis, Missouri 63103 Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G. Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset Management and A.G. Edwards Trust Company (its affiliated investment adviser and trust company, respectively). William A. Baker, Trustee; Age: 81 197 Desert Lakes Drive, Palm Springs, California 92264 Management Consultant. Charles Conrad, Jr., Trustee; Age: 65 19411 Merion Circle, Huntington Beach, California 92648 Vice President of McDonnell Douglas Space Systems, Co.; formerly associated with the National Aeronautics and Space Administration. Jon S. Fossel, Trustee*: Age: 53 Two World Trade Center, New York, New York 10048-0203 Chairman and a director of the Manager; Director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's parent holding company of Shareholder Services, Inc. ("SSI") and of Shareholder Financial Services, Inc. ("SFSI"), transfer agent subsidiaries of the Manager; formerly President and Chief Executive Officer of the Manager. Raymond J. Kalinowski, Trustee; Age: 66 44 Portland Drive, St. Louis, Missouri 63131 Director of Wave Technologies International, Inc.; formerly Vice Chairman and a director of A.G. Edwards, Inc., parent holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of which he was a Senior Vice President. __________________ *A Trustee who is an "interested person" of the Trust as defined in the Investment Company Act. C. Howard Kast, Trustee; Age: 74 2552 East Alameda, Denver, Colorado 80209 Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting firm). Robert M. Kirchner, Trustee; Age: 74 7500 E. Arapahoe Road, Englewood, Colorado 80112 President of The Kirchner Company (management consultants). Bridget A. Macaskill, President and Trustee*; Age 47 President, Chief Executive Officer and a Director of the Manager; Chairman and a Director of SSI; President and a Director of OAC and HarbourView Asset Management Corporation ("HarbourView"), a subsidiary of the Manager, and a Director of Oppenheimer Partnership Holdings, Inc., a holding company subsidiary of the Manager; formerly Executive Vice President of the Manager. Ned M. Steel, Trustee; Age: 80 3416 South Race Street, Englewood, Colorado 80110 Chartered Property and Casualty Underwriter; Director of Visiting Nurse Corporation of Colorado; formerly Senior Vice President and a Director of Van Gilder Insurance Corp. (insurance brokers). James C. Swain, Chairman and Trustee*; Age: 62 3410 South Galena Street, Denver, Colorado 80231 Vice Chairman of the Manager; formerly President and a director of Centennial Asset Management Corporation, an investment adviser subsidiary of the Manager ("Centennial"); formerly Chairman of the Board of SSI. Andrew J. Donohue, Vice President and Secretary; Age: 44 Two World Trade Center, New York, New York 10048-0203 Executive Vice President and General Counsel of the Manager and Oppenheimer Funds Distributor, Inc. ("OFDI"); an officer of other Oppenheimer funds; President and a director of Centennial; formerly Senior Vice President and Associate General Counsel of the Manager and OFDI; formerly a Partner in Kraft & McManimon (a law firm), prior to which he was an officer of First Investors Corporation (a broker-dealer) and First Investors Management Company, Inc. (broker-dealer and investment adviser) and a director and an officer of the First Investors Family of Funds and First Investors Life Insurance Company. George C. Bowen, Vice President and Treasurer; Age: 59 3410 South Galena Street Denver, Colorado 80231 Senior Vice President and Treasurer of the Manager; Vice President and Treasurer of OFDI and HarbourView; Senior Vice President, Treasurer, Assistant Secretary and a director of Centennial; Vice President, Treasurer and Secretary of SSI and SFSI; an officer of other Oppenheimer funds. __________________ *A Trustee who is an "interested person" of the Trust as defined in the Investment Company Act. Paul LaRocco, Vice President; Capital Appreciation Fund Portfolio Manager; Age: 37 Two World Trade Center, New York, New York 10048-0203 Vice President of the Manager; Associate Portfolio Manager for other Oppenheimer funds; formerly a securities analyst with Columbus Circle Investors, prior to which he was investment analyst for Chicago Title & Trust Co. Jane Putnam, Vice President; Growth Fund Portfolio Manager; Age 34 Two World Trade Center, New York, New York 10048-0203 Vice President of the Manager; Associate Portfolio Manager of other Oppenheimer funds; formerly a portfolio manager and equity research analyst for Chemical Bank. Michael S. Levine, Growth & Income Fund Assistant Portfolio Manager; Age: 29 Two World Trade Center, New York, New York 10048-0203 Assistant Vice President and Associate Portfolio Manager of the Manager; formerly portfolio manager and research associate for Amas Securities, Inc.; before which he was an analyst for Shearson Lehman Hutton, Inc. David P. Negri, Vice President; High Income Fund, Bond Fund, Multiple Strategies Fund and Strategic Bond Fund Portfolio Manager; Age: 41 Two World Trade Center, New York, New York 10048-0203 Vice President of the Manager; an officer of other Oppenheimer funds. Richard H. Rubinstein, Vice President; Multiple Strategies Fund Portfolio Manager; Age: 46 Two World Trade Center, New York, New York 10048-0203 Senior Vice President of the Manager; an officer of other Oppenheimer funds; formerly Vice President and Portfolio Manager/Security Analyst for Oppenheimer Capital Corporation (an investment adviser). William L. Wilby, Vice President; Global Securities Fund Portfolio Manager; Age: 51 Two World Trade Center, New York, New York 10048-0203 Senior Vice President of the Manager and HarbourView; formerly an international investment strategist at Brown Brothers, Harriman & Co., prior to which he was a Managing Director and Portfolio Manager at AIG Global Investors. Robert C. Doll, Jr., Vice President; Growth & Income Fund Portfolio Manager; Age: 41 Two World Trade Center, New York, New York 10048-0203 Executive Vice President of the Manager; an officer of other Oppenheimer funds. Robert J. Milnamow, Vice President; Growth & Income Fund Portfolio Manager;Age 45 Two World Trade Center, New York, New York 10048-0203 Vice President of the Manager; previously a portfolio manager with Phoenix Securities Group. Robert G. Zack, Assistant Secretary; Age: 47 Two World Trade Center, New York, New York 10048-0203 Senior Vice President and Associate General Counsel of the Manager; Assistant Secretary of SSI and SFSI; an officer of other Oppenheimer funds. Robert J. Bishop, Assistant Treasurer; Age: 36 3410 South Galena Street, Denver, Colorado 80231 Assistant Vice President of the Manager/Mutual Fund Accounting; an officer of other Oppenheimer funds; formerly a Fund Controller for the Manager, prior to which he was an Accountant for Yale & Seffinger, P.C., an accounting firm, and previously an Accountant and Commissions Supervisor for Stuart James Company Inc., a broker-dealer. Scott Farrar, Assistant Treasurer; Age: 30 3410 South Galena Street, Denver, Colorado 80231 Assistant Vice President of the Manager/Mutual Fund Accounting, an officer of other Oppenheimer funds; previously a Fund Controller for the Manager, prior to which he was an International Mutual Fund Supervisor for Brown Brothers Harriman & Co. (a bank) and previously a Senior Fund Accountant for State Street Bank & Trust Company. Dorothy Warmack, Vice President; Money Fund Portfolio Manager; Age: 59 3410 South Galena Street, Denver, Colorado 80231 Vice President of the Manager and Centennial; an officer of other Oppenheimer funds. -- Remuneration of Trustees. The officers of the Trust are affiliated with the Manager; they and the Trustees of the Trust who are affiliated with the Manager (Ms. Macaskill and Messrs. Swain and Fossel, the first two of which are both officers and Trustees) receive no salary or fee from the Trust. The Trustees of the Trust (excluding Ms. Macaskill and Messrs. Fossel and Swain) received the total amounts shown below (i) from the Trust during its fiscal year ended 12/31/95, and (ii) from all 21 of the Denver-based Oppenheimer funds (including the Trust) listed in the first paragraph of this section, and from Oppenheimer Strategic Investment Grade Bond Fund and Oppenheimer Strategic Short-Term Income Fund, which ceased operations following the acquisition of their assets by other Oppenheimer funds for services in the positions shown:
Total Compensation Aggregate From All Compensation Denver-based Name Position From Trust OppenheimerFunds 1 Robert G. Avis Trustee $2,666.66 $53,000.00 William A. Baker Audit and Review $3,687.00 $73,254.66 Committee Chairman and Trustee Charles Conrad, Jr. Audit and Review $3,240.66 $64,309.17 Committee Member and Trustee Raymond J. Kalinowski Derivative Instruments Oversight Committee Member and Trustee $3,272.06 $65,000.00 C. Howard Kast Derivative Instruments Oversight Committee$3,272.06 $65,000.00 Member and Trustee Robert M. Kirchner Audit and Review $3,435.83 $68,292.00 Committee Member and Trustee Ned M. Steel Trustee $2,666.66 $53,000.00
1 For the 1995 calendar year. - -- Major Shareholders. As of March 20, 1996, the holders of 5% or more of the outstanding shares of any Fund were separate accounts of (i) Monarch Life Insurance Company ("Monarch"), Springfield, MA; (ii) Bankers Security Life Insurance Society ("Bankers Security"), Arlington, VA; (iii) The Life Insurance Company of Virginia ("Life of Virginia"), Richmond, VA; (iv) Nationwide Life Insurance Company ("Nationwide"), Columbus, OH; (v) Aetna Life Insurance and Annuity Company ("Aetna"), Hartford, CT; and (vi) Massachusetts Mutual Life Insurance Company, Springfield, MA ("MassMutual"), and their respective subsidiaries. Such shares were held as follows:
Bankers Life of Monarch Security Virginia Nationwide Aetna MassMutual Money Fund 28,843,348.48013,945,774.4404,075,557.190 --22,435,463.4605,016,974.190 High Income 1,042,439.7122,325,060.0074,927,997.184 --3,298,397.248618,371.7263 Fund Bond Fund * *2,213,298.74914,330,870.7511,564,766.511 * Capital 744,912.2061,503,923.9492,927,071.615 --1,607,759.3813,583,873.584 Appreciation Fund Growth Fund 1,017,311.860 *1,703,213.267 --1,891,039.097 506,904.991 506,904.99160 Multiple Strategies3,337,080.4493,547,546.0683,058,431.34512,567,058.4023,684,304.065652,683.866 Fund Global Securities *1,710,533.795 --14,641,525.6083,055,954.3126,962,582.634 Fund Strategic Bond -- * -- --3,189,527.12210,050,632.176 Fund Growth & Income -- -- -- -- -- 619,575.663 Fund
__________________ * Less than 5% of the outstanding shares of that Fund. The Manager and Its Affiliates. The Manager is wholly-owned by Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by Massachusetts Mutual Life Insurance Company. OAC is also owned in part by certain of the Manager's directors and officers, some of whom also serve as officers of the Trust, and three of whom (Ms. Macaskill and Messrs. Swain and Mr. Fossel) serve as Trustees of the Trust. The Manager and the Funds have a Code of Ethics. It is designed to detect and prevent improper personal trading by certain employees, including portfolio managers, that would compete with or take advantage of a Fund's portfolio transactions. Compliance with the Code of Ethics is carefully monitored and strictly enforced by the Manager. -- The Investment Advisory Agreements. The investment advisory agreements between the Manager and the Trust for each of the nine Funds require the Manager, at its expense, to provide each Fund with adequate office space, facilities and equipment, and to provide and supervise the activities of all administrative and clerical personnel required to provide effective corporate administration for each Fund, including the compilation and maintenance of records with respect to its operations, the preparation and filing of specified reports, and composition of proxy materials and registration statements for continuous public sale of shares of each Fund. Expenses not expressly assumed by the Manager under the advisory agreement are paid by the Trust. The advisory agreements list examples of expenses paid by the Trust, the major categories of which relate to interest, taxes, brokerage commissions, fees to certain Trustees, legal and audit expenses, custodian and transfer agent expenses, share issuance costs, certain printing and registration costs and non-recurring expenses, including litigation costs. Expenses with respect to any two or more Funds are allocable in proportion to the net assets of the respective Funds except where allocations of direct expenses can be made. The management fees paid by the Funds to the Manager for the Funds' most recent three fiscal years (except for Growth & Income Fund, which commenced operations after December 31, 1994) were as follows:
Fiscal year ended December 31, 1993 1994 1995 Money Fund $212,358 $ 341,324 $ 338,483 High Income Fund $382,629 $ 617,198 $ 866,154 Bond Fund $361,258 $ 630,514 $1,280,422 Capital Appreciation Fund $407,611 $ 803,231 $1,790,785 Growth Fund $193,110 $ 307,904 $ 644,977 Multiple Strategies Fund $831,139 $1,433,107 $2,540,311 Global Securities Fund $227,226 $1,517,234 $2,451,556 Strategic Bond Fund (1) $ 18,509(1) $ 105,760 $ 281,335 Growth & Income Fund (2) $ 6,710(2) ____________________
(1) From May 3, 1993 (commencement of operations) to December 31, 1993. (2) From July 5, 1995 (commencement of operations) to December 31, 1995. The advisory agreements provide that the Manager is not liable for any loss sustained by the Trust and/or any Fund in connection with matters to which the Agreements relate, except a loss resulting by reason of the Manager's willful misfeasance, bad faith or gross negligence in the performance of its duties or reckless disregard for its obligations thereunder. The Manager may act as investment adviser for any other person, firm or corporation, and the Agreements permit the Manager to use the name "Oppenheimer" in connection with other investment companies for which it may act as investment adviser or general distributor. If the Manager shall no longer act as investment adviser to the Trust, the right of the Trust or any of the Funds to use the name "Oppenheimer" as part of their names may be withdrawn. Independently of the advisory agreements, the Manager has voluntarily undertaken since January 1, 1995 that the total expenses of any Fund shall not exceed 2.5% of the first $30 million of average net assets of that Fund, 2.0% of the next $70 million and 1.5% of average net assets over $100 million. In addition, the Manager has voluntarily undertaken since September 1, 1994 that it will limit the management fee charged under Strategic Bond Fund's Agreement so that the ordinary operating expenses of that Fund would not exceed 1.0% of its average net assets in any fiscal year. The payment of the management fee will be reduced or eliminated during any fiscal year in which such payment would cause the expenses of a Fund to exceed its expense limitation. Other expense limits were in effect prior to January 1, 1995. The Manager reserves the right to terminate or amend the undertakings at any time. Any assumption of a Fund's expenses under these limitations would lower that Fund's overall expense ratio and increase its total return during any period in which expenses are limited. The expense limitations in effect prior to the above dates are contained in note 8 to the Funds' financial statements, below. -- The Transfer Agent. OppenheimerFunds Services, the Trust's Transfer Agent, is responsible for maintaining the Trust's shareholder registry and shareholder accounting records. Brokerage Policies of the Funds Brokerage Provisions of the Investment Advisory Agreements Affecting Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund, Growth & Income Fund, Global Securities Fund and Strategic Bond Fund. One of the duties of the Manager under the advisory agreements is to arrange the portfolio transactions for the Funds. The advisory agreements contain provisions relating to the employment of broker-dealers ("brokers") to effect the Funds' portfolio transactions. In doing so, the Manager is authorized by the advisory agreements to employ broker-dealers, including "affiliated" brokers, as that term is defined in the Investment Company Act, 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 such transactions. The Manager need not seek competitive commission bidding but is expected to minimize the commissions paid to the extent consistent with the interests and policies of the Funds as established by the Board of Trustees. Purchases of securities from underwriters include a commission or concession paid by the issuer to the underwriter, and purchases from dealers include a spread between the bid and asked price. Under the advisory agreements, the Manager is authorized to select brokers that provide brokerage and/or research services for the Funds and/or the other accounts over which the Manager or its affiliates have investment discretion. The commissions paid to such brokers may be higher than another qualified broker would have charged if a good faith determination is made by the Manager that the commission is fair and reasonable in relation to the services provided. Description of Brokerage Practices Followed by the Manager. Subject to the provisions of the advisory agreements, and the procedures and rules described above, allocations of brokerage are generally made by the Manager's portfolio traders based upon recommendations from the Manager's portfolio managers. In certain instances portfolio managers may directly place trades and allocate brokerage, also subject to the provisions of the advisory agreement and the procedures and rules described above. In either case, brokerage is allocated under the supervision of the Manager's executive officers. Transactions in securities other than those for which an exchange is the primary market are generally done with principals or market makers. Brokerage commissions are paid primarily for effecting transactions in listed securities or for certain fixed-income agency transactions in the secondary market, and are otherwise paid only if it appears likely that a better price or execution can be obtained. When Funds engage in an option transaction, ordinarily the same broker will be used for the purchase or sale of the option and any transaction in the securities to which the option relates. When possible, concurrent orders to purchase or sell the same security by more than one of the accounts managed by the Manager or its affiliates are combined. The transactions effected pursuant to such combined orders are averaged as to price and allocated in accordance with the purchase or sale orders actually placed for each account. Option commissions may be relatively higher than those which would apply to direct purchases and sales of portfolio securities. Most purchases of money market instruments and debt obligations are principal transactions at net prices. Instead of using a broker for those transactions, the Fund normally deals directly with the selling or purchasing principal or market maker unless the Manager determines that a better price or execution can be obtained by using a broker. Purchases of these securities from underwriters include a commission or concession paid by the issuer to the underwriter. Purchases from dealers include a spread between the bid and asked prices. The Funds seek to obtain prompt execution of these orders at the most favorable net price. The research services provided by a particular broker may be useful only to one or more of the advisory accounts of the Manager and its affiliates, and investment research received for the commissions of those other accounts may be useful both to the Funds and one or more of such other accounts. Such research, which may be supplied by a third party at the instance of a broker, includes information and analyses on particular companies and industries as well as market or economic trends and portfolio strategy, receipt of market quotations for portfolio evaluations, information systems, computer hardware and similar products and services. If a research service also assists the Manager in a non- research capacity (such as bookkeeping or other administrative functions), then only the percentage or component that provides assistance to the Manager in the investment decision-making process may be paid in commission dollars. The Board of Trustees has permitted the Manager to use concessions on fixed price offerings to obtain research in the same manner as is permitted for agency transactions. The Board has also permitted the Manager to use stated commissions on secondary fixed-income agency trades to obtain research where the broker has represented to the Manager that: (i) the trade is not from or for the broker's own inventory, (ii) the trade was executed by the broker on an agency basis at the stated commission, and (iii) the trade is not a riskless principal transaction. The research services provided by brokers broaden the scope and supplement the research activities of the Manager, by making available additional views for consideration and comparisons, and by enabling the Manager to obtain market information for the valuation of securities held in the Fund's portfolio or being considered for purchase. The Board of Trustees, including the "independent" Trustees of the Trust (those Trustees of the Trust who are not "interested persons" as defined in the Investment Company Act) annually reviews information furnished by the Manager as to the commissions paid to brokers furnishing such services so that the Board may ascertain whether the amount of such commissions was reasonably related to the value or benefit of such services. Money Fund, High Income Fund, Bond Fund and Strategic Bond Fund. As most purchases made 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. Purchases of securities from underwriters include a commission or concession paid by the issuer to the underwriter, and purchases from dealers include a spread between the bid and asked price. No principal transactions and, except under unusual circumstances, no agency transactions for these Funds will be handled by any affiliated securities dealer. In the unusual circumstance when these Funds pay brokerage commissions, the above-described brokerage practices and policies are followed. Money Fund's policy of investing in short-term debt securities with maturities of less than 397 days results in high portfolio turnover. However, since brokerage commissions, if any, are small, high portfolio turnover does not have an appreciable adverse effect upon the net asset value of that Fund. During the Funds' fiscal years ended December 31, 1993, 1994 and 1995, total brokerage commissions paid by the Funds (not including spreads or concessions on principal transactions on a net trade basis) were $139,429, $1,570,251 and $4,083,132, respectively, for Capital Appreciation Fund; $6,723, $13,640 and $104,203, respectively, for High Income Fund; $33,497, $96,732 and $152,870, respectively, for Growth Fund; $176,858, $332,782 and $400,275, respectively, for Multiple Strategies Fund; $352,908, $2,245,838 and $2,826,016, respectively for Global Securities Fund; 0, $3,742 and $13,074, respectively, for Strategic Bond Fund; $3,742 for Bond Fund; and $42,952 for Growth & Income Fund. During the fiscal year ended December 31, 1995, $85,181, $76,831, $124,622, $2,390,090, $84 and $1,121 was paid by Capital Appreciation Fund,Growth Fund, Multiple Strategies Fund, Global Securities Fund, High Income Fund and Growth & Income Fund, respectively, to dealers as brokerage commissions in return for research services; the aggregate amount of those transactions was $13,766,311, $44,158,624, $40,912,338, $637,535,747, $30,381 and $695,038 for Capital Appreciation Fund, Growth Fund, Multiple Strategies Fund, Global Securities Fund, High Income Fund and Growth & Income Fund, respectively. Performance of the Funds -- Money Fund Yield Information. Money Fund's current yield for a seven day period of time is determined in accordance with regulations adopted under the Investment Company Act as follows. First, a base period return is calculated for the seven-day period by determining the net change in the value of a hypothetical pre-existing account having one share at the beginning of a seven day period. The change includes dividends declared on the original share and dividends declared on any shares purchased with dividends on that share, but such dividends are adjusted to exclude any realized or unrealized capital gains or losses affecting the dividends declared. Next, the base period return is multiplied by 365/7 to obtain the current yield to the nearest hundredth of one percent. The compounded effective yield for a seven-day period is calculated by (a) adding 1 to the base period return (obtained as described above), (b) raising the sum to a power equal to 365 divided by 7 and (c) subtracting 1 from the result. For the seven days ended December 31, 1995, Money Fund's "current yield" was 5.29% and its compounded "effective yield" for that period was 5.43%. The yield as calculated above may vary for accounts less than approximately $100 in value due to the effect of rounding off each daily dividend to the nearest full cent. Since the calculation of yield under either procedure described above does not take into consideration any realized or unrealized gains or losses on the Fund's portfolio securities which may affect dividends, the dividends declared during a period may not be the same on an annualized basis as the yield for that period. -- High Income Fund, Bond Fund and Strategic Bond Fund Yield Information. The "yield" or "standardized yield" of High Income Fund, Bond Fund and Strategic Bond Fund for a 30-day period is calculated using the following formula set forth in the SEC rules: Standardized Yield = 2 [ a-b + 1)6 - 1] --- cd The symbols above represent the following factors: a = dividends and interest earned during the 30-day period. b = expenses accrued for the period (net of any expense reimbursements). c = the average daily number of Fund shares outstanding during the 30-day period that were entitled to receive dividends. d = the Fund's maximum offering price (including sales charge) per share on the last day of the period. Each Fund's yield for a 30-day period may differ from its yield for any other period. The SEC formula assumes that the yield for a 30-day period occurs at a constant rate for a six-month period and is annualized at the end of the six-month period. For the 30 days ended December 31, 1995, the yield of High Income Fund, Bond Fund and Strategic Bond Fund, calculated as described above, was 9.64%, 5.95% and 7.88%, respectively. The "standardized" yield is not based on distributions paid by a Fund to shareholders in the 30-day period, but is a hypothetical yield based upon the return on a Fund's portfolio investments, and may differ from a Fund's "distribution return" described below. -- Dividend Yield and Distribution Return. From time to time High Income, Bond and Strategic Bond Funds may quote a "dividend yield" or a "distribution return." Dividend yield is based on that Fund's dividends derived from net investment income during a stated period, and distribution return includes dividends derived from net investment income and from realized capital gains declared during a stated period. Under those calculations, the Fund's dividends and/or distributions declared during a stated period of one year or less (for example, 30 days) are added together, and the sum is divided by the Fund's maximum offering price (equal to its net asset value) per share on the last day of the period. The result may be annualized if the period of measurement is less than one year. The dividend yield of High Income Fund, Bond Fund and Strategic Bond Fund for the quarter ended December 31, 1995, was 11.29%, 6.76% and 7.83%, respectively. Total Return. Each Fund, except Money Fund, may quote its "total return" or "average annual total return." "Average annual total return" ("T" in the formula below) is an average annual compounded rate of return. It is the rate of return based on factors which include a hypothetical initial investment of $1,000 ("P" in the formula below) over a number of years ("n") with an Ending Redeemable Value ("ERV") of that investment, according to the following formula: ( ERV ) 1/n (-----) -1 = Average Annual Total Return ( P ) The cumulative "total return" calculation measures the change in value of a hypothetical investment of $1,000 over a stated period. Its calculation uses some of the same factors as average annual total return, but it does not average the rate of return on an annual basis. Cumulative total return is determined as follows: ERV - P - ------- = Total Return P Both formulas assume that all dividends and capital gains distributions during the period are reinvested at net asset value per share, and that the investment is redeemed at the end of the period. Set forth below is the "average annual total return" and "total return" for each Fund (using the method described above) during the periods indicated:
Average Annual Total Return for: Cumulative Total Fiscal Year Five Year Return From Ended Period Inception(1)Inception(1) Fund 12/31/95 Ended 12/31/95 to 12/31/95to 12/31/95 High Income Fund 20.37% 18.38% 13.27% 233.69% Bond Fund 17.00% 10.19% 10.43% 190.45% Capital Appreciation Fund32.52% 22.73% 15.20% 276.81% Growth Fund 36.65% 16.30% 13.57% 292.56% Multiple Strategies Fund 21.36% 12.05% 11.09% 154.75% Global Securities Fund 2.24% 9.53% 9.36% 58.30% Strategic Bond Fund 15.33% N/A 5.63% 15.69% Growth & Income Fund N/A N/A N/A 25.25%
______________ (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; May 3, 1993 for Strategic Bond Fund; and 7/5/95 for Growth & Income Fund. The total return on an investment made in shares of any one of these Funds may be compared with performance for the same period of either the Standard & Poor's 500 Index ("S&P 500") or the Dow Jones Industrial Average ("Dow"). Both the S&P 500 and the Dow are widely recognized indices of stock market performance consisting of unmanaged groups of common stocks (the Dow consists of 30 such issues). The performance of both indices includes a factor for the reinvestment of income dividends but not capital gains and does not take sales charges or taxes into consideration. Yield and total return information may be useful to investors in reviewing performance of the Funds. However, a number of factors should be taken into account before using such performance information as a basis for comparison with alternative investments. An investment in any of these Funds is not insured. Their performance is not guaranteed and will fluctuate over time. Yield and total return for any Fund for any given past period is not an indication or representation by that Fund of future yields or rates of return on its shares. In comparing the performance of one Fund to another, consideration should be given to each Fund's investment policy, portfolio quality, portfolio maturity, type of instrument held and operating expenses. When comparing yield, total return and investment risk of an investment in any of the Funds with those of other investment instruments, investors should understand that certain other investment alternatives such as money market instruments, certificates of deposits ("CDs"), U.S. Government securities or bank accounts provide yields that are fixed or that may vary above a stated minimum, and may be insured or guaranteed. Finally, the performance quotations do not reflect the charges deducted from an Account, as explained in the attached Prospectus for the Policies. If these charges were deducted, that performance would be lower than as described above. Other Performance Comparisons. From time to time the Trust may publish the ranking of any of the Funds by Lipper Analytical Services, Inc. ("Lipper"), a widely-recognized independent service. Lipper monitors the performance of regulated investment companies, including the Funds, and ranks their performance for various periods based on categories relating to investment objectives. The performance of the Funds is ranked against all other funds underlying variable insurance products. The Lipper performance analysis includes the reinvestment of capital gains distributions and income dividends but does not take sales charges or taxes into consideration. From time to time, the Trust may include in its advertisements and sales literature performance information about the Trust cited in other newspapers and periodicals, such as The New York Times, which may include performance quotations from other sources, including Lipper. From time to time the Trust may publish the ranking of the performance of any of the separate accounts that offer any of the Funds by Morningstar, Inc., an independent mutual fund monitoring service, that ranks mutual funds, including the Funds, monthly in broad investment categories (equity, taxable bond, municipal bond and hybrid) based on risk-adjusted investment return. Investment return measures a fund's three, five and ten-year average annual total returns (when available) in excess of 90-day U.S. Treasury bill returns after considering sales charges and expenses. Risk reflects fund performance below 90-day U.S. Treasury bill monthly returns. Risk and return are combined to produce star rankings reflecting performance relative to the average fund in a fund's category. Five stars is the "highest" ranking (top 10%), four stars is "above average" (next 22.5%), three stars is "average" (next 35%), two stars is "below average" (next 22.5%) and one star is "lowest" (bottom 10%). Rankings are subject to change. About Your Account How To Buy Shares Determination of Net Asset Value Per Share. The sale of shares of the Funds is currently limited to Accounts as explained on the cover page of this Statement of Additional Information and the Prospectus. Such shares are sold at their respective offering prices (net asset values without sales charges) and redeemed at their respective net asset values as described in the Prospectus. The net asset value per share of each Fund is determined as of the close of business of The New York Stock Exchange (the "Exchange") on each day that the Exchange is open, by dividing the value of the Fund's net assets by the number of shares that are outstanding. The Exchange normally closes at 4:00 P.M., New York time, but may close earlier on some days (for example, in case of weather emergencies or on days falling before a holiday). The Exchange's most recent annual announcement (which is subject to change) states that it will close on New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. It may also close on other days. Dealers may conduct trading at times when the Exchange is closed (including weekends and holidays). Trading may occur in debt securities and in foreign securities at times when the NYSE is closed (including weekends and holidays or after 4:00 P.M., New York time, on a regular business day). Because the net asset value of the Funds will not be calculated on those days, the net asset values per share of the Funds may be significantly affected at times when shareholders may not purchase or redeem shares. The Trust's Board of Trustees has established procedures for the valuation of each Fund's (other than the Money Fund's) securities, generally as follows: (i) equity securities traded on a U.S. securities exchange or on NASDAQ for which last sale information is regularly reported are valued at the last reported sale price on their primary exchange or NASDAQ that day (or, in the absence of sales that day, at values based on the last sales prices of the preceding trading day, or closing bid and asked prices); (ii) securities actively traded on a foreign securities exchange are valued at the last sales price available to the pricing service approved by the Board of Trustees or to the Manager as reported by the principal exchange on which the security is traded; (iii) unlisted foreign securities or listed foreign securities not actively traded are valued at the mean between "bid" and "asked" prices determined by a pricing service approved by the Board of Trustees or by the Manager; (iv) long-term debt securities having a remaining maturity in excess of 60 days are valued at the mean between the "bid" and "asked" prices determined by a portfolio pricing service approved by the Board of Trustees or obtained from active market makers in the security on the basis of reasonable inquiry; (v) debt instruments having a maturity of more than one year when issued, and non-money market type instruments having a maturity of one year or less when issued, which have a remaining maturity of 60 days or less are valued at the mean between the "bid" and "asked" prices determined by a pricing service approved by the Board of Trustees or obtained from active market makers in the security on the basis of reasonable inquiry; (vi) money market-type debt securities having a maturity of less than one year when issued that having a remaining maturity of 60 days or less are valued at cost, adjusted for amortization of premiums and accretion of discounts; and (vii) securities (including restricted securities) not having readily-available market quotations are valued at fair value under the Board's procedures; (viii) securities denominated in foreign currency are converted to U.S. dollars at the prevailing rates of exchange at the closing price on the London foreign exchange market as provided by a reliable bank, dealer or pricing services; and (ix) foreign currency, including forward contracts, will be valued at the closing price in the London foreign exchange market as provided by a reliable bank, dealer or pricing service. Trading in securities on European and Asian exchanges and over-the- counter markets is normally completed before the close of The New York Stock Exchange. Events affecting the values of foreign securities traded in stock markets that occur between the time their prices are determined and the close of the Exchange will not be reflected in a Fund's calculation of net asset value unless the Board of Trustees or the Manager, under procedures established by the Board of Trustees, determines that the particular event would materially affect a Fund's net asset value, in which case an adjustment would be made, if necessary. In the case of U.S. Government Securities, mortgage-backed securities, foreign fixed-income securities and corporate bonds, when last sale information is not generally available, such pricing procedures may include "matrix" comparisons to the prices for comparable instruments on the basis of quality, yield, maturity, and other special factors involved. The Trust's Board of Trustees has authorized the Manager to employ a pricing service to price U.S. Government Securities, mortgage-backed securities, foreign government securities and corporate bonds. The Trustees will monitor the accuracy of such pricing services by comparing prices used for portfolio evaluation to actual sales prices of selected securities. Puts, calls and Futures held by a Fund are valued at the last sales price on the principal exchange on which they are traded, or on NASDAQ as applicable, as determined by a pricing service approved by the Board of Trustees or by the Manager, or, if there are no sales that day, in accordance with (i), above. When a Fund writes an option, an amount equal to the premium received by that Fund is included in its Statement of Assets and Liabilities as an asset, and an equivalent deferred credit is included in the liability section. The deferred credit is adjusted ("marked-to-market") to reflect the current market value of the option. In determining a Fund's gain on investments, if a call written by that Fund is exercised, the proceeds are increased by the premium received. If a call or put written by a Fund expires, that Fund has a gain in the amount of the premium; if the Fund enters into a closing purchase transaction, it will have a gain or loss depending on whether the premium was more or less than the cost of the closing transaction. If a Fund exercises a put it holds, the amount that Fund receives on its sale of the underlying investment is reduced by the amount of premium paid by the Fund. Money Fund Net Asset Valuation. Money Fund will seek to maintain a net asset value of $1.00 per share for purchases and redemptions. There can be no assurance that it will do so. The Fund operates under SEC Rule 2a- 7, under which the Fund may use the amortized cost method of valuing its shares. The amortized cost method values a security initially at its cost and thereafter assumes a constant amortization of any premium or accretion of any discount, regardless of the impact of fluctuating interest rates on the market value of the security. The method does not take into account unrealized capital gains or losses. The Trust's Board of Trustees has established procedures intended to stabilize Money Fund's net asset value at $1.00 per share. If the Fund's net asset value per share were to deviate from $1.00 by more than 0.5%, Rule 2a-7 requires the Board promptly to consider what action, if any, should be taken. If the Trustees find that the extent of any such deviation may result in material dilution or other unfair effects on shareholders, the Board will take whatever steps it considers appropriate to eliminate or reduce such dilution or unfair effects, including, without limitation, selling portfolio securities prior to maturity, shortening the average portfolio maturity, withholding or reducing dividends, reducing the outstanding number of Fund shares without monetary consideration, or calculating net asset value per share by using available market quotations. As long as it uses Rule 2a-7, Money Fund must abide by certain conditions described above and in the prospectus. For purposes of the Rule, the maturity of an instrument is generally considered to be its stated maturity (or in the case of an instrument called for redemption, the date on which the redemption payment must be made), with special exceptions for certain variable and floating rate instruments. Repurchase agreements and securities loan agreements are, in general, treated as having a maturity equal to the period scheduled until repurchase or return, or if subject to demand, equal to the notice period. While the amortized cost method provides certainty in valuation, there may be periods during which the value of an instrument as determined by amortized cost is higher or lower than the price the Fund would receive if it sold the instrument. During periods of declining interest rates, the daily yield on Money Fund shares may tend to be lower than a like computation made by a fund with identical investments utilizing a method of valuation based upon market prices or estimates of market prices for its portfolio. Conversely, during periods of rising interest rates, the daily yield on Money Fund shares will tend to be higher than that of a portfolio priced at market value. Dividends, Capital Gains and Taxes Distributions and Taxes. The Trust intends for each Fund to qualify as a "regulated investment company" under Subchapter M of the Internal Revenue Code. By so qualifying, the Funds will not be subject to Federal income taxes on amounts paid by them as dividends and distributions, as described in the Prospectus. Each Fund is treated as a single entity for purposes of determining Federal tax treatment. The Trust will endeavor to ensure that each Fund's assets are so invested so that all such requirements are satisfied, but there can be no assurance that it will be successful in doing so. The Internal Revenue Code requires that a holder (such as a Fund) of a zero coupon security accrue a portion of the discount at which the security was purchased as income each year even though that Fund receives no interest payment in cash on the security during the year. As an investment company, each Fund must pay out substantially all of its net investment income each year. Accordingly, when a Fund holds zero coupon securities, it may be required to pay out as an income distribution each year an amount which is greater than the total amount of cash interest the Fund actually received. Such distributions will be made from the cash assets of that Fund or by liquidation of portfolio securities, if necessary. The Fund may realize a gain or loss from such sales. In the event the Fund realizes net capital gains from such transactions, its shareholders may receive a larger capital gain distribution than they would have had in the absence of such transactions. Additional Information About the Funds The Custodian and the Transfer Agent. The Bank of New York is the custodian of the Trust's securities. The custodian's responsibilities include safeguarding and controlling the Trust's portfolio securities, collecting income on the portfolio securities, and handling the delivery of portfolio securities to and from the Trust. The Manager has represented to the Trust that its banking relationships with the Custodian have been and will continue to be unrelated to and unaffected by the relationship between the Trust and the Custodian. It will be the practice of the Trust to deal with the Custodian in a manner uninfluenced by any banking relationship the Custodian may have with the Manager and its affiliates. OppenheimerFunds Services, a subsidiary of the Manager, is responsible as Transfer Agent for maintaining the Trust's shareholder registry and shareholder accounting records, and for administrative functions. It also acts as the shareholder servicing agent for the other Oppenheimer funds. Independent Auditors. The independent auditors of the Trust examine its financial statements and perform other related audit services. They also act as auditors for the Manager and certain other funds advised by the Manager and its affiliates. Independent Auditors' Report The Board of Trustees and Shareholders of Oppenheimer Variable Account Funds: We have audited the accompanying statements of assets and liabilities, including the statements of investments, of Oppenheimer Bond Fund and Oppenheimer Growth Fund (each of which are series of Oppenheimer Variable Account Funds) as of December 31, 1995, the related statements of operations for the year then ended, the statements of changes in net assets for the years ended December 31, 1995 and 1994, and the financial highlights for the applicable periods ended December 31, 1995, 1994, 1993, 1992, 1991, 1990, 1989, 1988, 1987 and 1986. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at December 31, 1995 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Oppenheimer Money Fund, Oppenheimer High Income Fund, Oppenheimer Bond Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer Growth Fund, Oppenheimer Multiple Strategies Fund, Oppenheimer Global Securities Fund, Oppenheimer Strategic Bond Fund and Oppenheimer Growth & Income Fund at December 31, 1995, the results of their operations, the changes in their net assets, and the financial highlights for the respective stated periods, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP - ----------------------------- DELOITTE & TOUCHE LLP Denver, Colorado January 22, 1996 Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments December 31, 1995
Principal Market Value Amount(1) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Certificates of Deposit - 1.9% - ------------------------------------------------------------------------------------------------------------------------------------ Citibank CD: 19%, 1/19/96 (2) IDR 2,853,750,000 $ 1,248,126 27.40%, 3/22/96 (2) HUF 139,510,000 1,021,112 - ------------------------------------------------------------------------------------------------------------------------------------ Indonesia (Republic of) Bank Negara CD, Zero Coupon, 15.914%, 6/17/96 (2)(3) IDR 2,000,000,000 805,011 - ------------------------------------------------------------------------------------------------------------------------------------ Krungthai Thanakit CD, Zero Coupon, 11.533%, 2/29/96 (2)(3) THB 25,000,000 968,966 ----------------- Total Certificates of Deposit (Cost $4,063,089) 4,043,215 - ------------------------------------------------------------------------------------------------------------------------------------ Mortgage-Backed Obligations - 18.3% - ------------------------------------------------------------------------------------------------------------------------------------ Government Agency - 11.5% - ------------------------------------------------------------------------------------------------------------------------------------ FHLMC/FNMA/Sponsored - 7.7% ------------------------------------------------------------------------------------------------------------------------------ Federal National Mortgage Assn.: 7%, 11/1/25 1,888,319 1,903,653 7%, 11/1/25 7,990,664 8,055,548 Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, 8.75% 11/25/05 3,000,000 3,262,500 Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, 10.40%, 4/25/19 2,000,000 2,193,120 Interest-Only Stripped Mtg.-Backed Security, Trust 257, Cl. 2, 11.79%, 2/1/24 (4) 2,638,404 739,990 ----------------- 16,154,811 - ------------------------------------------------------------------------------------------------------------------------------------ GNMA/Guaranteed - 3.8% ------------------------------------------------------------------------------------------------------------------------------ Government National Mortgage Assn.: 6%, 10/20/25 4,986,569 5,036,435 6%, 10/20/24 2,939,612 3,009,429 ----------------- 8,045,864 - ------------------------------------------------------------------------------------------------------------------------------------ Private - 6.8% - ------------------------------------------------------------------------------------------------------------------------------------ Commercial - 3.1% ------------------------------------------------------------------------------------------------------------------------------ FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass- Through Certificates, Series 1994-C1: Cl. 2-D, 8.70%, 9/25/25 (5) 1,500,000 1,617,187 Cl. 2-E, 8.70%, 9/25/25 (5) 1,500,000 1,604,531 ------------------------------------------------------------------------------------------------------------------------------ Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through Certificates, Series 1995-C2, Cl. C, 7.70%, 6/15/21 (6) 993,670 1,025,033 ------------------------------------------------------------------------------------------------------------------------------ Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates: Series 1992-CHF, Cl. C, 8.25%, 12/25/20 1,053,588 1,079,599 Series 1992-CHF, Cl. E, 8.25%, 12/25/20 931,256 913,795 Series 1994-C1, Cl. A, 7.25%, 6/25/26 302,117 301,740 ----------------- 6,541,885 - ------------------------------------------------------------------------------------------------------------------------------------ Multi-Family - 3.7% ------------------------------------------------------------------------------------------------------------------------------ Countrywide Funding Corp., Series 1993-12, Cl. Bl, 1,000,000 942,500 6.625%, 2/25/24
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995
Principal Market Value Mortgage-Backed Obligations (Continued) Amount(1) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Private (Continued) - ------------------------------------------------------------------------------------------------------------------------------------ Multi-Family (Continued) ------------------------------------------------------------------------------------------------------------------------------ Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates: Series 1991-M5, Cl. A, 9%, 3/25/17 $ 2,295,071 $ 2,429,907 Series 1994-C1, Cl. C, 8%, 6/25/26 1,500,000 1,603,594 Series 1995-C1, Cl. D, 6.90%, 2/25/27 3,000,000 2,865,000 ----------------- 7,841,001 ----------------- Total Mortgage-Backed Obligations (Cost $37,340,024) 38,583,561 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Obligations - 40.3% - ------------------------------------------------------------------------------------------------------------------------------------ Treasury - 40.3% - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury Bonds: 6.875%, 8/15/25 8,000,000 9,027,495 7.125%, 2/15/23 3,000,000 3,427,500 8%, 11/15/21 5,000,000 6,259,375 ------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury Nts.: 6%, 12/31/97 3,000,000 3,047,811 6.25%, 5/31/00 10,000,000 10,343,750 6.375%, 6/30/97 1,000,000 1,017,187 6.50%, 5/15/05-8/15/05 18,000,000 19,182,809 6.875%, 3/31/00 5,000,000 5,289,065 7.25%, 5/15/04-8/15/04 7,000,000 7,787,812 7.375%, 11/15/97 2,000,000 2,076,250 7.50%, 2/15/05 5,000,000 5,676,559 7.75%, 12/31/99-1/31/00 6,000,000 6,519,374 7.875%, 6/30/96-11/15/04 3,000,000 3,329,999 9.25%, 8/15/98 2,000,000 2,193,124 ----------------- Total U.S. Government Obligations (Cost $79,215,729) 85,178,110 - ------------------------------------------------------------------------------------------------------------------------------------ Foreign Government Obligations - 13.9% - ------------------------------------------------------------------------------------------------------------------------------------ Australia (Commonwealth of) Bonds, 12.50%, 1/15/98 AUD 960,000 782,889 ------------------------------------------------------------------------------------------------------------------------------ Canada (Government of) Bonds: 7.75%, 9/1/99 CAD 347,000 266,514 Series A-76, 9%, 6/1/25 CAD 321,000 274,798 ------------------------------------------------------------------------------------------------------------------------------ Colombia (Republic of) 1989-1990 Integrated Loan Facility Bonds, 6.875%, 7/1/01 (6)(7) 1,714,400 1,594,392 ------------------------------------------------------------------------------------------------------------------------------ Corporacion Andina de Fomento Sr. Unsec. Debs.: 6.625%, 10/14/98 (5) 1,000,000 999,375 7.25%, 4/30/98 (5) 1,000,000 998,125 ------------------------------------------------------------------------------------------------------------------------------ Denmark (Kingdom of) Bonds: 7%, 11/10/24 DKK 6,300,000 1,014,039 8%, 3/15/06 DKK 1,880,000 357,728 ------------------------------------------------------------------------------------------------------------------------------ Financiera Energetica Nacional: Nts., 6.625%, 12/13/96 2,350,000 2,347,062 SA Medium-Term Nts., 9%, 11/8/99 400,000 419,500 ------------------------------------------------------------------------------------------------------------------------------ France (Government of) Obligation Assimilable du Tresor Debs., 9.50%, 6/25/98 FRF 1,196,000 267,600
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995
Principal Market Value Foreign Government Obligations (Continued) Amount(1) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Germany (Republic of) Bonds: 7.75%, 10/1/04 DEM $ 5,350,000 $ 4,106,853 Series 94, 6.25%, 1/4/24 DEM 2,900,000 1,887,370 ------------------------------------------------------------------------------------------------------------------------------ International Bank for Reconstruction and Development Bonds, 12.50%, 7/25/97 NZD 1,000,000 696,248 ------------------------------------------------------------------------------------------------------------------------------ Italy (Republic of) Treasury Bonds, Buoni del Tesoro Poliennali, 10.50%, 4/1/00 ITL 4,515,000,000 2,872,821 ------------------------------------------------------------------------------------------------------------------------------ National Treasury Management Agency (Irish Government) Bonds, 8%, 10/18/00 IEP 405,000 682,226 ------------------------------------------------------------------------------------------------------------------------------ New Zealand (Republic of) Bonds, 10%, 7/15/97 NZD 1,720,000 1,155,621 ------------------------------------------------------------------------------------------------------------------------------ Norwegian Government Bonds, 9.50%, 10/31/02 NOK 11,340,000 2,124,639 ------------------------------------------------------------------------------------------------------------------------------ Poland (Republic of) Debs., 7.75%, 7/13/00 1,500,000 1,530,000 ------------------------------------------------------------------------------------------------------------------------------ Portugal (Republic of) Gtd. Bonds, Obrigicion do tes Medio Prazo, 11.875%, 2/23/00 PTE 65,000,000 468,838 ------------------------------------------------------------------------------------------------------------------------------ South Africa (Republic of) Debs., 9.625%, 12/15/99 1,000,000 1,082,500 ------------------------------------------------------------------------------------------------------------------------------ Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado, 12.25%, 3/25/00 ESP 156,000,000 1,405,755 ------------------------------------------------------------------------------------------------------------------------------ Sweden (Kingdom of) Bonds, Series 1028, 11%, 1/21/99 SEK 4,400,000 714,422 ------------------------------------------------------------------------------------------------------------------------------ United Kingdom Treasury: Debs., 8.50%, 12/7/05 GBP 337,000 562,305 Nts., 10%, 2/26/01 GBP 310,000 544,176 ------------------------------------------------------------------------------------------------------------------------------ Western Australia Treasury Corp. Gtd. Bonds, Series 98, 12.50%, 4/1/98 AUD 200,000 164,222 ----------------- Total Foreign Government Obligations (Cost $28,915,289) 29,320,018 - ------------------------------------------------------------------------------------------------------------------------------------ Municipal Bonds and Notes - 0.9% - ------------------------------------------------------------------------------------------------------------------------------------ Pinole, California Redevelopment Agency Tax Allocation Taxable Bonds, Pinole Vista Redevelopment, Series B, 8.35%, 8/1/17 670,000 733,429 ------------------------------------------------------------------------------------------------------------------------------ Dade County, Florida Educational Facilities Authority: Exchangeable Revenue Bonds, University of Miami Prerefunded, MBIA Insured, 7.65%, 4/1/10 175,000 201,294 Revenue Bonds, University of Miami, MBIA Insured, 7.65% 4/1/10 205,000 230,154 Taxable Exchange Revenue Bonds, University of Miami, MBIA Insured, 9.70%, 4/1/10 120,000 134,724 ------------------------------------------------------------------------------------------------------------------------------ Port of Portland, Oregon Special Obligation Taxable Revenue Bonds, PAMCO Project, 9.20%, 5/15/22 500,000 546,886 ----------------- Total Municipal Bonds and Notes (Cost $1,663,728) 1,846,487 - ------------------------------------------------------------------------------------------------------------------------------------ Corporate Bonds and Notes - 16.9% - ------------------------------------------------------------------------------------------------------------------------------------ Basic Industry - 2.7% - ------------------------------------------------------------------------------------------------------------------------------------ Chemicals - 1.2% ------------------------------------------------------------------------------------------------------------------------------ Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 2,100,000 2,389,670 - ------------------------------------------------------------------------------------------------------------------------------------ Paper - 1.5% ------------------------------------------------------------------------------------------------------------------------------ Boise Cascade Corp., 9.90% Nts., 3/15/00 750,000 850,994 ------------------------------------------------------------------------------------------------------------------------------ Noranda Forest, Inc., 11% Debs., 7/15/98 CAD 1,000,000 805,629
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995
Principal Market Value Corporate Bonds and Notes (Continued) Amount(1) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Basic Industry (Continued) - ------------------------------------------------------------------------------------------------------------------------------------ Paper (Continued) ------------------------------------------------------------------------------------------------------------------------------ Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 $ 1,546,483 $ 1,571,753 ----------------- 3,228,376 - ------------------------------------------------------------------------------------------------------------------------------------ Consumer Related - 2.6% - ------------------------------------------------------------------------------------------------------------------------------------ Food/Beverages/Tobacco - 0.8% ------------------------------------------------------------------------------------------------------------------------------ Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr. Sub. Disc. Nts., 11/1/02 (8) 1,315,000 1,239,388 ------------------------------------------------------------------------------------------------------------------------------ Philip Morris Cos., Inc., 8.875% Nts., 7/1/96 500,000 507,702 ----------------- 1,747,090 - ------------------------------------------------------------------------------------------------------------------------------------ Healthcare - 0.6% ------------------------------------------------------------------------------------------------------------------------------ R.P. Scherer Corp., 6.75% Sr. Nts., 2/1/04 1,250,000 1,189,530 - ------------------------------------------------------------------------------------------------------------------------------------ Hotel/Gaming - 0.2% ------------------------------------------------------------------------------------------------------------------------------ Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 375,000 379,439 - ------------------------------------------------------------------------------------------------------------------------------------ Textile/Apparel - 0.5% ------------------------------------------------------------------------------------------------------------------------------ Fruit of the Loom, Inc., 7% Debs., 3/15/11 1,097,000 1,108,417 - ------------------------------------------------------------------------------------------------------------------------------------ Toys - 0.5% ------------------------------------------------------------------------------------------------------------------------------ Mattel, Inc., 6.875% Sr. Nts., 8/1/97 1,000,000 1,017,927 - ------------------------------------------------------------------------------------------------------------------------------------ Energy - 3.3% - ------------------------------------------------------------------------------------------------------------------------------------ BP America, Inc., 10.875% Nts., 8/1/01 CAD 650,000 551,957 ------------------------------------------------------------------------------------------------------------------------------ Coastal Corp.: 11.75% Sr. Debs., 6/15/06 2,000,000 2,126,614 9.75% Sr. Debs., 8/1/03 200,000 238,950 ------------------------------------------------------------------------------------------------------------------------------ Enron Corp., 9.875% Debs., 6/15/03 375,000 457,052 ------------------------------------------------------------------------------------------------------------------------------ McDermott, Inc., 9.375% Nts., 3/15/02 400,000 454,472 ------------------------------------------------------------------------------------------------------------------------------ Mitchell Energy & Development Corp., 9.25% Sr. Nts. 1/15/02 1,000,000 1,146,689 ------------------------------------------------------------------------------------------------------------------------------ Sonat, Inc., 9.50% Nts., 8/15/99 250,000 278,659 ------------------------------------------------------------------------------------------------------------------------------ Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 500,000 585,022 ------------------------------------------------------------------------------------------------------------------------------ Tenneco, Inc.: 10% Debs., 3/15/08 400,000 497,656 7.875% Nts., 10/1/02 650,000 709,766 ----------------- 7,046,837 - ------------------------------------------------------------------------------------------------------------------------------------ Financial Services - 1.7% - ------------------------------------------------------------------------------------------------------------------------------------ Banks & Thrifts - 1.0% ------------------------------------------------------------------------------------------------------------------------------ Banco Ganadero SA, Zero Coupon Sr. Unsub. Unsec. Nts. 9.931%, 6/15/96 (3)(5) 500,000 479,040 ------------------------------------------------------------------------------------------------------------------------------ BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 100,000 102,362 ------------------------------------------------------------------------------------------------------------------------------ Chemical New York Corp., 9.75% Sub. Capital Nts., 6/15/99 200,000 224,742 ------------------------------------------------------------------------------------------------------------------------------ First Chicago Corp.: 11.25% Sub. Nts., 2/20/01 750,000 923,495 9% Sub. Nts., 6/15/99 150,000 165,177 ------------------------------------------------------------------------------------------------------------------------------ First Chicago NBD Bancorp, 7.25% Sub. Debs., 8/15/04 165,000 176,247 ------------------------------------------------------------------------------------------------------------------------------ First Fidelity Bancorporation, 8.50% Sub. Capital Nts., 4/1/98 100,000 105,456 ----------------- 2,176,519 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Financial - 0.7% ------------------------------------------------------------------------------------------------------------------------------ American Car Line Co., 8.25% Equipment Trust Certificates, Series 1993-A, 4/15/08 627,000 659,134
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995
Principal Market Value Corporate Bonds and Notes (Continued) Amount(1) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Financial Services (Continued) - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Financial (Continued) ------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 $ 700,000 $ 744,198 ----------------- 1,403,332 - ------------------------------------------------------------------------------------------------------------------------------------ Manufacturing - 0.9% - ------------------------------------------------------------------------------------------------------------------------------------ Automotive - 0.9% ------------------------------------------------------------------------------------------------------------------------------ Chrysler Corp., 10.95% Debs., 8/1/17 800,000 898,110 ------------------------------------------------------------------------------------------------------------------------------ General Motors Acceptance Corp.: 5.50% Nts., 12/15/01 300,000 289,647 7.75% Nts., 4/15/97 700,000 713,318 ----------------- 1,901,075 - ------------------------------------------------------------------------------------------------------------------------------------ Media - 3.9% - ------------------------------------------------------------------------------------------------------------------------------------ Cable Television - 2.2% ------------------------------------------------------------------------------------------------------------------------------ Time Warner Entertainment LP/Time Warner, Inc., 8.375% Sr. Debs., 3/15/23 1,850,000 2,009,405 ------------------------------------------------------------------------------------------------------------------------------ TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 2,200,000 2,588,914 ----------------- 4,598,319 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Media - 1.3% ------------------------------------------------------------------------------------------------------------------------------ GSPI Corp., 10.15% First Mtg. Bonds, 6/24/10 (5) 1,151,691 1,389,228 ------------------------------------------------------------------------------------------------------------------------------ News America Holdings, Inc.: 10.125% Gtd. Sr. Debs., 10/15/12 500,000 608,130 12% Sr. Nts., 12/15/01 500,000 558,673 ------------------------------------------------------------------------------------------------------------------------------ Time Warner, Inc., 9.15% Debs., 2/1/23 300,000 342,093 ----------------- 2,898,124 - ------------------------------------------------------------------------------------------------------------------------------------ Entertainment/Film - 0.4% ------------------------------------------------------------------------------------------------------------------------------ Columbia Pictures Entertainment, Inc., 9.875% Sr. Sub. Nts., 2/1/98 500,000 541,242 ------------------------------------------------------------------------------------------------------------------------------ Eastman Kodak Co., 10% Nts., 6/15/01 250,000 254,730 ----------------- 795,972 - ------------------------------------------------------------------------------------------------------------------------------------ Retail - 0.3% - ------------------------------------------------------------------------------------------------------------------------------------ Drug Stores - 0.3% ------------------------------------------------------------------------------------------------------------------------------ Hook-SupeRx, Inc., 10.125% Sr. Nts., 6/1/02 600,000 657,191 - ------------------------------------------------------------------------------------------------------------------------------------ Transportation - 0.2% - ------------------------------------------------------------------------------------------------------------------------------------ Railroads - 0.2% ------------------------------------------------------------------------------------------------------------------------------ Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 400,000 455,554 - ------------------------------------------------------------------------------------------------------------------------------------ Utilities - 1.3% - ------------------------------------------------------------------------------------------------------------------------------------ Electric Utilities - 1.0% ------------------------------------------------------------------------------------------------------------------------------ Commonwealth Edison Co., 6.50% Nts., 7/15/97 775,000 779,528 ------------------------------------------------------------------------------------------------------------------------------ Long Island Lighting Co., 7% Nts., 3/1/04 150,000 144,552 ------------------------------------------------------------------------------------------------------------------------------ New Zealand Electric Corp., 10% Debs., 6/15/9 NZD 650,000 426,765 ------------------------------------------------------------------------------------------------------------------------------ Public Service Co. of Colorado, 8.75% First Mtg. Bonds, 3/1/22 750,000 852,330 ----------------- 2,203,175 - ------------------------------------------------------------------------------------------------------------------------------------ Telecommunications - 0.3% ------------------------------------------------------------------------------------------------------------------------------ GTE Corp., 9.375% Debs., 12/1/00 500,000 567,703 ----------------- Total Corporate Bonds and Notes (Cost $34,673,470) 35,764,250
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995
Market Value Shares (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Preferred Stocks - 0.5% - ------------------------------------------------------------------------------------------------------------------------------------ Atlantic Richfield Co., 9% Exchangeable Notes for Common Stock of Lyondell Petrochemical Co., 9/15/97 $ 15,000 $ 352,500 ------------------------------------------------------------------------------------------------------------------------------ BankAmerica Corp., 8.375%, Series K 25,000 646,875 ----------------- Total Preferred Stocks (Cost $1,076,533) 999,375 Principal Amount(1) - ------------------------------------------------------------------------------------------------------------------------------------ Structured Instruments - 0.5% - ------------------------------------------------------------------------------------------------------------------------------------ Merrill Lynch & Co., Inc. Units, 9.75%, 6/15/99 (representing debt of Chemical Banking Corp., sub. capital nts., and equity of Citicorp, 7.75% preferred, series 22) (Cost $1,100,540) (7)(9) $ 1,000,000 1,151,000 - ------------------------------------------------------------------------------------------------------------------------------------ Repurchase Agreement - 4.0% - ------------------------------------------------------------------------------------------------------------------------------------ Repurchase agreement with First Chicago Capital Markets, 5.90%, dated 12/29/95, to be repurchased at $8,505,572 on 1/2/96, collateralized by U.S. Treasury Nts., 5.125%-8.75%, 12/31/96-11/5/04, with a value of $4,613,862, U.S. Treasury Bonds, 6.25%-11.25%, 8/15/03-8/15/23, with a value of $2,796,111, and U.S. Treasury Bills maturing 11/14/96, with a value of $1,267,996 (Cost $8,500,000) 8,500,000 8,500,000 - ------------------------------------------------------------------------------------------------------------------------------------ Total Investments, at Value (Cost $196,548,402) 97.2% 205,386,016 - ------------------------------------------------------------------------------------------------------------------------------------ Other Assets Net of Liabilities 2.8 5,845,754 -------------- ----------------- Net Assets 100.0% $ 211,231,770 ============== =================
1. Principal amount is reported in U.S. Dollars, except for those denoted in the following currencies: AUD - Australian Dollarh CAD - Canadian Dollar DEM - German Deutsche Mark DKK - Danish Krone ESP - Spanish Peseta FRF - French Franc GBP - British Pound Sterling HUF - Hungarian Forint IDR - Indonesian Rupiah IEP - Irish Punt ITL - Italian Lira NOK - New Zealand Dollar PTE - Portuguese Escudo SEK - Swedish Krona THB - Thai Baht 2. Indexed instrument for which the principal amount and/or interest due at maturity is affected by the relative value of a foreign currency. 3. For zero coupon bonds, the interest rate shown is the effective yield on the date of purchase. 4. Interest-Only Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These securities typically decline in price as interest rates decline. Most other fixed-income securities increase in price when interest rates decline. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The price of these securities is typically more sensitive to changes in prepayment rates than traditional mortgage-backed securities (for example, GNMA pass-throughs). Interest rates disclosed represent current yields based upon the current cost basis and estimated timing and amount of future cash flows. Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995 5. Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the Board of Trustees. These securities amount to $7,087,486 or 3.36% of the Fund's net assets, at December 31, 1995. 6. Represents the current interest rate for a variable rate security. 7. Identifies issues considered to be illiquid - See Note 7 of Notes to Financial Statements. 8. Denotes a step bond: a zero coupon bond that converts to a fixed rate of interest at a designated future date. 9. Units may be comprised of several components, such as debt and equity and/or warrants to purchase equity at some point in the future. For units which represent debt securities, principal amount disclosed represents total underlying principal. See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds - Oppenheimer Growth Fund Statement of Investments December 31, 1995
Market Value Shares (Note 1) - --------------------------------------------------------------------------------------------------- Common Stocks - 80.1% - --------------------------------------------------------------------------------------------------- Basic Materials - 6.3% - --------------------------------------------------------------------------------------------------- Chemicals - 4.5% --------------------------------------------------------------------------------------------- FMC Corp. (1) 4,000 $ 270,500 --------------------------------------------------------------------------------------------- Georgia Gulf Corp. 19,000 584,250 --------------------------------------------------------------------------------------------- IMC Global, Inc. 16,000 654,000 --------------------------------------------------------------------------------------------- Morton International, Inc. 29,000 1,040,375 --------------------------------------------------------------------------------------------- PPG Industries, Inc. 18,000 823,500 --------------------------------------------------------------------------------------------- Sterling Chemicals, Inc. (1) 80,600 654,875 --------------------------------------------------------------------------------------------- Terra Industries, Inc. 46,000 649,750 --------------------------------------------------------------------------------------------- Union Carbide Corp. 17,000 637,500 ---------------- 5,314,750 - --------------------------------------------------------------------------------------------------- Metals - 0.3% --------------------------------------------------------------------------------------------- Reynolds Metals Co. 7,000 396,375 - --------------------------------------------------------------------------------------------------- Paper - 1.5% --------------------------------------------------------------------------------------------- Boise Cascade Corp. 17,000 588,625 --------------------------------------------------------------------------------------------- Bowater, Inc. 5,000 177,500 --------------------------------------------------------------------------------------------- Federal Paper Board Co. 7,000 363,125 --------------------------------------------------------------------------------------------- Willamette Industries, Inc. 11,000 618,750 ---------------- 1,748,000 - --------------------------------------------------------------------------------------------------- Consumer Cyclicals - 10.7% --------------------------------------------------------------------------------------------- Autos & Housing - 1.4% --------------------------------------------------------------------------------------------- Pulte Corp. 17,000 571,625 --------------------------------------------------------------------------------------------- Toll Brothers, Inc. (1) 46,000 1,058,000 ---------------- 1,629,625 - --------------------------------------------------------------------------------------------------- Leisure & Entertainment - 3.3% --------------------------------------------------------------------------------------------- Applebee's International, Inc. 18,000 409,500 --------------------------------------------------------------------------------------------- Callaway Golf Co. 25,000 565,625 --------------------------------------------------------------------------------------------- ITT Corp. (New) 5,000 265,000 --------------------------------------------------------------------------------------------- McDonald's Corp. 11,000 496,375 --------------------------------------------------------------------------------------------- Walt Disney Co. 25,000 1,475,000 --------------------------------------------------------------------------------------------- Wendy's International, Inc. 33,800 718,250 ---------------- 3,929,750 - --------------------------------------------------------------------------------------------------- Media - 0.2% --------------------------------------------------------------------------------------------- Viacom, Inc., Cl. B (1) 3,667 173,724 - --------------------------------------------------------------------------------------------------- Retail: General - 3.2% --------------------------------------------------------------------------------------------- Jones Apparel Group, Inc. (1) 17,100 673,312 --------------------------------------------------------------------------------------------- May Department Stores Co. 6,000 253,500 --------------------------------------------------------------------------------------------- Nautica Enterprises, Inc. 10,200 446,250 --------------------------------------------------------------------------------------------- Tommy Hilfiger Corp. 22,500 953,437 --------------------------------------------------------------------------------------------- Wal-Mart Stores, Inc. 26,000 581,750 --------------------------------------------------------------------------------------------- Warnaco Group, Inc. (The), Cl. A 33,000 825,000 ---------------- 3,733,249 - --------------------------------------------------------------------------------------------------- Retail: Specialty - 2.6% --------------------------------------------------------------------------------------------- Bed Bath & Beyond, Inc. (1) 9,000 349,312 --------------------------------------------------------------------------------------------- Gap, Inc. (The) 10,000 420,000 --------------------------------------------------------------------------------------------- General Nutrition Cos., Inc. (1) 40,000 920,000 --------------------------------------------------------------------------------------------- Home Depot, Inc. 24,000 1,149,000 --------------------------------------------------------------------------------------------- OfficeMax, Inc. (1) 8,000 179,000 ---------------- 3,017,312
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund Statement of Investments (Continued) December 31, 1995
Market Value Common Stocks (Continued) Shares (Note 1) - --------------------------------------------------------------------------------------------------- Consumer Non-Cyclicals - 17.6% - --------------------------------------------------------------------------------------------------- Beverages - 1.4% --------------------------------------------------------------------------------------------- Boston Beer Co., Inc., Cl. A (1) 6,600 $ 156,750 --------------------------------------------------------------------------------------------- Coca-Cola Co. (The) 10,000 742,500 --------------------------------------------------------------------------------------------- PepsiCo, Inc. 10,000 558,750 --------------------------------------------------------------------------------------------- Whitman Corp. 8,000 186,000 ---------------- 1,644,000 - --------------------------------------------------------------------------------------------------- Food - 3.1% --------------------------------------------------------------------------------------------- ConAgra, Inc. 4,000 165,000 --------------------------------------------------------------------------------------------- H.J. Heinz Co. 15,000 496,875 --------------------------------------------------------------------------------------------- IBP, Inc. 20,000 1,010,000 --------------------------------------------------------------------------------------------- Kroger Co. (1) 14,000 525,000 --------------------------------------------------------------------------------------------- Safeway, Inc. (1) 16,000 824,000 --------------------------------------------------------------------------------------------- Smithfield Foods, Inc. (1) 21,000 666,750 ---------------- 3,687,625 - --------------------------------------------------------------------------------------------------- Healthcare/Drugs - 5.6% --------------------------------------------------------------------------------------------- Abbott Laboratories 27,000 1,127,250 --------------------------------------------------------------------------------------------- Amgen, Inc. 8,000 475,000 --------------------------------------------------------------------------------------------- Bristol-Myers Squibb Co. 6,500 558,187 --------------------------------------------------------------------------------------------- Johnson & Johnson 12,000 1,027,500 --------------------------------------------------------------------------------------------- Pfizer, Inc. 26,500 1,669,500 --------------------------------------------------------------------------------------------- Schering-Plough Corp. 16,000 876,000 --------------------------------------------------------------------------------------------- Warner-Lambert Co. 6,000 582,750 --------------------------------------------------------------------------------------------- Watson Pharmaceuticals, Inc. (1) 6,000 294,000 ---------------- 6,610,187 - --------------------------------------------------------------------------------------------------- Healthcare/Supplies & Services - 4.2% --------------------------------------------------------------------------------------------- Columbia/HCA Healthcare Corp. 12,000 609,000 --------------------------------------------------------------------------------------------- Cordis Corp. (1) 2,000 201,000 --------------------------------------------------------------------------------------------- HealthCare COMPARE Corp. (1) 20,000 870,000 --------------------------------------------------------------------------------------------- Lincare Holdings, Inc. (1) 35,000 875,000 --------------------------------------------------------------------------------------------- Medtronic, Inc. 34,000 1,899,750 --------------------------------------------------------------------------------------------- Nellcor Puritan Bennett, Inc. (1) 8,800 510,400 ---------------- 4,965,150 - --------------------------------------------------------------------------------------------------- Household Goods - 0.9% --------------------------------------------------------------------------------------------- Procter & Gamble Co. 13,000 1,079,000 - --------------------------------------------------------------------------------------------------- Tobacco - 2.4% --------------------------------------------------------------------------------------------- Philip Morris Cos., Inc. 16,000 1,448,000 --------------------------------------------------------------------------------------------- UST, Inc. 41,000 1,368,375 ---------------- 2,816,375 - --------------------------------------------------------------------------------------------------- Energy - 1.5% --------------------------------------------------------------------------------------------- Oil-Integrated - 1.5% --------------------------------------------------------------------------------------------- Mobil Corp. 6,000 672,000 --------------------------------------------------------------------------------------------- Royal Dutch Petroleum Co. 3,500 493,938 --------------------------------------------------------------------------------------------- USX-Marathon Group 25,000 487,500 --------------------------------------------------------------------------------------------- YPF Sociedad Anonima, Sponsored ADR 5,000 108,125 ---------------- 1,761,563 - -------------------------------------------------------------------------------------------------- Financial - 13.7% --------------------------------------------------------------------------------------------- Banks - 4.3% --------------------------------------------------------------------------------------------- Bank of Boston Corp. 23,000 1,063,750 --------------------------------------------------------------------------------------------- Chase Manhattan Corp. 6,000 363,750 ----------------
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund Statement of Investments (Continued) December 31, 1995
Market Value Common Stocks (Continued) Shares (Note 1) - --------------------------------------------------------------------------------------------------- Financial (Continued) - --------------------------------------------------------------------------------------------------- Banks (Continued) --------------------------------------------------------------------------------------------- Chemical Banking Corp. 9,000 $ 528,750 --------------------------------------------------------------------------------------------- First Interstate Bancorp 6,500 887,250 --------------------------------------------------------------------------------------------- Midlantic Corp. 12,000 787,500 --------------------------------------------------------------------------------------------- NationsBank Corp. 10,000 696,250 --------------------------------------------------------------------------------------------- State Street Boston Corp. 16,600 747,000 ---------------- 5,074,250 - --------------------------------------------------------------------------------------------------- Diversified Financial - 7.4% --------------------------------------------------------------------------------------------- Advanta Corp., Cl. A 15,000 573,750 --------------------------------------------------------------------------------------------- Donaldson, Lufkin & Jenrette, Inc. (1) 6,200 193,750 --------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 8,000 668,000 --------------------------------------------------------------------------------------------- Federal National Mortgage Assn. 8,000 993,000 --------------------------------------------------------------------------------------------- First USA, Inc. 25,000 1,109,375 --------------------------------------------------------------------------------------------- Green Tree Financial Corp. 56,000 1,477,000 --------------------------------------------------------------------------------------------- Money Store, Inc. (The) 23,000 359,375 --------------------------------------------------------------------------------------------- Morgan Stanley Group, Inc. 3,000 241,875 --------------------------------------------------------------------------------------------- Price (T. Rowe) Associates 20,400 1,004,700 --------------------------------------------------------------------------------------------- Schwab (Charles) Corp. (The) 29,000 583,625 --------------------------------------------------------------------------------------------- Travelers Group, Inc. 24,000 1,509,000 ---------------- 8,713,450 - --------------------------------------------------------------------------------------------------- Insurance - 2.0% --------------------------------------------------------------------------------------------- AFLAC, Inc. 5,250 227,719 --------------------------------------------------------------------------------------------- ITT Hartford Group, Inc. 5,000 241,875 --------------------------------------------------------------------------------------------- MGIC Investment Corp. 14,100 764,925 --------------------------------------------------------------------------------------------- SunAmerica, Inc. 24,000 1,140,000 ---------------- 2,374,519 - --------------------------------------------------------------------------------------------------- Industrial - 7.1% - --------------------------------------------------------------------------------------------------- Electrical Equipment - 2.2% --------------------------------------------------------------------------------------------- Emerson Electric Co. 17,500 1,430,625 --------------------------------------------------------------------------------------------- General Electric Co. 13,000 936,000 --------------------------------------------------------------------------------------------- Honeywell, Inc. 2,000 97,250 --------------------------------------------------------------------------------------------- Kemet Corp. 6,000 143,250 ---------------- 2,607,125 - --------------------------------------------------------------------------------------------------- Industrial Materials - 1.6% --------------------------------------------------------------------------------------------- Ball Corp. 10,000 275,000 --------------------------------------------------------------------------------------------- Centex Corp. 14,000 486,500 --------------------------------------------------------------------------------------------- Fluor Corp. 8,000 528,000 --------------------------------------------------------------------------------------------- Rayonier, Inc. 19,400 647,475 ---------------- 1,936,975 - --------------------------------------------------------------------------------------------------- Industrial Services - 1.0% --------------------------------------------------------------------------------------------- Danka Business System PLC, Sponsored ADR 21,000 777,000 --------------------------------------------------------------------------------------------- Manpower, Inc. 12,500 351,563 ---------------- 1,128,563 - --------------------------------------------------------------------------------------------------- Manufacturing - 0.8% --------------------------------------------------------------------------------------------- ITT Industries, Inc. 5,000 120,000 --------------------------------------------------------------------------------------------- Kulicke & Soffa Industries, Inc. 20,000 465,000 --------------------------------------------------------------------------------------------- Varity Corp. (1) 9,000 334,125 ---------------- 919,125
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund Statement of Investments (Continued) December 31, 1995
Market Value Common Stocks (Continued) Shares (Note 1) - --------------------------------------------------------------------------------------------------- Transportation - 1.5% --------------------------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 7,000 $ 546,000 --------------------------------------------------------------------------------------------- Canadian Pacific Ltd. 47,000 851,875 --------------------------------------------------------------------------------------------- Illinois Central Corp. 10,000 383,750 ---------------- 1,781,625 - --------------------------------------------------------------------------------------------------- Technology - 22.1% - --------------------------------------------------------------------------------------------------- Aerospace/Defense - 0.7% --------------------------------------------------------------------------------------------- Goodrich (B.F.) Co. 12,000 817,500 - --------------------------------------------------------------------------------------------------- Computer Hardware - 5.3% --------------------------------------------------------------------------------------------- 3Com Corp. (1) 10,000 466,250 --------------------------------------------------------------------------------------------- Adaptec, Inc. (1) 20,000 820,000 --------------------------------------------------------------------------------------------- Cabletron Systems, Inc. (1) 22,000 1,782,000 --------------------------------------------------------------------------------------------- Cisco Systems, Inc. (1) 7,000 522,375 --------------------------------------------------------------------------------------------- Compaq Computer Corp. (1) 22,000 1,056,000 --------------------------------------------------------------------------------------------- EMC Corp. (1) 36,000 553,500 --------------------------------------------------------------------------------------------- Gateway 2000, Inc. (1) 22,000 539,000 --------------------------------------------------------------------------------------------- Sun Microsystems, Inc. (1) 12,000 547,500 ---------------- 6,286,625 - --------------------------------------------------------------------------------------------------- Computer Software - 9.6% --------------------------------------------------------------------------------------------- Automatic Data Processing, Inc. 19,000 1,410,750 --------------------------------------------------------------------------------------------- BMC Software, Inc. (1) 30,000 1,282,500 --------------------------------------------------------------------------------------------- Cheyenne Software, Inc. (1) 41,000 1,071,125 --------------------------------------------------------------------------------------------- Computer Associates International, Inc. 6,000 341,250 --------------------------------------------------------------------------------------------- First Data Corp. 20,000 1,337,500 --------------------------------------------------------------------------------------------- Informix Corp. (1) 35,000 1,050,000 --------------------------------------------------------------------------------------------- Microsoft Corp. (1) 30,000 2,632,500 --------------------------------------------------------------------------------------------- Oracle Corp. (1) 33,600 1,423,800 --------------------------------------------------------------------------------------------- Sterling Software, Inc. (1) 12,000 748,500 ---------------- 11,297,925 - --------------------------------------------------------------------------------------------------- Electronics - 3.8% --------------------------------------------------------------------------------------------- Arrow Electronics, Inc. (1) 11,000 474,375 --------------------------------------------------------------------------------------------- Cypress Semiconductor Corp. (1) 50,000 637,500 --------------------------------------------------------------------------------------------- General Instrument Corp. (1) 15,000 350,625 --------------------------------------------------------------------------------------------- Intel Corp. 26,000 1,475,500 --------------------------------------------------------------------------------------------- Motorola, Inc. 15,000 855,000 --------------------------------------------------------------------------------------------- Phillips Electronics NV, ADR 19,000 681,625 ---------------- 4,474,625 - --------------------------------------------------------------------------------------------------- Telecommunications-Technology - 2.7% --------------------------------------------------------------------------------------------- AT&T Corp. 18,000 1,165,500 --------------------------------------------------------------------------------------------- Hong Kong Telecommunications Ltd., Sponsored ADR 5,000 88,750 --------------------------------------------------------------------------------------------- L.M. Ericsson Telephone Co., Cl. B, ADR 33,000 643,500 --------------------------------------------------------------------------------------------- Telecom Corp. of New Zealand Ltd., Sponsored ADR 7,000 485,625 --------------------------------------------------------------------------------------------- Tellabs, Inc. 21,800 806,600 ---------------- 3,189,975 - --------------------------------------------------------------------------------------------------- Utilities - 1.1% - --------------------------------------------------------------------------------------------------- Telephone Utilities - 1.1% --------------------------------------------------------------------------------------------- BellSouth Corp. 5,000 217,500 --------------------------------------------------------------------------------------------- Cincinnati Bell, Inc. 17,000 590,750
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund Statement of Investments (Continued) December 31, 1995
Market Value Common Stocks (Continued) Shares (Note 1) - --------------------------------------------------------------------------------------------------- Utilities - (Continued) - --------------------------------------------------------------------------------------------------- Telephone Utilities - (Continued) --------------------------------------------------------------------------------------------- Telefonos de Mexico SA, Sponsored ADR 13,500 $ 430,313 ---------------- 1,238,563 ---------------- Total Common Stocks (Cost $70,729,607) 94,347,530 Principal Amount - --------------------------------------------------------------------------------------------------- Repurchase Agreements - 19.9% --------------------------------------------------------------------------------------------- Repurchase agreement with First Chicago Capital Markets, 5.90%, dated 12/29/95, to be repurchased at $18,011,800 on 1/2/96, collateralized by U.S. Treasury Nts., 5.125%-8.75%, 12/31/96-11/5/04, with a value of $9,770,530, U.S. Treasury Bonds, 6.25%-11.25%, 8/15/03-8/15/23, with a value of $5,921,176, and U.S. Treasury Bills maturing 11/14/96, with a value of $2,685,168 $18,000,000 18,000,000 --------------------------------------------------------------------------------------------- Repurchase agreement with PaineWebber, Inc., 5.90%, dated 12/29/95, to be repurchased at $5,473,586 on 1/2/96, collateralized by U.S. Treasury Nts., 6.875%, 8/31/99, with a value of $1,954,613, and U.S. Treasury Bonds, 7.125%-7.625%, 11/15/22-2/15/23, with a value of $3,682,864 5,470,000 5,470,000 ---------------- --------------------------------------------------------------------------------------------- Total Repurchase Agreements (Cost $23,470,000) 23,470,000 --------------------------------------------------------------------------------------------- Total Investments, at Value (Cost $94,199,607) 100.0% 117,817,530 --------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets 0.0 (107,640) ----------- ----------------- Net Assets 100.0% $117,709,890 =========== =================
1. Non-income producing security. See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds Statements of Assets and Liabilities December 31, 1995
Oppenheimer Oppenheimer Bond Growth Fund Fund - ----------------------------------------------------------------------------------------- ASSETS: Investments, at value (cost * ) (including repurchase agreements **) - see accompanying statements: Unaffiliated companies $205,386,016 $117,817,530 Affiliated companies -- -- Unrealized appreciation on forward foreign currency exchange contracts - Note 5 -- -- Cash 475,368 49,380 Receivables: Dividends and interest 3,482,730 106,959 Shares of beneficial interest sold 1,549,125 364,845 Investments sold 1,271,263 595,258 Other 7,575 5,982 -------------------------------- Total assets 212,172,077 118,939,954 -------------------------------- LIABILITIES: Options written, at value (premiums received ***) - see accompanying statements - Note 4 -- -- Unrealized depreciation on forward foreign currency exchange contracts - Note 5 15,522 -- Payables and other liabilities: Dividends -- -- Investments purchased 779,747 970,555 Shares of beneficial interest redeemed 98,746 231,518 Other 46,292 27,991 -------------------------------- Total liabilities 940,307 1,230,064 -------------------------------- NET ASSETS $211,231,770 $117,709,890 ================================ COMPOSITION OF NET ASSETS: Paid-in capital $201,057,454 $84,252,418 Undistributed (distributions in excess of) net investment income 1,342,481 1,290,629 Accumulated net realized gain (loss) from investments and foreign currency transactions 5,361 8,548,920 Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies 8,826,474 23,617,923 -------------------------------- NET ASSETS $211,231,770 $117,709,890 ================================ SHARES OF BENEFICIAL INTEREST OUTSTANDING 17,842,418 4,997,725 NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $11.84 $23.55 *Cost: Unaffiliated companies $196,548,402 $94,199,607 Affiliated companies -- -- **Repurchase Agreements $8,500,000 $23,470,000 ***Premiums Received -- --
See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds Statements of Operations For the Year Ended December 31, 1995
Oppenheimer Oppenheimer Bond Growth Fund Fund - ----------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest (net of withholding taxes of *) $13,096,739 $1,001,964 Dividends: Unaffiliated companies (net of withholding taxes of **) 81,190 992,690 Affiliated companies (net of withholding taxes of **) -- -- -------------------------------- Total income 13,177,929 1,994,654 -------------------------------- EXPENSES: Management fees - Note 6 1,280,422 664,977 Custodian fees and expenses 37,714 -- Shareholder reports 8,042 3,864 Legal and auditing fees 12,506 12,202 Insurance expenses 5,140 3,525 Trustees' fees and expenses 2,637 1,901 Registration and filing fees 16,773 8,881 Other 1,193 1,585 -------------------------------- Total expenses 1,364,427 696,935 -------------------------------- NET INVESTMENT INCOME 11,813,502 1,297,719 -------------------------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from: Investments: Unaffiliated companies 861,074 8,674,291 Affiliated companies -- -- Closing and expiration of options written - Note 4 (14,352) -- Foreign currency transactions 463,409 -- Net change in unrealized appreciation or depreciation on: Investments 13,439,159 16,396,856 Translation of assets and liabilities denominated in foreign currencies (120,740) -- -------------------------------- Net realized and unrealized gain 14,628,550 25,071,147 -------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $26,442,052 $26,368,866 ================================ *Interest $7,577 -- **Dividends: Unaffiliated companies -- $9,674 Affiliated companies -- --
See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds Statements of Changes in Net Assets For the Years Ended December 31, 1995 and 1994
Oppenheimer Oppenheimer Bond Growth Fund Fund - ---------------------------------------------------------------------------------------------------------------- 1995 1994 1995 1994 OPERATIONS: Net investment income $11,813,502 $8,900,922 $1,297,719 $824,976 Net realized gain (loss) 1,310,131 (2,370,155) 8,674,291 1,441,127 Net change in unrealized appreciation or depreciation 13,318,419 (8,824,731) 16,396,856 (1,915,053) ---------------------------------------------------------- Net increase (decrease) in net assets resulting from from operations 26,442,052 (2,293,964) 26,368,866 351,050 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income (11,209,883) (7,101,380) (821,641) (516,871) Distributions from net realized gain -- (283,274) (973,385) (127,540) Distributions in excess of net realized gain -- -- -- -- BENEFICIAL INTEREST TRANSACTIONS: Net increase (decrease) in net assets resulting from beneficial interest transactions - Note 2 60,932,217 32,899,881 29,852,876 6,875,487 ---------------------------------------------------------- NET ASSETS: Total increase (decrease) 76,164,386 23,221,263 54,426,716 6,582,126 Beginning of period 135,067,384 111,846,121 63,283,174 56,701,048 ---------------------------------------------------------- End of period $211,231,770 $135,067,384 $117,709,890 $63,283,174 ===================================================== =====
See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds FINANCIAL HIGHLIGHTS (Continued)
Oppenheimer Bond Fund ----------------------------------------------------------------------------- Year Ended December 31, 1995 1994 1993 1992 1991 ----------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $10.78 $11.65 $10.99 $11.15 $10.33 Income (loss) from investment operations: Net investment income .72 .76 .65 .87 .95 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.07 (.98) .76 (.17) .80 ----------------------------------------------------------------------------- Total income (loss) from investment operations 1.79 (.22) 1.41 .70 1.75 ----------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.73) (.62) (.75) (.86) (.93) Distributions from net realized gain on investments and foreign currency transactions -- (.03) -- -- -- ----------------------------------------------------------------------------- Total dividends and distributions to shareholders (.73) (.65) (.75) (.86) (.93) ----------------------------------------------------------------------------- Net asset value, end of period $11.84 $10.78 $11.65 $10.99 $11.15 ===================================================== ======================== TOTAL RETURN, AT NET ASSET VALUE(1) 17.00% (1.94)% 13.04% 6.50% 17.63% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $211,232 $135,067 $111,846 $63,354 $32,762 Average net assets (in thousands) $170,929 $121,884 $ 87,215 $45,687 $22,169 Ratios to average net assets: Net investment income 6.91% 7.30% 7.20% 7.81% 8.73% Expenses .80% .57% .46% .56% .64% Portfolio turnover rate(2) 79.4% 35.1% 36.3% 41.3% 7.6% ---------------------------------------------------------------------------- 1990 1989 1988 1987 1986 ---------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $10.49 $10.15 $10.19 $11.15 $11.27 Income (loss) from investment operations: Net investment income .97 .98 .94 .97 .97 Net realized and unrealized gain (loss) on investments and foreign currency transactions (.18) .32 (.05) (.71) .09 ---------------------------------------------------------------------------- Total income (loss) from investment operations .79 1.30 .89 .26 1.06 ---------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.95) (.96) (.93) (1.17) (1.03) Distributions from net realized gain on investments and foreign currency transactions -- -- -- (.05) (.15) ---------------------------------------------------------------------------- Total dividends and distributions to shareholders (.95) (.96) (.93) (1.22) (1.18) ---------------------------------------------------------------------------- Net asset value, end of period $10.33 $10.49 $10.15 $10.19 $11.15 ===================================================== ======================= TOTAL RETURN, AT NET ASSET VALUE(1) 7.92% 13.32% 8.97% 2.53% 10.12% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $16,576 $13,422 $ 9,989 $10,415 $7,377 Average net assets (in thousands) $15,088 $11,167 $11,028 $ 8,748 $4,647 Ratios to average net assets: Net investment income 9.30% 9.34% 9.08% 9.17% 8.71% Expenses .61% .64% .70% .75% .75% Portfolio turnover rate(2) 7.4% 5.4% 36.3% 5.9% 27.7%
1. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods of less than one full year. Total return information does not reflect expenses that apply at the separate account level or to related insurance products. Inclusion of these charges would reduce the total return figures for all periods shown. 2. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds FINANCIAL HIGHLIGHTS (Continued)
Oppenheimer Growth Fund - ----------------------------------------------------------------------------- Year Ended December 31, 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $17.68 $17.70 $16.96 $15.17 $12.54 Income (loss) from investment operations: Net investment income .25 .22 .46 .16 .30 Net realized and unrealized gain (loss) on investments 6.10 (.05) .74 1.99 2.82 - ----------------------------------------------------------------------------- Total income (loss) from investment operations 6.35 .17 1.20 2.15 3.12 - ----------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.22) (.15) (.14) (.36) (.49) Distributions from net realized gain on investments and foreign currency transactions (.26) (.04) (.32) -- -- - ----------------------------------------------------------------------------- Total dividends and distributions to shareholders (.48) (.19) (.46) (.36) (.49) - ----------------------------------------------------------------------------- Net asset value, end of period $23.55 $17.68 $17.70 $16.96 $15.17 ============================================================================= TOTAL RETURN, AT NET ASSET VALUE(1) 36.65% .97% 7.25% 14.53% 25.54% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $117,710 $63,283 $56,701 $36,494 $22,032 Average net assets (in thousands) $88,803 $59,953 $46,389 $25,750 $18,810 Ratios to average net assets: Net investment income 1.46% 1.38% 1.13% 1.36% 2.82% Expenses .79% .58% .50% .61% .70% Portfolio turnover rate(2) 58.2% 53.8% 12.6% 48.7% 133.9% Average brokerage commission rate(3) $0.07 - -- -- -- -- - --------------------------------------------------------------------------- 1990 1989 1988 1987 1986 - --------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $16.38 $13.64 $11.21 $12.53 $10.95 Income (loss) from investment operations: Net investment income .56 .66 .29 .20 .13 Net realized and unrealized gain (loss) on investments (1.79) 2.50 2.19 .24 1.76 - --------------------------------------------------------------------------- Total income (loss) from investment operations (1.23) 3.16 2.48 .44 1.89 - --------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.62) (.35) -- (.34) (.15) Distributions from net realized gain on investments and foreign currency transactions (1.99) (.07) (.05) (1.42) (.16) - --------------------------------------------------------------------------- Total dividends and distributions to shareholders (2.61) (.42) (.05) (1.76) (.31) - --------------------------------------------------------------------------- Net asset value, end of period $12.54 $16.38 $13.64 $11.21 $12.53 =========================================================================== TOTAL RETURN, AT NET ASSET VALUE(1) (8.21)% 23.59% 22.09% 3.32% 17.76% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $15,895 $19,301 $17,746 $14,692 $8,287 Average net assets (in thousands) $17,235 $18,596 $15,585 $15,121 $3,744 Ratios to average net assets: Net investment income 4.09% 3.72% 2.39% 1.56% 2.62% Expenses .71% .70% .70% .75% .75% Portfolio turnover rate(2) 267.9% 148.0% 132.5% 191.0% 100.9% Average brokerage commission rate(3) -- - -- -- -- --
1. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods of less than one full year. Total return information does not reflect expenses that apply at the separate account level or to related insurance products. Inclusion of these charges would reduce the total return figures for all periods shown. 2. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. 3. Total brokerage commissions paid on purchases and sales of portfolio securities for the period divided by the total number of related shares purchased and sold. See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds Notes to Financial Statements 1. Significant Accounting Policies Oppenheimer Money Fund (OMF), Oppenheimer High Income Fund (OHIF), Oppenheimer Bond Fund (OBF), Oppenheimer Capita Appreciation Fund (OCAP), Oppenheimer Growth Fund (OGF), Oppenheimer Multiple Strategies Fund (OMSF), Oppenheimer Global Securities Fund (OGSF), Oppenheimer Strategic Bond Fund (OSBF) and Oppenheimer Growth & Income Fund (OGIF) (collectively, the Funds) are separate series of Oppenheimer Variable Account Funds (the Trust), a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Trust's investment advisor is OppenheimerFunds, Inc. (the Manager). The following is a summary of significant accounting policies consistently followed by the Funds. The Funds' objectives are as follows: Oppenheimer Money Fund seeks the maximum current income from investments in money market" securities consistent with low capital risk and the maintenance of liquidity. Oppenheimer High Income Fund seeks a high level of current income from investments in high yield fixed-income securities. Oppenheimer Bond Fund primarily seeks a high level of current income from investments in high yield fixed-income securities 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 seeks to achieve capital appreciation by investing in "growth-type" companies. Oppenheimer Growth Fund seeks to achieve capital appreciation by investing in securities of well-known established companies. Oppenheimer 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 seeks long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special institutions which are considered to have appreciation possibilities. Oppenheimer 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: (i) debt securities, (ii) U.S. Government securities, and (iii) lower-rated high yield domestic debt securities. Oppenheimer Growth & Income Fund seeks a high total return (which includes growth in the value of its shares as well as current income) from equity and debt securities. From time to time this Fund may focus on small to medium capitalization common stocks, bonds and convertible securities. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 1. Significant Accounting Policies (Continued) Investment Valuation. Portfolio securities of OMF are valued on the basis of amortized cost, which approximates market value. Portfolio securities of OHIF, OBF, OCAP, OGF, OMSF, OGSF, OSBF and OGIF are valued at the close of the New York Stock Exchange on each trading day. Listed and unlisted securities for which such information is regularly reported are valued at the last sale price of the day or, in the absence of sales, at values based on the closing bid or asked price or the last sale price on the prior trading day. Long-term and short-term "non-money market" debt securities are valued by a portfolio pricing service approved by the Board of Trustees. Such securities which cannot be valued by the approved portfolio pricing service are valued using dealer-supplied valuations provided the Manager is satisfied that the firm rendering the quotes is reliable and that the quotes reflect current market value, or are valued under consistently applied procedures established by the Board of Trustees to determine fair value in good faith. Short-term "money market type" debt securities having a remaining maturity of 60 days or less are valued at cost (or last determined market value) adjusted for amortization to maturity of any premium or discount. Options are valued based upon the last sale price on the principal exchange on which the option is traded or, in the absence of any transactions that day, the value is based upon the last sale on the prior trading date if it is within the spread between the closing bid and asked prices. If the last sale price is outside the spread, the closing bid or asked price closest to the last reported sale price is used. Forward foreign currency exchange contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. Securities Purchased on a When-Issued Basis. Delivery and payment for securities that have been purchased by OSBF on a forward commitment or when-issued basis can take place a month or more after the transaction date. During the period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. OSBF maintains, in a segregated account with its custodian, assets with a market value equal to the amount of its purchase commitments. The purchase of securities on a when-issued or forward commitment basis may increase the volatility of OSBF's net asset value to the extent the Fund makes such purchases while remaining substantially fully invested. In connection with its ability to purchase securities on a when-issued or forward commitment basis, OSBF may enter into mortgage "dollar-rolls" in which the Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. The Fund records each dollar-roll as a sale and a new purchase transaction. Security Credit Risk. OHIF, OMSF and OSBF invest in high yield securities, which may be subject to a greater degree of credit risk, greater market fluctuations and risk of loss of income and principal, and may be more sensitive to economic conditions than lower yielding, higher rated fixed income securities. The Funds may acquire securities in default, and are not obligated to dispose of securities whose issuers subsequently default. At December 31, 1995, securities with an aggregate market value of $491,444 for OHIF and $67,873 for OSBF, representing 0.37% and 0.11% respectively, of the Funds' net assets, were in default. Foreign Currency Translation. The accounting records of the Funds are maintained in U.S. dollars. Prices of securities purchased by OHIF, OBF, OMSF, OGSF, OSBF and OGIF that are denominated in foreign currencies are translated into U.S. dollars at the closing rates of exchange. Amounts related to the purchase and sale of securities and investment income are translated at the rates of exchange prevailing on the respective dates of such transactions. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 1. Significant Accounting Policies (Continued) For OHIF, OBF, OMSF, OGSF, OSBF and OGIF, the effect of changes in foreign currency exchange rates on investments is separately identified from the fluctuations arising from changes in market values of securities held and reported with all other foreign currency gains and losses in the Funds' Statements of Operations. Repurchase Agreements. The Funds require the custodian to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian's vault, all securities held as collateral for repurchase agreements. The market value of the underlying securities is required to be at least 102% of the resale price at the time of purchase. If the seller of the agreement defaults and the value of the collateral declines, or if the seller enters an insolvency proceeding, realization of the value of the collateral by the Funds may be delayed or limited. Federal Taxes. The Trust intends for each Fund to continue to comply with provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income, including any net realized gain on investments not offset by loss carryovers, to shareholders. Therefore, no federal income or excise tax provision is required. At December 31, 1995, the following Funds had available for federal income tax purposes unused capital loss carryovers expiring in 2002 and 2003: OHIF -- $ 3,033,760 OGSF -- $17,569,501 OSBF -- $ 1,609,951 Distributions to Shareholders. Dividends and distributions to shareholders of OHIF, OBF, OCAP, OGF, OMSF, OGSF, OSBF and OGIF are recorded on the ex-dividend date. OMF intends to declare dividends from net investment income each day the New York Stock Exchange is open for business and pay such dividends monthly. To effect its policy of maintaining a net asset value of $1.00 per share, OMF may withhold dividends or make distributions of net realized gains. Classification of Distributions to Shareholders. Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes primarily because of premium amortization, paydown gains and losses and the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes. The character of the distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gain (loss) was recorded by the Funds. Changes in classification made during the fiscal year ended December 31, 1995 are shown below:
----------------------------------------------------------------------------------- Adjustments for the Fiscal Year Ended December 31, 1995 ----------------------------------------------------------------------------------- Undistributed Net Investment Income Undistributed Net Realized Paid-in (Loss) Gain (Loss) on Investments Capital - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer High Income Fund 186,751 (186,751) -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Bond Fund (1,093,371) 1,093,371 -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Fund -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Growth Fund -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Multiple Strategies Fund (204,481) 204,481 -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund (2,845,512) 6,264,762 (3,419,250) - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund 9,220 (9,220) -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Growth & Income Fund 37 (37) -- - --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 1. Significant Accounting Policies (Continued) Other. Investment transactions are accounted for on the date the investments are purchased or sold (trade date) and dividend income is recorded on the ex-dividend date. Discount on securities purchased by OHIF, OBF, OCAP, OGF, OMSF, OGSF, OSBF and OGIF is amortized over the life of the respective securities, in accordance with federal income tax requirements. Realized gains and losses on investments and unrealized appreciation and depreciation are determined on an identified cost basis, which is the same basis used for federal income tax purposes. Dividends-in-kind are recognized as income on the ex-dividend date, at the current market value of the underlying security. Interest on payment-in-kind debt instruments is accrued as income at the coupon rate, and a market adjustment is made on the ex-date. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 2. Shares of Beneficial Interest The Funds have authorized an unlimited number of no par value shares ofbeneficial interest. Transactions in shares of beneficial interest were as follows:
Oppenheimer Money Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 202,748,102 $202,748,102 175,917,558 $175,917,558 Dividends and distributions reinvested 4,222,747 4,222,747 3,640,684 3,640,684 Redeemed (231,260,663) (231,260,663) (151,084,269) (151,084,269) ------------------------------------------------------------- Net increase (decrease) (24,289,814) $(24,289,814) 28,473,973 $ 28,473,973 ========================================================== === Oppenheimer High Income Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 5,873,231 $60,932,670 9,936,582 $ 81,477,904 Dividends and distributions reinvested 1,162,957 12,040,152 841,101 8,686,931 Redeemed (4,263,757) (44,560,679) (9,441,490) (75,726,156) ------------------------------------------------------------- Net increase (decrease) 2,772,431 $28,412,143 1,336,193 $ 14,438,679 ========================================================== === Oppenheimer Bond Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 7,311,733 $83,544,442 5,002,623 $56,466,171 Dividends and distributions reinvested 976,291 11,209,883 666,678 7,384,654 Redeemed (2,972,687) (33,822,108) (2,744,016) (30,950,944) ------------------------------------------------------------- Net increase 5,315,337 $60,932,217 2,925,285 $32,899,881 ========================================================== === Oppenheimer Capital Appreciation Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 8,882,212 $260,650,476 7,912,557 $173,453,586 Dividends and distributions reinvested 40,594 1,082,642 614,575 17,331,023 Redeemed (6,567,729) (191,565,283) (5,695,411) (114,272,197) ------------------------------------------------------------- Net increase 2,355,077 $70,167,835 2,831,721 $ 76,512,412 ========================================================== ===
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 2. Shares of Beneficial Interest (Continued)
Oppenheimer Growth Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 4,302,304 $89,007,340 2,577,268 $45,230,951 Dividends and distributions reinvested 95,991 1,795,026 36,305 644,411 Redeemed (2,980,080) (60,949,490) (2,236,767) (38,999,875) ---------------------------------------------------------- Net increase 1,418,215 $29,852,876 376,806 $ 6,875,487 ========================================================== === Oppenheimer Multiple Strategies Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 6,445,242 $88,771,497 9,807,084 $84,443,396 Dividends and distributions reinvested 1,818,313 24,783,721 1,140,244 14,981,165 Redeemed (4,671,097) (64,421,131) (6,353,523) (37,006,732) ------------------------------------------------------------- Net increase 3,592,458 $49,134,087 4,593,805 $62,417,829 ========================================================== === Oppenheimer Global Securities Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 11,235,722 $166,766,446 22,151,454 $336,310,887 Dividends and distributions reinvested 585,961 8,174,158 178,687 2,801,813 Redeemed (7,497,205) (112,360,172) (8,503,911) (112,426,012) ------------------------------------------------------------- Net increase 4,324,478 $62,580,432 13,826,230 $226,686,688 ========================================================== === Oppenheimer Strategic Bond Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 9,417,090 $44,897,472 3,749,500 $18,415,292 Dividends and distributions reinvested 661,301 3,151,540 247,485 1,178,372 Redeemed (2,245,623) (10,642,846) (1,508,782) (7,350,665) ------------------------------------------------------------- Net increase 7,832,768 $37,406,166 2,488,203 $12,242,999 ========================================================== ===
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 2. Shares of Beneficial Interest (Continued)
Oppenheimer Growth & Income Fund ------------------------------------------- Year Ended December 31, 1995(1) ------------------------------------------- Shares Amount ------------------------------------------- Sold 358,253 $3,933,459 Dividends and distributions reinvested 404 4,928 Redeemed (15,863) (181,994) ------------------------------------------- Net increase 342,794 $3,756,393 ============================================
1. For the period from July 5, 1995 (commencement of operations) to December 31, 1995. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 3. Unrealized Gains and Losses on Investments and Options Written At December 31, 1995, net unrealized appreciation or depreciation on investments and options written consisted of the following:
Oppenheimer Oppenheimer Oppenheimer Oppenheimer Oppenheimer Oppenheimer Oppenheimer Capital Oppenheimer Multiple Global Strategic Growth & High Income Bond Appreciation Growth Strategies Securities Bond Income Fund Fund Fund Fund Fund Fund Fund Fund ------------------------------------------------------------------------------------------------------------- Gross appreciation $7,814,322 $9,892,102 $70,829,161 $25,616,239 $53,305,284 $37,997,341 $2,340,864 $599,103 Gross depreciation (2,103,465) (1,054,488) (7,853,814) (1,998,316) (11,146,651) (14,351,638) (493,040) (94,247) ------------------------------------------------------------------------------------------------------------- Net unrealized appreciation $5,710,857 $8,837,614 $62,975,347 $23,617,923 $42,158,633 $23,645,703 $1,847,824 $504,856 ========================================================== =================================================== Purchases and sales of investment securities (excluding short-term securities) for the year ended December 31, 1995 were as follows: Purchases $145,095,379 $196,515,342 $318,974,082 $78,667,711 $123,862,840 $491,709,775 $67,228,738 $3,421,021 ========================================================== =================================================== Sales $112,222,617 $120,210,417 $255,116,481 $41,669,055 $117,669,946 $416,155,747 $26,588,452 $400,564 ========================================================== ===================================================
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 4. Option Activity The Funds (except OMF, OCAP and OGF) may buy and sell put and call options, or write covered put and call options on portfolio securities in order to produce incremental earnings or protect against changes in the value of portfolio securities. The Funds generally purchase put options or write covered call options to hedge against adverse movements in the value of portfolio holdings. When an option is written, the Funds receive a premium and become obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. Options are valued daily based upon the last sale price on the principal exchange on which the option is traded and unrealized appreciation or depreciation is recorded. The Funds will realize a gain or loss upon the expiration or closing of the option transaction. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option is adjusted by the amount of premium received or paid. Securities designated to cover outstanding call options are noted in the Statements of Investments where applicable. Shares subject to call, expiration date, exercise price, premium received and market value are detailed in a footnote to the Statement of Investments. Options written are reported as a liability in the Statement of Assets and Liabilities. Gains and losses are reported in the Statement of Operations. The risk in writing a call option is that the Funds give up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Funds may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Funds pay a premium whether or not the option is exercised. The Funds also have the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. The Funds may also write over-the-counter options where the completion of the obligation is dependent upon the credit standing of the counterparty. OHIF option activity for the year ended December 31, 1995 was as follows:
CALL OPTIONS --------------------------- Number of Amount of Options Premiums --------------------------- Options outstanding at December 31, 1994 -- $ -- Options written 28,600 5,389 Options canceled in closing transactions (28,500) (3,959) --------------------------- Options outstanding at December 31, 1995 100 $ 1,430 ===========================
OBF option activity for the year ended December 31, 1995 was as follows:
CALL OPTIONS --------------------------- Number of Amount of Options Premiums --------------------------- Options outstanding at December 31, 1994 -- $ -- Options written 82,000 17,019 Options canceled in closing transactions (82,000 (17,019) --------------------------- Options outstanding at December 31, 1995 -- $ -- ===========================
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 4. Option Activity (Continued) OMSF option activity for the year ended December 31, 1995 was as follows:
CALL OPTIONS --------------------------- Number of Amount of Options Premiums --------------------------- Options outstanding at December 31, 1994 2,255 $ 607,682 Options written 8,275 2,150,503 Options canceled in closing transactions (1,894) (448,093) Options expired prior to exercise (2,353) (451,021) Options exercised (2,680) (758,976) --------------------------- Options outstanding at December 31, 1995 3,603 $1,100,095 ===========================
OSBF option activity for the year ended December 31, 1995 was as follows:
CALL OPTIONS --------------------------- Number of Amount of Options Premiums --------------------------- Options outstanding at December 31, 1994 307 $ 1,600 Options written 3,314 35,871 Options canceled in closing transactions (2,141) (20,467) Options expired prior to exercise (190) (763) Options exercised (290) (1,942) --------------------------- Options outstanding at December 31, 1995 1,000 $ 14,299 ===========================
5. Forward Foreign Currency Exchange Contracts A forward foreign currency exchange contract (forward contract) is a commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. The Funds (except OMF) use forward contracts to seek to manage foreign currency risks. They may also be used to tactically shift portfolio currency risk. The Funds generally enter into forward contracts as a hedge upon the purchase or sale of a security denominated in a foreign currency. In addition, the Funds may enter into such contracts as a hedge against changes in foreign currency exchange rates on portfolio positions. Forward contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. The Funds will realize a gain or loss upon the closing or settlement of the forward transaction. Securities held in segregated accounts to cover net exposure on outstanding forward contracts are noted in the Statements of Investments where applicable. Unrealized appreciation or depreciation on forward contracts is reported in the Statements of Assets and Liabilities. Realized gains and losses are reported with all other foreign currency gains and losses in the Funds' Statements of Operations. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 5. Forward Foreign Currency Exchange Contracts (Continued) Risks include the potential inability of the counterparty to meet the terms of the contract and unanticipated movements in the value of a foreign currency relative to the U.S. dollar. At December 31, 1995, outstanding forward contracts to purchase and sell foreign currencies were as follows: Oppenheimer High Income Fund
Contract Unrealized Amount Valuation as of Appreciation Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation) - ------------------------------------------------------------------------------------------------------ Japanese Yen (JPY) 1/4/96 55,250 JPY $535,752 $ (9,657) New Zealand Dollar (NZD) 12/18/96 892 NZD 567,334 2,150 -------- $ (7,507) -------- Contracts to Sell - ------------------------------------------------------------------------------------------------------ Deutsche Mark (DEM) 1/4/96-2/21/96 3,670 DEM $2,562,764 $ (3,622) Japanese Yen (JPY) 12/18/96 54,625 JPY 553,249 11,934 -------- 8,312 -------- Net Unrealized Appreciation $ 805 ========
Oppenheimer Bond Fund
Contract Unrealized Amount Valuation as of Appreciation Contracts to Sell Exchange Date (in 000s) December 31, 1995 (Depreciation) - ------------------------------------------------------------------------------------------------------ Australian Dollar (AUD) 1/4/96 59 AUD $43,775 $ 190 Deutsche Mark (DEM) 1/4/96-2/21/96 11 DEM 7,661,169 (15,712) -------- $(15,522) ========
Oppenheimer Multiple Strategies Fund
Contract Unrealized Amount Valuation as of Appreciation Contracts to Sell Exchange Date (in 000s) December 31, 1995 (Depreciation) - ------------------------------------------------------------------------------------------------------ Hong Kong Dollar (HKD) 1/2/96 707 HKD $91,439 $ 2 ========
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 5. Forward Foreign Currency Exchange Contracts (Continued) Oppenheimer Global Securities Fund
Contract Unrealized Amount Valuation as of Appreciation Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation) - ------------------------------------------------------------------------------------------------------ Hong Kong Dollar (HKD) 1/2/96-1/3/96 8,904 HKD $1,151,601 $ (218) Italian Lira (ITL) 1/31/96 3,888,129 ITL 2,438,922 (9,912) Japanese Yen (JPY) 1/4/96-1/5/96 75,155 JPY 728,792 (2,948) Singapore Dollar (SGD) 1/2/96-1/5/96 830 SGD 586,556 (853) Greek Drachma (GRD) 1/2/96-1/4/96 49,496 GRD 209,220 432 -------- $(13,499) -------- Contracts to Sell - ------------------------------------------------------------------------------------------------------ Austrian Schilling (ATS) 1/2/96 17,770 ATS $1,764,559 $(12,653) Swiss Franc (CHF) 1/4/96 279 CHF 242,200 (1,139) Deutsche Mark (DEM) 1/4/96 1,598 DEM 1,116,140 (5,709) Japanese Yen (JPY) 3/29/96 3,043,800 JPY 29,807,684 192,316 Norwegian Krone (NOK) 1/2/96-1/4/96 8,521 NOK 1,348,728 (9,042) --------- 163,773 --------- Net Unrealized Appreciation $150,274 =========
Oppenheimer Strategic Bond Fund
Contract Unrealized Amount Valuation as of Appreciation Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation) - ------------------------------------------------------------------------------------------------------ Japanese Yen (JPY) 1/4/96 33,988 JPY $329,572 $(5,982) New Zealand Dollar (NZD) 12/18/96 541 NZD 344,380 1,096 ------- $(4,886) ------- Contracts to Sell - ------------------------------------------------------------------------------------------------------ Australian Dollar (AUD) 1/4/96 22 AUD $16,134 $ (25) Deutsche Mark (DEM) 2/13/96 1,605 DEM 1,119,976 (5,393) Japanese Yen (JPY) 12/18/96 33,175 JPY 336,001 7,283 Swiss Franc (CHF) 2/13/96 860 CHF 748,739 (8,636) -------- (6,771) -------- Net Unrealized Depreciation $(11,657) ========
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 6. Management Fees and Other Transactions with Affiliates Management fees paid to the Manager were in accordance with the investment advisory agreements with the Trust. For OBF, OCAP, OGF, OMSF, OHIF, OGSF, OSBF and OGIF, the annual fees are .75% of the first $200 million of net assets, .72% of the next $200 million, .69% of the next $200 million, .66% of the next $200 million and .60% of net assets in excess of $800 million. In addition, management fees for OHIF, OBF and OSBF are .50% of net assets in excess of $1 billion. Management fees for OMF are .45% of the first $500 million, .425% of the next $500 million, .40% of the next $500 million and .375% of net assets in excess of $1.5 billion. For OSBF, the Manager has agreed to limit the management fee charged so that the ordinary operating expenses of the Fund will not exceed 1.0% of its average net assets in any fiscal year. 7. Illiquid and Restricted Securities At December 31, 1995, investments in securities included issues that are illiquid or restricted. The securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and are valued under methods approved by the Board of Trustees as reflecting fair value. The Funds intend to invest no more than 10% of net assets (determined at the time of purchase) in illiquid and restricted securities. Information concerning these securities is as follows: Oppenheimer High Income Fund
Acquisition Cost Valuation as of Security Date Per Unit December 31, 1995 - ------------------------------------------------------------------------------------------------------------------- Ames Department Stores, Inc., Excess Cash Flow Payment 12/30/92 $ 0.00 $ .01 Certificates, Series AG-7A Ames Department Stores, Inc., Litigation Trust 12/30/92 0.00 .01 Colombia (Republic of) 1989-1990 Integrated Loan Facility 12/5/95 92.00 93.00 Bonds, 6.875%, 7/1/01 ECM Fund, L.P.I 4/14/92 100.00 1,000.00 ECM Fund, L.P.I., 14% Sub. Nts., 6/10/02 4/14/92 100.00 110.00 Farley, Inc., Zero Coupon Sub. Debs., 14.151%, 12/30/12 1/1/93-3/6/95 7.44 9.88 Gillett Holdings, Inc., C1.2 12/1/92 10.50 20.00 Goldman, Sachs & Co., Argentina Local Market Securities 8/24/94 100.00 97.75 Trust, 11.30%, 4/1/00 Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96 9/14/95 100.00 100.75 Triangle Wire & Cable, Inc. 5/2/94 9.50 1.00 Trinidad & Tobago Loan Participation Agreement, Tranche B, 12/13/95 .84 .82 1.563%, 9/30/00 - -------------------------------------------------------------------------------------------------------------------
The aggregate value of illiquid and restricted securities subject to the 10% limitation at December 31, 1995 was $3,708,444 or 2.78% of the Fund's net assets. Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 7. Illiquid and Restricted Securities (Continued) Oppenheimer Bond Fund
Acquisition Cost Valuation as of Security Date Per Unit December 31, 1995 - ------------------------------------------------------------------------------------------------------------------- Colombia (Republic of) 1989-1990 Integrated Loan 12/5/95 $ 92.00 $ 93.00 Facility Bonds, 6.875%, 7/1/01 Merrill Lynch & Co., Inc. 5/15/95 110.05 115.10 Units, 9.75% 6/15/99 - -------------------------------------------------------------------------------------------------------------------
The aggregate value of illiquid and restricted securities subject to the 10% limitation at December 31, 1995 was $2,745,392 or 1.30% of the Fund's net assets. Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Oppenheimer Multiple Strategies Fund
Acquisition Cost Valuation as of Security Date Per Unit December 31, 1995 - ------------------------------------------------------------------------------------------------------------------- Santa Anita Realty Enterprises, Inc., Units 5/28/93-2/9/95 $16.99 $11.88 - -------------------------------------------------------------------------------------------------------------------
The aggregate value of illiquid and restricted securities subject to the 10% limitation at December 31, 1995 was $475,000 or 0.12% of the Fund's net assets. Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Oppenheimer Global Securities Fund
Acquisition Cost Valuation as of Security Date Per Unit December 31, 1995 - ------------------------------------------------------------------------------------------------------------------- Plant Genetics Systems 5/27/92-3/7/95 $13.77 $11.91 Plant Genetics, Inc. Wts., Exp. 12/99 3/7/95 0.00 1.99 - -------------------------------------------------------------------------------------------------------------------
The aggregate value of illiquid and restricted securities subject to the 10% limitation at December 31, 1995, was $1,180,542, or 0.33% of the Fund's net assets. Pursuant to the guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Oppenheimer Strategic Bond Fund
Acquisition Cost Valuation as of Security Date Per Unit December 31, 1995 - ------------------------------------------------------------------------------------------------------------------- Colombia (Republic of) 1989-1990 Integrated Loan 12/5/95 $ 92.00 $ 93.00 Facility Bonds, 6.875%, 7/1/01 Goldman, Sachs & Co., Argentina Local Market Securities 8/24/94 100.00 97.75 Trust, 11.30%, 4/1/00 Jamaica (Government of) 1990 Refinancing Agreement 8/15/95 89.75 90.00 Nts., Tranche A, 6.75%, 10/16/00 Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96 9/15/95 100.00 100.75 Trinidad & Tobago Loan Participation Agreement, Tranche A, 1.563%, 9/30/00 12/13/95-12/18/95 .84 .82 United Mexican States, Combined Facility 3, Loan 10/25/94 89.00 75.75 Participation Agreement, Tranche A, 6.50%, 9/20/97 - -------------------------------------------------------------------------------------------------------------------
The aggregate value of illiquid and restricted securities subject to the 10% limitation at December 31, 1995, was $1,221,735, or 2.03% of the Fund's net assets. Pursuant to the guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Industry Classifications Aerospace/Defense Air Transportation Auto Parts Distribution Automotive Bank Holding Companies Banks Beverages Broadcasting Broker-Dealers Building Materials Cable Television Chemicals Commercial Finance Computer Hardware Computer Software Conglomerates Consumer Finance Containers Convenience Stores Department Stores Diversified Financial Diversified Media Drug Stores Drug Wholesalers Durable Household Goods Education Electric Utilities Electrical Equipment Electronics Energy Services & Producers Entertainment/Film Environmental Food Gas Utilities Gold Health Care/Drugs Health Care/Supplies & Services Homebuilders/Real Estate Hotel/Gaming Industrial Services Insurance Leasing & Factoring Leisure Manufacturing Metals/Mining Nondurable Household Goods Oil - Integrated Paper Publishing/Printing Railroads Restaurants Savings & Loans Shipping Special Purpose Financial Specialty Retailing Steel Supermarkets Telecommunications - Technology Telephone - Utility Textile/Apparel Tobacco Toys Trucking Investment Adviser OppenheimerFunds, Inc. Two World Trade Center New York, New York 10048-0203 Transfer Agent OppenheimerFunds Services P.O. Box 5270 Denver, Colorado 80217 1-800-525-7048 Custodian The Bank of New York One Wall Street New York, New York 10015 Independent Auditors Deloitte & Touche LLP 555 Seventeenth Street Denver, Colorado 80202 Legal Counsel Myer, Swanson, Adams & Wolf, P.C. 1600 Broadway Denver, Colorado 80202 OPPENHEIMER VARIABLE ACCOUNT FUNDS ANNUAL REPORT DECEMBER 31, 1995 Independent Auditors' Report The Board of Trustees and Shareholders of Oppenheimer Variable Account Funds: We have audited the accompanying statements of assets and liabilities, including the statements of investments, of Oppenheimer Bond Fund and Oppenheimer Growth Fund (each of which are series of Oppenheimer Variable Account Funds) as of December 31, 1995, the related statements of operations for the year then ended, the statement of changes in net assets for the years ended December 31, 1995 and 1994, and the financial highlights for the applicable periods ended December 31, 1995, 1994, 1993, 1992, 1991, 1990, 1989, 1988, 1987 and 1986. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at December 31, 1995 by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Oppenheimer Bond Fund and Oppenheimer Growth Fund at December 31, 1995, the results of their operations, the changes in their net periods, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche - -------------------------- Deloitte & Touche Denver, Colorado January 22, 1996 Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments December 31, 1995
Principal Market Value Amount(1) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Certificates of Deposit - 1.9% - ------------------------------------------------------------------------------------------------------------------------------------ Citibank CD: 19%, 1/19/96 (2) IDR 2,853,750,000 $ 1,248,126 27.40%, 3/22/96 (2) HUF 139,510,000 1,021,112 - ------------------------------------------------------------------------------------------------------------------------------------ Indonesia (Republic of) Bank Negara CD, Zero Coupon, 15.914%, 6/17/96 (2)(3) IDR 2,000,000,000 805,011 - ------------------------------------------------------------------------------------------------------------------------------------ Krungthai Thanakit CD, Zero Coupon, 11.533%, 2/29/96 (2)(3) THB 25,000,000 968,966 ----------------- Total Certificates of Deposit (Cost $4,063,089) 4,043,215 - ------------------------------------------------------------------------------------------------------------------------------------ Mortgage-Backed Obligations - 18.3% - ------------------------------------------------------------------------------------------------------------------------------------ Government Agency - 11.5% - ------------------------------------------------------------------------------------------------------------------------------------ FHLMC/FNMA/Sponsored - 7.7% ------------------------------------------------------------------------------------------------------------------------------ Federal National Mortgage Assn.: 7%, 11/1/25 1,888,319 1,903,653 7%, 11/1/25 7,990,664 8,055,548 Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, 8.75% 11/25/05 3,000,000 3,262,500 Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, 10.40%, 4/25/19 2,000,000 2,193,120 Interest-Only Stripped Mtg.-Backed Security, Trust 257, Cl. 2, 11.79%, 2/1/24 (4) 2,638,404 739,990 ----------------- 16,154,811 - ------------------------------------------------------------------------------------------------------------------------------------ GNMA/Guaranteed - 3.8% ------------------------------------------------------------------------------------------------------------------------------ Government National Mortgage Assn.: 6%, 10/20/25 4,986,569 5,036,435 6%, 10/20/24 2,939,612 3,009,429 ----------------- 8,045,864 - ------------------------------------------------------------------------------------------------------------------------------------ Private - 6.8% - ------------------------------------------------------------------------------------------------------------------------------------ Commercial - 3.1% ------------------------------------------------------------------------------------------------------------------------------ FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass- Through Certificates, Series 1994-C1: Cl. 2-D, 8.70%, 9/25/25 (5) 1,500,000 1,617,187 Cl. 2-E, 8.70%, 9/25/25 (5) 1,500,000 1,604,531 ------------------------------------------------------------------------------------------------------------------------------ Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through Certificates, Series 1995-C2, Cl. C, 7.70%, 6/15/21 (6) 993,670 1,025,033 ------------------------------------------------------------------------------------------------------------------------------ Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates: Series 1992-CHF, Cl. C, 8.25%, 12/25/20 1,053,588 1,079,599 Series 1992-CHF, Cl. E, 8.25%, 12/25/20 931,256 913,795 Series 1994-C1, Cl. A, 7.25%, 6/25/26 302,117 301,740 ----------------- 6,541,885 - ------------------------------------------------------------------------------------------------------------------------------------ Multi-Family - 3.7% ------------------------------------------------------------------------------------------------------------------------------ Countrywide Funding Corp., Series 1993-12, Cl. Bl, 1,000,000 942,500 6.625%, 2/25/24
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995
Principal Market Value Mortgage-Backed Obligations (Continued) Amount(1) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Private (Continued) - ------------------------------------------------------------------------------------------------------------------------------------ Multi-Family (Continued) ------------------------------------------------------------------------------------------------------------------------------ Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates: Series 1991-M5, Cl. A, 9%, 3/25/17 $ 2,295,071 $ 2,429,907 Series 1994-C1, Cl. C, 8%, 6/25/26 1,500,000 1,603,594 Series 1995-C1, Cl. D, 6.90%, 2/25/27 3,000,000 2,865,000 ----------------- 7,841,001 ----------------- Total Mortgage-Backed Obligations (Cost $37,340,024) 38,583,561 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Government Obligations - 40.3% - ------------------------------------------------------------------------------------------------------------------------------------ Treasury - 40.3% - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury Bonds: 6.875%, 8/15/25 8,000,000 9,027,495 7.125%, 2/15/23 3,000,000 3,427,500 8%, 11/15/21 5,000,000 6,259,375 ------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury Nts.: 6%, 12/31/97 3,000,000 3,047,811 6.25%, 5/31/00 10,000,000 10,343,750 6.375%, 6/30/97 1,000,000 1,017,187 6.50%, 5/15/05-8/15/05 18,000,000 19,182,809 6.875%, 3/31/00 5,000,000 5,289,065 7.25%, 5/15/04-8/15/04 7,000,000 7,787,812 7.375%, 11/15/97 2,000,000 2,076,250 7.50%, 2/15/05 5,000,000 5,676,559 7.75%, 12/31/99-1/31/00 6,000,000 6,519,374 7.875%, 6/30/96-11/15/04 3,000,000 3,329,999 9.25%, 8/15/98 2,000,000 2,193,124 ----------------- Total U.S. Government Obligations (Cost $79,215,729) 85,178,110 - ------------------------------------------------------------------------------------------------------------------------------------ Foreign Government Obligations - 13.9% - ------------------------------------------------------------------------------------------------------------------------------------ Australia (Commonwealth of) Bonds, 12.50%, 1/15/98 AUD 960,000 782,889 ------------------------------------------------------------------------------------------------------------------------------ Canada (Government of) Bonds: 7.75%, 9/1/99 CAD 347,000 266,514 Series A-76, 9%, 6/1/25 CAD 321,000 274,798 ------------------------------------------------------------------------------------------------------------------------------ Colombia (Republic of) 1989-1990 Integrated Loan Facility Bonds, 6.875%, 7/1/01 (6)(7) 1,714,400 1,594,392 ------------------------------------------------------------------------------------------------------------------------------ Corporacion Andina de Fomento Sr. Unsec. Debs.: 6.625%, 10/14/98 (5) 1,000,000 999,375 7.25%, 4/30/98 (5) 1,000,000 998,125 ------------------------------------------------------------------------------------------------------------------------------ Denmark (Kingdom of) Bonds: 7%, 11/10/24 DKK 6,300,000 1,014,039 8%, 3/15/06 DKK 1,880,000 357,728 ------------------------------------------------------------------------------------------------------------------------------ Financiera Energetica Nacional: Nts., 6.625%, 12/13/96 2,350,000 2,347,062 SA Medium-Term Nts., 9%, 11/8/99 400,000 419,500 ------------------------------------------------------------------------------------------------------------------------------ France (Government of) Obligation Assimilable du Tresor Debs., 9.50%, 6/25/98 FRF 1,196,000 267,600
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995
Principal Market Value Foreign Government Obligations (Continued) Amount(1) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Germany (Republic of) Bonds: 7.75%, 10/1/04 DEM $ 5,350,000 $ 4,106,853 Series 94, 6.25%, 1/4/24 DEM 2,900,000 1,887,370 ------------------------------------------------------------------------------------------------------------------------------ International Bank for Reconstruction and Development Bonds, 12.50%, 7/25/97 NZD 1,000,000 696,248 ------------------------------------------------------------------------------------------------------------------------------ Italy (Republic of) Treasury Bonds, Buoni del Tesoro Poliennali, 10.50%, 4/1/00 ITL 4,515,000,000 2,872,821 ------------------------------------------------------------------------------------------------------------------------------ National Treasury Management Agency (Irish Government) Bonds, 8%, 10/18/00 IEP 405,000 682,226 ------------------------------------------------------------------------------------------------------------------------------ New Zealand (Republic of) Bonds, 10%, 7/15/97 NZD 1,720,000 1,155,621 ------------------------------------------------------------------------------------------------------------------------------ Norwegian Government Bonds, 9.50%, 10/31/02 NOK 11,340,000 2,124,639 ------------------------------------------------------------------------------------------------------------------------------ Poland (Republic of) Debs., 7.75%, 7/13/00 1,500,000 1,530,000 ------------------------------------------------------------------------------------------------------------------------------ Portugal (Republic of) Gtd. Bonds, Obrigicion do tes Medio Prazo, 11.875%, 2/23/00 PTE 65,000,000 468,838 ------------------------------------------------------------------------------------------------------------------------------ South Africa (Republic of) Debs., 9.625%, 12/15/99 1,000,000 1,082,500 ------------------------------------------------------------------------------------------------------------------------------ Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado, 12.25%, 3/25/00 ESP 156,000,000 1,405,755 ------------------------------------------------------------------------------------------------------------------------------ Sweden (Kingdom of) Bonds, Series 1028, 11%, 1/21/99 SEK 4,400,000 714,422 ------------------------------------------------------------------------------------------------------------------------------ United Kingdom Treasury: Debs., 8.50%, 12/7/05 GBP 337,000 562,305 Nts., 10%, 2/26/01 GBP 310,000 544,176 ------------------------------------------------------------------------------------------------------------------------------ Western Australia Treasury Corp. Gtd. Bonds, Series 98, 12.50%, 4/1/98 AUD 200,000 164,222 ----------------- Total Foreign Government Obligations (Cost $28,915,289) 29,320,018 - ------------------------------------------------------------------------------------------------------------------------------------ Municipal Bonds and Notes - 0.9% - ------------------------------------------------------------------------------------------------------------------------------------ Pinole, California Redevelopment Agency Tax Allocation Taxable Bonds, Pinole Vista Redevelopment, Series B, 8.35%, 8/1/17 670,000 733,429 ------------------------------------------------------------------------------------------------------------------------------ Dade County, Florida Educational Facilities Authority: Exchangeable Revenue Bonds, University of Miami Prerefunded, MBIA Insured, 7.65%, 4/1/10 175,000 201,294 Revenue Bonds, University of Miami, MBIA Insured, 7.65% 4/1/10 205,000 230,154 Taxable Exchange Revenue Bonds, University of Miami, MBIA Insured, 9.70%, 4/1/10 120,000 134,724 ------------------------------------------------------------------------------------------------------------------------------ Port of Portland, Oregon Special Obligation Taxable Revenue Bonds, PAMCO Project, 9.20%, 5/15/22 500,000 546,886 ----------------- Total Municipal Bonds and Notes (Cost $1,663,728) 1,846,487 - ------------------------------------------------------------------------------------------------------------------------------------ Corporate Bonds and Notes - 16.9% - ------------------------------------------------------------------------------------------------------------------------------------ Basic Industry - 2.7% - ------------------------------------------------------------------------------------------------------------------------------------ Chemicals - 1.2% ------------------------------------------------------------------------------------------------------------------------------ Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 2,100,000 2,389,670 - ------------------------------------------------------------------------------------------------------------------------------------ Paper - 1.5% ------------------------------------------------------------------------------------------------------------------------------ Boise Cascade Corp., 9.90% Nts., 3/15/00 750,000 850,994 ------------------------------------------------------------------------------------------------------------------------------ Noranda Forest, Inc., 11% Debs., 7/15/98 CAD 1,000,000 805,629
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995
Principal Market Value Corporate Bonds and Notes (Continued) Amount(1) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Basic Industry (Continued) - ------------------------------------------------------------------------------------------------------------------------------------ Paper (Continued) ------------------------------------------------------------------------------------------------------------------------------ Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 $ 1,546,483 $ 1,571,753 ----------------- 3,228,376 - ------------------------------------------------------------------------------------------------------------------------------------ Consumer Related - 2.6% - ------------------------------------------------------------------------------------------------------------------------------------ Food/Beverages/Tobacco - 0.8% ------------------------------------------------------------------------------------------------------------------------------ Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr. Sub. Disc. Nts., 11/1/02 (8) 1,315,000 1,239,388 ------------------------------------------------------------------------------------------------------------------------------ Philip Morris Cos., Inc., 8.875% Nts., 7/1/96 500,000 507,702 ----------------- 1,747,090 - ------------------------------------------------------------------------------------------------------------------------------------ Healthcare - 0.6% ------------------------------------------------------------------------------------------------------------------------------ R.P. Scherer Corp., 6.75% Sr. Nts., 2/1/04 1,250,000 1,189,530 - ------------------------------------------------------------------------------------------------------------------------------------ Hotel/Gaming - 0.2% ------------------------------------------------------------------------------------------------------------------------------ Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 375,000 379,439 - ------------------------------------------------------------------------------------------------------------------------------------ Textile/Apparel - 0.5% ------------------------------------------------------------------------------------------------------------------------------ Fruit of the Loom, Inc., 7% Debs., 3/15/11 1,097,000 1,108,417 - ------------------------------------------------------------------------------------------------------------------------------------ Toys - 0.5% ------------------------------------------------------------------------------------------------------------------------------ Mattel, Inc., 6.875% Sr. Nts., 8/1/97 1,000,000 1,017,927 - ------------------------------------------------------------------------------------------------------------------------------------ Energy - 3.3% - ------------------------------------------------------------------------------------------------------------------------------------ BP America, Inc., 10.875% Nts., 8/1/01 CAD 650,000 551,957 ------------------------------------------------------------------------------------------------------------------------------ Coastal Corp.: 11.75% Sr. Debs., 6/15/06 2,000,000 2,126,614 9.75% Sr. Debs., 8/1/03 200,000 238,950 ------------------------------------------------------------------------------------------------------------------------------ Enron Corp., 9.875% Debs., 6/15/03 375,000 457,052 ------------------------------------------------------------------------------------------------------------------------------ McDermott, Inc., 9.375% Nts., 3/15/02 400,000 454,472 ------------------------------------------------------------------------------------------------------------------------------ Mitchell Energy & Development Corp., 9.25% Sr. Nts. 1/15/02 1,000,000 1,146,689 ------------------------------------------------------------------------------------------------------------------------------ Sonat, Inc., 9.50% Nts., 8/15/99 250,000 278,659 ------------------------------------------------------------------------------------------------------------------------------ Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 500,000 585,022 ------------------------------------------------------------------------------------------------------------------------------ Tenneco, Inc.: 10% Debs., 3/15/08 400,000 497,656 7.875% Nts., 10/1/02 650,000 709,766 ----------------- 7,046,837 - ------------------------------------------------------------------------------------------------------------------------------------ Financial Services - 1.7% - ------------------------------------------------------------------------------------------------------------------------------------ Banks & Thrifts - 1.0% ------------------------------------------------------------------------------------------------------------------------------ Banco Ganadero SA, Zero Coupon Sr. Unsub. Unsec. Nts. 9.931%, 6/15/96 (3)(5) 500,000 479,040 ------------------------------------------------------------------------------------------------------------------------------ BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 100,000 102,362 ------------------------------------------------------------------------------------------------------------------------------ Chemical New York Corp., 9.75% Sub. Capital Nts., 6/15/99 200,000 224,742 ------------------------------------------------------------------------------------------------------------------------------ First Chicago Corp.: 11.25% Sub. Nts., 2/20/01 750,000 923,495 9% Sub. Nts., 6/15/99 150,000 165,177 ------------------------------------------------------------------------------------------------------------------------------ First Chicago NBD Bancorp, 7.25% Sub. Debs., 8/15/04 165,000 176,247 ------------------------------------------------------------------------------------------------------------------------------ First Fidelity Bancorporation, 8.50% Sub. Capital Nts., 4/1/98 100,000 105,456 ----------------- 2,176,519 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Financial - 0.7% ------------------------------------------------------------------------------------------------------------------------------ American Car Line Co., 8.25% Equipment Trust Certificates, Series 1993-A, 4/15/08 627,000 659,134
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995
Principal Market Value Corporate Bonds and Notes (Continued) Amount(1) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Financial Services (Continued) - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Financial (Continued) ------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 $ 700,000 $ 744,198 ----------------- 1,403,332 - ------------------------------------------------------------------------------------------------------------------------------------ Manufacturing - 0.9% - ------------------------------------------------------------------------------------------------------------------------------------ Automotive - 0.9% ------------------------------------------------------------------------------------------------------------------------------ Chrysler Corp., 10.95% Debs., 8/1/17 800,000 898,110 ------------------------------------------------------------------------------------------------------------------------------ General Motors Acceptance Corp.: 5.50% Nts., 12/15/01 300,000 289,647 7.75% Nts., 4/15/97 700,000 713,318 ----------------- 1,901,075 - ------------------------------------------------------------------------------------------------------------------------------------ Media - 3.9% - ------------------------------------------------------------------------------------------------------------------------------------ Cable Television - 2.2% ------------------------------------------------------------------------------------------------------------------------------ Time Warner Entertainment LP/Time Warner, Inc., 8.375% Sr. Debs., 3/15/23 1,850,000 2,009,405 ------------------------------------------------------------------------------------------------------------------------------ TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 2,200,000 2,588,914 ----------------- 4,598,319 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified Media - 1.3% ------------------------------------------------------------------------------------------------------------------------------ GSPI Corp., 10.15% First Mtg. Bonds, 6/24/10 (5) 1,151,691 1,389,228 ------------------------------------------------------------------------------------------------------------------------------ News America Holdings, Inc.: 10.125% Gtd. Sr. Debs., 10/15/12 500,000 608,130 12% Sr. Nts., 12/15/01 500,000 558,673 ------------------------------------------------------------------------------------------------------------------------------ Time Warner, Inc., 9.15% Debs., 2/1/23 300,000 342,093 ----------------- 2,898,124 - ------------------------------------------------------------------------------------------------------------------------------------ Entertainment/Film - 0.4% ------------------------------------------------------------------------------------------------------------------------------ Columbia Pictures Entertainment, Inc., 9.875% Sr. Sub. Nts., 2/1/98 500,000 541,242 ------------------------------------------------------------------------------------------------------------------------------ Eastman Kodak Co., 10% Nts., 6/15/01 250,000 254,730 ----------------- 795,972 - ------------------------------------------------------------------------------------------------------------------------------------ Retail - 0.3% - ------------------------------------------------------------------------------------------------------------------------------------ Drug Stores - 0.3% ------------------------------------------------------------------------------------------------------------------------------ Hook-SupeRx, Inc., 10.125% Sr. Nts., 6/1/02 600,000 657,191 - ------------------------------------------------------------------------------------------------------------------------------------ Transportation - 0.2% - ------------------------------------------------------------------------------------------------------------------------------------ Railroads - 0.2% ------------------------------------------------------------------------------------------------------------------------------ Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 400,000 455,554 - ------------------------------------------------------------------------------------------------------------------------------------ Utilities - 1.3% - ------------------------------------------------------------------------------------------------------------------------------------ Electric Utilities - 1.0% ------------------------------------------------------------------------------------------------------------------------------ Commonwealth Edison Co., 6.50% Nts., 7/15/97 775,000 779,528 ------------------------------------------------------------------------------------------------------------------------------ Long Island Lighting Co., 7% Nts., 3/1/04 150,000 144,552 ------------------------------------------------------------------------------------------------------------------------------ New Zealand Electric Corp., 10% Debs., 6/15/9 NZD 650,000 426,765 ------------------------------------------------------------------------------------------------------------------------------ Public Service Co. of Colorado, 8.75% First Mtg. Bonds, 3/1/22 750,000 852,330 ----------------- 2,203,175 - ------------------------------------------------------------------------------------------------------------------------------------ Telecommunications - 0.3% ------------------------------------------------------------------------------------------------------------------------------ GTE Corp., 9.375% Debs., 12/1/00 500,000 567,703 ----------------- Total Corporate Bonds and Notes (Cost $34,673,470) 35,764,250
Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995
Market Value Shares (Note 1) - ------------------------------------------------------------------------------------------------------------------------------------ Preferred Stocks - 0.5% - ------------------------------------------------------------------------------------------------------------------------------------ Atlantic Richfield Co., 9% Exchangeable Notes for Common Stock of Lyondell Petrochemical Co., 9/15/97 $ 15,000 $ 352,500 ------------------------------------------------------------------------------------------------------------------------------ BankAmerica Corp., 8.375%, Series K 25,000 646,875 ----------------- Total Preferred Stocks (Cost $1,076,533) 999,375 Principal Amount(1) - ------------------------------------------------------------------------------------------------------------------------------------ Structured Instruments - 0.5% - ------------------------------------------------------------------------------------------------------------------------------------ Merrill Lynch & Co., Inc. Units, 9.75%, 6/15/99 (representing debt of Chemical Banking Corp., sub. capital nts., and equity of Citicorp, 7.75% preferred, series 22) (Cost $1,100,540) (7)(9) $ 1,000,000 1,151,000 - ------------------------------------------------------------------------------------------------------------------------------------ Repurchase Agreement - 4.0% - ------------------------------------------------------------------------------------------------------------------------------------ Repurchase agreement with First Chicago Capital Markets, 5.90%, dated 12/29/95, to be repurchased at $8,505,572 on 1/2/96, collateralized by U.S. Treasury Nts., 5.125%-8.75%, 12/31/96-11/5/04, with a value of $4,613,862, U.S. Treasury Bonds, 6.25%-11.25%, 8/15/03-8/15/23, with a value of $2,796,111, and U.S. Treasury Bills maturing 11/14/96, with a value of $1,267,996 (Cost $8,500,000) 8,500,000 8,500,000 - ------------------------------------------------------------------------------------------------------------------------------------ Total Investments, at Value (Cost $196,548,402) 97.2% 205,386,016 - ------------------------------------------------------------------------------------------------------------------------------------ Other Assets Net of Liabilities 2.8 5,845,754 -------------- ----------------- Net Assets 100.0% $ 211,231,770 ============== =================
1. Principal amount is reported in U.S. Dollars, except for those denoted in the following currencies: AUD - Australian Dollarh CAD - Canadian Dollar DEM - German Deutsche Mark DKK - Danish Krone ESP - Spanish Peseta FRF - French Franc GBP - British Pound Sterling HUF - Hungarian Forint IDR - Indonesian Rupiah IEP - Irish Punt ITL - Italian Lira NOK - New Zealand Dollar PTE - Portuguese Escudo SEK - Swedish Krona THB - Thai Baht 2. Indexed instrument for which the principal amount and/or interest due at maturity is affected by the relative value of a foreign currency. 3. For zero coupon bonds, the interest rate shown is the effective yield on the date of purchase. 4. Interest-Only Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These securities typically decline in price as interest rates decline. Most other fixed-income securities increase in price when interest rates decline. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The price of these securities is typically more sensitive to changes in prepayment rates than traditional mortgage-backed securities (for example, GNMA pass-throughs). Interest rates disclosed represent current yields based upon the current cost basis and estimated timing and amount of future cash flows. Oppenheimer Variable Account Funds - Oppenheimer Bond Fund Statement of Investments (Continued) December 31, 1995 5. Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the Board of Trustees. These securities amount to $7,087,486 or 3.36% of the Fund's net assets, at December 31, 1995. 6. Represents the current interest rate for a variable rate security. 7. Identifies issues considered to be illiquid - See Note 7 of Notes to Financial Statements. 8. Denotes a step bond: a zero coupon bond that converts to a fixed rate of interest at a designated future date. 9. Units may be comprised of several components, such as debt and equity and/or warrants to purchase equity at some point in the future. For units which represent debt securities, principal amount disclosed represents total underlying principal. See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds - Oppenheimer Growth Fund Statement of Investments December 31, 1995
Market Value Shares (Note 1) - --------------------------------------------------------------------------------------------------- Common Stocks - 80.1% - --------------------------------------------------------------------------------------------------- Basic Materials - 6.3% - --------------------------------------------------------------------------------------------------- Chemicals - 4.5% --------------------------------------------------------------------------------------------- FMC Corp. (1) 4,000 $ 270,500 --------------------------------------------------------------------------------------------- Georgia Gulf Corp. 19,000 584,250 --------------------------------------------------------------------------------------------- IMC Global, Inc. 16,000 654,000 --------------------------------------------------------------------------------------------- Morton International, Inc. 29,000 1,040,375 --------------------------------------------------------------------------------------------- PPG Industries, Inc. 18,000 823,500 --------------------------------------------------------------------------------------------- Sterling Chemicals, Inc. (1) 80,600 654,875 --------------------------------------------------------------------------------------------- Terra Industries, Inc. 46,000 649,750 --------------------------------------------------------------------------------------------- Union Carbide Corp. 17,000 637,500 ---------------- 5,314,750 - --------------------------------------------------------------------------------------------------- Metals - 0.3% --------------------------------------------------------------------------------------------- Reynolds Metals Co. 7,000 396,375 - --------------------------------------------------------------------------------------------------- Paper - 1.5% --------------------------------------------------------------------------------------------- Boise Cascade Corp. 17,000 588,625 --------------------------------------------------------------------------------------------- Bowater, Inc. 5,000 177,500 --------------------------------------------------------------------------------------------- Federal Paper Board Co. 7,000 363,125 --------------------------------------------------------------------------------------------- Willamette Industries, Inc. 11,000 618,750 ---------------- 1,748,000 - --------------------------------------------------------------------------------------------------- Consumer Cyclicals - 10.7% --------------------------------------------------------------------------------------------- Autos & Housing - 1.4% --------------------------------------------------------------------------------------------- Pulte Corp. 17,000 571,625 --------------------------------------------------------------------------------------------- Toll Brothers, Inc. (1) 46,000 1,058,000 ---------------- 1,629,625 - --------------------------------------------------------------------------------------------------- Leisure & Entertainment - 3.3% --------------------------------------------------------------------------------------------- Applebee's International, Inc. 18,000 409,500 --------------------------------------------------------------------------------------------- Callaway Golf Co. 25,000 565,625 --------------------------------------------------------------------------------------------- ITT Corp. (New) 5,000 265,000 --------------------------------------------------------------------------------------------- McDonald's Corp. 11,000 496,375 --------------------------------------------------------------------------------------------- Walt Disney Co. 25,000 1,475,000 --------------------------------------------------------------------------------------------- Wendy's International, Inc. 33,800 718,250 ---------------- 3,929,750 - --------------------------------------------------------------------------------------------------- Media - 0.2% --------------------------------------------------------------------------------------------- Viacom, Inc., Cl. B (1) 3,667 173,724 - --------------------------------------------------------------------------------------------------- Retail: General - 3.2% --------------------------------------------------------------------------------------------- Jones Apparel Group, Inc. (1) 17,100 673,312 --------------------------------------------------------------------------------------------- May Department Stores Co. 6,000 253,500 --------------------------------------------------------------------------------------------- Nautica Enterprises, Inc. 10,200 446,250 --------------------------------------------------------------------------------------------- Tommy Hilfiger Corp. 22,500 953,437 --------------------------------------------------------------------------------------------- Wal-Mart Stores, Inc. 26,000 581,750 --------------------------------------------------------------------------------------------- Warnaco Group, Inc. (The), Cl. A 33,000 825,000 ---------------- 3,733,249 - --------------------------------------------------------------------------------------------------- Retail: Specialty - 2.6% --------------------------------------------------------------------------------------------- Bed Bath & Beyond, Inc. (1) 9,000 349,312 --------------------------------------------------------------------------------------------- Gap, Inc. (The) 10,000 420,000 --------------------------------------------------------------------------------------------- General Nutrition Cos., Inc. (1) 40,000 920,000 --------------------------------------------------------------------------------------------- Home Depot, Inc. 24,000 1,149,000 --------------------------------------------------------------------------------------------- OfficeMax, Inc. (1) 8,000 179,000 ---------------- 3,017,312
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund Statement of Investments (Continued) December 31, 1995
Market Value Common Stocks (Continued) Shares (Note 1) - --------------------------------------------------------------------------------------------------- Consumer Non-Cyclicals - 17.6% - --------------------------------------------------------------------------------------------------- Beverages - 1.4% --------------------------------------------------------------------------------------------- Boston Beer Co., Inc., Cl. A (1) 6,600 $ 156,750 --------------------------------------------------------------------------------------------- Coca-Cola Co. (The) 10,000 742,500 --------------------------------------------------------------------------------------------- PepsiCo, Inc. 10,000 558,750 --------------------------------------------------------------------------------------------- Whitman Corp. 8,000 186,000 ---------------- 1,644,000 - --------------------------------------------------------------------------------------------------- Food - 3.1% --------------------------------------------------------------------------------------------- ConAgra, Inc. 4,000 165,000 --------------------------------------------------------------------------------------------- H.J. Heinz Co. 15,000 496,875 --------------------------------------------------------------------------------------------- IBP, Inc. 20,000 1,010,000 --------------------------------------------------------------------------------------------- Kroger Co. (1) 14,000 525,000 --------------------------------------------------------------------------------------------- Safeway, Inc. (1) 16,000 824,000 --------------------------------------------------------------------------------------------- Smithfield Foods, Inc. (1) 21,000 666,750 ---------------- 3,687,625 - --------------------------------------------------------------------------------------------------- Healthcare/Drugs - 5.6% --------------------------------------------------------------------------------------------- Abbott Laboratories 27,000 1,127,250 --------------------------------------------------------------------------------------------- Amgen, Inc. 8,000 475,000 --------------------------------------------------------------------------------------------- Bristol-Myers Squibb Co. 6,500 558,187 --------------------------------------------------------------------------------------------- Johnson & Johnson 12,000 1,027,500 --------------------------------------------------------------------------------------------- Pfizer, Inc. 26,500 1,669,500 --------------------------------------------------------------------------------------------- Schering-Plough Corp. 16,000 876,000 --------------------------------------------------------------------------------------------- Warner-Lambert Co. 6,000 582,750 --------------------------------------------------------------------------------------------- Watson Pharmaceuticals, Inc. (1) 6,000 294,000 ---------------- 6,610,187 - --------------------------------------------------------------------------------------------------- Healthcare/Supplies & Services - 4.2% --------------------------------------------------------------------------------------------- Columbia/HCA Healthcare Corp. 12,000 609,000 --------------------------------------------------------------------------------------------- Cordis Corp. (1) 2,000 201,000 --------------------------------------------------------------------------------------------- HealthCare COMPARE Corp. (1) 20,000 870,000 --------------------------------------------------------------------------------------------- Lincare Holdings, Inc. (1) 35,000 875,000 --------------------------------------------------------------------------------------------- Medtronic, Inc. 34,000 1,899,750 --------------------------------------------------------------------------------------------- Nellcor Puritan Bennett, Inc. (1) 8,800 510,400 ---------------- 4,965,150 - --------------------------------------------------------------------------------------------------- Household Goods - 0.9% --------------------------------------------------------------------------------------------- Procter & Gamble Co. 13,000 1,079,000 - --------------------------------------------------------------------------------------------------- Tobacco - 2.4% --------------------------------------------------------------------------------------------- Philip Morris Cos., Inc. 16,000 1,448,000 --------------------------------------------------------------------------------------------- UST, Inc. 41,000 1,368,375 ---------------- 2,816,375 - --------------------------------------------------------------------------------------------------- Energy - 1.5% --------------------------------------------------------------------------------------------- Oil-Integrated - 1.5% --------------------------------------------------------------------------------------------- Mobil Corp. 6,000 672,000 --------------------------------------------------------------------------------------------- Royal Dutch Petroleum Co. 3,500 493,938 --------------------------------------------------------------------------------------------- USX-Marathon Group 25,000 487,500 --------------------------------------------------------------------------------------------- YPF Sociedad Anonima, Sponsored ADR 5,000 108,125 ---------------- 1,761,563 - -------------------------------------------------------------------------------------------------- Financial - 13.7% --------------------------------------------------------------------------------------------- Banks - 4.3% --------------------------------------------------------------------------------------------- Bank of Boston Corp. 23,000 1,063,750 --------------------------------------------------------------------------------------------- Chase Manhattan Corp. 6,000 363,750 ----------------
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund Statement of Investments (Continued) December 31, 1995
Market Value Common Stocks (Continued) Shares (Note 1) - --------------------------------------------------------------------------------------------------- Financial (Continued) - --------------------------------------------------------------------------------------------------- Banks (Continued) --------------------------------------------------------------------------------------------- Chemical Banking Corp. 9,000 $ 528,750 --------------------------------------------------------------------------------------------- First Interstate Bancorp 6,500 887,250 --------------------------------------------------------------------------------------------- Midlantic Corp. 12,000 787,500 --------------------------------------------------------------------------------------------- NationsBank Corp. 10,000 696,250 --------------------------------------------------------------------------------------------- State Street Boston Corp. 16,600 747,000 ---------------- 5,074,250 - --------------------------------------------------------------------------------------------------- Diversified Financial - 7.4% --------------------------------------------------------------------------------------------- Advanta Corp., Cl. A 15,000 573,750 --------------------------------------------------------------------------------------------- Donaldson, Lufkin & Jenrette, Inc. (1) 6,200 193,750 --------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 8,000 668,000 --------------------------------------------------------------------------------------------- Federal National Mortgage Assn. 8,000 993,000 --------------------------------------------------------------------------------------------- First USA, Inc. 25,000 1,109,375 --------------------------------------------------------------------------------------------- Green Tree Financial Corp. 56,000 1,477,000 --------------------------------------------------------------------------------------------- Money Store, Inc. (The) 23,000 359,375 --------------------------------------------------------------------------------------------- Morgan Stanley Group, Inc. 3,000 241,875 --------------------------------------------------------------------------------------------- Price (T. Rowe) Associates 20,400 1,004,700 --------------------------------------------------------------------------------------------- Schwab (Charles) Corp. (The) 29,000 583,625 --------------------------------------------------------------------------------------------- Travelers Group, Inc. 24,000 1,509,000 ---------------- 8,713,450 - --------------------------------------------------------------------------------------------------- Insurance - 2.0% --------------------------------------------------------------------------------------------- AFLAC, Inc. 5,250 227,719 --------------------------------------------------------------------------------------------- ITT Hartford Group, Inc. 5,000 241,875 --------------------------------------------------------------------------------------------- MGIC Investment Corp. 14,100 764,925 --------------------------------------------------------------------------------------------- SunAmerica, Inc. 24,000 1,140,000 ---------------- 2,374,519 - --------------------------------------------------------------------------------------------------- Industrial - 7.1% - --------------------------------------------------------------------------------------------------- Electrical Equipment - 2.2% --------------------------------------------------------------------------------------------- Emerson Electric Co. 17,500 1,430,625 --------------------------------------------------------------------------------------------- General Electric Co. 13,000 936,000 --------------------------------------------------------------------------------------------- Honeywell, Inc. 2,000 97,250 --------------------------------------------------------------------------------------------- Kemet Corp. 6,000 143,250 ---------------- 2,607,125 - --------------------------------------------------------------------------------------------------- Industrial Materials - 1.6% --------------------------------------------------------------------------------------------- Ball Corp. 10,000 275,000 --------------------------------------------------------------------------------------------- Centex Corp. 14,000 486,500 --------------------------------------------------------------------------------------------- Fluor Corp. 8,000 528,000 --------------------------------------------------------------------------------------------- Rayonier, Inc. 19,400 647,475 ---------------- 1,936,975 - --------------------------------------------------------------------------------------------------- Industrial Services - 1.0% --------------------------------------------------------------------------------------------- Danka Business System PLC, Sponsored ADR 21,000 777,000 --------------------------------------------------------------------------------------------- Manpower, Inc. 12,500 351,563 ---------------- 1,128,563 - --------------------------------------------------------------------------------------------------- Manufacturing - 0.8% --------------------------------------------------------------------------------------------- ITT Industries, Inc. 5,000 120,000 --------------------------------------------------------------------------------------------- Kulicke & Soffa Industries, Inc. 20,000 465,000 --------------------------------------------------------------------------------------------- Varity Corp. (1) 9,000 334,125 ---------------- 919,125
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund Statement of Investments (Continued) December 31, 1995
Market Value Common Stocks (Continued) Shares (Note 1) - --------------------------------------------------------------------------------------------------- Transportation - 1.5% --------------------------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 7,000 $ 546,000 --------------------------------------------------------------------------------------------- Canadian Pacific Ltd. 47,000 851,875 --------------------------------------------------------------------------------------------- Illinois Central Corp. 10,000 383,750 ---------------- 1,781,625 - --------------------------------------------------------------------------------------------------- Technology - 22.1% - --------------------------------------------------------------------------------------------------- Aerospace/Defense - 0.7% --------------------------------------------------------------------------------------------- Goodrich (B.F.) Co. 12,000 817,500 - --------------------------------------------------------------------------------------------------- Computer Hardware - 5.3% --------------------------------------------------------------------------------------------- 3Com Corp. (1) 10,000 466,250 --------------------------------------------------------------------------------------------- Adaptec, Inc. (1) 20,000 820,000 --------------------------------------------------------------------------------------------- Cabletron Systems, Inc. (1) 22,000 1,782,000 --------------------------------------------------------------------------------------------- Cisco Systems, Inc. (1) 7,000 522,375 --------------------------------------------------------------------------------------------- Compaq Computer Corp. (1) 22,000 1,056,000 --------------------------------------------------------------------------------------------- EMC Corp. (1) 36,000 553,500 --------------------------------------------------------------------------------------------- Gateway 2000, Inc. (1) 22,000 539,000 --------------------------------------------------------------------------------------------- Sun Microsystems, Inc. (1) 12,000 547,500 ---------------- 6,286,625 - --------------------------------------------------------------------------------------------------- Computer Software - 9.6% --------------------------------------------------------------------------------------------- Automatic Data Processing, Inc. 19,000 1,410,750 --------------------------------------------------------------------------------------------- BMC Software, Inc. (1) 30,000 1,282,500 --------------------------------------------------------------------------------------------- Cheyenne Software, Inc. (1) 41,000 1,071,125 --------------------------------------------------------------------------------------------- Computer Associates International, Inc. 6,000 341,250 --------------------------------------------------------------------------------------------- First Data Corp. 20,000 1,337,500 --------------------------------------------------------------------------------------------- Informix Corp. (1) 35,000 1,050,000 --------------------------------------------------------------------------------------------- Microsoft Corp. (1) 30,000 2,632,500 --------------------------------------------------------------------------------------------- Oracle Corp. (1) 33,600 1,423,800 --------------------------------------------------------------------------------------------- Sterling Software, Inc. (1) 12,000 748,500 ---------------- 11,297,925 - --------------------------------------------------------------------------------------------------- Electronics - 3.8% --------------------------------------------------------------------------------------------- Arrow Electronics, Inc. (1) 11,000 474,375 --------------------------------------------------------------------------------------------- Cypress Semiconductor Corp. (1) 50,000 637,500 --------------------------------------------------------------------------------------------- General Instrument Corp. (1) 15,000 350,625 --------------------------------------------------------------------------------------------- Intel Corp. 26,000 1,475,500 --------------------------------------------------------------------------------------------- Motorola, Inc. 15,000 855,000 --------------------------------------------------------------------------------------------- Phillips Electronics NV, ADR 19,000 681,625 ---------------- 4,474,625 - --------------------------------------------------------------------------------------------------- Telecommunications-Technology - 2.7% --------------------------------------------------------------------------------------------- AT&T Corp. 18,000 1,165,500 --------------------------------------------------------------------------------------------- Hong Kong Telecommunications Ltd., Sponsored ADR 5,000 88,750 --------------------------------------------------------------------------------------------- L.M. Ericsson Telephone Co., Cl. B, ADR 33,000 643,500 --------------------------------------------------------------------------------------------- Telecom Corp. of New Zealand Ltd., Sponsored ADR 7,000 485,625 --------------------------------------------------------------------------------------------- Tellabs, Inc. 21,800 806,600 ---------------- 3,189,975 - --------------------------------------------------------------------------------------------------- Utilities - 1.1% - --------------------------------------------------------------------------------------------------- Telephone Utilities - 1.1% --------------------------------------------------------------------------------------------- BellSouth Corp. 5,000 217,500 --------------------------------------------------------------------------------------------- Cincinnati Bell, Inc. 17,000 590,750
Oppenheimer Variable Account Funds - Oppenheimer Growth Fund Statement of Investments (Continued) December 31, 1995
Market Value Common Stocks (Continued) Shares (Note 1) - --------------------------------------------------------------------------------------------------- Utilities - (Continued) - --------------------------------------------------------------------------------------------------- Telephone Utilities - (Continued) --------------------------------------------------------------------------------------------- Telefonos de Mexico SA, Sponsored ADR 13,500 $ 430,313 ---------------- 1,238,563 ---------------- Total Common Stocks (Cost $70,729,607) 94,347,530 Principal Amount - --------------------------------------------------------------------------------------------------- Repurchase Agreements - 19.9% --------------------------------------------------------------------------------------------- Repurchase agreement with First Chicago Capital Markets, 5.90%, dated 12/29/95, to be repurchased at $18,011,800 on 1/2/96, collateralized by U.S. Treasury Nts., 5.125%-8.75%, 12/31/96-11/5/04, with a value of $9,770,530, U.S. Treasury Bonds, 6.25%-11.25%, 8/15/03-8/15/23, with a value of $5,921,176, and U.S. Treasury Bills maturing 11/14/96, with a value of $2,685,168 $18,000,000 18,000,000 --------------------------------------------------------------------------------------------- Repurchase agreement with PaineWebber, Inc., 5.90%, dated 12/29/95, to be repurchased at $5,473,586 on 1/2/96, collateralized by U.S. Treasury Nts., 6.875%, 8/31/99, with a value of $1,954,613, and U.S. Treasury Bonds, 7.125%-7.625%, 11/15/22-2/15/23, with a value of $3,682,864 5,470,000 5,470,000 ---------------- --------------------------------------------------------------------------------------------- Total Repurchase Agreements (Cost $23,470,000) 23,470,000 --------------------------------------------------------------------------------------------- Total Investments, at Value (Cost $94,199,607) 100.0% 117,817,530 --------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets 0.0 (107,640) ----------- ----------------- Net Assets 100.0% $117,709,890 =========== =================
1. Non-income producing security. See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds Statements of Assets and Liabilities December 31, 1995
Oppenheimer Oppenheimer Bond Growth Fund Fund - ----------------------------------------------------------------------------------------- ASSETS: Investments, at value (cost * ) (including repurchase agreements **) - see accompanying statements: Unaffiliated companies $205,386,016 $117,817,530 Affiliated companies -- -- Unrealized appreciation on forward foreign currency exchange contracts - Note 5 -- -- Cash 475,368 49,380 Receivables: Dividends and interest 3,482,730 106,959 Shares of beneficial interest sold 1,549,125 364,845 Investments sold 1,271,263 595,258 Other 7,575 5,982 -------------------------------- Total assets 212,172,077 118,939,954 -------------------------------- LIABILITIES: Options written, at value (premiums received ***) - see accompanying statements - Note 4 -- -- Unrealized depreciation on forward foreign currency exchange contracts - Note 5 15,522 -- Payables and other liabilities: Dividends -- -- Investments purchased 779,747 970,555 Shares of beneficial interest redeemed 98,746 231,518 Other 46,292 27,991 -------------------------------- Total liabilities 940,307 1,230,064 -------------------------------- NET ASSETS $211,231,770 $117,709,890 ================================ COMPOSITION OF NET ASSETS: Paid-in capital $201,057,454 $84,252,418 Undistributed (distributions in excess of) net investment income 1,342,481 1,290,629 Accumulated net realized gain (loss) from investments and foreign currency transactions 5,361 8,548,920 Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies 8,826,474 23,617,923 -------------------------------- NET ASSETS $211,231,770 $117,709,890 ================================ SHARES OF BENEFICIAL INTEREST OUTSTANDING 17,842,418 4,997,725 NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $11.84 $23.55 *Cost: Unaffiliated companies $196,548,402 $94,199,607 Affiliated companies -- -- **Repurchase Agreements $8,500,000 $23,470,000 ***Premiums Received -- --
See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds Statements of Operations For the Year Ended December 31, 1995
Oppenheimer Oppenheimer Bond Growth Fund Fund - ----------------------------------------------------------------------------------------- INVESTMENT INCOME: Interest (net of withholding taxes of *) $13,096,739 $1,001,964 Dividends: Unaffiliated companies (net of withholding taxes of **) 81,190 992,690 Affiliated companies (net of withholding taxes of **) -- -- -------------------------------- Total income 13,177,929 1,994,654 -------------------------------- EXPENSES: Management fees - Note 6 1,280,422 664,977 Custodian fees and expenses 37,714 -- Shareholder reports 8,042 3,864 Legal and auditing fees 12,506 12,202 Insurance expenses 5,140 3,525 Trustees' fees and expenses 2,637 1,901 Registration and filing fees 16,773 8,881 Other 1,193 1,585 -------------------------------- Total expenses 1,364,427 696,935 -------------------------------- NET INVESTMENT INCOME 11,813,502 1,297,719 -------------------------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from: Investments: Unaffiliated companies 861,074 8,674,291 Affiliated companies -- -- Closing and expiration of options written - Note 4 (14,352) -- Foreign currency transactions 463,409 -- Net change in unrealized appreciation or depreciation on: Investments 13,439,159 16,396,856 Translation of assets and liabilities denominated in foreign currencies (120,740) -- -------------------------------- Net realized and unrealized gain 14,628,550 25,071,147 -------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $26,442,052 $26,368,866 ================================ *Interest $7,577 -- **Dividends: Unaffiliated companies -- $9,674 Affiliated companies -- --
See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds Statements of Changes in Net Assets For the Years Ended December 31, 1995 and 1994
Oppenheimer Oppenheimer Bond Growth Fund Fund - ---------------------------------------------------------------------------------------------------------------- 1995 1994 1995 1994 OPERATIONS: Net investment income $11,813,502 $8,900,922 $1,297,719 $824,976 Net realized gain (loss) 1,310,131 (2,370,155) 8,674,291 1,441,127 Net change in unrealized appreciation or depreciation 13,318,419 (8,824,731) 16,396,856 (1,915,053) ---------------------------------------------------------- Net increase (decrease) in net assets resulting from from operations 26,442,052 (2,293,964) 26,368,866 351,050 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income (11,209,883) (7,101,380) (821,641) (516,871) Distributions from net realized gain -- (283,274) (973,385) (127,540) Distributions in excess of net realized gain -- -- -- -- BENEFICIAL INTEREST TRANSACTIONS: Net increase (decrease) in net assets resulting from beneficial interest transactions - Note 2 60,932,217 32,899,881 29,852,876 6,875,487 ---------------------------------------------------------- NET ASSETS: Total increase (decrease) 76,164,386 23,221,263 54,426,716 6,582,126 Beginning of period 135,067,384 111,846,121 63,283,174 56,701,048 ---------------------------------------------------------- End of period $211,231,770 $135,067,384 $117,709,890 $63,283,174 ===================================================== =====
See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds FINANCIAL HIGHLIGHTS (Continued)
Oppenheimer Bond Fund ----------------------------------------------------------------------------- Year Ended December 31, 1995 1994 1993 1992 1991 ----------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $10.78 $11.65 $10.99 $11.15 $10.33 Income (loss) from investment operations: Net investment income .72 .76 .65 .87 .95 Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.07 (.98) .76 (.17) .80 ----------------------------------------------------------------------------- Total income (loss) from investment operations 1.79 (.22) 1.41 .70 1.75 ----------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.73) (.62) (.75) (.86) (.93) Distributions from net realized gain on investments and foreign currency transactions -- (.03) -- -- -- ----------------------------------------------------------------------------- Total dividends and distributions to shareholders (.73) (.65) (.75) (.86) (.93) ----------------------------------------------------------------------------- Net asset value, end of period $11.84 $10.78 $11.65 $10.99 $11.15 ===================================================== ======================== TOTAL RETURN, AT NET ASSET VALUE(1) 17.00% (1.94)% 13.04% 6.50% 17.63% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $211,232 $135,067 $111,846 $63,354 $32,762 Average net assets (in thousands) $170,929 $121,884 $ 87,215 $45,687 $22,169 Ratios to average net assets: Net investment income 6.91% 7.30% 7.20% 7.81% 8.73% Expenses .80% .57% .46% .56% .64% Portfolio turnover rate(2) 79.4% 35.1% 36.3% 41.3% 7.6% ---------------------------------------------------------------------------- 1990 1989 1988 1987 1986 ---------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $10.49 $10.15 $10.19 $11.15 $11.27 Income (loss) from investment operations: Net investment income .97 .98 .94 .97 .97 Net realized and unrealized gain (loss) on investments and foreign currency transactions (.18) .32 (.05) (.71) .09 ---------------------------------------------------------------------------- Total income (loss) from investment operations .79 1.30 .89 .26 1.06 ---------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.95) (.96) (.93) (1.17) (1.03) Distributions from net realized gain on investments and foreign currency transactions -- -- -- (.05) (.15) ---------------------------------------------------------------------------- Total dividends and distributions to shareholders (.95) (.96) (.93) (1.22) (1.18) ---------------------------------------------------------------------------- Net asset value, end of period $10.33 $10.49 $10.15 $10.19 $11.15 ===================================================== ======================= TOTAL RETURN, AT NET ASSET VALUE(1) 7.92% 13.32% 8.97% 2.53% 10.12% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $16,576 $13,422 $ 9,989 $10,415 $7,377 Average net assets (in thousands) $15,088 $11,167 $11,028 $ 8,748 $4,647 Ratios to average net assets: Net investment income 9.30% 9.34% 9.08% 9.17% 8.71% Expenses .61% .64% .70% .75% .75% Portfolio turnover rate(2) 7.4% 5.4% 36.3% 5.9% 27.7%
1. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods of less than one full year. Total return information does not reflect expenses that apply at the separate account level or to related insurance products. Inclusion of these charges would reduce the total return figures for all periods shown. 2. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds FINANCIAL HIGHLIGHTS (Continued)
Oppenheimer Growth Fund - ----------------------------------------------------------------------------- Year Ended December 31, 1995 1994 1993 1992 1991 - ----------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $17.68 $17.70 $16.96 $15.17 $12.54 Income (loss) from investment operations: Net investment income .25 .22 .46 .16 .30 Net realized and unrealized gain (loss) on investments 6.10 (.05) .74 1.99 2.82 - ----------------------------------------------------------------------------- Total income (loss) from investment operations 6.35 .17 1.20 2.15 3.12 - ----------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.22) (.15) (.14) (.36) (.49) Distributions from net realized gain on investments and foreign currency transactions (.26) (.04) (.32) -- -- - ----------------------------------------------------------------------------- Total dividends and distributions to shareholders (.48) (.19) (.46) (.36) (.49) - ----------------------------------------------------------------------------- Net asset value, end of period $23.55 $17.68 $17.70 $16.96 $15.17 ============================================================================= TOTAL RETURN, AT NET ASSET VALUE(1) 36.65% .97% 7.25% 14.53% 25.54% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $117,710 $63,283 $56,701 $36,494 $22,032 Average net assets (in thousands) $88,803 $59,953 $46,389 $25,750 $18,810 Ratios to average net assets: Net investment income 1.46% 1.38% 1.13% 1.36% 2.82% Expenses .79% .58% .50% .61% .70% Portfolio turnover rate(2) 58.2% 53.8% 12.6% 48.7% 133.9% Average brokerage commission rate(3) $0.07 - -- -- -- -- - --------------------------------------------------------------------------- 1990 1989 1988 1987 1986 - --------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $16.38 $13.64 $11.21 $12.53 $10.95 Income (loss) from investment operations: Net investment income .56 .66 .29 .20 .13 Net realized and unrealized gain (loss) on investments (1.79) 2.50 2.19 .24 1.76 - --------------------------------------------------------------------------- Total income (loss) from investment operations (1.23) 3.16 2.48 .44 1.89 - --------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.62) (.35) -- (.34) (.15) Distributions from net realized gain on investments and foreign currency transactions (1.99) (.07) (.05) (1.42) (.16) - --------------------------------------------------------------------------- Total dividends and distributions to shareholders (2.61) (.42) (.05) (1.76) (.31) - --------------------------------------------------------------------------- Net asset value, end of period $12.54 $16.38 $13.64 $11.21 $12.53 =========================================================================== TOTAL RETURN, AT NET ASSET VALUE(1) (8.21)% 23.59% 22.09% 3.32% 17.76% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $15,895 $19,301 $17,746 $14,692 $8,287 Average net assets (in thousands) $17,235 $18,596 $15,585 $15,121 $3,744 Ratios to average net assets: Net investment income 4.09% 3.72% 2.39% 1.56% 2.62% Expenses .71% .70% .70% .75% .75% Portfolio turnover rate(2) 267.9% 148.0% 132.5% 191.0% 100.9% Average brokerage commission rate(3) -- - -- -- -- --
1. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods of less than one full year. Total return information does not reflect expenses that apply at the separate account level or to related insurance products. Inclusion of these charges would reduce the total return figures for all periods shown. 2. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. 3. Total brokerage commissions paid on purchases and sales of portfolio securities for the period divided by the total number of related shares purchased and sold. See accompanying Notes to Financial Statements. Oppenheimer Variable Account Funds Notes to Financial Statements 1. Significant Accounting Policies Oppenheimer Money Fund (OMF), Oppenheimer High Income Fund (OHIF), Oppenheimer Bond Fund (OBF), Oppenheimer Capita Appreciation Fund (OCAP), Oppenheimer Growth Fund (OGF), Oppenheimer Multiple Strategies Fund (OMSF), Oppenheimer Global Securities Fund (OGSF), Oppenheimer Strategic Bond Fund (OSBF) and Oppenheimer Growth & Income Fund (OGIF) (collectively, the Funds) are separate series of Oppenheimer Variable Account Funds (the Trust), a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Trust's investment advisor is OppenheimerFunds, Inc. (the Manager). The following is a summary of significant accounting policies consistently followed by the Funds. The Funds' objectives are as follows: Oppenheimer Money Fund seeks the maximum current income from investments in money market" securities consistent with low capital risk and the maintenance of liquidity. Oppenheimer High Income Fund seeks a high level of current income from investments in high yield fixed-income securities. Oppenheimer Bond Fund primarily seeks a high level of current income from investments in high yield fixed-income securities 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 seeks to achieve capital appreciation by investing in "growth-type" companies. Oppenheimer Growth Fund seeks to achieve capital appreciation by investing in securities of well-known established companies. Oppenheimer 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 seeks long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special institutions which are considered to have appreciation possibilities. Oppenheimer 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: (i) debt securities, (ii) U.S. Government securities, and (iii) lower-rated high yield domestic debt securities. Oppenheimer Growth & Income Fund seeks a high total return (which includes growth in the value of its shares as well as current income) from equity and debt securities. From time to time this Fund may focus on small to medium capitalization common stocks, bonds and convertible securities. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 1. Significant Accounting Policies (Continued) Investment Valuation. Portfolio securities of OMF are valued on the basis of amortized cost, which approximates market value. Portfolio securities of OHIF, OBF, OCAP, OGF, OMSF, OGSF, OSBF and OGIF are valued at the close of the New York Stock Exchange on each trading day. Listed and unlisted securities for which such information is regularly reported are valued at the last sale price of the day or, in the absence of sales, at values based on the closing bid or asked price or the last sale price on the prior trading day. Long-term and short-term "non-money market" debt securities are valued by a portfolio pricing service approved by the Board of Trustees. Such securities which cannot be valued by the approved portfolio pricing service are valued using dealer-supplied valuations provided the Manager is satisfied that the firm rendering the quotes is reliable and that the quotes reflect current market value, or are valued under consistently applied procedures established by the Board of Trustees to determine fair value in good faith. Short-term "money market type" debt securities having a remaining maturity of 60 days or less are valued at cost (or last determined market value) adjusted for amortization to maturity of any premium or discount. Options are valued based upon the last sale price on the principal exchange on which the option is traded or, in the absence of any transactions that day, the value is based upon the last sale on the prior trading date if it is within the spread between the closing bid and asked prices. If the last sale price is outside the spread, the closing bid or asked price closest to the last reported sale price is used. Forward foreign currency exchange contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. Securities Purchased on a When-Issued Basis. Delivery and payment for securities that have been purchased by OSBF on a forward commitment or when-issued basis can take place a month or more after the transaction date. During the period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. OSBF maintains, in a segregated account with its custodian, assets with a market value equal to the amount of its purchase commitments. The purchase of securities on a when-issued or forward commitment basis may increase the volatility of OSBF's net asset value to the extent the Fund makes such purchases while remaining substantially fully invested. In connection with its ability to purchase securities on a when-issued or forward commitment basis, OSBF may enter into mortgage "dollar-rolls" in which the Fund sells securities for delivery in the current month and simultaneously contracts with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. The Fund records each dollar-roll as a sale and a new purchase transaction. Security Credit Risk. OHIF, OMSF and OSBF invest in high yield securities, which may be subject to a greater degree of credit risk, greater market fluctuations and risk of loss of income and principal, and may be more sensitive to economic conditions than lower yielding, higher rated fixed income securities. The Funds may acquire securities in default, and are not obligated to dispose of securities whose issuers subsequently default. At December 31, 1995, securities with an aggregate market value of $491,444 for OHIF and $67,873 for OSBF, representing 0.37% and 0.11% respectively, of the Funds' net assets, were in default. Foreign Currency Translation. The accounting records of the Funds are maintained in U.S. dollars. Prices of securities purchased by OHIF, OBF, OMSF, OGSF, OSBF and OGIF that are denominated in foreign currencies are translated into U.S. dollars at the closing rates of exchange. Amounts related to the purchase and sale of securities and investment income are translated at the rates of exchange prevailing on the respective dates of such transactions. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 1. Significant Accounting Policies (Continued) For OHIF, OBF, OMSF, OGSF, OSBF and OGIF, the effect of changes in foreign currency exchange rates on investments is separately identified from the fluctuations arising from changes in market values of securities held and reported with all other foreign currency gains and losses in the Funds' Statements of Operations. Repurchase Agreements. The Funds require the custodian to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian's vault, all securities held as collateral for repurchase agreements. The market value of the underlying securities is required to be at least 102% of the resale price at the time of purchase. If the seller of the agreement defaults and the value of the collateral declines, or if the seller enters an insolvency proceeding, realization of the value of the collateral by the Funds may be delayed or limited. Federal Taxes. The Trust intends for each Fund to continue to comply with provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income, including any net realized gain on investments not offset by loss carryovers, to shareholders. Therefore, no federal income or excise tax provision is required. At December 31, 1995, the following Funds had available for federal income tax purposes unused capital loss carryovers expiring in 2002 and 2003: OHIF -- $ 3,033,760 OGSF -- $17,569,501 OSBF -- $ 1,609,951 Distributions to Shareholders. Dividends and distributions to shareholders of OHIF, OBF, OCAP, OGF, OMSF, OGSF, OSBF and OGIF are recorded on the ex-dividend date. OMF intends to declare dividends from net investment income each day the New York Stock Exchange is open for business and pay such dividends monthly. To effect its policy of maintaining a net asset value of $1.00 per share, OMF may withhold dividends or make distributions of net realized gains. Classification of Distributions to Shareholders. Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes primarily because of premium amortization, paydown gains and losses and the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes. The character of the distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gain (loss) was recorded by the Funds. Changes in classification made during the fiscal year ended December 31, 1995 are shown below:
----------------------------------------------------------------------------------- Adjustments for the Fiscal Year Ended December 31, 1995 ----------------------------------------------------------------------------------- Undistributed Net Investment Income Undistributed Net Realized Paid-in (Loss) Gain (Loss) on Investments Capital - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer High Income Fund 186,751 (186,751) -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Bond Fund (1,093,371) 1,093,371 -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Fund -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Growth Fund -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Multiple Strategies Fund (204,481) 204,481 -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund (2,845,512) 6,264,762 (3,419,250) - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund 9,220 (9,220) -- - -------------------------------------------------------------------------------------------------------------------------------- Oppenheimer Growth & Income Fund 37 (37) -- - --------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 1. Significant Accounting Policies (Continued) Other. Investment transactions are accounted for on the date the investments are purchased or sold (trade date) and dividend income is recorded on the ex-dividend date. Discount on securities purchased by OHIF, OBF, OCAP, OGF, OMSF, OGSF, OSBF and OGIF is amortized over the life of the respective securities, in accordance with federal income tax requirements. Realized gains and losses on investments and unrealized appreciation and depreciation are determined on an identified cost basis, which is the same basis used for federal income tax purposes. Dividends-in-kind are recognized as income on the ex-dividend date, at the current market value of the underlying security. Interest on payment-in-kind debt instruments is accrued as income at the coupon rate, and a market adjustment is made on the ex-date. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 2. Shares of Beneficial Interest The Funds have authorized an unlimited number of no par value shares ofbeneficial interest. Transactions in shares of beneficial interest were as follows:
Oppenheimer Money Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 202,748,102 $202,748,102 175,917,558 $175,917,558 Dividends and distributions reinvested 4,222,747 4,222,747 3,640,684 3,640,684 Redeemed (231,260,663) (231,260,663) (151,084,269) (151,084,269) ------------------------------------------------------------- Net increase (decrease) (24,289,814) $(24,289,814) 28,473,973 $ 28,473,973 ========================================================== === Oppenheimer High Income Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 5,873,231 $60,932,670 9,936,582 $ 81,477,904 Dividends and distributions reinvested 1,162,957 12,040,152 841,101 8,686,931 Redeemed (4,263,757) (44,560,679) (9,441,490) (75,726,156) ------------------------------------------------------------- Net increase (decrease) 2,772,431 $28,412,143 1,336,193 $ 14,438,679 ========================================================== === Oppenheimer Bond Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 7,311,733 $83,544,442 5,002,623 $56,466,171 Dividends and distributions reinvested 976,291 11,209,883 666,678 7,384,654 Redeemed (2,972,687) (33,822,108) (2,744,016) (30,950,944) ------------------------------------------------------------- Net increase 5,315,337 $60,932,217 2,925,285 $32,899,881 ========================================================== === Oppenheimer Capital Appreciation Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 8,882,212 $260,650,476 7,912,557 $173,453,586 Dividends and distributions reinvested 40,594 1,082,642 614,575 17,331,023 Redeemed (6,567,729) (191,565,283) (5,695,411) (114,272,197) ------------------------------------------------------------- Net increase 2,355,077 $70,167,835 2,831,721 $ 76,512,412 ========================================================== ===
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 2. Shares of Beneficial Interest (Continued)
Oppenheimer Growth Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 4,302,304 $89,007,340 2,577,268 $45,230,951 Dividends and distributions reinvested 95,991 1,795,026 36,305 644,411 Redeemed (2,980,080) (60,949,490) (2,236,767) (38,999,875) ---------------------------------------------------------- Net increase 1,418,215 $29,852,876 376,806 $ 6,875,487 ========================================================== === Oppenheimer Multiple Strategies Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 6,445,242 $88,771,497 9,807,084 $84,443,396 Dividends and distributions reinvested 1,818,313 24,783,721 1,140,244 14,981,165 Redeemed (4,671,097) (64,421,131) (6,353,523) (37,006,732) ------------------------------------------------------------- Net increase 3,592,458 $49,134,087 4,593,805 $62,417,829 ========================================================== === Oppenheimer Global Securities Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 11,235,722 $166,766,446 22,151,454 $336,310,887 Dividends and distributions reinvested 585,961 8,174,158 178,687 2,801,813 Redeemed (7,497,205) (112,360,172) (8,503,911) (112,426,012) ------------------------------------------------------------- Net increase 4,324,478 $62,580,432 13,826,230 $226,686,688 ========================================================== === Oppenheimer Strategic Bond Fund ------------------------------------------------------------- Year Ended Year Ended December 31, 1995 December 31, 1994 ------------------------------------------------------------- Shares Amount Shares Amount ------------------------------------------------------------- Sold 9,417,090 $44,897,472 3,749,500 $18,415,292 Dividends and distributions reinvested 661,301 3,151,540 247,485 1,178,372 Redeemed (2,245,623) (10,642,846) (1,508,782) (7,350,665) ------------------------------------------------------------- Net increase 7,832,768 $37,406,166 2,488,203 $12,242,999 ========================================================== ===
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 2. Shares of Beneficial Interest (Continued)
Oppenheimer Growth & Income Fund ------------------------------------------- Year Ended December 31, 1995(1) ------------------------------------------- Shares Amount ------------------------------------------- Sold 358,253 $3,933,459 Dividends and distributions reinvested 404 4,928 Redeemed (15,863) (181,994) ------------------------------------------- Net increase 342,794 $3,756,393 ============================================
1. For the period from July 5, 1995 (commencement of operations) to December 31, 1995. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 3. Unrealized Gains and Losses on Investments and Options Written At December 31, 1995, net unrealized appreciation or depreciation on investments and options written consisted of the following:
Oppenheimer Oppenheimer Oppenheimer Oppenheimer Oppenheimer Oppenheimer Oppenheimer Capital Oppenheimer Multiple Global Strategic Growth & High Income Bond Appreciation Growth Strategies Securities Bond Income Fund Fund Fund Fund Fund Fund Fund Fund ------------------------------------------------------------------------------------------------------------- Gross appreciation $7,814,322 $9,892,102 $70,829,161 $25,616,239 $53,305,284 $37,997,341 $2,340,864 $599,103 Gross depreciation (2,103,465) (1,054,488) (7,853,814) (1,998,316) (11,146,651) (14,351,638) (493,040) (94,247) ------------------------------------------------------------------------------------------------------------- Net unrealized appreciation $5,710,857 $8,837,614 $62,975,347 $23,617,923 $42,158,633 $23,645,703 $1,847,824 $504,856 ========================================================== =================================================== Purchases and sales of investment securities (excluding short-term securities) for the year ended December 31, 1995 were as follows: Purchases $145,095,379 $196,515,342 $318,974,082 $78,667,711 $123,862,840 $491,709,775 $67,228,738 $3,421,021 ========================================================== =================================================== Sales $112,222,617 $120,210,417 $255,116,481 $41,669,055 $117,669,946 $416,155,747 $26,588,452 $400,564 ========================================================== ===================================================
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 4. Option Activity The Funds (except OMF, OCAP and OGF) may buy and sell put and call options, or write covered put and call options on portfolio securities in order to produce incremental earnings or protect against changes in the value of portfolio securities. The Funds generally purchase put options or write covered call options to hedge against adverse movements in the value of portfolio holdings. When an option is written, the Funds receive a premium and become obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. Options are valued daily based upon the last sale price on the principal exchange on which the option is traded and unrealized appreciation or depreciation is recorded. The Funds will realize a gain or loss upon the expiration or closing of the option transaction. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option is adjusted by the amount of premium received or paid. Securities designated to cover outstanding call options are noted in the Statements of Investments where applicable. Shares subject to call, expiration date, exercise price, premium received and market value are detailed in a footnote to the Statement of Investments. Options written are reported as a liability in the Statement of Assets and Liabilities. Gains and losses are reported in the Statement of Operations. The risk in writing a call option is that the Funds give up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Funds may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Funds pay a premium whether or not the option is exercised. The Funds also have the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. The Funds may also write over-the-counter options where the completion of the obligation is dependent upon the credit standing of the counterparty. OHIF option activity for the year ended December 31, 1995 was as follows:
CALL OPTIONS --------------------------- Number of Amount of Options Premiums --------------------------- Options outstanding at December 31, 1994 -- $ -- Options written 28,600 5,389 Options canceled in closing transactions (28,500) (3,959) --------------------------- Options outstanding at December 31, 1995 100 $ 1,430 ===========================
OBF option activity for the year ended December 31, 1995 was as follows:
CALL OPTIONS --------------------------- Number of Amount of Options Premiums --------------------------- Options outstanding at December 31, 1994 -- $ -- Options written 82,000 17,019 Options canceled in closing transactions (82,000 (17,019) --------------------------- Options outstanding at December 31, 1995 -- $ -- ===========================
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 4. Option Activity (Continued) OMSF option activity for the year ended December 31, 1995 was as follows:
CALL OPTIONS --------------------------- Number of Amount of Options Premiums --------------------------- Options outstanding at December 31, 1994 2,255 $ 607,682 Options written 8,275 2,150,503 Options canceled in closing transactions (1,894) (448,093) Options expired prior to exercise (2,353) (451,021) Options exercised (2,680) (758,976) --------------------------- Options outstanding at December 31, 1995 3,603 $1,100,095 ===========================
OSBF option activity for the year ended December 31, 1995 was as follows:
CALL OPTIONS --------------------------- Number of Amount of Options Premiums --------------------------- Options outstanding at December 31, 1994 307 $ 1,600 Options written 3,314 35,871 Options canceled in closing transactions (2,141) (20,467) Options expired prior to exercise (190) (763) Options exercised (290) (1,942) --------------------------- Options outstanding at December 31, 1995 1,000 $ 14,299 ===========================
5. Forward Foreign Currency Exchange Contracts A forward foreign currency exchange contract (forward contract) is a commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. The Funds (except OMF) use forward contracts to seek to manage foreign currency risks. They may also be used to tactically shift portfolio currency risk. The Funds generally enter into forward contracts as a hedge upon the purchase or sale of a security denominated in a foreign currency. In addition, the Funds may enter into such contracts as a hedge against changes in foreign currency exchange rates on portfolio positions. Forward contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. The Funds will realize a gain or loss upon the closing or settlement of the forward transaction. Securities held in segregated accounts to cover net exposure on outstanding forward contracts are noted in the Statements of Investments where applicable. Unrealized appreciation or depreciation on forward contracts is reported in the Statements of Assets and Liabilities. Realized gains and losses are reported with all other foreign currency gains and losses in the Funds' Statements of Operations. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 5. Forward Foreign Currency Exchange Contracts (Continued) Risks include the potential inability of the counterparty to meet the terms of the contract and unanticipated movements in the value of a foreign currency relative to the U.S. dollar. At December 31, 1995, outstanding forward contracts to purchase and sell foreign currencies were as follows: Oppenheimer High Income Fund
Contract Unrealized Amount Valuation as of Appreciation Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation) - ------------------------------------------------------------------------------------------------------ Japanese Yen (JPY) 1/4/96 55,250 JPY $535,752 $ (9,657) New Zealand Dollar (NZD) 12/18/96 892 NZD 567,334 2,150 -------- $ (7,507) -------- Contracts to Sell - ------------------------------------------------------------------------------------------------------ Deutsche Mark (DEM) 1/4/96-2/21/96 3,670 DEM $2,562,764 $ (3,622) Japanese Yen (JPY) 12/18/96 54,625 JPY 553,249 11,934 -------- 8,312 -------- Net Unrealized Appreciation $ 805 ========
Oppenheimer Bond Fund
Contract Unrealized Amount Valuation as of Appreciation Contracts to Sell Exchange Date (in 000s) December 31, 1995 (Depreciation) - ------------------------------------------------------------------------------------------------------ Australian Dollar (AUD) 1/4/96 59 AUD $43,775 $ 190 Deutsche Mark (DEM) 1/4/96-2/21/96 11 DEM 7,661,169 (15,712) -------- $(15,522) ========
Oppenheimer Multiple Strategies Fund
Contract Unrealized Amount Valuation as of Appreciation Contracts to Sell Exchange Date (in 000s) December 31, 1995 (Depreciation) - ------------------------------------------------------------------------------------------------------ Hong Kong Dollar (HKD) 1/2/96 707 HKD $91,439 $ 2 ========
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 5. Forward Foreign Currency Exchange Contracts (Continued) Oppenheimer Global Securities Fund
Contract Unrealized Amount Valuation as of Appreciation Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation) - ------------------------------------------------------------------------------------------------------ Hong Kong Dollar (HKD) 1/2/96-1/3/96 8,904 HKD $1,151,601 $ (218) Italian Lira (ITL) 1/31/96 3,888,129 ITL 2,438,922 (9,912) Japanese Yen (JPY) 1/4/96-1/5/96 75,155 JPY 728,792 (2,948) Singapore Dollar (SGD) 1/2/96-1/5/96 830 SGD 586,556 (853) Greek Drachma (GRD) 1/2/96-1/4/96 49,496 GRD 209,220 432 -------- $(13,499) -------- Contracts to Sell - ------------------------------------------------------------------------------------------------------ Austrian Schilling (ATS) 1/2/96 17,770 ATS $1,764,559 $(12,653) Swiss Franc (CHF) 1/4/96 279 CHF 242,200 (1,139) Deutsche Mark (DEM) 1/4/96 1,598 DEM 1,116,140 (5,709) Japanese Yen (JPY) 3/29/96 3,043,800 JPY 29,807,684 192,316 Norwegian Krone (NOK) 1/2/96-1/4/96 8,521 NOK 1,348,728 (9,042) --------- 163,773 --------- Net Unrealized Appreciation $150,274 =========
Oppenheimer Strategic Bond Fund
Contract Unrealized Amount Valuation as of Appreciation Contracts to Purchase Exchange Date (in 000s) December 31, 1995 (Depreciation) - ------------------------------------------------------------------------------------------------------ Japanese Yen (JPY) 1/4/96 33,988 JPY $329,572 $(5,982) New Zealand Dollar (NZD) 12/18/96 541 NZD 344,380 1,096 ------- $(4,886) ------- Contracts to Sell - ------------------------------------------------------------------------------------------------------ Australian Dollar (AUD) 1/4/96 22 AUD $16,134 $ (25) Deutsche Mark (DEM) 2/13/96 1,605 DEM 1,119,976 (5,393) Japanese Yen (JPY) 12/18/96 33,175 JPY 336,001 7,283 Swiss Franc (CHF) 2/13/96 860 CHF 748,739 (8,636) -------- (6,771) -------- Net Unrealized Depreciation $(11,657) ========
Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 6. Management Fees and Other Transactions with Affiliates Management fees paid to the Manager were in accordance with the investment advisory agreements with the Trust. For OBF, OCAP, OGF, OMSF, OHIF, OGSF, OSBF and OGIF, the annual fees are .75% of the first $200 million of net assets, .72% of the next $200 million, .69% of the next $200 million, .66% of the next $200 million and .60% of net assets in excess of $800 million. In addition, management fees for OHIF, OBF and OSBF are .50% of net assets in excess of $1 billion. Management fees for OMF are .45% of the first $500 million, .425% of the next $500 million, .40% of the next $500 million and .375% of net assets in excess of $1.5 billion. For OSBF, the Manager has agreed to limit the management fee charged so that the ordinary operating expenses of the Fund will not exceed 1.0% of its average net assets in any fiscal year. 7. Illiquid and Restricted Securities At December 31, 1995, investments in securities included issues that are illiquid or restricted. The securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and are valued under methods approved by the Board of Trustees as reflecting fair value. The Funds intend to invest no more than 10% of net assets (determined at the time of purchase) in illiquid and restricted securities. Information concerning these securities is as follows: Oppenheimer High Income Fund
Acquisition Cost Valuation as of Security Date Per Unit December 31, 1995 - ------------------------------------------------------------------------------------------------------------------- Ames Department Stores, Inc., Excess Cash Flow Payment 12/30/92 $ 0.00 $ .01 Certificates, Series AG-7A Ames Department Stores, Inc., Litigation Trust 12/30/92 0.00 .01 Colombia (Republic of) 1989-1990 Integrated Loan Facility 12/5/95 92.00 93.00 Bonds, 6.875%, 7/1/01 ECM Fund, L.P.I 4/14/92 100.00 1,000.00 ECM Fund, L.P.I., 14% Sub. Nts., 6/10/02 4/14/92 100.00 110.00 Farley, Inc., Zero Coupon Sub. Debs., 14.151%, 12/30/12 1/1/93-3/6/95 7.44 9.88 Gillett Holdings, Inc., C1.2 12/1/92 10.50 20.00 Goldman, Sachs & Co., Argentina Local Market Securities 8/24/94 100.00 97.75 Trust, 11.30%, 4/1/00 Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96 9/14/95 100.00 100.75 Triangle Wire & Cable, Inc. 5/2/94 9.50 1.00 Trinidad & Tobago Loan Participation Agreement, Tranche B, 12/13/95 .84 .82 1.563%, 9/30/00 - -------------------------------------------------------------------------------------------------------------------
The aggregate value of illiquid and restricted securities subject to the 10% limitation at December 31, 1995 was $3,708,444 or 2.78% of the Fund's net assets. Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Oppenheimer Variable Account Funds Notes to Financial Statements (Continued) 7. Illiquid and Restricted Securities (Continued) Oppenheimer Bond Fund
Acquisition Cost Valuation as of Security Date Per Unit December 31, 1995 - ------------------------------------------------------------------------------------------------------------------- Colombia (Republic of) 1989-1990 Integrated Loan 12/5/95 $ 92.00 $ 93.00 Facility Bonds, 6.875%, 7/1/01 Merrill Lynch & Co., Inc. 5/15/95 110.05 115.10 Units, 9.75% 6/15/99 - -------------------------------------------------------------------------------------------------------------------
The aggregate value of illiquid and restricted securities subject to the 10% limitation at December 31, 1995 was $2,745,392 or 1.30% of the Fund's net assets. Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Oppenheimer Multiple Strategies Fund
Acquisition Cost Valuation as of Security Date Per Unit December 31, 1995 - ------------------------------------------------------------------------------------------------------------------- Santa Anita Realty Enterprises, Inc., Units 5/28/93-2/9/95 $16.99 $11.88 - -------------------------------------------------------------------------------------------------------------------
The aggregate value of illiquid and restricted securities subject to the 10% limitation at December 31, 1995 was $475,000 or 0.12% of the Fund's net assets. Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Oppenheimer Global Securities Fund
Acquisition Cost Valuation as of Security Date Per Unit December 31, 1995 - ------------------------------------------------------------------------------------------------------------------- Plant Genetics Systems 5/27/92-3/7/95 $13.77 $11.91 Plant Genetics, Inc. Wts., Exp. 12/99 3/7/95 0.00 1.99 - -------------------------------------------------------------------------------------------------------------------
The aggregate value of illiquid and restricted securities subject to the 10% limitation at December 31, 1995, was $1,180,542, or 0.33% of the Fund's net assets. Pursuant to the guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Oppenheimer Strategic Bond Fund
Acquisition Cost Valuation as of Security Date Per Unit December 31, 1995 - ------------------------------------------------------------------------------------------------------------------- Colombia (Republic of) 1989-1990 Integrated Loan 12/5/95 $ 92.00 $ 93.00 Facility Bonds, 6.875%, 7/1/01 Goldman, Sachs & Co., Argentina Local Market Securities 8/24/94 100.00 97.75 Trust, 11.30%, 4/1/00 Jamaica (Government of) 1990 Refinancing Agreement 8/15/95 89.75 90.00 Nts., Tranche A, 6.75%, 10/16/00 Pulsar Internacional SA de CV, 11.80% Nts., 9/19/96 9/15/95 100.00 100.75 Trinidad & Tobago Loan Participation Agreement, Tranche A, 1.563%, 9/30/00 12/13/95-12/18/95 .84 .82 United Mexican States, Combined Facility 3, Loan 10/25/94 89.00 75.75 Participation Agreement, Tranche A, 6.50%, 9/20/97 - -------------------------------------------------------------------------------------------------------------------
The aggregate value of illiquid and restricted securities subject to the 10% limitation at December 31, 1995, was $1,221,735, or 2.03% of the Fund's net assets. Pursuant to the guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. Federal Income Tax Information (Unaudited) In early 1996, shareholders will receive information regarding all dividends and distributions paid to them by the Funds during calendar year 1995. Regulations of the U.S. Treasury Department require the Funds to report this information to the Internal Revenue Service. Certain distributions paid on March 24, 1995 were designated as "capital gain distributions" for federal income tax purposes. These distributions are shown in the table below. Whether received in stock or cash, a capital gain distribution should be treated by shareholders as a gain from the sale of capital assets held for more than one year (long-term capital gains). Dividends paid by the Funds during the fiscal year ended December 31, 1995 which are not designated as capital gain distributions should be multiplied by the percentages listed below to arrive at the net amount eligible for the corporate dividend-received deduction.
- -------------------------------------------------------------------------------------------------------- Long-Term Capital Corporate Dividend- Gain Distribution Received Deduction - -------------------------------------------------------------------------------------------------------- Oppenheimer Money Fund -- -- - -------------------------------------------------------------------------------------------------------- Oppenheimer High Income Fund -- 4.90% - -------------------------------------------------------------------------------------------------------- Oppenheimer Bond Fund -- 0.75% - -------------------------------------------------------------------------------------------------------- Oppenheimer Capital Appreciation Fund $.047 4.14% - -------------------------------------------------------------------------------------------------------- Oppenheimer Growth Fund $.263 18.31% - -------------------------------------------------------------------------------------------------------- Oppenheimer Multiple Strategies Fund $.371 12.64% - -------------------------------------------------------------------------------------------------------- Oppenheimer Global Securities Fund $.382 -- - -------------------------------------------------------------------------------------------------------- Oppenheimer Strategic Bond Fund -- 2.18% - -------------------------------------------------------------------------------------------------------- Oppenheimer Growth & Income Fund -- 38.51% - --------------------------------------------------------------------------------------------------------
The foregoing information is presented to assist shareholders in reporting distributions received from the Funds to the Internal Revenue Service. Because of the complexity of the federal regulations which may affect your individual tax return and the many variations in the state and local tax regulations, we recommend that you consult your tax advisor for specific guidance. Oppenheimer Variable Account Funds Officers and Trustees James C. Swain, Chairman and Chief Executive Officer Robert G. Avis, Trustee William A. Baker, Trustee Charles Conrad, Jr., Trustee Jon S. Fossel, Trustee Raymond J. Kalinowski, Trustee C. Howard Kast, Trustee Robert M. Kirchner, Trustee Bridget A. Macaskill, Trustee and President Ned M. Steel, Trustee Robert C. Doll, Sr. Vice President Paul LaRocco, Vice President Robert J. Milnamow, Vice President David P. Negri, Vice President Jane Putnam, Vice President Richard H. Rubinstein, Vice President Arthur Steinmetz, Vice President William Wilby, Vice President Arthur J. Zimmer, Vice President Andrew J. Donohue, Vice President George C. Bowen, Vice President, Secretary and Treasurer Robert J. Bishop, Assistant Treasurer Scott Farrar, Assistant Treasurer Robert G. Zack, Assistant Secretary Investment Advisor OppenheimerFunds, Inc. Transfer Agent OppenheimerFunds Services Custodian of Portfolio Securities The Bank of New York Independent Auditors Deloitte & Touche LLP Legal Counsel Myer, Swanson, Adams & Wolf, P.C. This is a copy of a report to shareholders of Oppenheimer Variable Account Funds. This report must be preceded or accompanied by a Prospectus of Oppenheimer Variable Account Funds. For material information concerning the Funds, see the Prospectus. Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, and are not insured by the FDIC or any other agency, and involve investment risks, including possible loss of the principal amount invested. OPPENHEIMER VARIABLE ACCOUNT FUNDS SEMIANNUAL REPORT JUNE 30, 1996 OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND Statement of Investments JUNE 30, 1996 (Unaudited)
PRINCIPAL MARKET VALUE AMOUNT(1) (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------------------ MORTGAGE-BACKED OBLIGATIONS - 26.4% - ----------------------------------------------------- GOVERNMENT AGENCY - 21.0% - ------------------------------------------------------------------------------------------------------------------------------------ FHLMC/FNMA/SPONSORED - 16.9% ----------------------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., Gtd. Multiclass Mtg. Participation $ 5,188,488 $ 4,997,967 Certificates, 7%, 4/1/26 ----------------------------------------------------------------------------------------------------------------------------- Federal National Mortgage Assn.: 6.50%, 3/1/11-5/1/11 25,017,373 24,211,064 7%, 4/1/04-11/1/25 10,090,581 9,725,799 7.50%, 1/1/08-1/1/26 5,457,662 5,398,311 8%, 5/1/17 625,038 636,345 Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, 8.75%, 11/25/05 3,000,000 3,123,750 Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, 10.40%, 4/25/19 1,793,536 1,914,026 Interest-Only Stripped Mtg.-Backed Security: Trust 218, Cl. 2, 12.588%-13.20%, 4/1/23 (2) 7,725,412 2,569,907 Trust 257, Cl. 2, 11.448%-15.373%, 2/1/24 (2) 3,529,536 1,219,897 --------------- 53,797,066 - ------------------------------------------------------------------------------------------------------------------------------------ GNMA/GUARANTEED - 4.1% ----------------------------------------------------------------------------------------------------------------------------- Government National Mortgage Assn.: 6%, 10/20/25 4,842,429 4,863,639 7%, 1/15/09-10/20/24 8,199,401 8,049,413 --------------- 12,913,052 - ------------------------------------------------------------------------------------------------------------------------------------ PRIVATE - 5.4% - ------------------------------------------------------------------------------------------------------------------------------------ COMMERCIAL - 3.8% ----------------------------------------------------------------------------------------------------------------------------- FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, Series 1994-C1: Cl. 2-D, 8.70%, 9/25/25 (3) 1,500,000 1,549,688 Cl. 2-E, 8.70%, 9/25/25 (3) 1,500,000 1,537,031 ----------------------------------------------------------------------------------------------------------------------------- Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through (4) 964,447 967,160 Certificates, Series 1995-C2, Cl. C, 7.906%, 6/15/21 ----------------------------------------------------------------------------------------------------------------------------- Morgan Stanley Capital I, Inc., Commercial Mtg. Pass-Through Certificates, Series 1996-C1, Cl. D-1, 7.51%, 2/1/28 (3)(4) 1,000,000 951,250 ----------------------------------------------------------------------------------------------------------------------------- Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates: Series 1992-CHF, Cl. C, 8.25%, 12/25/20 1,030,504 1,041,936 Series 1994-C1, Cl. C, 8%, 6/25/26 1,500,000 1,505,625 Series 1995-C1, Cl. D, 6.90%, 2/25/27 3,000,000 2,725,313 ----------------------------------------------------------------------------------------------------------------------------- Structured Asset Securities Corp., Multiclass Pass-Through Certificates, Series 1996-CFL, Cl. D, 7.034%, 2/25/28 1,800,000 1,713,375 --------------- 11,991,378 - ------------------------------------------------------------------------------------------------------------------------------------ MANUFACTURED HOUSING - 0.2% ----------------------------------------------------------------------------------------------------------------------------- Green Tree Financial Corp., Series 1994-6, Cl. A3, 7.70%, 1/15/20 738,000 750,679
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND Statement of Investments (Continued)
PRINCIPAL MARKET VALUE AMOUNT(1) (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------------------ MULTI-FAMILY - 1.1% ----------------------------------------------------------------------------------------------------------------------------- Countrywide Funding Corp., Series 1993-12, Cl. B1, 6.625%, 2/25/24 $ 1,000,000 $ 875,547 ----------------------------------------------------------------------------------------------------------------------------- Merrill Lynch Trust, Collateralized Mtg. Obligations, Gtd. Multiclass Mtg. Participation Certificates, Series 43, Cl. E, 6.50%, 8/27/15 500,000 471,715 ----------------------------------------------------------------------------------------------------------------------------- Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates, 2,092,478 2,152,637 Series 1991-M5, Cl. A, 9%, 3/25/17 --------------- 3,499,899 - ------------------------------------------------------------------------------------------------------------------------------------ OTHER - 0.0% ----------------------------------------------------------------------------------------------------------------------------- Salomon Brothers Mortgage Securities VI: Interest-Only Stripped Mtg.-Backed Security, Series 1987-3, Cl. B, (2) 108,078 27,898 9.549%, 10/23/17 Principal-Only Stripped Mtg.-Backed Security, Series 1987-3, Cl. A, (5) 159,996 106,198 9.489%, 10/23/17 --------------- 134,096 - ------------------------------------------------------------------------------------------------------------------------------------ RESIDENTIAL - 0.3% ----------------------------------------------------------------------------------------------------------------------------- Contimortgage Home Equity Loan Trust, Series 1995-2, Cl. A2, 7.95%, 4/15/10 554,000 559,367 ----------------------------------------------------------------------------------------------------------------------------- Ryland Mortgage Securities Corp. III, Sub. Bonds, Series 1992-A, Cl. (4) 293,427 291,502 1A, 7.17%, 3/29/30 --------------- 850,869 --------------- Total Mortgage-Backed Obligations (Cost $83,636,632) 83,937,039 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. GOVERNMENT OBLIGATIONS - 31.5% - ------------------------------------------------------------------------------------------------------------------------------------ TREASURY - 31.5% - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury Bonds: 10.375%, 11/15/12 365,000 463,550 6.875%, 8/15/25 (6) 3,500,000 3,463,904 7.125%, 2/15/23 3,000,000 3,030,936 7.50%, 11/15/16 6,780,000 7,123,237 8%, 11/15/21 5,000,000 5,565,625 8.125%, 8/15/19 2,060,000 2,311,062 8.875%, 8/15/17 740,000 888,231 9.25%, 2/15/16 740,000 915,518 STRIPS, Zero Coupon, 7.329%, 5/15/15 (7) 1,107,000 292,936 STRIPS, Zero Coupon, 7.341%, 8/15/14 (7) 3,690,000 1,031,118 ----------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Nts.: 5.875%, 11/15/05 3,000,000 2,826,561 6%, 12/31/97 3,000,000 3,000,936 6.375%, 6/30/97 1,000,000 1,005,625 6.50%, 5/15/05-8/15/05 18,000,000 17,740,305 6.75%, 6/30/99 16,340,000 16,539,134 7.25%, 5/15/04-8/15/04 11,980,000 12,406,787 7.375%, 11/15/97 2,000,000 2,035,626 7.50%, 11/15/01-2/15/05 12,486,000 13,115,585 7.75%, 12/31/99 2,000,000 2,085,000
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND Statement of Investments (Continued)
PRINCIPAL MARKET VALUE AMOUNT(1) (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------------------ U.S. Treasury Nts. (Continued) 7.875%, 11/15/04 $ 2,000,000 $ 2,150,624 9.25%, 8/15/98 2,000,000 2,120,624 --------------- Total U.S. Government Obligations (Cost $99,580,053) 100,112,924 - ------------------------------------------------------------------------------------------------------------------------------------ FOREIGN GOVERNMENT OBLIGATIONS - 14.2% - ------------------------------------------------------------------------------------------------------------------------------------ Bonos de la Tesoreria de la Federacion, Zero Coupon, 37.779%, 3/6/97 (7) MXP 5,300,000 567,987 ----------------------------------------------------------------------------------------------------------------------------- Canada (Government of) Real Return Debs., 4.517%, 12/1/21 (8) CAD 3,390,000 2,443,167 ----------------------------------------------------------------------------------------------------------------------------- CEZ AS, Zero Coupon Disc. Promissory Nts., 10.762%, 7/1/96 (7) CZK 14,000,000 508,534 ----------------------------------------------------------------------------------------------------------------------------- Corporacion Andina de Fomento Sr. Unsec. Debs.: 6.625%, 10/14/98 (3) 1,000,000 998,125 7.25%, 4/30/98 (3) 1,000,000 1,004,688 ----------------------------------------------------------------------------------------------------------------------------- Denmark (Kingdom of) Bonds: 8%, 3/15/06 DKK 17,000,000 3,014,340 8%, 5/15/03 DKK 22,140,000 3,995,567 ----------------------------------------------------------------------------------------------------------------------------- Financiera Energetica Nacional SA, 9.375% Eurobonds, 6/15/06 (3) 2,350,000 2,355,875 ----------------------------------------------------------------------------------------------------------------------------- Germany (Republic of) Bonds: 7.375%, 12/2/02 DEM 1,250,000 875,495 8.25%, 9/20/01 DEM 1,950,000 1,424,830 ----------------------------------------------------------------------------------------------------------------------------- Italy (Republic of) Certificati di Credito del Tesoro Nts., 11.20%, (4) ITL 2,835,000,000 1,893,759 8/1/00 ----------------------------------------------------------------------------------------------------------------------------- National Treasury Management Agency (Irish Government) Bonds, 8%, IEP 1,495,000 2,493,462 10/18/00 ----------------------------------------------------------------------------------------------------------------------------- New South Wales Treasury Corp. Gtd. Bonds, 12%, 12/1/01 AUD 3,490,000 3,120,520 ----------------------------------------------------------------------------------------------------------------------------- New Zealand (Republic of) Bonds, 8%, 2/15/01 NZD 2,760,000 1,817,748 ----------------------------------------------------------------------------------------------------------------------------- Ontario, Canada (Province of) Bonds, 8%, 10/17/01 554,000 584,492 ----------------------------------------------------------------------------------------------------------------------------- Poland (Republic of): Disc. Bonds, 6.437%, 10/27/24 (4) 5,250,000 4,935,000 Treasury Bills, Zero Coupon: 21.658%, 10/2/96 (7) PLZ 720,000 251,334 21.466%, 12/4/96 (7) PLZ 2,250,000 759,038 20.371%, 3/19/97 (7) PLZ 800,000 255,785 22.37%, 7/24/96 (7) PLZ 3,000,000 1,088,816 ----------------------------------------------------------------------------------------------------------------------------- Portugal (Republic of) Gtd. Bonds, Obrigicion do tes Medio Prazo, PTE 65,000,000 464,182 11.875%, 2/23/00 ----------------------------------------------------------------------------------------------------------------------------- South Africa (Republic of) Debs., 9.625%, 12/15/99 1,000,000 1,046,250 ----------------------------------------------------------------------------------------------------------------------------- Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado, ESP 100,000,000 884,090 12.25%, 3/25/00 ----------------------------------------------------------------------------------------------------------------------------- Sweden (Kingdom of) Bonds, Series 1030, 13%, 6/15/01 SEK 12,600,000 2,321,861 ----------------------------------------------------------------------------------------------------------------------------- United Kingdom Treasury Nts.: 13%, 7/14/00 GBP 1,630,000 3,040,818 7.50%, 12/7/06 GBP 2,000,000 3,020,201 ------------- Total Foreign Government Obligations (Cost $44,880,690) 45,165,964
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND Statement of Investments (Continued)
PRINCIPAL MARKET VALUE AMOUNT(1) (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------------------ LOAN PARTICIPATIONS - 0.5% - ------------------------------------------------------------------------------------------------------------------------------------ Colombia (Republic of) 1989-1990 Integrated Loan Facility Bonds, 6.563%, 7/1/01 (Cost $1,457,891) (4)(9) $ 1,571,600 $ 1,465,517 - ------------------------------------------------------------------------------------------------------------------------------------ MUNICIPAL BONDS AND NOTES - 0.6% - ------------------------------------------------------------------------------------------------------------------------------------ Dade County, Florida Educational Facilities Authority: Exchangeable Revenue Bonds, University of Miami, Prerefunded, MBIA Insured, 7.65%, 4/1/10 175,000 196,550 Revenue Bonds, University of Miami, MBIA Insured, 7.65%, 4/1/10 205,000 225,008 Taxable Exchange Revenue Bonds, University of Miami, MBIA Insured, 9.70%, 4/1/10 120,000 131,712 ----------------------------------------------------------------------------------------------------------------------------- Pinole, California Redevelopment Agency Tax Allocation Taxable Bonds, Pinole Vista Redevelopment, Series B, 8.35%, 8/1/17 670,000 675,954 ----------------------------------------------------------------------------------------------------------------------------- Port of Portland, Oregon Special Obligation Taxable Revenue Bonds, PAMCO Project, 9.20%, 5/15/22 500,000 537,055 --------------- Total Municipal Bonds and Notes (Cost $1,663,889) 1,766,279 - ------------------------------------------------------------------------------------------------------------------------------------ CORPORATE BONDS AND NOTES - 16.7% - ------------------------------------------------------------------------------------------------------------------------------------ BASIC INDUSTRY - 2.1% - ------------------------------------------------------------------------------------------------------------------------------------ CHEMICALS - 1.0% ----------------------------------------------------------------------------------------------------------------------------- Lyondell Petrochemical Co., 8.25% Nts., 3/15/97 738,000 748,040 ----------------------------------------------------------------------------------------------------------------------------- Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 2,100,000 2,305,911 --------------- 3,053,951 - ------------------------------------------------------------------------------------------------------------------------------------ PAPER - 1.1% ----------------------------------------------------------------------------------------------------------------------------- Boise Cascade Corp., 9.90% Nts., 3/15/00 750,000 817,223 ----------------------------------------------------------------------------------------------------------------------------- Noranda Forest, Inc., 11% Debs., 7/15/98 CAD 1,000,000 792,138 ----------------------------------------------------------------------------------------------------------------------------- Potlatch Corp., 9.46% Medium-Term Nts., 4/2/02 369,000 409,524 ----------------------------------------------------------------------------------------------------------------------------- Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 1,508,981 1,484,643 --------------- 3,503,528 - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER RELATED - 2.4% - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER PRODUCTS - 0.7% ----------------------------------------------------------------------------------------------------------------------------- Fletcher Challenge Capital Canada, Inc., 7.75% Nts., 6/20/06 1,800,000 1,827,324 ----------------------------------------------------------------------------------------------------------------------------- Procter & Gamble Co., 9.36% Debs., 1/1/21 369,000 441,729 --------------- 2,269,053 - ------------------------------------------------------------------------------------------------------------------------------------ FOOD/BEVERAGES/TOBACCO - 0.4% ----------------------------------------------------------------------------------------------------------------------------- Bass America, Inc., 6.75% Gtd. Nts., 8/1/99 554,000 555,700 ----------------------------------------------------------------------------------------------------------------------------- Philip Morris Cos., Inc., 8.875% Nts., 7/1/96 500,000 500,000 ----------------------------------------------------------------------------------------------------------------------------- Unilever CR spol. s.r.o., guaranteed by Unilever NV, Rotterdam, The Netherlands, Zero Coupon Promissory Nts., 11.189%, 10/11/96 (7) CZK 7,000,000 246,639 --------------- 1,302,339 - ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 0.6% ----------------------------------------------------------------------------------------------------------------------------- R.P. Scherer Corp., 6.75% Sr. Nts., 2/1/04 1,250,000 1,195,314
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND Statement of Investments (Continued)
PRINCIPAL MARKET VALUE AMOUNT(1) (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE (CONTINUED) ----------------------------------------------------------------------------------------------------------------------------- Roche Holdings, Inc., 2.75% Bonds, 4/14/00 $ 920,000 $ 811,325 --------------- 2,006,639 - ------------------------------------------------------------------------------------------------------------------------------------ HOTEL/GAMING - 0.1% ----------------------------------------------------------------------------------------------------------------------------- Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 375,000 363,378 - ------------------------------------------------------------------------------------------------------------------------------------ TEXTILE/APPAREL - 0.3% ----------------------------------------------------------------------------------------------------------------------------- Fruit of the Loom, Inc., 7% Debs., 3/15/11 1,097,000 985,410 - ------------------------------------------------------------------------------------------------------------------------------------ TOYS - 0.3% ----------------------------------------------------------------------------------------------------------------------------- Mattel, Inc., 6.875% Sr. Nts., 8/1/97 1,000,000 1,006,052 - ------------------------------------------------------------------------------------------------------------------------------------ ENERGY - 1.9% - ------------------------------------------------------------------------------------------------------------------------------------ BP America, Inc., 10.875% Nts., 8/1/01 CAD 650,000 540,231 ----------------------------------------------------------------------------------------------------------------------------- Coastal Corp.: 8.75% Sr. Nts., 5/15/99 369,000 388,071 9.75% Sr. Debs., 8/1/03 200,000 225,716 ----------------------------------------------------------------------------------------------------------------------------- Colorado International Gas Corp., 10% Sr. Debs., 6/15/05 369,000 431,634 ----------------------------------------------------------------------------------------------------------------------------- Enron Corp., 9.875% Debs., 6/15/03 375,000 429,130 ----------------------------------------------------------------------------------------------------------------------------- McDermott, Inc., 9.375% Nts., 3/15/02 400,000 426,047 ----------------------------------------------------------------------------------------------------------------------------- Mitchell Energy & Development Corp., 9.25% Sr. Nts., 1/15/02 1,000,000 1,027,077 ----------------------------------------------------------------------------------------------------------------------------- Norsk Hydro AS, 8.75% Bonds, 10/23/01 738,000 784,125 ----------------------------------------------------------------------------------------------------------------------------- Sonat, Inc., 9.50% Nts., 8/15/99 250,000 268,589 ----------------------------------------------------------------------------------------------------------------------------- Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 500,000 549,655 ----------------------------------------------------------------------------------------------------------------------------- Texaco Capital, Inc., 8.875% Gtd. Debs., 9/1/21 369,000 421,875 ----------------------------------------------------------------------------------------------------------------------------- TransCanada PipeLines Ltd., 9.875% Debs., 1/1/21 554,000 680,090 --------------- 6,172,240 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL SERVICES - 3.7% - ------------------------------------------------------------------------------------------------------------------------------------ BANKS & THRIFTS - 1.1% ----------------------------------------------------------------------------------------------------------------------------- Banco Ganadero SA, 9.75% Sr. Unsub. Unsec. Nts., 8/26/99 (3) 185,000 190,781 ----------------------------------------------------------------------------------------------------------------------------- BankAmerica Corp.: 7.50% Sr. Nts., 3/15/97 100,000 101,060 7.75% Sub. Nts., 7/15/02 554,000 574,663 ----------------------------------------------------------------------------------------------------------------------------- Chase Manhattan Corp. (New), 10.125% Sub. Nts., 11/1/00 554,000 620,844 ----------------------------------------------------------------------------------------------------------------------------- First Chicago Corp.: 11.25% Sub. Nts., 2/20/01 750,000 877,050 9% Sub. Nts., 6/15/99 150,000 159,482 ----------------------------------------------------------------------------------------------------------------------------- First Fidelity Bancorporation, 8.50% Sub. Capital Nts., 4/1/98 654,000 675,462 --------------- 3,199,342 - ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL - 2.4% ----------------------------------------------------------------------------------------------------------------------------- Allied-Lyons Finance BV, 6.50% Debs., 8/26/97 369,000 368,539 ----------------------------------------------------------------------------------------------------------------------------- American Car Line Co., 8.25% Equipment Trust Certificates, Series 1993-A, 4/15/08 578,000 585,004 ----------------------------------------------------------------------------------------------------------------------------- American General Finance Corp., 5.875% Sr. Nts., 7/1/00 554,000 536,764 ----------------------------------------------------------------------------------------------------------------------------- Associates Corp. of North America, 8.625% Sr. Nts., 6/15/97 369,000 377,618 ----------------------------------------------------------------------------------------------------------------------------- AVCO Financial Services Asia Ltd., 5.875% Sr. Nts., 10/15/97 369,000 367,643 ----------------------------------------------------------------------------------------------------------------------------- Caterpillar Financial Services, Inc., 6.85% Medium-Term Nts., Series 369,000 372,310 D, 9/15/97
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND Statement of Investments (Continued)
PRINCIPAL MARKET VALUE AMOUNT(1) (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL (CONTINUED) ----------------------------------------------------------------------------------------------------------------------------- Chrysler Financial Corp., 6.65% Medium-Term Nts., 4/28/97 $ 369,000 $ 370,506 ----------------------------------------------------------------------------------------------------------------------------- Countrywide Funding Corp., 6.57% Gtd. Medium-Term Nts., Series A, 8/4/97 554,000 556,366 ----------------------------------------------------------------------------------------------------------------------------- Fleet Mtg. Group, Inc., 6.50% Nts., 9/15/99 369,000 366,900 ----------------------------------------------------------------------------------------------------------------------------- General Motors Acceptance Corp., 7.875% Medium-Term Nts., 2/27/97 369,000 373,702 ----------------------------------------------------------------------------------------------------------------------------- Golden West Financial Corp.: 10.25% Sub. Nts., 5/15/97 369,000 381,747 8.625% Sub. Nts., 8/30/98 185,000 192,463 ----------------------------------------------------------------------------------------------------------------------------- Household Finance Corp., 8.95% Debs., 9/15/99 369,000 392,637 ----------------------------------------------------------------------------------------------------------------------------- Household International, BV, 6% Gtd. Sr. Nts., 3/15/99 369,000 362,139 ----------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 700,000 726,461 ----------------------------------------------------------------------------------------------------------------------------- Penske Truck Leasing Co. LP, 7.75% Sr. Nts., 5/15/99 738,000 761,374 ----------------------------------------------------------------------------------------------------------------------------- U.S. Leasing International, 7% Nts., 11/1/97 554,000 559,271 --------------- 7,651,444 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE - 0.2% ----------------------------------------------------------------------------------------------------------------------------- SunAmerica, Inc., 9% Sr. Nts., 1/15/99 554,000 581,652 - ------------------------------------------------------------------------------------------------------------------------------------ MANUFACTURING - 0.7% - ------------------------------------------------------------------------------------------------------------------------------------ AEROSPACE/ELECTRONICS/COMPUTERS - 0.2% ----------------------------------------------------------------------------------------------------------------------------- British Aerospace PLC, 8% Debs., 5/27/97 740,000 750,175 - ------------------------------------------------------------------------------------------------------------------------------------ AUTOMOTIVE - 0.5% ----------------------------------------------------------------------------------------------------------------------------- Chrysler Corp., 10.95% Debs., 8/1/17 800,000 876,920 ----------------------------------------------------------------------------------------------------------------------------- General Motors Acceptance Corp., 7.75% Nts., 4/15/97 700,000 708,659 --------------- 1,585,579 - ------------------------------------------------------------------------------------------------------------------------------------ MEDIA - 2.8% - ------------------------------------------------------------------------------------------------------------------------------------ BROADCASTING - 0.2% ----------------------------------------------------------------------------------------------------------------------------- Tele-Communications, Inc., 5.28% Medium-Term Nts., 8/20/96 701,000 700,546 - ------------------------------------------------------------------------------------------------------------------------------------ CABLE TELEVISION - 1.3% ----------------------------------------------------------------------------------------------------------------------------- Time Warner Entertainment LP/Time Warner, Inc., 8.375% Sr. Debs., 3/15/23 1,850,000 1,801,214 ----------------------------------------------------------------------------------------------------------------------------- TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 2,200,000 2,449,365 --------------- 4,250,579 - ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED MEDIA - 0.8% ----------------------------------------------------------------------------------------------------------------------------- GSPI Corp., 10.15% First Mtg. Bonds, 6/24/10 (3) 1,142,150 1,286,062 ----------------------------------------------------------------------------------------------------------------------------- News America Holdings, Inc.: 10.125% Sr. Gtd. Debs., 10/15/12 500,000 566,122 12% Sr. Nts., 12/15/01 500,000 541,698 --------------- 2,393,882 - ------------------------------------------------------------------------------------------------------------------------------------ ENTERTAINMENT/FILM - 0.2% ----------------------------------------------------------------------------------------------------------------------------- Columbia Pictures Entertainment, Inc., 9.875% Sr. Sub. Nts., 2/1/98 500,000 525,797 - ------------------------------------------------------------------------------------------------------------------------------------ PUBLISHING/PRINTING - 0.3% ----------------------------------------------------------------------------------------------------------------------------- Reed Elsevier, Inc., 6.625% Nts., 10/15/23 (3) 600,000 519,270 ----------------------------------------------------------------------------------------------------------------------------- Reed Publishing (USA), Inc., 7.24% Gtd. Medium-Term Nts., 2/10/97 500,000 503,640 --------------- 1,022,910
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND Statement of Investments (Continued)
PRINCIPAL MARKET VALUE AMOUNT(1) (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------------------ OTHER - 0.7% - ------------------------------------------------------------------------------------------------------------------------------------ CONGLOMERATES - 0.6% ----------------------------------------------------------------------------------------------------------------------------- Tenneco, Inc.: 10% Debs., 3/15/08 $ 400,000 $ 472,077 10% Debs., 8/1/98 554,000 590,198 7.875% Nts., 10/1/02 650,000 669,822 --------------- 1,732,097 - ------------------------------------------------------------------------------------------------------------------------------------ SERVICES - 0.1% ----------------------------------------------------------------------------------------------------------------------------- PHH Corp., 6.50% Nts., 2/1/00 369,000 365,606 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL - 0.2% - ------------------------------------------------------------------------------------------------------------------------------------ DRUG STORES - 0.2% ----------------------------------------------------------------------------------------------------------------------------- Hook-SupeRx, Inc., 10.125% Sr. Nts., 6/1/02 600,000 641,269 - ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 0.1% - ------------------------------------------------------------------------------------------------------------------------------------ RAILROADS - 0.1% ----------------------------------------------------------------------------------------------------------------------------- Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 400,000 435,511 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 2.1% - ------------------------------------------------------------------------------------------------------------------------------------ ELECTRIC UTILITIES - 0.7% ----------------------------------------------------------------------------------------------------------------------------- Commonwealth Edison Co., 6.50% Nts., 7/15/97 775,000 773,183 ----------------------------------------------------------------------------------------------------------------------------- HNG Internorth/Enron Corp., 9.625% Debs., 3/15/06 369,000 419,709 ----------------------------------------------------------------------------------------------------------------------------- Long Island Lighting Co., 7% Nts., 3/1/04 150,000 134,636 ----------------------------------------------------------------------------------------------------------------------------- Public Service Co. of Colorado, 8.75% First Mtg. Bonds, 3/1/22 750,000 792,497 --------------- 2,120,025 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOMMUNICATIONS - 1.4% ----------------------------------------------------------------------------------------------------------------------------- 360 Communications Co.: 7.125% Sr. Nts., 3/1/03 1,450,000 1,392,654 7.50% Sr. Nts., 3/1/06 2,000,000 1,900,920 ----------------------------------------------------------------------------------------------------------------------------- GTE Corp.: 8.85% Debs., 3/1/98 554,000 574,946 9.375% Debs., 12/1/00 500,000 546,176 --------------- 4,414,696 --------------- Total Corporate Bonds and Notes (Cost $53,354,901) 53,033,700
SHARES - ------------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCKS - 0.4% - ------------------------------------------------------------------------------------------------------------------------------------ BankAmerica Corp., 8.375%, Series K (Cost $1,177,404) 45,400 1,157,700 PRINCIPAL AMOUNT(1) - ------------------------------------------------------------------------------------------------------------------------------------ STRUCTURED INSTRUMENTS - 2.0% - ------------------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------- Bayerische Landesbank Girozentrale, New York Branch, 14% CD Linked Nts., 12/17/96 (indexed to the cross currency rates of Greek Drachma and European Currency Unit) $ 1,000,000 1,001,600 ----------------------------------------------------------------------------------------------------------------------------- Bayerische Landesbank Girozentrale, New York Branch, 5.60% CD Linked Nts., 1/30/97 (indexed to the closing Nikkei 225 Index on 1/23/97, 10 yr. Japanese Yen swap rate & New Zealand Dollar on 1/28/97) NZD 1,508,523 1,119,691
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND Statement of Investments (Continued)
PRINCIPAL MARKET VALUE AMOUNT(1) (NOTE 1) - ----------------------------------------------------------------------------------------------------------------------------------- STRUCTURED INSTRUMENTS (CONTINUED) - ----------------------------------------------------------------------------------------------------------------------------------- Canadian Imperial Bank of Commerce, New York Branch, 14% CD Linked $ 250,000 $ 245,325 Nts., 11/25/96 (indexed to the cross currency rates of Greek Drachma and European Currency Unit) ---------------------------------------------------------------------------------------------------------------------------- Internationale Nederlanden Bank NV, Prague Branch, Zero Coupon Promissory Nts., 10.488%, 4/28/97 (7) CZK 13,800,000 461,167 ---------------------------------------------------------------------------------------------------------------------------- Internationale Nederlanden (U.S.) Capital Holdings Corp., Zero Coupon Chilean Peso Linked Nts.: 11.813%, 6/23/97 (7) 900,000 797,850 11.738%, 6/24/97 (7) 900,000 797,670 ---------------------------------------------------------------------------------------------------------------------------- Merrill Lynch & Co., Inc. Units, 9.75%, 6/15/99 (representing debt of Chemical Banking Corp., sub. capital nts., and equity of Citicorp, 7.75% preferred, series 22) (9) 1,000,000 1,138,200 ---------------------------------------------------------------------------------------------------------------------------- Swiss Bank Corp., New York Branch, 6.05% CD Linked Nts., 6/20/97 (indexed to the closing Nikkei 225 Index on 1/23/97 5 yr. & 3 mos. Japanese Yen Swap rate & New Zealand Dollar) 800,000 808,120 -------------- Total Structured Instruments (Cost $6,218,844) 6,369,623 - ----------------------------------------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 5.9% - ----------------------------------------------------------------------------------------------------------------------------------- Repurchase agreement with Canadian Imperial Bank of Commerce, 5.45%, dated 6/28/96, to be repurchased at $18,908,584 on 7/1/96, collateralized by U.S. Treasury Bonds, 9.125%-11.25%, 2/15/15-5/11/18, with a value of $6,680,920, and U.S. Treasury Nts., 5.25%-8.50%, 1/11/97-11/15/04, with a value of $12,626,048 (Cost $18,900,000) 18,900,000 18,900,000 ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $310,870,304) 98.2% 311,908,746 ---------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS NET OF LIABILITIES 1.8 5,708,154 ------------------- -------------- NET ASSETS 100.0% $ 317,616,900 =================== ==============
1. Principal amount is reported in U.S. Dollars, except for those denoted in the following currencies: AUD - Australian Dollar IEP - Irish Punt CAD - Canadian Dollar ITL - Italian Lira CZK - Czech Koruna MXP - Mexican Peso DEM - German Deutsche Mark NZD - New Zealand Dollar DKK - Danish Krone PLZ - Polish Zloty ESP - Spanish Peseta PTE - Portuguese Escudo BBP - British Pound Sterling SEK - Swedish Krona 2. Interest-Only Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These securities typically decline in price as interest rates decline. Most other fixed- income securities increase in price when interest rates decline. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The price of these securities is typically more sensitive to changes in prepayment rates than traditional mortgage-backed securities (for example, GNMA pass-throughs). Interest rates disclosed represent current yields based upon the current cost basis and estimated timing and amount of future cash flows. 3. Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the Board of Trustees. These securities amount to $10,392,770 or 3.27% of the Fund's net assets, at June 30, 1996. 4. Represents the current interest rate for a variable rate security. 5. Principal-Only Strips represent the right to receive the monthly principal payments on an underlying pool of mortgage loans. The value of these securities generally increases as interest rates decline and prepayment rates rise. The price of these securities is typically more volatile than that of coupon-bearing bonds of the same maturity. Interest rates disclosed represent current yields based upon the current cost basis and estimated timing of future cash flows. 6. A sufficient amount of liquid assets has been designated to cover outstanding written call options, as follows: CONTRACTS
SUBJECT EXPIRATION EXERCISE PREMIUM MARKET VALUE TO CALL DATE PRICE RECEIVED (NOTE 1) ----------------------------------------------------------------------------------------------------------------------------- Call option on Australian Dollar 352,000 7/3/96 1.25 AUD $ 2,675 $ 282 Call option on Czech Koruna 1,190,000 9/6/96 28.357CZK 15,946 29,310 Call option on Mexican Peso 460,000 8/5/96 8.03MXP 12,374 16,374 -------- --------- $ 30,995 $ 45,966 ======== =========
7. For zero coupon bonds, the interest rate shown is the effective yield on the date of purchase. 8. Indexed instrument for which the principal amount and/or interest due at maturity is affected by the relative value of a foreign index. 9. Identifies issues considered to be illiquid - See applicable note of Notes to Financial Statements. See accompanying Notes to Financial Statements. OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND Statement of Investments JUNE 30, 1996 (Unaudited)
PRINCIPAL MARKET VALUE AMOUNT (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------ SHORT-TERM NOTES - 7.8% - ------------------------------------------------------------------------------------------------------------------------ Federal Home Loan Mortgage Corp., 5.27%, 7/1/96 (Cost $11,250,000) $11,250,000 $11,250,000 SHARES - ------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS - 80.2% - ------------------------------------------------------------------------------------------------------------------------ BASIC MATERIALS - 4.8% - ------------------------------------------------------------------------------------------------------------------------ CHEMICALS - 3.9% ---------------------------------------------------------------------------------------------------------------- FMC Corp. (1) 8,200 535,050 ---------------------------------------------------------------------------------------------------------------- IMC Global, Inc. 19,000 714,875 ---------------------------------------------------------------------------------------------------------------- Morton International, Inc. 29,000 1,080,250 ---------------------------------------------------------------------------------------------------------------- PPG Industries, Inc. 3,200 156,000 ---------------------------------------------------------------------------------------------------------------- Praxair, Inc. 31,600 1,335,100 ---------------------------------------------------------------------------------------------------------------- Sterling Chemicals, Inc. (1) 31,600 367,350 ---------------------------------------------------------------------------------------------------------------- Terra Industries, Inc. 51,000 631,125 ---------------------------------------------------------------------------------------------------------------- Union Carbide Corp. 19,000 755,250 ----------- 5,575,000 - ------------------------------------------------------------------------------------------------------------------------ PAPER - 0.9% ---------------------------------------------------------------------------------------------------------------- Boise Cascade Corp. 12,000 439,500 ---------------------------------------------------------------------------------------------------------------- Bowater, Inc. 14,000 526,750 ---------------------------------------------------------------------------------------------------------------- Willamette Industries, Inc. 6,000 357,000 ----------- 1,323,250 - ------------------------------------------------------------------------------------------------------------------------ CONSUMER CYCLICALS - 12.2% - ------------------------------------------------------------------------------------------------------------------------ AUTOS & HOUSING - 1.2% ---------------------------------------------------------------------------------------------------------------- AutoZone, Inc. (1) 12,000 417,000 ---------------------------------------------------------------------------------------------------------------- Pulte Corp. 22,000 588,500 ---------------------------------------------------------------------------------------------------------------- Toll Brothers, Inc. (1) 46,000 753,250 ----------- 1,758,750 - ------------------------------------------------------------------------------------------------------------------------ LEISURE & ENTERTAINMENT - 4.4% ---------------------------------------------------------------------------------------------------------------- Alaska Air Group, Inc. (1) 25,000 684,375 ---------------------------------------------------------------------------------------------------------------- AMR Corp. 5,000 455,000 ---------------------------------------------------------------------------------------------------------------- Callaway Golf Co. 25,000 831,250 ---------------------------------------------------------------------------------------------------------------- Delta Air Lines, Inc. 8,000 664,000 ---------------------------------------------------------------------------------------------------------------- Disney (Walt) Co. 25,000 1,571,875 ---------------------------------------------------------------------------------------------------------------- ITT Corp. (New) (1) 5,000 331,250 ---------------------------------------------------------------------------------------------------------------- McDonald's Corp. 11,000 514,250 ---------------------------------------------------------------------------------------------------------------- Outback Steakhouse, Inc. (1) 20,000 689,687 ---------------------------------------------------------------------------------------------------------------- Wendy's International, Inc. 35,800 666,775 ----------- 6,408,462 - ------------------------------------------------------------------------------------------------------------------------ MEDIA - 0.1% ---------------------------------------------------------------------------------------------------------------- Viacom, Inc., Cl. B (1) 3,667 142,555 - ------------------------------------------------------------------------------------------------------------------------ RETAIL: GENERAL - 4.2% ---------------------------------------------------------------------------------------------------------------- Donna Karan International, Inc. 40,100 1,122,800 ---------------------------------------------------------------------------------------------------------------- Eckerd Corp. (1) 44,000 995,500 ---------------------------------------------------------------------------------------------------------------- Jones Apparel Group, Inc. (1) 19,100 938,287 ---------------------------------------------------------------------------------------------------------------- Liz Claiborne, Inc. 11,000 380,875 ---------------------------------------------------------------------------------------------------------------- Nautica Enterprises, Inc. (1) 20,000 575,000 ---------------------------------------------------------------------------------------------------------------- Tommy Hilfiger Corp. (1) 20,800 1,115,400
OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND Statement of Investments (Continued)
MARKET VALUE SHARES (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------ RETAIL: GENERAL (CONTINUED) ---------------------------------------------------------------------------------------------------------------- Wal-Mart Stores, Inc. 37,000 $ 938,875 ----------- 6,066,737 - ------------------------------------------------------------------------------------------------------------------------ RETAIL: SPECIALTY - 2.3% ---------------------------------------------------------------------------------------------------------------- Bed Bath & Beyond, Inc. (1) 18,000 481,500 ---------------------------------------------------------------------------------------------------------------- Gap, Inc. (The) 20,000 642,500 ---------------------------------------------------------------------------------------------------------------- General Nutrition Cos., Inc. (1) 18,400 322,000 ---------------------------------------------------------------------------------------------------------------- Home Depot, Inc. 22,000 1,188,000 ---------------------------------------------------------------------------------------------------------------- Lands' End, Inc. (1) 28,000 693,000 ----------- 3,327,000 - ------------------------------------------------------------------------------------------------------------------------ CONSUMER NON-CYCLICALS - 17.0% - ------------------------------------------------------------------------------------------------------------------------ BEVERAGES - 1.5% ---------------------------------------------------------------------------------------------------------------- Boston Beer Co., Inc., Cl. A (1) 13,000 312,000 ---------------------------------------------------------------------------------------------------------------- Coca-Cola Co. (The) 22,000 1,075,250 ---------------------------------------------------------------------------------------------------------------- PepsiCo, Inc. 20,000 707,500 ---------------------------------------------------------------------------------------------------------------- Whitman Corp. 5,000 120,625 ----------- 2,215,375 - ------------------------------------------------------------------------------------------------------------------------ FOOD - 2.7% ---------------------------------------------------------------------------------------------------------------- Casey's General Stores, Inc. 13,000 258,375 ---------------------------------------------------------------------------------------------------------------- H.J. Heinz Co. 15,000 455,625 ---------------------------------------------------------------------------------------------------------------- JP Foodservice, Inc. (1) 25,600 640,000 ---------------------------------------------------------------------------------------------------------------- Kroger Co. (1) 25,000 987,500 ---------------------------------------------------------------------------------------------------------------- Richfood Holdings, Inc. 16,000 520,000 ---------------------------------------------------------------------------------------------------------------- Safeway, Inc. (1) 32,000 1,056,000 ----------- 3,917,500 - ------------------------------------------------------------------------------------------------------------------------ HEALTHCARE/DRUGS - 4.6% ---------------------------------------------------------------------------------------------------------------- Abbott Laboratories 17,000 739,500 ---------------------------------------------------------------------------------------------------------------- Amgen, Inc. (1) 8,000 432,000 ---------------------------------------------------------------------------------------------------------------- Bristol-Myers Squibb Co. 6,500 585,000 ---------------------------------------------------------------------------------------------------------------- Johnson & Johnson 28,516 1,411,542 ---------------------------------------------------------------------------------------------------------------- Pfizer, Inc. 26,500 1,891,437 ---------------------------------------------------------------------------------------------------------------- Schering-Plough Corp. 16,000 1,004,000 ---------------------------------------------------------------------------------------------------------------- Warner-Lambert Co. 10,000 550,000 ----------- 6,613,479 - ------------------------------------------------------------------------------------------------------------------------ HEALTHCARE/SUPPLIES & SERVICES - 5.4% ---------------------------------------------------------------------------------------------------------------- Boston Scientific Corp. (1) 21,000 945,000 ---------------------------------------------------------------------------------------------------------------- Columbia/HCA Healthcare Corp. 8,000 427,000 ---------------------------------------------------------------------------------------------------------------- HealthCare COMPARE Corp. (1) 20,000 975,000 ---------------------------------------------------------------------------------------------------------------- HEALTHSOUTH Corp. (1) 17,000 612,000 ---------------------------------------------------------------------------------------------------------------- Lincare Holdings, Inc. (1) 21,000 824,250 ---------------------------------------------------------------------------------------------------------------- Medtronic, Inc. 26,000 1,456,000 ---------------------------------------------------------------------------------------------------------------- Nellcor Puritan Bennett, Inc. (1) 15,800 766,300 ---------------------------------------------------------------------------------------------------------------- Oxford Health Plans, Inc. (1) 16,000 658,000 ---------------------------------------------------------------------------------------------------------------- Sofamor Danek Group, Inc. (1) 17,000 471,750 ---------------------------------------------------------------------------------------------------------------- Ventritex, Inc. (1) 18,000 308,250 ---------------------------------------------------------------------------------------------------------------- VISX, Inc. (1) 11,000 375,375 ----------- 7,818,925 - ------------------------------------------------------------------------------------------------------------------------ HOUSEHOLD GOODS - 0.7% ---------------------------------------------------------------------------------------------------------------- Procter & Gamble Co. 11,000 996,875
33 51 OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND Statement of Investments (Continued)
MARKET VALUE SHARES (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------ TOBACCO - 2.1% ---------------------------------------------------------------------------------------------------------------- Philip Morris Cos., Inc. 15,000 $ 1,560,000 ---------------------------------------------------------------------------------------------------------------- UST, Inc. 41,000 1,404,250 ----------- 2,964,250 - ------------------------------------------------------------------------------------------------------------------------ ENERGY - 1.7% - ------------------------------------------------------------------------------------------------------------------------ ENERGY SERVICES & PRODUCERS - 0.9% ---------------------------------------------------------------------------------------------------------------- Global Marine, Inc. (1) 27,000 374,625 ---------------------------------------------------------------------------------------------------------------- Sonat Offshore Drilling, Inc. 18,000 909,000 ----------- 1,283,625 - ------------------------------------------------------------------------------------------------------------------------ OIL-INTEGRATED - 0.8% ---------------------------------------------------------------------------------------------------------------- Mobil Corp. 6,000 672,750 ---------------------------------------------------------------------------------------------------------------- Royal Dutch Petroleum Co. 3,500 538,125 ----------- 1,210,875 - ------------------------------------------------------------------------------------------------------------------------ FINANCIAL - 15.9% - ------------------------------------------------------------------------------------------------------------------------ BANKS - 4.2% ---------------------------------------------------------------------------------------------------------------- Bank of Boston Corp. 23,000 1,138,500 ---------------------------------------------------------------------------------------------------------------- BankAmerica Corp. 7,500 568,125 ---------------------------------------------------------------------------------------------------------------- Chase Manhattan Corp. (New) 15,240 1,076,325 ---------------------------------------------------------------------------------------------------------------- NationsBank Corp. 10,000 826,250 ---------------------------------------------------------------------------------------------------------------- PNC Bank Corp. 24,600 731,850 ---------------------------------------------------------------------------------------------------------------- State Street Boston Corp. 18,600 948,600 ---------------------------------------------------------------------------------------------------------------- Wells Fargo & Co. 3,166 756,278 ----------- 6,045,928 - ------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL - 8.5% ---------------------------------------------------------------------------------------------------------------- Advanta Corp., Cl. A 15,000 765,000 ---------------------------------------------------------------------------------------------------------------- Associates First Capital Corp., Cl. A (1) 15,000 564,375 ---------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 8,000 684,000 ---------------------------------------------------------------------------------------------------------------- Federal National Mortgage Assn. 32,000 1,072,000 ---------------------------------------------------------------------------------------------------------------- First USA, Inc. 25,000 1,375,000 ---------------------------------------------------------------------------------------------------------------- Franklin Resources, Inc. 23,000 1,403,000 ---------------------------------------------------------------------------------------------------------------- Green Tree Financial Corp. 56,000 1,750,000 ---------------------------------------------------------------------------------------------------------------- Price (T. Rowe) Associates 43,200 1,328,400 ---------------------------------------------------------------------------------------------------------------- Salomon, Inc. 18,000 792,000 ---------------------------------------------------------------------------------------------------------------- Schwab (Charles) Corp. (New) 29,000 710,500 ---------------------------------------------------------------------------------------------------------------- Travelers Group, Inc. 40,500 1,847,812 ----------- 12,292,087 - ------------------------------------------------------------------------------------------------------------------------ INSURANCE - 3.2% ---------------------------------------------------------------------------------------------------------------- Allstate Corp. 20,000 912,500 ---------------------------------------------------------------------------------------------------------------- Amerin Corp. (1) 18,500 494,875 ---------------------------------------------------------------------------------------------------------------- ITT Hartford Group, Inc. 5,000 266,250 ---------------------------------------------------------------------------------------------------------------- Loews Corp. 11,000 867,625 ---------------------------------------------------------------------------------------------------------------- MGIC Investment Corp. 14,100 791,363 ---------------------------------------------------------------------------------------------------------------- SunAmerica, Inc. 24,000 1,356,000 ----------- 4,688,613 - ------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL - 6.7% - ------------------------------------------------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT - 1.8% ---------------------------------------------------------------------------------------------------------------- Emerson Electric Co. 16,500 1,491,188 ---------------------------------------------------------------------------------------------------------------- General Electric Co. 9,000 778,500
34 52 OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND Statement of Investments (Continued)
MARKET VALUE SHARES (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT (CONTINUED) ---------------------------------------------------------------------------------------------------------------- Kemet Corp. (1) 20,000 400,000 ----------- 2,669,688 - ------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL MATERIALS - 1.5% ---------------------------------------------------------------------------------------------------------------- Centex Corp. 21,000 653,625 ---------------------------------------------------------------------------------------------------------------- Fluor Corp. 6,000 392,250 ---------------------------------------------------------------------------------------------------------------- Rayonier, Inc. 23,400 889,200 ---------------------------------------------------------------------------------------------------------------- Wolverine Tube, Inc. (1) 5,000 175,000 ----------- 2,110,075 - ------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL SERVICES - 1.0% ---------------------------------------------------------------------------------------------------------------- Danka Business Systems PLC, Sponsored ADR 13,000 380,250 ---------------------------------------------------------------------------------------------------------------- DecisionOne Holdings Corp. (1) 23,600 560,500 ---------------------------------------------------------------------------------------------------------------- Manpower, Inc. 12,500 490,625 ----------- 1,431,375 - ------------------------------------------------------------------------------------------------------------------------ MANUFACTURING - 0.8% ---------------------------------------------------------------------------------------------------------------- AGCO Corp. 19,200 532,800 ---------------------------------------------------------------------------------------------------------------- ITT Industries, Inc. 3,000 75,375 ---------------------------------------------------------------------------------------------------------------- Kulicke & Soffa Industries, Inc. (1) 33,000 482,625 ----------- 1,090,800 - ------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 1.6% ---------------------------------------------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 7,000 566,125 ---------------------------------------------------------------------------------------------------------------- Canadian Pacific Ltd. 62,000 1,364,000 ---------------------------------------------------------------------------------------------------------------- Illinois Central Corp. 15,000 425,625 ----------- 2,355,750 - ------------------------------------------------------------------------------------------------------------------------ TECHNOLOGY - 21.3% - ------------------------------------------------------------------------------------------------------------------------ AEROSPACE/DEFENSE - 0.6% ---------------------------------------------------------------------------------------------------------------- Goodrich (B.F.) Co. 24,000 897,000 - ------------------------------------------------------------------------------------------------------------------------ COMPUTER HARDWARE - 3.4% ---------------------------------------------------------------------------------------------------------------- Adaptec, Inc. (1) 12,000 568,500 ---------------------------------------------------------------------------------------------------------------- Cabletron Systems, Inc. (1) 15,000 1,029,375 ---------------------------------------------------------------------------------------------------------------- Compaq Computer Corp. (1) 16,000 788,000 ---------------------------------------------------------------------------------------------------------------- EMC Corp. (1) 36,000 670,500 ---------------------------------------------------------------------------------------------------------------- Gateway 2000, Inc. (1) 30,800 1,047,200 ---------------------------------------------------------------------------------------------------------------- Seagate Technology, Inc. (1) 19,000 855,000 ----------- 4,958,575 - ------------------------------------------------------------------------------------------------------------------------ COMPUTER SOFTWARE - 9.1% ---------------------------------------------------------------------------------------------------------------- Automatic Data Processing, Inc. 20,000 772,500 ---------------------------------------------------------------------------------------------------------------- BMC Software, Inc. (1) 22,000 1,314,500 ---------------------------------------------------------------------------------------------------------------- Computer Associates International, Inc. 6,000 427,500 ---------------------------------------------------------------------------------------------------------------- First Data Corp. 29,000 2,309,125 ---------------------------------------------------------------------------------------------------------------- Informix Corp. (1) 35,000 787,500 ---------------------------------------------------------------------------------------------------------------- Microsoft Corp. (1) 33,000 3,964,125 ---------------------------------------------------------------------------------------------------------------- Oracle Corp. (1) 45,400 1,790,463 ---------------------------------------------------------------------------------------------------------------- PLATINUM Technology, Inc. (1) 33,000 499,125 ---------------------------------------------------------------------------------------------------------------- Sterling Software, Inc. (1) 11,000 847,000 ---------------------------------------------------------------------------------------------------------------- System Software Associates, Inc. 27,500 467,500 ----------- 13,179,338 - ------------------------------------------------------------------------------------------------------------------------ ELECTRONICS - 3.9% ---------------------------------------------------------------------------------------------------------------- Applied Materials, Inc. (1) 32,000 976,000
35 53 OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND Statement of Investments (Continued)
MARKET VALUE SHARES (NOTE 1) - ------------------------------------------------------------------------------------------------------------------------ ELECTRONICS (CONTINUED) ---------------------------------------------------------------------------------------------------------------- Arrow Electronics, Inc. (1) 8,000 $ 345,000 ---------------------------------------------------------------------------------------------------------------- Cypress Semiconductor Corp. (1) 55,000 660,000 ---------------------------------------------------------------------------------------------------------------- Intel Corp. 26,000 1,909,375 ---------------------------------------------------------------------------------------------------------------- LSI Logic Corp. (1) 16,000 416,000 ---------------------------------------------------------------------------------------------------------------- Motorola, Inc. 10,000 628,750 ---------------------------------------------------------------------------------------------------------------- Novellus Systems, Inc. (1) 8,200 295,200 ---------------------------------------------------------------------------------------------------------------- Philips Electronics NV, ADR 11,000 358,875 ---------------------------------------------------------------------------------------------------------------- Tegal Corp. (1) 15,000 108,750 ----------- 5,697,950 - ------------------------------------------------------------------------------------------------------------------------ TELECOMMUNICATIONS-TECHNOLOGY - 4.3% ---------------------------------------------------------------------------------------------------------------- 3Com Corp. (1) 3,000 137,250 ---------------------------------------------------------------------------------------------------------------- Cisco Systems, Inc. (1) 23,000 1,302,375 ---------------------------------------------------------------------------------------------------------------- Hong Kong Telecommunications Ltd., Sponsored ADR 21,000 378,000 ---------------------------------------------------------------------------------------------------------------- L.M. Ericsson Telephone Co., Cl. B, ADR 42,000 903,000 ---------------------------------------------------------------------------------------------------------------- Lucent Technologies, Inc. 6,200 234,825 ---------------------------------------------------------------------------------------------------------------- Newbridge Networks Corp. (1) 23,000 1,506,500 ---------------------------------------------------------------------------------------------------------------- Telecom Corp. of New Zealand Ltd., Sponsored ADR 7,000 467,250 ---------------------------------------------------------------------------------------------------------------- Tellabs, Inc. (1) 19,800 1,324,125 ----------- 6,253,325 - ------------------------------------------------------------------------------------------------------------------------ UTILITIES - 0.6% - ------------------------------------------------------------------------------------------------------------------------ TELEPHONE UTILITIES - 0.6% ---------------------------------------------------------------------------------------------------------------- BellSouth Corp. 3,000 127,125 ---------------------------------------------------------------------------------------------------------------- Cincinnati Bell, Inc. 13,800 719,325 ----------- 846,450 ----------- Total Common Stocks (Cost $85,487,962) 116,139,612 PRINCIPAL AMOUNT - ------------------------------------------------------------------------------------------------------------------------ REPURCHASE AGREEMENT - 12.0% - ------------------------------------------------------------------------------------------------------------------------ Repurchase agreement with Canadian Imperial Bank of Commerce, 5.45%, dated 6/28/96, to be repurchased at $17,407,903 on 7/1/96, collateralized by U.S. Treasury Bonds, 9.125%-11.25%, 2/15/15-5/11/18, with a value of $6,150,689, and U.S. Treasury Nts., 5.25%-8.50%, 1/11/97-11/15/04, with a value of $11,623,981 (Cost $17,400,000) $17,400,000 17,400,000 ----------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $114,137,962) 100.0% 144,789,612 ----------------------------------------------------------------------------------------------------------------- LIABILITIES IN EXCESS OF OTHER ASSETS (0.0) (67,404) ----------- ------------ NET ASSETS 100.0% $144,722,208 =========== ============ 1. Non-income producing security. See accompanying Notes to Financial Statements.
OPPENHEIMER VARIABLE ACCOUNT FUNDS Statements of Assets and Liabilities (Continued) JUNE 30, 1996 (Unaudited)
OPPENHEIMER OPPENHEIMER BOND GROWTH FUND FUND ------------ ------------- ASSETS: Investments, at value (cost * ) (including repurchase agreements **) - see accompanying statements $ 311,908,746 $ 144,789,612 Unrealized appreciation on forward foreign currency 44,513 -- exchange contracts - See applicable note Cash 33,484 231,093 Receivables: Closed forward foreign currency exchange contracts 4,502-- Dividends and interest 5,038,216 92,377 Shares of beneficial interest sold 173,023 188,713 Investments sold 1,426,309 1,096,302 Other 4,736 3,708 ---------------------------------------------------------------------- Total assets 318,634,333 146,401,805 ---------------------------------------------------------------------- LIABILITIES: Options written, at value (premiums received ***) - see accompanying statements and notes 45,966 -- Unrealized depreciation on forward foreign currency exchange contracts - See applicable note 15,592 -- Payables and other liabilities: Closed forward foreign currency exchange contracts 18,999 -- Investments purchased (including those purchased on a when-issued basis ****) - Note 1 759,038 1,655,939 Shares of beneficial interest redeemed 142,079 644 Custodian fees 14,005 3,287 Other 21,754 19,727 ---------------------------------------------------------------------- Total liabilities 1,017,433 1,679,597 ---------------------------------------------------------------------- NET ASSETS $317,616,900 $144,722,208 ========================================================== ============ COMPOSITION OF NET ASSETS: Paid-in capital $ 315,750,262 $107,561,054 Undistributed net investment income 901,640 684,501 Accumulated net realized gain (loss) from investments and foreign currency transactions (92,383) 5,825,003 Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies 1,057,381 30,651,650 ------------------------------------------------------- NET ASSETS $317,616,900 $144,722,208 ================================================= SHARES OF BENEFICIAL INTEREST OUTSTANDING 27,823,143 5,972,737 NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $11.42 $24.23 *Cost $310,870,304 $114,137,962 **Repurchase agreements $ 18,900,000 $ 17,400,000 ***Premiums received $30,995 --
See accompanying Notes to Financial Statements. OPPENHEIMER VARIABLE ACCOUNT FUNDS Statements of Operations FOR THE SIX MONTHS ENDED JUNE 30, 1996 (Unaudited)
OPPENHEIMER OPPENHEIMER BOND GROWTH FUND FUND INVESTMENT INCOME: Interest (net of withholding taxes of *) $ 8,882,639 $ 691,167 Dividends 47,527 593,891 ------------------------------------------------------------------------------ Total income 8,930,166 1,213,058 ------------------------------------------------------------------------------ EXPENSES: Management fees - See applicable note 874,928 488,805 Custodian fees and expenses 18,960 5,212 Legal and auditing fees 6,597 5,513 Insurance expenses 2,443 2,251 Trustees' fees and expenses 1,790 1,103 Registration and filing fees 14,607 5,888 Other 590 229 ------------------------------------------------------------------------------ Total expenses 920,357 509,001 ------------------------------------------------------------------------------ NET INVESTMENT INCOME 8,009,809 704,057 ------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from: Investments: Unaffiliated companies 104,747 5,982,807 Closing of futures contracts (67,865) -- Closing and expiration of options written 33,013 -- Foreign currency transactions (85,215) -- Net change in unrealized appreciation or depreciation on: Investments (7,873,177) 7,033,727 Translation of assets and liabilities denominated in foreign currencies 104,084 -- ------------------------------------------------------------------------------ Net realized and unrealized gain (loss) (7,733,827) 13,016,534 ------------------------------------------------------------------------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 275,982 $13,720,591 ========================================================== ==================== *Interest $ 36,464 --
See accompanying Notes to Financial Statements.
OPPENHEIMER BOND FUND ------------------------------ 1996 1995 ------------------------------ OPERATIONS: Net investment income $ 8,009,809 $ 11,813,502 Net realized gain 35,266 1,310,131 Net change in unrealized appreciation or depreciation (7,769,093) 13,318,419 ------------------------------ Net increase in net assets resulting from operations 275,982 26,442,052 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income (8,450,650) (11,209,883) Distributions from net realized gain (133,010) -- BENEFICIAL INTEREST TRANSACTIONS: Net increase in net assets resulting from beneficial interest transactions - Note 2 114,692,808 60,932,217 ------------------------------ NET ASSETS: Total increase 106,385,130 76,164,386 Beginning of period 211,231,770 135,067,384 ------------------------------ End of period $ 317,616,900 $ 211,231,770 ==============================
See accompanying Notes to Financial Statements. OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER BOND FUND Financial Highlights (Continued)
SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED DECEMBER 31, (UNAUDITED) 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $11.84 $10.78 $11.65 $10.99 - --------------------------------------------------------------------------------------------------------------- --- Income (loss) from investment operations: Net investment income .33 .72 .76 .65 Net realized and unrealized gain (loss) (.37) 1.07 (.98) .76 - --------------------------------------------------------------------------------------------------------------- Total income (loss) from investment operations (.04) 1.79 (.22) 1.41 - --------------------------------------------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.37) (.73) (.62) (.75) Distributions from net realized gain (.01) (.03) -- - --------------------------------------------------------------------------------------------------------------- Total dividends and distributions to shareholders (.38) (.73) (.65) (.75) - --------------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.42 $11.84 $10.78 $11.65 =========================================================== - -------------------------------------------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE(1) (0.33)% 17.00% (1.94)% 13.04% - -------------------------------------------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $317,617 $211,232 $135,067 $111,846 - -------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $236,650 $170,929 $121,884 $87,215 - -------------------------------------------------------------------------------------------------------------- Ratios to average net assets: Net investment income 6.79% (2) 6.91% 7.30% 7.20% Expenses 0.78% (2) 0.80% 0.57% 0.46% - -------------------------------------------------------------------------------------------------------------- Portfolio turnover rate(3) 40.2% 79.4% 35.1% 36.3%
1992 1991 ---------------------- PER SHARE OPERATING DATA: Net asset value, beginning of period $11.15 $10.33 - ----------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .87 .95 Net realized and unrealized gain (loss) (.17) .80 - ----------------------------------------------------------------------------- Total income (loss) from investment operation .70 1.75 - ----------------------------------------------------------------------------- Dividends and distributions to shareholders: Dividends from net investment income (.86) (.93) Distributions from net realized gain -- -- - ----------------------------------------------------------------------------- Total dividends and distributions to shareholders (.86) (.93) - ----------------------------------------------------------------------------- Net asset value, end of period $10.99 $11.15 ====================== - ----------------------------------------------------------------------------- TOTAL RETURN, AT NET ASSET VALUE(1) 6.50% 17.63% - ----------------------------------------------------------------------------- RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $63,354 $32,762 - ----------------------------------------------------------------------------- Average net assets (in thousands) $45,687 $22,169 - ----------------------------------------------------------------------------- Ratios to average net assets: Net investment income 7.81% 8.73% Expenses 0.56% 0.64% - ----------------------------------------------------------------------------- Portfolio turnover rate(3) 41.3% 7.6%
1. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods of less than one full year. Total return information does not reflect expenses that apply at the separate account level or to related insurance products. Inclusion of these charges would reduce the total return figures for all periods shown. 2. Annualized. 3. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. Purchases and sales of investment securities (excluding short-term securities) for the period ended June 30, 1996 were $194,115,687 and $84,471,602, respectively. See accompanying Notes to Financial Statements. OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND Financial Highlights (Continued)
SIX MONTHS ENDED JUNE 30, 1996 YEAR ENDED DECEMBER 31, (UNAUDITED) 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING DATA: Net asset value, beginning of period $ 23.55 $ 17.68 $ 17.70 $ 16.96 $ 15.17 $12.54 - ------------------------------------------------------------------------------------------------------------------------------ Income (loss) from investment operations: Net investment income .11 .25 .22 .46 .16 .30 Net realized and unrealized gain (loss) 2.49 6.10 (.05) .74 1.99 2.82 - ------------------------------------------------------------------------------------------------------------------------------ Total income (loss) from investment operations 2.60 6.35 .17 1.20 2.15 3.12 - ------------------------------------------------------------------------------------------------------------------------------ Dividends and distributions to shareholders: Dividends from net investment income (.25) (.22) (.15) (.14) (.36) (.49) Distributions from net realized gain (1.67) (.26) (.04) (.32) -- -- - ------------------------------------------------------------------------------------------------------------------------------ Total dividends and distributions to shareholders (1.92) (.48) (.19) (.46) (.36) (.49) - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of period $ 24.23 $ 23.55 $ 17.68 $ 17.70 $ 16.96 $ 15.17 ========================================================== ================= - ------------------------------------------------------------------------------------------------------------------------------ TOTAL RETURN, AT NET ASSET VALUE(1) 11.37% 36.65% 0.97% 7.25% 14.53% 25.54% - ------------------------------------------------------------------------------------------------------------------------------ RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) $144,722 $117,710 $63,283 $56,701 $36,494 $22,032 - ------------------------------------------------------------------------------------------------------------------------------ Average net assets (in thousands) $131,211 $ 88,803 $59,953 $46,389 $25,750 $18,810 - ------------------------------------------------------------------------------------------------------------------------------ Ratios to average net assets: Net investment income 1.08%(2) 1.46% 1.38% 1.13% 1.36% 2.82% Expenses 0.78%(2) 0.79% 0.58% 0.50% 0.61% 0.70% - ------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover rate(3) 27.7% 58.2% 53.8% 12.6% 48.7% 133.9% Average brokerage commission rate(4) $ 0.0572 $ 0.0590 -- -- -- --
1. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods of less than one full year. Total return information does not reflect expenses that apply at the separate account level or to related insurance products. Inclusion of these charges would reduce the total return figures for all periods shown. 2. Annualized. 3. The lesser of purchases or sales of portfolio securities for a period, divided by the monthly average of the market value of portfolio securities owned during the period. Securities with a maturity or expiration date at the time of acquisition of one year or less are excluded from the calculation. Purchases and sales of investment securities (excluding short-term securities) for the period ended June 30, 1996 were $38,780,897 and $30,005,422, respectively. 4. Total brokerage commissions paid on applicable purchases and sales of portfolio securities for the period divided by the total number of related shares purchased and sold. See accompanying Notes to Financial Statements. OPPENHEIMER VARIABLE ACCOUNT FUNDS NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES Oppenheimer Money Fund (OMF), Oppenheimer High Income Fund (OHIF), Oppenheimer Bond Fund (OBF), Oppenheimer Capital Appreciation Fund (OCAP), Oppenheimer Growth Fund (OGF), Oppenheimer Multiple Strategies Fund (OMSF), Oppenheimer Global Securities Fund (OGSF), Oppenheimer Strategic Bond Fund (OSBF) and Oppenheimer Growth & Income Fund (OGIF) (collectively, the Funds) are separate series of Oppenheimer Variable Account Funds (the Trust), a diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Trust's investment advisor is OppenheimerFunds, Inc. (the Manager). The following is a summary of significant accounting policies consistently followed by the Funds. The Funds' objectives are as follows: OPPENHEIMER MONEY FUND seeks the maximum current income from investments in "money market" securities consistent with low capital risk and the maintenance of liquidity. OPPENHEIMER HIGH INCOME FUND seeks a high level of current income from investments in high yield fixed income securities. OPPENHEIMER BOND FUND primarily seeks a high level of current income from investments in high yield fixed income securities 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 seeks to achieve capital appreciation by investing in "growth-type" companies. OPPENHEIMER GROWTH FUND seeks to achieve capital appreciation by investing in securities of well-known established companies. OPPENHEIMER 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 seeks long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special institutions which are considered to have appreciation possibilities. OPPENHEIMER 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: (I) debt securities, (ii) U.S. Government securities, and (iii) lower-rated high yield domestic debt securities. OPPENHEIMER GROWTH & INCOME FUND seeks a high total return (which includes growth in the value of its shares as well as current income) from equity and debt securities. From time to time this Fund may focus on small to medium capitalization common stocks, bonds and convertible securities. INVESTMENT VALUATION. Portfolio securities of OMF are valued on the basis of amortized cost, which approximates market value. Portfolio securities of OHIF, OBF, OCAP, OGF, OMSF, OGSF, OSBF and OGIF are valued at the close of the New York Stock Exchange on each trading day. Listed and unlisted securities for which such information is regularly reported are valued at the last sale price of the day or, in the absence of sales, at values based on the closing bid or asked price or the last sale price on the prior trading day. Long-term and short-term "non-money market" debt securities are valued by a portfolio pricing service approved by the Board of Trustees. Such securities which cannot be valued by the approved portfolio pricing service are valued using dealer-supplied valuations provided the Manager is satisfied that the firm rendering the quotes is reliable and that the quotes reflect current market value, or are valued under consistently applied procedures established by the Board of Trustees to determine fair value in good faith. Short-term "money market type" debt securities having a remaining maturity of 60 days or less are valued at cost (or last determined market value) adjusted for amortization to maturity of any premium or discount. Forward foreign currency exchange contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. Options are valued based upon the last sale price on the principal exchange on which the option is traded or, in the absence of any transactions that day, the value is based upon the last sale on the prior trading date if it is within the spread between the closing bid and asked prices. If the last sale price is outside the spread, the closing bid or asked price closest to the last reported sale price is used. Delivery and payment for securities that have been purchased by OHIF, OBF and OSBF on a forward commitment or when-issued basis can take place a month or more after the transaction date. During the period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. The Funds maintain, in segregated accounts with the custodian, assets with a market value equal to the amount of their purchase commitments. The purchase of securities on a when-issued or forward commitment basis may increase the volatility of the Funds' net asset values to the extent the Funds make such purchases while remaining substantially fully invested. In connection with their ability to purchase securities on a when-issued or forward commitment basis, OHIF, OBF and OSBF may enter into mortgage "dollar-rolls" in which the Funds sell securities for delivery in the current month and simultaneously contract with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. The Funds record each dollar-roll as a sale and a new purchase transaction. As of June 30, 1996, OHIF and OSBF had entered into outstanding when-issued or forward commitments of $3,235,962 and $1,244,208, respectively. SECURITY CREDIT RISK. OHIF, OMSF and OSBF invest in high yield securities, which may be subject to a greater degree of credit risk, greater market fluctuations and risk of loss of income and principal, and may be more sensitive to economic conditions than lower yielding, higher rated fixed income securities. The Funds may acquire securities in default, and are not obligated to dispose of securities whose issuers subsequently default. FOREIGN CURRENCY TRANSLATION. The accounting records of the Funds are maintained in U.S. dollars. Prices of securities purchased by OHIF, OBF, OMSF, OGSF, OSBF and OGIF that are denominated in foreign currencies are translated into U.S. dollars at the closing rates of exchange. Amounts related to the purchase and sale of securities and investment income are translated at the rates of exchange prevailing on the respective dates of such transactions. For OHIF, OBF, OMSF, OGSF, OSBF and OGIF, the effect of changes in foreign currency exchange rates on investments is separately identified from the fluctuations arising from changes in market values of securities held and reported with all other foreign currency gains and losses in the Funds' Statements of Operations. REPURCHASE AGREEMENTS. The Funds require the custodian to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian's vault, all securities held as collateral for repurchase agreements. The market value of the underlying securities is required to be at least 102% of the resale price at the time of purchase. If the seller of the agreement defaults and the value of the collateral declines, or if the seller enters an insolvency proceeding, realization of the value of the collateral by the Funds may be delayed or limited. FEDERAL TAXES. The Trust intends for each Fund to continue to comply with provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income, including any net realized gain on investments not offset by loss carryovers, to shareholders. Therefore, no federal income or excise tax provision is required. DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to shareholders of OHIF, OBF, OCAP, OGF, OMSF, OGSF, OSBF and OGIF are recorded on the ex-dividend date. OMF intends to declare dividends from net investment income each day the New York Stock Exchange is open for business and pay such dividends monthly. To effect its policy of maintaining a net asset value of $1.00 per share, OMF may withhold dividends or make distributions of net realized gains. OPPENHEIMER VARIABLE ACCOUNT FUNDS NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes primarily because of premium amortization, paydown gains and losses and the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes. The character of the distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to timing of dividend distributions, the fiscal year in which amounts are distributed may differ from the year that the income or realized gain (loss) was recorded by the Funds. OTHER. Investment transactions are accounted for on the date the investments are purchased or sold (trade date) and dividend income is recorded on the ex-dividend date. Discount on securities purchased by OHIF, OBF, OMSF, OGSF, OSBF and OGIF is amortized over the life of the respective securities, in accordance with federal income tax requirements. Realized gains and losses on investments and unrealized appreciation and depreciation are determined on an identified cost basis, which is the same basis used for federal income tax purposes. Dividends-in-kind are recognized as income on the ex-dividend date, at the current market value of the underlying security. Interest on payment-in-kind debt instruments is accrued as income at the coupon rate, and a market adjustment is made on the ex-date. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. 2. SHARES OF BENEFICIAL INTEREST The Funds have authorized an unlimited number of no par value shares of beneficial interest. Transactions in shares of beneficial interest were as follows:
OPPENHEIMER MONEY FUND ------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995 ------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------- Sold 191,400,358 $ 191,400,358 202,748,102 $ 202,748,102 Dividends and distributions reinvested 1,901,540 1,901,540 4,222,747 4,222,747 Redeemed (144,104,487) (144,104,487) (231,260,663) (231,260,663) ------------------------------------------------------------- Net increase (decrease) 49,197,411 $ 49,197,411 (24,289,814) $(24,289,814) ========================================================== ===
OPPENHEIMER HIGH INCOME FUND --------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995 --------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------- Sold 4,915,849 $ 53,378,895 5,873,231 $ 60,932,670 Dividends and distributions reinvested 688,571 7,360,821 1,162,957 12,040,152 Redeemed (3,645,899) (39,808,756) (4,263,757) (44,560,679) --------------------------------------------------------- Net increase (decrease) 1,958,521 $ 20,930,960 2,772,431 $ 28,412,143 =========================================================
OPPENHEIMER BOND FUND ------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995 ------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------- Sold 10,641,027 $ 122,534,894 7,311,733 $ 83,544,442 Dividends and distributions reinvested 754,523 8,583,660 976,291 11,209,883 Redeemed (1,414,825) (16,425,746) (2,972,687) (33,822,108) ------------------------------------------------------------- Net increase 9,980,725 $ 114,692,808 5,315,337 $ 60,932,217 ========================================================== ===
OPPENHEIMER CAPITAL APPRECIATION FUND -------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995 -------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------- Sold 5,914,854 $ 217,106,599 8,882,212 $ 260,650,476 Dividends and distributions reinvested 643,582 22,422,394 40,594 1,082,642 Redeemed (3,357,155) (121,975,371) (6,567,729) (191,565,283) ------------------------------------------------------------- Net increase 3,201,281 $ 117,553,622 2,355,077 $ 70,167,835 ========================================================== ===
94 112 OPPENHEIMER VARIABLE ACCOUNT FUNDS NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 2. SHARES OF BENEFICIAL INTEREST (continued)
OPPENHEIMER GROWTH FUND OPPENHEIMER MULTIPLE STRATEGIES FUND -------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995 JUNE 30, 1996 DECEMBER 31, 1995 -------------------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------------------------------------------------- Sold 2,328,692 $ 56,424,038 4,302,304 $ 89,007,340 2,802,404 $ 41,511,453 6,445,242 $ 88,771,497 Dividends and distributions reinvested 430,280 10,016,909 95,991 1,795,026 1,394,718 20,348,946 1,818,313 24,783,721 Redeemed (1,783,960) (43,132,311) (2,980,080) (60,949,490) (1,695,281) (25,089,068) (4,671,097) (64,421,131) -------------------------------------------------------------------------------------------------------------- Net increase 975,012 $ 23,308,636 1,418,215 $ 29,852,876 2,501,841 $ 36,771,331 3,592,458 $ 49,134,087 ========================================================== ====================================================
OPPENHEIMER GLOBAL SECURITIES FUND OPPENHEIMER STRATEGIC BOND FUND ------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995 JUNE 30, 1996 DECEMBER 31, 1995 ------------------------------------------------------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------------------------------------ Sold 6,846,766 $ 107,662,261 11,235,722 $ 166,766,446 5,018,279 $ 24,850,711 9,417,090 $ 44,897,472 Dividends and distributions reinvested -- -- 585,961 8,174,158 565,134 2,760,329 661,301 3,151,540 Redeemed (1,283,788) (20,065,048) (7,497,205) (112,360,172) (1,844,209) (9,111,130) (2,245,623) (10,642,846) ------------------------------------------------------------------------------------------------------------------ Net increase 5,562,978 $ 87,597,213 4,324,478 $ 62,580,432 3,739,204 $ 18,499,910 7,832,768 $ 37,406,166 ========================================================== ========================================================
OPPENHEIMER GROWTH & INCOME FUND --------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995(1) --------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------- Sold 1,194,344 $ 16,678,916 358,253 $3,933,459 Dividends and distributions reinvested 6,082 86,020 404 4,928 Redeemed (98,746) (1,428,056) (15,863) (181,994) --------------------------------------------------------- Net increase 1,101,680 $ 15,336,880 342,794 $3,756,393 =========================================================
(1) For the period from July 5, 1995 (commencement of operations) to December 31, 1995. OPPENHEIMER VARIABLE ACCOUNT FUNDS NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS At June 30, 1996, net unrealized appreciation or depreciation on investments and options written consisted of the following:
OPPENHEIMER OPPENHEIMER OPPENHEIMER CAPITAL OPPENHEIMER HIGH INCOME BOND APPRECIATION GROWTH FUND FUND FUND FUND ---------------------------------------------------------------------------------- Gross appreciation $ 8,794,461 $ 4,733,340 $ 117,871,439 $ 32,672,573 Gross depreciation (2,106,142) (3,709,869) (12,857,992) (2,020,923) ---------------------------------------------------------------------------------- Net unrealized appreciation $ 6,688,319 $ 1,023,471 $ 105,013,447 $ 30,651,650 ========================================================== ========================
OPPENHEIMER OPPENHEIMER MULTIPLE OPPENHEIMER STRATEGIC OPPENHEIMER STRATEGIES GLOBAL SECURITIES BOND GROWTH & INCOME FUND FUND FUND FUND ---------------------------------------------------------------------------------- Gross appreciation $ 56,500,149 $ 61,150,793 $ 1,988,083 $ 1,171,212 Gross depreciation (7,989,109) (10,549,493) (1,076,472) (529,196) ---------------------------------------------------------------------------------- Net unrealized appreciation $ 48,511,040 $ 50,601,300 $ 911,611 $ 642,016 ========================================================== ========================
4. OPTION ACTIVITY The Funds (except OMF) may buy and sell put and call options, or write put and covered call options on portfolio securities in order to produce incremental earnings or protect against changes in the value of portfolio securities. The Funds generally purchase put options or write covered call options to hedge against adverse movements in the value of portfolio holdings. When an option is written, the Funds receive a premium and become obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. Options are valued daily based upon the last sale price on the principal exchange on which the option is traded and unrealized appreciation or depreciation is recorded. The Funds will realize a gain or loss upon the expiration or closing of the option transaction. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option is adjusted by the amount of premium received or paid. Securities designated to cover outstanding call options are noted in the Statements of Investments where applicable. Shares subject to call, expiration date, exercise price, premium received and market value are detailed in a footnote to the Statements of Investments. Options written are reported as a liability in the Statements of Assets and Liabilities. Gains and losses are reported in the Statements of Operations. The risk in writing a call option is that the Funds give up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Funds may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Funds pay a premium whether or not the option is exercised. The Funds also have the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. The Funds may also write over-the-counter options where the completion of the obligation is dependent upon the credit standing of the counterparty. OPPENHEIMER VARIABLE ACCOUNT FUNDS NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 4. OPTION ACTIVITY (continued) OHIF option activity for the six months ended June 30, 1996 was as follows:
CALL OPTIONS ---------------------------------------- NUMBER OF AMOUNT OF OPTIONS PREMIUMS ---------------------------------------- Options outstanding at December 31, 1995 100 $ 1,430 Options written 2,995,422 60,892 Options canceled in closing transactions (990,415) (27,918) Options expired prior to exercise (711,177) (13,160) Options exercised (495,479) (4,069) ---------------------------------------- Options outstanding at June 30, 1996 798,451 $ 17,175 ========================================
OBF option activity for the six months ended June 30, 1996 was as follows:
CALL OPTIONS ----------------------------------------- NUMBER OF AMOUNT OF OPTIONS PREMIUMS ----------------------------------------- Options outstanding at December 31, 1995 -- $ -- Options written 6,637,802 115,114 Options canceled in closing transactions (1,980,331) (47,726) Options expired prior to exercise (1,460,029) (26,575) Options exercised (1,195,442) (9,818) ----------------------------------------- Options outstanding at June 30, 1996 2,002,000 $ 30,995 =========================================
OMSF option activity for the six months ended June 30, 1996 was as follows:
CALL OPTIONS ---------------------------------------- NUMBER OF AMOUNT OF OPTIONS PREMIUMS ---------------------------------------- Options outstanding at December 31, 1995 3,603 $1,100,095 Options written 3,584 937,173 Options canceled in closing transactions (1,003) (338,500) Options expired prior to exercise (2,521) (692,359) Options exercised (678) (196,972) ---------------------------------------- Options outstanding at June 30, 1996 2,985 $ 809,437 ========================================
OSBF option activity for the six months ended June 30, 1996 was as follows:
CALL OPTIONS --------------------------------------- NUMBER OF AMOUNT OF OPTIONS PREMIUMS --------------------------------------- Options outstanding at December 31, 1995 1,000 $ 14,299 Options written 4,625,262 66,992 Options canceled in closing transactions (1,150) (16,925) Options expired prior to exercise (1,616,402) (21,688) Options exercised (1,178,560) (8,226) --------------------------------------- Options outstanding at June 30, 1996 1,830,150 $ 34,452 =======================================
97 115 OPPENHEIMER VARIABLE ACCOUNT FUNDS NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 4. OPTION ACTIVITY (continued) OGIF option activity for the six months ended June 30, 1996 was as follows:
CALL OPTIONS --------------------------------------- NUMBER OF AMOUNT OF OPTIONS PREMIUMS --------------------------------------- Options outstanding at December 31, 1995 -- $ -- Options written 19 6,301 Options expired prior to exercise (12) (1,764) --------------------------------------- Options outstanding at June 30, 1996 7 $ 4,537 =======================================
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS A forward foreign currency exchange contract (forward contract) is a commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. The Funds (except OMF) use forward contracts to seek to manage foreign currency risks. They may also be used to tactically shift portfolio currency risk. The Funds generally enter into forward contracts as a hedge upon the purchase or sale of a security denominated in a foreign currency. In addition, the Funds may enter into such contracts as a hedge against changes in foreign currency exchange rates on portfolio positions. Forward contracts are valued based on the closing prices of the forward currency contract rates in the London foreign exchange markets on a daily basis as provided by a reliable bank or dealer. The Funds will realize a gain or loss upon the closing or settlement of the forward transaction. Securities held in segregated accounts to cover net exposure on outstanding forward contracts are noted in the Statements of Investments where applicable. Unrealized appreciation or depreciation on forward contracts is reported in the Statements of Assets and Liabilities. Realized gains and losses are reported with all other foreign currency gains and losses in the Funds' Statements of Operations. Risks include the potential inability of the counterparty to meet the terms of the contract and unanticipated movements in the value of a foreign currency relative to the U.S. dollar. At June 30, 1996, outstanding forward contracts to purchase and sell foreign currencies were as follows:
OPPENHEIMER HIGH INCOME FUND - ---------------------------- CONTRACT AMOUNT VALUATION AS OF UNREALIZED UNREALIZED CONTRACTS TO PURCHASE EXPIRATION DATE (000'S) JUNE 30, 1996 APPRECIATION DEPRECIATION - ----------------------------------------------------------------------------------------------------------------------------- Italian Lira (ITL) 5/9/97 628,510 ITL $ 402,139 $ 7,865 $ -- German Deutsche Mark (DEM) 7/1/96 181 DEM 118,685 321 -- ----------- --------- --------- $ 520,824 8,186 -- =========== --------- --------- CONTRACTS TO SELL - ----------------- Swiss Franc (CHF) 7/18/96-6/26/97 3,145 CHF $ 2,550,344 $ 18,427 $ 8,511 Japanese Yen (JPY) 8/26/96-4/14/97 94,375 JPY 886,549 59,783 -- ----------- --------- --------- $ 3,436,893 78,210 8,511 =========== --------- --------- Total Unrealized Appreciation and Depreciation $ 86,396 $ 8,511 ========= =========
OPPENHEIMER BOND FUND - --------------------- CONTRACT AMOUNT VALUATION AS OF UNREALIZED UNREALIZED CONTRACTS TO PURCHASE EXPIRATION DATE (000'S) JUNE 30, 1996 APPRECIATION DEPRECIATION - ------------------------------------------------------------------------------------------------------------------------------- Italian Lira (ITL) 5/9/97 671,747 ITL $ 429,803 $ 7,629 $ -- CONTRACTS TO SELL Japanese Yen (JPY) 8/26/96 43,000 JPY $ 396,015 $ 4,749 $ -- Swiss Franc (CHF) 7/18/96-5/6/97 12,703 CHF 10,233,684 32,135 15,592 ------------- -------- ----------- $ 10,629,699 36,884 15,592 ============= -------- ----------- Total Unrealized Appreciation and Depreciation $ 44,513 $ 15,592 ======== ===========
98 116 OPPENHEIMER VARIABLE ACCOUNT FUNDS NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS (continued)
OPPENHEIMER GLOBAL SECURITIES FUND - ---------------------------------- CONTRACT AMOUNT VALUATION AS OF UNREALIZED UNREALIZED CONTRACTS TO PURCHASE EXPIRATION DATE (000'S) JUNE 30, 1996 APPRECIATION DEPRECIATION - -------------------------------------------------------------------------------------------------------------------------- Austrian Schilling (ATS) 7/8/96 10,939 ATS $ 1,021,486 $ 587 $ -- Indonesian Rupiah (IDR) 7/19/96 577,500 IDR 247,097 -- 14 Italian Lira (ITL) 7/4/96 641,785 ITL 418,477 -- 410 Japanese Yen (JPY) 7/1/96-7/3/96 120,146 JPY 1,095,678 -- 3,702 Norwegian Krone (NOK) 7/1/96-7/2/96 2,268 NOK 349,071 -- 399 South African Rand (ZAR) 7/1/96 15,406 ZAR 3,557,698 3,159 -- Swedish Krona (SEK) 7/1/96 3,726 SEK 561,597 -- 1,058 ------------ ---------- ---------- $ 7,251,104 3,746 5,583 ============ ---------- ---------- CONTRACTS TO SELL Argentine Peso (ARP) 7/1/96-7/2/96 267 ARP $ 267,003 $ -- $ 511 French Franc (FRF) 7/31/96 10,133 FRF 1,972,699 -- 15,563 German Deutsche Mark (DEM) 1/8/97 28,680 DEM 19,070,993 929,007 -- Japanese Yen (JPY) 9/30/96 1,475,100 JPY 13,646,090 12,244 -- Swiss Franc (CHF) 10/8/96 17,204 CHF 13,852,778 1,147,222 -- ----------- ---------- ---------- $48,809,563 2,088,473 16,074 =========== ---------- ---------- Total Unrealized Appreciation and Depreciation $2,092,219 $ 21,657 ========== ==========
OPPENHEIMER STRATEGIC BOND FUND - ------------------------------- CONTRACT AMOUNT VALUATION AS OF UNREALIZED UNREALIZED CONTRACTS TO PURCHASE EXPIRATION DATE (000'S) JUNE 30, 1996 APPRECIATION DEPRECIATION - -------------------------------------------------------------------------------------------------------------------------- Japanese Yen (JPY) 7/5/96 12,467 JPY $ 113,774 $ -- $ 1,713 ============ ----------- ------------ CONTRACTS TO SELL Australian Dollar (AUD) 7/3/96 22 AUD $ 17,022 $ -- $ 36 Finnish Markka (FIM) 8/4/96 4,679 FIM 1,012,159 -- 12,146 Japanese Yen (JPY) 9/5/96-12/18/96 45,175 JPY 421,276 34,104 -- Swiss Franc (CHF) 7/8/96-8/28/96 3,316 CHF 2,656,791 -- 22,191 ------------ ----------- ----------- $ 4,107,248 34,104 34,373 ============ ----------- ----------- Total Unrealized Appreciation and Depreciation $ 34,104 $ 36,086 =========== ==========
6. FUTURES CONTRACTS The Funds (except OMF) may buy and sell interest rate futures contracts in order to gain exposure to or protect against changes in interest rates. The Funds may also buy or write put or call options on these futures contracts. The Funds generally sell futures contracts to hedge against increases in interest rates and the resulting negative effect on the value of fixed rate portfolio securities. The Funds may also purchase futures contracts to gain exposure to changes in interest rates as it may be more efficient or cost effective than actually buying fixed income securities. Upon entering into a futures contract, the Funds are required to deposit either cash or securities in an amount (initial margin) equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Funds each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Funds recognize a realized gain or loss when the contract is closed or expires. Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Statements of Investments. The Statements of Assets and Liabilities reflect a receivable or payable for the daily mark to market for variation margin. Risks of entering into futures contracts (and related options) include the possibility that there may be an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. OPPENHEIMER VARIABLE ACCOUNT FUNDS NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 6. FUTURES CONTRACTS (continued) At June 30, 1996, OSBF had outstanding futures contracts to sell debt securities as follows:
Number of Valuation as of Unrealized Expiration Date Futures Contracts June 30, 1996 Depreciation - ------------------------------------------------------------------------------------------------ U.S. Treasury Nts. 9/96 6 $634,500 $6,750
7. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Management fees paid to the Manager were in accordance with the investment advisory agreements with the Trust. For OBF, OCAP, OGF, OMSF, OHIF, OGSF, OSBF and OGIF, the annual fees are 0.75% of the first $200 million of net assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the next $200 million and 0.60% of net assets in excess of $800 million. In addition, management fees for OHIF, OBF and OSBF are 0.50% of net assets in excess of $1 billion. Management fees for OMF are 0.45% of the first $500 million, 0.425% of the next $500 million, 0.40% of the next $500 million and 0.375% of net assets in excess of $1.5 billion. For OSBF, the Manager has agreed to limit the management fee charged so that the ordinary operating expenses of the Fund will not exceed 1.0% of its average net assets in any fiscal year. 8. ILLIQUID AND RESTRICTED SECURITIES At June 30, 1996, investments in securities included issues that are illiquid or restricted. The securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and are valued under methods approved by the Board of Trustees as reflecting fair value. A security may also be considered illiquid if its valuation has not changed for a certain period of time. The Funds intend to invest no more than 10% of net assets (determined at the time of purchase and reviewed from time to time) in illiquid or restricted securities. Information concerning these securities is as follows: OPPENHEIMER HIGH INCOME FUND
VALUATION PER ACQUISITION COST UNIT AS OF SECURITY DATE PER UNIT JUNE 30, 1996 - ----------------------------------------------------------------------------------------------------------- Algeria (Republic of) Reprofiled Debt Loan Participation, Tranche A, 6.812%, 9/4/06 3/13/96 $ 54.75 $ 59.69 Ames Department Stores, Inc.: Excess Cash Flow Payment Certificates, Series 12/30/92 $ 0.00 $ 0.01 AG-7A Litigation Trust 12/30/92 $ 0.00 $ 0.01 Australis Media Ltd. Common Stock 1/16/96-1/25/96 $ 1.19 $ 0.34 Berg Electronics Corp. Common Stock 4/28/93-8/11/93 $ 4.89 $ 22.56 CBA Mortgage Corp., Mtg. Pass-Through Certificates, Series 1993-C1, Cl. F, 7.153%, 8/23/95 $ 72.52 $ 74.81 12/25/03 Colombia (Republic of) 1989-1990 Integrated Loan Facility Bonds, 6.563%, 7/1/01 12/05/95 $ 92.00 $ 93.25 ECM Fund, L.P.I.: Common Stock 4/14/92 $1,000.00 $1,000.00 14% Sub. Nts., 6/10/02 4/14/92 $ 100.00 $ 110.00 Equitable Bag, Inc. Common Stock 12/16/94 $ 1.50 $ 2.50 Farley, Inc., Zero Coupon Sub. Debs., 14.143%, 1/1/93-3/6/95 $ 7.44 $ 10.60 12/30/12 Foamex LP/JPS Automotive Corp. Wts., Exp. 7/99 6/21/94 $ 0.00 $ 5.00 Gillett Holdings, Inc.: Common Stock 12/1/92-1/18/96 $ 16.27 $ 30.00 12.25% Sr. Sub. Nts., Series A, 6/30/02 12/23/92 $ 101.87 $ 105.37 Goldman, Sachs & Co., Argentina Local Market Securities Trust, 11.30%, 4/1/00 8/24/94 $ 100.00 $ 92.75 Omnipoint Corp. Common Stock 1/26/96 $ 16.00 $ 24.70 Pulsar Internacional SA de CV, 11.80% Nts., 9/14/95 $ 100.00 $ 100.50 9/19/96
100 118 OPPENHEIMER VARIABLE ACCOUNT FUNDS NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 8. ILLIQUID AND RESTRICTED SECURITIES (continued) OPPENHEIMER HIGH INCOME FUND (continued)
VALUATION PER ACQUISITION COST UNIT AS OF SECURITY DATE PER UNIT JUNE 30, 1996 - ------------------------------------------------------------------------------------------------ Triangle Wire & Cable, Inc. Common Stock 5/2/94 $9.50 $ 1.00 Trinidad & Tobago Loan Participation Agreement, Tranche B, 1.772%, 9/30/00 12/13/95- 4/1/96 $0.82 $0 .78
The aggregate value of illiquid or restricted securities subject to this 10% limitation at June 30, 1996 was $6,685,781, or 4.29% of the Fund's net assets. Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. OPPENHEIMER BOND FUND
VALUATION PER ACQUISITION COST UNIT AS OF SECURITY DATE PER UNIT JUNE 30, 1996 - ------------------------------------------------------------------------------------------------ Colombia (Republic of) 1989-1990 Integrated Loan Facility Bonds, 6.563%, 7/1/01 12/5/95 $ 92.00 $ 93.25 Merrill Lynch & Co., Inc. Units, 9.75%, 6/15/99 5/15/95 $110.05 $113.82
The aggregate value of illiquid or restricted securities subject to this 10% limitation at June 30, 1996 was $2,603,717, or 0.82% of the Fund's net assets. Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. OPPENHEIMER MULTIPLE STRATEGIES FUND
VALUATION PER ACQUISITION COST UNIT AS OF SECURITY DATE PER UNIT JUNE 30, 1996 - ------------------------------------------------------------------------------------------------ Santa Anita Realty Enterprises, Inc., Units 5/28/93- 2/9/95 $16.99 $12.63
The aggregate value of illiquid or restricted securities subject to this 10% limitation at June 30, 1996 was $505,000, or 0.12% of the Fund's net assets. Pursuant to guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. OPPENHEIMER GLOBAL SECURITIES FUND
VALUATION PER ACQUISITION COST UNIT AS OF SECURITY DATE PER UNIT JUNE 30, 1996 - ------------------------------------------------------------------------------------------------ Plant Genetics Systems Common Stock 5/27/92-3/7/95 $13.77 $11.18 Plant Genetics Systems Wts., Exp. 12/99 3/7/95 $ 0.00 $ 1.87
The aggregate value of illiquid or restricted securities subject to this 10% limitation at June 30, 1996, was $1,108,624, or 0.23% of the Fund's net assets. Pursuant to the guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. OPPENHEIMER VARIABLE ACCOUNT FUNDS NOTES TO FINANCIAL STATEMENTS (Unaudited) (Continued) 8. ILLIQUID AND RESTRICTED SECURITIES (continued) OPPENHEIMER STRATEGIC BOND FUND
VALUATION PER ACQUISITION COST UNIT AS OF SECURITY DATE PER UNIT JUNE 30, 1996 - ----------------------------------------------------------------------------------------------------------------------- Algeria (Republic of) Reprofiled Debt Loan Participation, Tranche A, 6.812%, 9/4/06 3/13/96-3/21/96 $ 55.04 $ 59.69 Colombia (Republic of) 1989-1990 Integrated Loan Facility Bonds, 6.563%, 7/1/01 12/5/95 $ 92.00 $ 93.25 Gillett Holdings, Inc. Common Stock 1/18/96 $ 21.25 $ 30.00 Goldman, Sachs & Co., Argentina Local Market Securities Trust, 11.30%, 4/1/00 8/24/94 $100.00 $ 92.75 Jamaica (Government of) 1990 Refinancing Agreement Nts.: 8/15/95 $ 89.75 $ 95.75 Tranche A, 6.344%, 10/16/00 Tranche B, 6.312%, 11/15/04 5/8/96 $ 75.88 $ 78.25 Pulsar Internacional SA de CV, 11.80% Nts., 9/15/95 $100.00 $100.50 9/19/96 Transpower Finance Ltd., 8% Gtd. Unsec. Unsub. Bonds, 2/15/01 5/17/96 $ 66.17 $ 64.76 Trinidad & Tobago Loan Participation Agreement, 12/13/95-12/18/95 $ 0.84 $ 0.78 Tranche A, 1.772%, 9/30/00 United Mexican States, Combined Facility 3, Loan Participation Agreement, Tranche A, 6.563%, 10/25/94 $ 89.00 $ 83.50 9/20/97
The aggregate value of illiquid or restricted securities subject to this 10% limitation at June 30, 1996, was $2,512,959, or 3.20% of the Fund's net assets. Pursuant to the guidelines adopted by the Board of Trustees, certain unregistered securities are determined to be liquid and are not included within the 10% limitation specified above. OPPENHEIMER VARIABLE ACCOUNT FUNDS OFFICERS AND TRUSTEES James C. Swain, Chairman and Chief Executive Officer Bridget A. Macaskill, President and Trustee Robert G. Avis, Trustee William A. Baker, Trustee Charles Conrad, Jr., Trustee Jon S. Fossel, Trustee Sam Freedman, Trustee Raymond J. Kalinowski, Trustee C. Howard Kast, Trustee Robert M. Kirchner, Trustee Ned M. Steel, Trustee George C. Bowen, Vice President, Treasurer and Assistant Secretary Andrew J. Donohue, Vice President and Secretary Paul LaRocco, Vice President Robert J. Milnamow, Vice President David P. Negri, Vice President Jane Putnam, Vice President Richard H. Rubinstein, Vice President Arthur P. Steinmetz, Vice President Dorothy G. Warmack, Vice President William Wilby, Vice President Robert J. Bishop, Assistant Treasurer Scott T. Farrar, Assistant Treasurer Robert G. Zack, Assistant Secretary INVESTMENT ADVISOR OppenheimerFunds, Inc. TRANSFER AGENT OppenheimerFunds Services CUSTODIAN OF PORTFOLIO SECURITIES The Bank of New York INDEPENDENT AUDITORS Deloitte & Touche LLP LEGAL COUNSEL Myer, Swanson, Adams & Wolf, P.C. The financial statements included herein have been taken from the records of the Funds without examination by the independent auditors. This is a copy of a report to shareholders of Oppenheimer Variable Account Funds. This report must be preceded or accompanied by a Prospectus of Oppenheimer Variable Account Funds. For material information concerning the Funds, see the Prospectus. Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, and are not insured by the FDIC or any other agency, and involve investment risks, including possible loss of the principal amount invested. JP FAMILY OF FUNDS _____________________________________ PROSPECTUS _____________________________________ May 1, 1996 JP Capital Appreciation Fund JP Investment Grade Bond Fund JP Capital Appreciation Fund, Inc. has as its primary objective long term capital appreciation. A secondary objective is current income through the receipt of interest or dividends. JP Investment Grade Bond Fund, Inc. has as its primary objective the maximum level of current income as is consistent with prudent risk. A secondary objective is growth of income and capital. This Prospectus sets forth concisely information about each of the above mentioned companies that a prospective investor ought to know before investing. Investors are advised to read and retain this Prospectus for future reference. A Statement of Additional Information dated May 1, 1996 for each of the above mentioned companies on file with the Securities and Exchange Commission is, in its entirety, incorporated by reference in and made a part of this Prospectus and is available without charge upon request of any of said companies. The shares offered by this prospectus are neither insured nor guaranteed by the U.S. Government. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Table of Contents Selected Per Share Data and Ratios . . . . . . . . . . . . . . . . . . . . . .3 General Description. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 4 Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . . .4 How To Purchase Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 How to Determine Net Asset Value . . . . . . . . . . . . . . . . . . . . . . .6 Who Manages The Funds. . . . . . . . . . . . . . . . . . . . . . .. . . . . . 6 Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . . . .7 How To Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Condensed Financial Information The following selected per share data and ratios of JP Capital Appreciation Fund, Inc. and JP Investment Grade Bond Fund, Inc. (the "Funds") have been audited by McGladrey & Pullen, LLP, Independent Certified Public Accountants, as set forth in their opinion appearing in the Statement of Additional Information for each of the Funds. JP Investment Grade Bond Fund, Inc.
Year Ended December 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 Per share operating performance (for a share outstanding throughout the year) Net asset value, beginning of year $ 10.08 $ 11.49 $ 11.19 $ 11.24 $ 10.61 $ 10.79 $ 10.56 $ 10.71 $ 11.56 $ 10.94 Income from investment operations Net investment income 0.73 0.73 0.74 0.74 0.85 0.89 0.93 0.95 0.94 0.97 Net realized and unrealized gain (loss) on investments 1.19 (1.40) 0.36 (0.03) 0.62 (0.20) 0.31 (0.11) (0.66) 0.62 Total from investment operations 1.92 ( .67) 1.10 0.71 1.47 0.69 1.24 0.84 0.28 1.59 Less distributions Dividends from net investment income (0.74) (0.71) (0.73) (0.76) (0.84) (0.87) (0.91) (0.94) (1.04) (0.99) Distributions from net realized gains - (0.03) (0.07) - - - (0.10) (0.05) (0.07) - Total distributions (0.74) (0.74) (0.80) (0.76) (0.84) (0.87) (1.01) (0.99) (1.11) (0.99) Net asset value, end of year $ 11.26 $ 10.08 $ 11.49 $ 11.19 $ 11.24 $ 10.61 $ 10.79 $ 10.56 $ 10.71 $ 11.54 Total return (without deduction of sales load) 19.44% (5.92)% 10.10% 6.67% 14.61% 6.86% 12.12% 8.12% 2.77% 15.27% Ratios/supplemental data: Net assets, end of year (000 omitted) $28,136 $25,278 $29,997 $23,622 $19,134 $15,300 $14,179 $12,926 $12,536 $13,095 Ratios to average net assets: Expenses 0.70% 0.65% 0.59% 0.67% 0.72% 0.76% 0.76% 0.76% 0.73% 0.72% Net investment income 6.66% 6.80% 6.33% 6.65% 7.88% 8.49% 8.65% 8.88% 8.53% 9.26% Portfolio turnover rate 26.16% 28.93% 19.88% 18.05% 7.23% - 20.03% 4.92% 17.81% 13.50%
JP Capital Appreciation Fund, Inc.
Year Ended December 31 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 Per share operating performance (for a share outstanding throughout the year) Net asset value, beginning of year $16.77 $18.19 $18.17 $17.69 $13.76 $15.08 $11.81 $11.26 $14.45 $13.92 Income from investment operations Net investment income 0.36 0.34 0.28 0.29 0.37 0.40 0.39 0.33 0.35 0.43 Net realized and unrealized gain (loss) on investments 4.45 (1.10) 1.26 0.75 3.91 (0.65) 3.29 0.47 (0.20) 1.47 Total from investment operations 4.81 (0.76) 1.54 1.04 4.28 (0.25) 3.68 0.80 0.15 1.90 Less distributions Dividends from net investment income (0.36) (0.17) (0.27) (0.33) (0.35) (0.41) (0.41) (0.25) (0.46) (0.47) Distributions from net realized gains (2.26) (0.49) (1.25) (0.23) - (0.66) - - (2.88) (0.90) Total distributions (2.62) (0.66) (1.52) (0.56) (0.35) (1.07) (0.41) (0.25) (3.34) (1.37) Net asset value, end of year $18.96 $16.77 $18.19 $18.17 $17.69 $13.76 $15.08 $11.81 $11.26 $14.45 Total return (without deduction of sales load) 33.39% (4.34)% 9.25% 6.16% 31.61% (1.39%) 31.67% 7.19% 0.21% 15.01% Ratios/supplemental data: Net assets, end of year (000 omitted) $71,601 $58,360 $56,625 $45,480 $37,319 $27,048 $23,203 $24,357 $25,177 24,222 Ratios to average net assets: Expenses 0.62% 0.58% 0.60% 0.63% 0.62% 0.63% 0.68% 0.68% 0.64% 0.65% Net investment income 2.07% 2.03% 1.55% 1.68% 2.37% 2.90% 2.90% 2.84% 2.45% 2.98% Portfolio turnover rate 64.13% 126.70% 23.93% 48.72% 36.71% 31.75% 55.47% 76.62% 78.12% 69.41%
General Description JP Investment Grade Bond Fund, Inc., formerly Jefferson-Pilot Income Fund, Inc. ("Bond Fund"), and JP Capital Appreciation Fund, Inc., formerly Jefferson-Pilot Growth Fund, Inc. ("Capital Appreciation Fund"), are corporations both organized under the laws of North Carolina on July 19, 1982. Each of the companies is registered under the Investment Company Act of 1940 as an open-end diversified investment company. Investment Objectives and Policies. Bond Fund. The Bond Fund's primary investment objective is the maximum level of current income as is consistent with prudent risk. A secondary objective is growth of income and capital. The Bond Fund proposes to achieve these objectives by investing primarily in fixed income securities rated A or better by Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"). Fixed income securities will include debt securities and preferred stocks, some of which may have a call on common stock by means of conversion privilege or attached warrants. When the incremental investment yield available on corporate securities is small compared to that available on U. S. Treasury securities, the Bond Fund may invest substantially in U. S. Treasury securities. The Bond Fund may also hold cash or invest in short-term securities and may purchase U. S. Government obligations with a simultaneous agreement by the seller to repurchase the securities at the original price plus accrued interest; provided that not more than 10% of the Fund's net assets may be invested in such repurchase agreements that mature in more than seven days. Repurchase agreements involve certain risks in the event of a default by the other party. The percentage of assets invested in different types of securities will vary from time to time depending upon the judgment of the management as to general market and economic conditions, fiscal and monetary policy and trends in interest rates and yields. The Bond Fund's investments (other than cash and U. S. Government securities) are diversified among the securities issued by different companies and governments to the extent that no more than 5% of its total assets may be invested in securities issued by any one issuer. In addition, management generally selects investments for the Bond Fund from among many different industries and may invest up to 25% of the Bond Fund's assets in a single industry. The investment restrictions (page 1, Statement of Additional Information) include: limitations on borrowing money; no more than 10% of assets may be invested in securities with a limited trading market; and no more than 5% of assets may be invested in companies having a record of less than three years of continuous operation. These restrictions, and the investment objectives and policies described above, as well as most of the additional restrictions described in the Statement of Additional Information, cannot be changed without shareholder approval. While the Bond Fund does not intend to place emphasis upon short-term trading profits, it will sell securities held short term to take advantage of special opportunities which might arise. Accordingly, the Bond Fund has historically had a portfolio turnover rate of less than 50%. The Bond Fund's portfolio turnover rates are shown in its respective table under the caption "Condensed Financial Information". The Bond Fund's investments are subject to market fluctuations and risks inherent in all securities. There is no assurance that the Bond Fund's stated objectives will be realized. Capital Appreciation Fund. The Capital Appreciation Fund's primary investment objective is long-term capital appreciation. Current income through the receipt of interest or dividends from investments is only a secondary objective. The Capital Appreciation Fund proposes to achieve these objectives by investing substantially all its assets in common stocks of companies recognized as leaders in their respective industries with proven and capable management and that are providing significant products and services to their customers. The Capital Appreciation Fund's investments will be made predominantly in securities listed on registered securities exchanges, but it may purchase securities traded in the over-the-counter market. Investments may be made in other equity securities, including rights, warrants, preferred stock and those debt securities convertible into or carrying rights, warrants, or options to purchase common stock or to participate in earnings. The Capital Appreciation Fund may also hold cash or invest in short-term securities and may purchase U. S. government obligations with a simultaneous agreement by the seller to repurchase the securities at the original price plus accrued interest; provided that not more than 10% of the Capital Appreciation Fund's net assets may be invested in such repurchase agreements that mature in more than seven days. Repurchase agreements involve certain risks in the event of a default by the other party. The percentage of assets invested in different types of securities will vary from time to time depending upon the judgment of the management as to general market and economic conditions, fiscal and monetary policy and trends in interest rates and yields. The Capital Appreciation Fund's investments (other than cash and U. S. Government securities) are diversified among the securities issued by different companies and governments to the extent that no more than 5% of its total assets may be invested in securities issued by any one issuer. In addition, management generally selects investments for the Fund from among many different industries and may invest up to 25% of the Capital Appreciation Fund's assets in a single industry. The investment restrictions (page 1, Statement of Additional Information) include: limitations on borrowing money; no more than 10% of assets may be invested in securities with a limited trading market; and no more than 5% of assets may be invested in companies having a record of less than three years of continuous operation. These restrictions, and the investment objectives and policies described above, as well as most of the additional restrictions described in the Statement of Additional Information, cannot be changed without shareholder approval. While the Capital Appreciation Fund invests for long-term growth of capital and does not intend to place emphasis upon short-term trading profits, it will sell securities held short term to take advantage of special opportunities which might arise. Accordingly, the Capital Appreciation Fund has historically had a portfolio turnover rate of less than 100%. Generally, the Capital Appreciation Fund's expenses will increase in relative proportion to an increase in its portfolio turnover rate and may result in taxes on realized capital gains to be borne by the Fund or its shareholders. See "Dividends, Distributions, and Taxes" in this prospectus. The Capital Appreciation Fund's portfolio turnover rates are shown in its respective table under the caption "Condensed Financial Information". The Capital Appreciation Fund's investments are subject to market fluctuations and risks inherent in all securities. There is no assurance that the Capital Appreciation Fund's stated objectives will be realized. How To Purchase Shares Purchases of the Fund's shares are currently restricted to the separate accounts that are sponsored by the insurance subsidiaries of Jefferson-Pilot Corporation and any of their affiliates and to pension plans for employees of said companies and their affiliates. Shares are offered at the net asset value per share, which is calculated as described below. The offering price so determined becomes effective at the New York Stock Exchange closing time. Orders received prior to that time are confirmed at the offering price effective at that time, provided the order is received by the Fund prior to its close of business. How To Determine Net Asset Value. Net asset value per share is computed by each Fund as of the close of each day on which the New York Stock Exchange is open (4:00 p.m. New York time) and on any other day in which there is a sufficient degree of trading in the Fund's portfolio securities to materially affect net asset value. Net asset value is determined by dividing the value of the Fund's securities, plus any cash and other assets (including dividends accrued but not collected) less all liabilities (including accrued expenses), by the number of shares outstanding. The Capital Appreciation and Bond Funds each adhere to the following practices. A security listed or traded on an exchange is valued at its last sale price on that exchange where it is principally traded or, if there were no sales on that exchange, the last quoted sale on other exchanges or on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). Lacking any sales the security is valued at the mean of the last bid and ask prices reported on the exchange where the security is principally traded. All other securities for which over-the-counter market quotations are readily available are valued at their last sale price on NASDAQ or at the mean of the last bid and ask prices as of the close of trading. Fixed income securities are valued by using market quotations, or independent pricing services which use prices provided by market makers or estimates of market values obtained from yield data relating to similar classes of instruments or securities. Certain short-term debt securities are valued at amortized cost. Other securities, including restricted securities, and other assets are valued at fair value as determined in good faith and under authority by the Board of Directors. Who Manages The Funds The Board of Directors of each Fund is responsible for the overall supervision of the conduct of the Fund's business. Each Fund's investment adviser is JP Investment Management Company ("JP Management"), P.O. Box 21008, Greensboro, North Carolina 27420, a North Carolina corporation organized on January 13, 1970. JP Management is a wholly-owned subsidiary of Jefferson-Pilot Corporation, an insurance holding company. JP Management has served as an investment adviser to the Funds since their inception in 1982; to Jefferson- Pilot Capital Appreciation Fund, Inc., formerly JP Growth Fund, Inc., since that company's inception in 1970; and to Jefferson-Pilot Investment Grade Bond Fund, Inc., formerly JP Income Fund, Inc., since that company's inception in 1978. In addition to providing investment advice, JP Management or persons employed by or associated with JP Management are, subject to the authority of the Board of Directors, responsible for the overall management of the Funds' business affairs. As compensation for its services, JP Management receives from each Fund a fee at an annual rate of 1/2 of 1% of the Fund's average net asset value. The fee is payable monthly, on the basis of the Fund's average net asset value during the monthly period computed in the manner used in determining the public offering price of Fund shares. The ratio of the management fee to average net assets for the year ended December 31, 1995 was 0.5%. For the same period, the Capital Appreciation Fund's total operating expenses were .62% of average net assets, and the Bond Fund's total operating expenses were .70% of average net assets. JP Management has also agreed to serve as each Fund's stock transfer agent, dividend paying agent and to provide shareholder accounting, bookkeeping, pricing and related services to each Fund. Each Fund has agreed to reimburse JP Management for expenses incurred by JP Management in providing these services, including an amount intended to reimburse JP Management for that portion of its general and administrative expenses allocable to such services. Under service agreements between each Fund, JP Management, Jefferson-Pilot Life Insurance Company and Jefferson-Pilot Investments, Inc. ("Companies"), the Companies have agreed to furnish such personnel, services and facilities as may be reasonably needed by JP Management in connection with its performance as investment adviser and under the Agency Agreement, and JP Management has agreed to reimburse the Companies for their expenses in this regard. Dividends, Distributions and Taxes The Capital Appreciation Fund's policy is to pay dividends from net investment income semi-annually in February and August. The Bond Fund's policy is to pay dividends from net investment income quarterly in February, May, August and November. In addition, if the Capital Appreciation or Bond Fund has not paid out 98% of its net investment income by the end of the calendar year, its policy is to pay a dividend near the end of the calendar year which will, when added to the dividends previously paid in the year, equal or exceed 98% of its net investment income for the year. Each December the Capital Appreciation and Bond Funds make a distribution of the capital gains, if any, each realized during the 12-month period ended the preceding October 31. Unless the investor requests that payments be made in cash, dividends and distributions will be reinvested in additional Fund shares at net asset value as of the record date. Each Fund qualified in 1995 and plans to qualify in 1996 for the special tax treatment afforded a "regulated investment company" under Subchapter M of the Internal Revenue Code (the "Code"). In any fiscal year in which the Fund so qualifies and distributes at least 90% of its taxable net income, the Fund (but not shareholders) will be relieved of federal income tax on the income distributed. Dividends (i.e., distributions of any net investment income and any net realized short-term capital gains) are taxable to shareholders as ordinary income, whether received in cash or additional shares. Distributions of long-term capital gains (i.e., the excess of any net long-term capital gains over net short-term capital losses), if any, are taxable as long- term capital gains whether received in cash or shares without regard to how long a shareholder has held his shares. Gain or loss realized on a redemption by a shareholder will be treated as a capital gain or loss unless the shares are not capital assets in the shareholder's hands. The foregoing is a general summary of the applicable provisions of the Code and Treasury Regulations presently in effect. Dividends and distributions also may be subject to state or local taxes. Investors should consult their tax advisors for specific information. How To Redeem Shares Shareholders may redeem shares at the per share net asset value next determined after receipt of certificates endorsed by all parties (or trustees) in whose name the certificates are issued, and in proper form for transfer, with signatures guaranteed, at the office of JP Management. If no certificates have been issued to the shareholder, redemption may be accomplished by signed written request, the signature(s) of which JP Management may require be guaranteed. A redemption request should identify the account by number and should be signed by all parties (or trustees) in whose name the account is registered in the exact manner in which the account is registered. A check for payment for shares redeemed will be issued as early as possible, but not later than seven days after JP Management's receipt of the certificates or the written redemption request. Redemption of shares may be suspended or payment postponed at times (a) when the New York Stock Exchange is closed other than weekends and holidays, (b) when trading on said Exchange is restricted, (c) when an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or it is not reasonable for the Fund fairly to determine the value of its net assets, or during any other period when the Securities and Exchange Commission, by order, so permits; provided that applicable rules and regulations of the Securities and Exchange Commission shall govern as to whether the conditions prescribed in (b) or (c) exist. Neither Fund nor Investor Services makes a charge for redemption. Other broker-dealers may charge for handling redemption transactions but such charge can be avoided by requesting redemption by the Funds directly or through the Investor Services. The shareholder may, within thirty days of a redemption of shares of either Fund, reinvest the proceeds in shares of that Fund or the other Fund at net asset value without a sales charge. This privilege is permitted only once to each shareholder per year. Due to the high cost of maintaining accounts, each Fund reserves the right to redeem any account which has been in existence for at least one year and which has a balance of less than $250. A shareholder will be notified in writing of either Fund's intention to redeem and given 60 days to make additional share purchases before the redemption is processed. Additional Information The Capital Appreciation and Bond Funds each has authorized capital stock of 10,000,000 shares of $1.00 par value. Each share entitles the holder to participate equally in dividends and distributions declared by the Fund and in its remaining net assets on liquidation after satisfaction of outstanding liabilities. Fund shares are fully paid and nonassessable when issued; have no preemptive or conversion rights; are transferable without restriction; and are redeemable at net asset value. On matters submitted for a shareholder vote, each shareholder is entitled to one vote for each share owned. Shares have cumulative voting rights which means that in all elections of directors each shareholder has the right to cast a number of votes equal to the number of shares owned multiplied by the number of directors to be elected and each shareholder may cast the whole number among two or more candidates. Fractional shares have proportionally the same rights as do full shares. In the opinion of the staff of the Securities and Exchange Commission, the use of this combined prospectus may make each Fund liable for any misstatement or omission in this prospectus regardless of the Fund to which it pertains. JP FAMILY OF FUNDS Investment Adviser and Transfer Agent JP Investment Management Company 100 North Greene Street Greensboro, North Carolina 27401 Custodian Investors Fiduciary Trust Company 127 West Tenth Street Kansas City, Missouri 64105 Certified Public Accountants McGladrey & Pullen, L.L.P. 555 Fifth Avenue - 8th Floor New York, New York 10017-2416 Direct Inquiries To: JP Investment Management Company Post Office Box 22086 Greensboro, North Carolina 27420 JP Capital Appreciation Fund, Inc. 100 North Greene Street Greensboro, North Carolina 27401 Telephone 1-800-458-4498 Statement of Additional Information May 1, 1996 Page Table of Investment Objectives and Policies . . . . . . B-1 Contents Investment Restrictions. . . . . . . . . . . . B-1 The Investment Adviser . . . . . . . . . . . . B-3 Brokerage. . . . . . . . . . . . . . . . . . . B-4 Purchase and Redemption of Shares. . . . . . . B-5 The Fund's Directors and Officers. . . B-5 General Information. . . . . . . . . . . . . . B-7 Financial Statements . . . . . . . . . . . . . B-8 ________________________________________________________________________ This Statement of Additional Information is not a prospectus but supplements and should be read in conjunction with the current Prospectus dated May 1, 1996 of JP Capital Appreciation Fund, Inc. ("Fund"). A copy of the Prospectus may be obtained by contacting the Fund at the address or telephone number shown above. Investment Objectives and Policies The Fund's investment objectives and how it hopes to achieve those objectives are described on page one of the Prospectus. There can be no assurance that these objectives will be achieved. The objectives may not be changed without the approval of a majority of the Fund's shareholders. A majority means: the lesser of (i) a majority of the Fund's outstanding voting securities, or (ii) 67 percent of the shares present at a shareholder's meeting at which more than 50 percent of the outstanding shares are present or represented by proxy. Investment Restrictions In addition to, or amplification of, the investment restrictions set forth in the Prospectus, the Fund may not: 1. Issue senior securities. 2. Purchase securities on margin or sell short, except it may obtain such short-term credits as are necessary for the clearance of transactions. 3. Write, purchase or sell puts, calls or combinations thereof. 4. Borrow money except that, as a temporary measure for extraordinary or emergency purposes and not for investment purposes, the Fund may borrow up to 5% of the value of its total assets. 5. Act as an underwriter of securities of other issuers, except that the Fund may invest up to 10% of the value of its net assets (at time of investment) in portfolio securities which the Fund might not be free to sell to the public without registration of such securities under the Securities Act of 1933. It may be difficult for the Fund to sell restricted securities at prices representing their fair market value except pursuant to an effective registration statement under the Securities Act of 1933. If registration of restricted securities is necessary, a considerable period of time may elapse between the decision to sell and the effective date of the registration statement. During that time the price of securities to be sold may be affected by adverse market conditions. In purchasing restricted securities, the Fund will endeavor to have the issuer agree to register the securities on request and pay the registration expenses. The Fund may be obliged, however, to bear all or part of these expenses. The Fund's Board of Directors will value restricted securities in good faith in determining the net asset value of Fund shares. The valuations will be made on an individual basis in light of the particular circumstances affecting each restricted security, including market value (if any), the period of time the restrictions are in force, and other relevant factors. The Fund has not for the past 12 months owned any restricted securities and has no present intention of acquiring such securities. 6. Purchase or sell real estate or interests in real estate, nor interest in real estate investment trusts or real estate limited partnerships (however, the Fund may purchase interests in real estate in investment trusts whose securities are registered under the Securities Act of 1933 and readily marketable). 7. Engage in the purchase and sale of commodities or commodity contracts. 8. Make loans, except to the extent that either of the following is deemed to constitute a loan: (a) purchases of a portion of an issue of a debt security distributed to the public; or (b) investments in "repurchase agreements". 9. Purchase the securities (except U.S. Government securities) of any one issuer if immediately after and as a result of such purchase (a) the value of the holdings of the Fund in the securities of such issuer exceeds 5% of the value of the Fund's total assets, or (b) the Fund owns more than 10% of the outstanding voting securities of any one class of securities of such issuer. 10. Purchase the securities of open-end investment companies. The Fund may purchase the securities of other investment companies provided that (a) immediately after such purchase the Fund and companies controlled by the Fund, or other investment companies having the same investment adviser as the Fund, do not own more than 10% of the investment company whose securities are being purchased; (b) the Fund cannot invest more than 10% of its total assets in the securities of other investment companies; and (c) such purchases are made in the open market where no commission or profit to a sponsor or dealer results other than the customary broker's commission. The restrictions of the preceding sentence do not apply in connection with a merger, consolidation, or plan of reorganization. 11. Mortgage, pledge, hypothecate, or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund. 12. Participate on a joint or joint and several basis in any trading account in securities or effect a short sale of any security, except in connection with an underwriting in which it is a participant in the circumstances specified in Paragraph 5. 13. Purchase or retain the securities of any issuer if those officers and directors of the Fund, its adviser or underwriter owning individually more than 0.5% of the securities of such issuer together own more than 5% of the securities of such issuer. 14. Invest in companies for the purpose of exercising control or management. 15. Invest in foreign securities other than securities issued by Canadian companies. 16. Invest in interests of oil, gas, or other mineral exploration or development programs. The investment restrictions in Paragraphs 1 through 13 above and on page one of the Prospectus are fundamental policies and may not be changed without the approval of a majority of the Fund's shareholders. The policies mentioned in Paragraphs 14-16 above are not fundamental and may be changed without shareholder approval. While the Fund will not purchase illiquid, including restricted, securities if such purchase would cause its then total investment in such securities to exceed 10% of the value of its net assets, the Fund could through the decrease in values of its other securities, for example, at sometime own illiquid, including restricted, securities having a value in excess of 10% of the value of its net assets. In that event, the Fund will promptly take such action as its Board of Directors deems appropriate to assure the continued liquidity of the Fund. The Investment Adviser The Fund's investment adviser, JP Investment Management Company ("JP Management"), like Investor Services, is a wholly-owned subsidiary of Jefferson-Pilot Corporation, an insurance holding company. E.J. Yelton, John C. Ingram, W. Hardee Mills, and J. Gregory Poole are officers and/or directors of the Fund and of JP Management. Their positions with the Fund and/or JP Management are (with the Fund position shown first) President, Treasurer and Director/President and Director; Director/Senior Vice President, Treasurer and Director; Vice President/Vice President; and Secretary/Secretary, respectively. JP Management's services are provided under an Investment Advisory Agreement with the Fund dated November 12, 1982. Under the terms of the agreement, JP Management provides personnel, including executive officers for the Fund, and compensates the Fund's directors who are affiliated with JP Management or its affiliated companies. JP Management also furnishes, or causes to be furnished, at its own expense office space, facilities and necessary executive and other personnel for conducting the Fund's affairs and pays all expenses incurred by it or the Fund in connection with the administration of the investment affairs of the Fund. The Fund pay all other corporate expenses incurred in its operations, including its taxes (if any), brokerage commissions on portfolio transactions, expenses relating to the issue, transfer, redemption and pricing of shares, disbursement of dividends and other distributions, custodian fees, auditing and legal expenses, compensation of unaffiliated directors, and expenses in connection with meetings of directors and shareholders. As compensation for its services, JP Management receives from the Fund a fee at an annual rate of 1/2 of 1% of the Fund's average net asset value. The fee is payable monthly, on the basis of the Fund's average daily net asset value during the monthly period computed in the manner used in determining the public offering price of Fund shares (see "How To Determine Net Asset Value" in the prospectus). If, in any fiscal year, the total of the fund's ordinary business expenses (including the investment advisory fee but excluding taxes, portfolio brokerage commissions and interest) exceed 1% of the Fund's average daily net asset value JP Management pays the excess. The payment of the investment advisory fee at the end of any month is reduced or postponed so that at the end of any month there is not any accrued but unpaid liability under this expense limitation. The Fund's ordinary business expenses did not, during fiscal years 1993, 1994 or 1995 exceed 1% of its average daily net asset value. The amount of JP Management's advisory fee for fiscal year 1993 was $252,703, for fiscal 1994 was $291,744, and for fiscal year 1995 was $325,646. JP Management has also agreed in an Agency Agreement dated November 12, 1982 to serve as the Fund's stock transfer agent, dividend paying agent and to provide shareholder accounting, bookkeeping pricing and related services to the Fund. The Fund has agreed to reimburse JP Management for expenses incurred by JP Management in providing these services, including an amount intended to reimburse JP Management for that portion of its general administrative expenses allocable to such services. The amount paid to JP Management by the Fund under the Agency Agreement for fiscal year 1993 was $9,365, for fiscal year 1994 was $18,294, and for fiscal year 1995 was $18,200. Under a Service Agreement between the Fund, JP Management, Jefferson- Pilot Life Insurance Company and Jefferson-Pilot Investments, Inc. ("Companies"), which agreement is dated January 25, 1984, the Companies have agreed to furnish such personnel, services and facilities as may be reasonably needed by JP Management in connection with its performance under the Investment Advisory Agreement and Agency Agreement, and JP Management has agreed to compensate the Companies for their services in this regard. Because of the arrangements under the Service Agreement, the Companies might be deemed to be investment advisers of the Fund, and the Service Agreement an investment advisory contract, for purposes of the Investment Company Act of 1940. However, the Companies have been advised by counsel that they are not by reason of such arrangements investment advisers under that Act. For the years ended December 31, 1993, 1994 and 1995 the aggregate amount paid by JP Management to the Companies under this Service Agreement and similar service agreements between JP Management, the Companies and other mutual funds managed by JP Management was $352,095, $444,313, and $347,048, respectively. The Investment Advisory Agreement and the Service Agreement may, independently of each other, continue in force from year to year if the continuance of each such agreement is approved at least annually by the Fund's Board of Directors, including the specific approval with respect to the continuance of each such agreement of a majority of the Directors who are not parties to the particular agreement or interested persons (as the term is defined in the Investment Company Act of 1940) of any such party, cast in person at a meeting called for the purpose of voting on approval of the particular agreement. The Investment Advisory Agreement and the Service Agreement may each be terminated at any time without the payment of any penalty on 60 days' notice to the other parties either by a vote of the Fund's Board of Directors or by a vote of the majority of the Fund's shareholders. The Investment Advisory Agreement and the Service Agreement will automatically terminate in the event of their assignment. The Investment Advisory Agreement may be terminated by JP Management on 90 days' written notice to the Fund. The Service Agreement may be terminated on 90 days' written notice to the Fund and the other parties by JP Management or any of the Companies. The Fund's name has been adopted with the permission of Jefferson-Pilot Corporation and its continued use is subject to the right of Jefferson-Pilot Corporation to withdraw this permission at any time. If the permission is withdrawn, but JP Management proposes to continue as the Fund's investment adviser, the Investment Advisory Agreement will be submitted to Fund shareholders for approval. Brokerage Transactions on stock exchanges and other agency transactions involve the payment by the Fund of negotiated brokerage commissions. Such commissions vary among different brokers. Also, a particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. There is generally no stated commission in the case of securities traded in the over-the-counter markets, or for fixed income securities (which currently includes most of the Fund's portfolio transactions), but the price paid by the Fund usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid by the Fund includes a disclosed, fixed commission or discount retained by the underwriter or dealer. JP Management, which places all orders for the purchase and sale of securities for the Fund, has no formula for the allocation of brokerage business in the purchase and sale of securities for the Fund. Purchase and sale orders are placed with the primary objective of obtaining the best execution. Subject to the foregoing, orders are placed with broker-dealer firms giving consideration to the quality, quantity and nature of the firms' professional services which include execution, clearance procedures, and statistical data and research information to the Fund and JP Management. In pursuing this objective, JP Management may purchase securities in the over-the-counter market, utilizing the services of principal market makers unless better execution can be obtained elsewhere, and may purchase securities listed on an exchange from non-exchange members in transactions off the exchange. Although any statistical, research or other information and services provided by broker- dealers may be useful to JP Management, its dollar value is indeterminable and its availability does not serve to materially reduce JP Management's normal research activities or expenses. Any such information, which includes such matters as general economic and security market reviews, industry and company reviews, evaluations of securities and recommendations as to the purchase and sale of securities, must still be analyzed and reviewed by JP Management's personnel. JP Management may, in recognition of the value of brokerage or research services provided by the broker, pay such broker a brokerage commission in excess of that which another broker might have charged for effecting the same transaction. JP Management will not, however, effect a transaction at such higher commission unless it determines in good faith that the amount of the higher commission is reasonable in relation to the value to the Fund of the brokerage and research services being provided. Statistical research or other information or services received by JP Management from broker-dealers may be used by JP Management in servicing various of its clients (including the Fund), although not all these services are necessarily useful and of value in servicing the Fund. The total amount of brokerage commission on purchase and sale transactions in fiscal year 1993 was $63,883, in fiscal year 1994 was $215,951, and in fiscal year 1995 was $170,452, one hundred percent of which was paid to brokers furnishing statistical data research information to JP Management. Purchase and Redemption of Shares Reference is made to the information in the Prospectus under "How to Purchase Shares" and "How to Redeem Shares" which describes the manner in which the net asset value of the shares of the fund is computed at the close of trading on each day the New York Stock Exchange is open for trading, and on any other day in which there is a sufficient degree of trading in the Fund's portfolio securities to materially affect net asset value, and how the offering price is determined based on such net asset value. It also sets forth specific directions for the redemption of shares at net asset value. The Fund's shares are not valued on New Year's Day, President's Day, Good Friday, Memorial Day, July 4, Labor Day, Thanksgiving Day or Christmas Day, as the New York Stock Exchange closes on those days. The Fund's Directors and Officers The following list of the Fund's directors and executive officers, all of whom are also directors and/or officers of Jefferson-Pilot Capital Appreciation Fund, Inc., JP Investment Grade Bond Fund, Inc., and Jefferson- Pilot Investment Grade Bond Fund, Inc., includes information as to their principal occupations during the past five years and their principal affiliations. Name, Address & Position with Fund Principal Occupation During Past 5 years E. J. Yelton* Senior Vice President - Director, President and Treasurer Investments, Jefferson-Pilot 100 North Greene Street Corporation and Executive Greensboro, North Carolina Vice President - Investments, Jefferson-Pilot Life Insurance Company since October 1993; prior thereto, President and CEO, ING North America Investment Centre/Member of ING Group; Director, Jefferson-Pilot Investor Services; President and Director, JP Management John C. Ingram* Senior Vice President, Director Jefferson-Pilot Life Insurance 100 North Greene Street Company since November 1988 and Greensboro, North Carolina prior thereto, Vice President; Senior Vice President, Treasurer and Director, JP Management Richard Wolcott McEnally Professor of Investment 401 Brookside Drive Banking, University of North Chapel Hill, North Carolina Carolina at Chapel Hill William Edward Moran Senior Vice President, Director Connors Investor Services, Inc 5206 Barnfield Road since January 1995; prior thereto, Greensboro, North Carolian Chancellor, University of North Carolina at Greensboro J. Lee Lloyd Managing Director, Lloyd Director & Company since April, 1991; 16 Irving Park Lane prior thereto, Vice Greensboro, North Carolina President, Goldman, Sachs & Co. J. Gregory Poole Assistant Secretary, Secretary Jefferson-Pilot Corporation, 100 North Greene Street since January 1994; Associate Greensboro, North Carolina Counsel and Assistant Secretary, Jefferson-Pilot Life Insurance Company since February 1994; Attorney and Assistant Secretary, January 1994; and prior thereto, Attorney Messrs. Yelton and Ingram are interested persons (as that term is defined in the Investment Company Act of 1940, as amended) of the Fund. The following officers of the Fund also serve as officers and/or directors of JP Management and Investor Services: E. J. Yelton, President and Treasurer of the Fund, is President and a Director of JP Management and a Director of Investor Services; W. Hardee Mills, Jr., Vice President of the Fund, is Vice President of JP Management; and J. Gregory Poole, Secretary of the Fund, is Secretary of Investor Services and JP Management. Each director of the Fund also services as director for 3 other funds in the Jefferson-Pilot Investment Management Fund Complex. Messrs. Yelton, Poole and Mills hold positions with the other companies in the Jefferson-Pilot Investment Management Fund Complex similar to the positions held with the Fund. The other companies within the Fund Complex have the same investment adviser as does the Fund. The table on the following page provides information regarding the compensation each nominee for director was paid by the Fund and the Fund Complex for the year ended December 31, 1995.
COMPENSATION TABLE Pension Estimate Total Retirement Annual Compensation Aggregate Benefits Accrued Benefits from Fund and Name of Person, Compensation as Part of upon 3 other funds Position from Fund Fund Expenses Retirement in Complex John C. Ingram Director $ 0 $ 0 $ 0 $ 0 J. Lee Lloyd Director 1,220 0 0 4,880 Richard W. McEnally Director 1,220 0 0 4,880 William E. Moran Director 1,220 0 0 4,880 E. J. Yelton Director, President, Treasurer 0 0 0 4,880
The Board of Directors met five times during the year. During the year ended December 31, 1995, director not employed by the Fund or its affiliates received a $100 director's fee for each meeting attended, amounting to an aggregate of $500. In addition, each of the non-affiliated directors receives a fee of $720 per year, payable in equal monthly installments. General Information As of April 12, 1996 Jefferson-Pilot Life Insurance Company owned beneficially 15,000 share or less than 1% of the Fund's outstanding shares. That company owns of record all of the Fund's outstanding shares; the shares not owned beneficially are owned for that company's separate account. The beneficial owner of those shares are the owners of variable annuity contracts issued by the company's separate account. Jefferson-Pilot Life Insurance Company, like JP Investment Management Company, is a wholly-owned subsidiary of Jefferson-Pilot Corporation, Greensboro, North Carolina. Investors Fiduciary Trust Co., 127 W. 10th Street, 12th Floor, Kansas City, MO 64105, acting as custodian, has custody of all the Fund's securities and cash. That company attends to the collection of principal and income, and payment for and collection of proceeds of securities bought and sold by the Fund. The Fund's independent accountants are McGladrey & Pullen, LLP, 555 Fifth Avenue, 8th Floor, New York, New York 10017-2416, who audit and report on the Fund's annual financial statements, review certain regulatory reports, prepare the Fund's income tax returns, and perform other professional accounting, auditing, tax and advisory services when engaged to do so by the Fund. The selection of independent accountants will be submitted annually to the Fund's shareholders for approval. Shareholders will receive annual audited financial statements and semi-annual unaudited financial statements. Statement of Assets and Liabilities December 31, 1995 Assets Investment in securities at value (cost $57,777,456) $ 72,620,683 Cash 234,191 Receivables: Capital shares sold 73,582 Dividends 101,730 Total Assets 73,030,186 Liabilities Payables: Securities purchased 1,354,110 Accrued expenses 74,577 Total Liabilities 1,428,687 Net Assets Net Assets, equivalent to $18.96 per share on 3,776,774 shares of capital stock outstanding (Note 2) $ 71,601,499 See Notes to Financial Statements. Statement of Operations Year Ended December 31, 1995 Investment Income: Interest $ 263,977 Dividends 1,469,132 Total income 1,733,109 Expenses: Investment Adviser's fee (Note 3) 325,646 Custodian and Transfer Agent fees 26,499 Directors' fees 3,660 Professional fees 25,800 Shareholder accounting services (Note 3) 18,200 Other 2,197 Total expenses 402,002 Less expenses offset (Note 5) (18,225) Net expenses 383,777 Investment income _ net 1,349,332 Realized and Unrealized Gain on Investments: Net realized gain on investments 4,429,313 Unrealized appreciation of investments for the year 12,830,999 Net gain on investments 17,260,312 Net increase in net assets from operations $18,609,644 See Notes to Financial Statements. Statements of Changes in Net Assets Years Ended December 31, 1995 and 1994
1995 1994 Increase in Net Assets from: Operations: Investment income _ net $ 1,349,332 $ 1,187,225 Net realized gain on investments 4,429,313 7,856,540 Unrealized appreciation (depreciation) for the year 12,830,999 ( 11,642,733) Net increase (decrease) in net assets from operations 18,609,644 ( 2,598,968) Dividends paid to shareholders from: Investment income _ net ( 1,318,791) ( 574,936) Net realized gain on investments ( 7,845,335) ( 1,564,793) Capital share transactions (Note 2) 3,796,147 6,473,023 Total increase 13,241,665 1,734,326 Net Assets Beginning of year 58,359,834 56,625,508 End of year (including undistributed net investment income of $693,205 and $662,664, respectively) $71,601,499 $58,359,834
See Notes to Financial Statements. Statement of Investments December 31, 1995
Number of Shares Common Stocks _ 87.34% or Principal Amount Value Aerospace/Defense _ 1.79% Lockheed-Martin Corporation 9,300 $ 734,700 Loral Corporation 16,000 566,000 Auto & Truck _ .17% Honda Motor Company, Ltd. 3,000 126,000 Banks _ 4.04% Bank of New York Company, Inc. 19,400 945,750 Chase Manhattan Corporation 10,000 606,250 Citicorp 20,600 1,385,350 Biotechnology _ 1.61% Amgen, Inc. 19,800 1,173,150* Broadcasting _ 2.32% Capital Cities/ABC, Inc. 11,600 1,431,150 US West Media Group, Inc. 13,400 254,600* Chemicals _ Major _3.76% Dow Chemical Company 10,400 731,900 Monsanto Company 16,300 1,996,750 Computer Software _ 1.39% Informix Corporation 10,000 300,000* Silicon Graphics Computer System 13,800 379,500* Sybase, Inc. 9,200 328,900* Conglomerates _ .92% AlliedSignal, Inc. 14,000 665,000 Drugs _ 5.90% Lilly (Eli) & Company 10,090 567,562 Merck & Company, Inc. 9,000 591,750 Mylan Laboratories, Inc. 29,400 690,900 Pharmacia-Upjohn, Inc. 27,000 1,046,250 Schering-Plough Corporation 25,400 1,390,650 Electric Equipment _ Major _ 3.51% General Electric Company 25,000 1,800,000 Kuhlman Corporation 60,000 750,000 Electronics _ Instrument _ 2.42% General Instrument Corporation 14,000 327,250* 3Com Corporation 15,000 699,375* Varian Associates, Inc. 15,300 730,575 Electronics _ Semi _ 1.64% LSI Logic Corporation 11,800 386,450* Texas Instruments, Inc. 15,600 807,300 Entertainment _ .91% Disney, (Walt) & Company 11,200 660,800 Financial Services _ .48% Money Store, Inc. 22,500 348,750 Foods _ 1.98% Sara Lee Corporation 45,000 1,434,375 Footwear _ 1.34% Nike, Inc. 14,000 974,750 Hospital _ Management _ 3.04% Columbia/HCA Healthcare Corporation 16,600 842,450 Medaphis Corporation 21,000 777,000* Vencor, Inc. 18,000 585,000* Hospital _ Supplies _ 2.69% Baxter International, Inc. 10,000 418,750 Guidant Corporation 8,916 376,701 Johnson & Johnson 13,500 1,155,938 Information Processing _ 2.02% Equifax, Inc. 68,600 1,466,325 Insurance _ Multi-Line _ 4.31% Aflac, Inc. 17,600 763,400 Allstate Corporation 20,500 843,063 American General Corporation 12,200 425,475 CIGNA Corporation 10,600 1,094,450 Insurance _ Property & Casualty _ .82% Prudential Reinsurance Holdings, Inc. 25,500 596,063 Machinery _ Agricultural _ .48% Varity Corporation 9,300 345,262* Merchandising _ Department _ 1.57% Dayton Hudson Corporation 6,400 480,000 Federated Department Stores, Inc. 24,000 660,000* Merchandising _ Drugs _ 1.01% Eckerd Corporation 16,500 736,312* Merchandising _ Special _ 2.17% Borders Group, Inc. 43,500 804,750* Circuit City Stores, Inc. 28,000 773,500 Miscellaneous Consumer Cyclical _ .46% Kelly Services, Inc. 12,000 333,000 Miscellaneous Financial _ 4.77% Countrywide Credit Industries, Inc. 68,000 1,479,000 Dean Witter, Discover & Company 11,000 517,000 Federal Home Loan Mortgage Corporation 8,000 668,000 First USA, Inc. 18,000 798,750 Natural Gas _ Diversified _ .65% Questar Corporation 14,000 469,000 Oils _ Integrated Domestic _ 5.40% Amoco Corporation 15,600 1,121,250 Atlantic Richfield Company 13,600 1,506,200 Enron Oil & Gas Company 29,500 708,000 Phillips Petroleum Company 17,200 586,950 Oils _ Integrated International _ 3.91% Mobil Corporation 12,100 1,355,200 Royal Dutch Petroleum Company 10,500 1,481,812 Oil Services _ .66% Oceaneering International, Inc. 37,000 476,375* Paper & Forest Products _ .30% Sonoco Products Company 8,400 220,500 Railroads _ .88% CSX Corporation 14,000 638,750 Telecommunications _ 1.27% DSC Communications Corporation 25,000 921,875* Textile _ Apparel _ 1.08% Intimate Brands, Inc. 20,200 303,000 Ross Stores, Inc. 25,000 478,125 Tobacco _ 1.74% Philip Morris Companies, Inc. 14,000 1,267,000 Transportation _ Miscellaneous _ .45% Federal Express Corporation 4,400 325,050* Utilities _ Communications _ 6.34% Bell Atlantic Corporation 6,300 421,312 BellSouth Corporation 12,600 548,100 Century Telephone Enterprises, Inc. 14,000 444,500 Frontier Corporation 43,000 1,290,000 SBC Communications, Inc. 6,400 368,000 Sprint Corporation 26,500 1,056,688 US West Communications Group, Inc. 13,400 479,050 Utilities _ Electric _ 7.14% American Electric Power Company, Inc. 11,550 467,775 CMS Energy Corporation 16,200 483,975 Carolina Power & Light Company 6,700 231,150 CINergy Corporation 22,800 698,250 Consolidated Edison Company of New York, Inc. 9,900 316,800 Dominion Resources, Inc. 7,650 315,563 Entergy Corporation 19,800 579,150 FPL Group, Inc. 13,600 630,700 Illinova Corporation 15,900 477,000 Northeast Utilities 14,500 353,438 PECO Energy Company 8,300 250,037 Public Service Enterprise Group, Inc. 12,550 384,344 Total Common Stocks (Cost _ $48,612,918+) 63,426,845 Preferred Stocks _ 1.93% Tobacco _ 1.93% RJR Nabisco Holdings, Inc. Pfd. C. 220,000 1,402,500 Total Preferred Stocks (Cost _ $1,373,200+) 1,402,500 Short-Term Securities _ 10.73% Chevron Oil Finance Company, 1/08/96 $ 250,000 249,686 du Pont (E.I.) de Nemours & Company, 1/10/96 2,500,000 2,495,972 Ford Motor Credit Company, 1/10/96 1,700,000 1,697,280 General Electric Capital Corporation, 1/02/96 1,750,000 1,749,436 IBM Credit Corporation, 1/04/96 1,600,000 1,598,964 Total Short-Term Securities (Cost _ $7,791,338+) 7,791,338 Total Investments (Cost _ $57,777,456+) $72,620,683
*Non-income producing. +Aggregate cost for Federal income tax purposes is the same. See Notes to Financial Statements. Notes to Financial Statements Note 1. Significant Accounting Policies: JP Capital Appreciation Fund, Inc. is an open-end management investment company registered under the Investment Company Act of 1940. The Fund's primary investment objective is long-term capital appreciation. The Fund seeks to achieve this objective by investing substantially all of its assets in common stocks of companies recognized as leaders in their respective industries, however, other types of securities may be purchased depending upon the judgement of management. The following is a summary of significant accounting policies followed in the preparation of its financial statements: Valuation of Securities _ Investments are stated at value based on the closing prices reported on national securities exchanges on the last business day of the year, or for over-the-counter securities, at the last bid price, except that short-term securities are stated at amortized cost which approximates value. Federal Income Taxes _ It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable income to its shareholders. Therefore, no provision for Federal income tax is required. Use of Estimates _ The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. General _ Securities transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is accrued as earned. Note 2. Capital Stock: At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were authorized and capital paid-in amounted to $51,638,775. Transactions in capital stock were as follows:
Year Ended Year Ended December 31, 1995 December 31, 1994 Shares Amount Shares Amount Sold 425,888 $ 7,340,776 547,769 $ 9,476,781 Issued on reinvestment of dividends 620,704 9,124,856 120,270 2,129,830 Redeemed (749,300) ( 12,669,485) (301,292) ( 5,133,588) Net increase 297,292 $ 3,796,147 366,747 $ 6,473,023
Note 3. Investment Advisory Fee and other Transactions with Affiliates: JP Investment Management Company received investment advisory fees of $325,646 during the year ended December 31, 1995. This fee is computed at the annual rate of 0.5% of the Fund's average daily net asset value. If the Fund's expenses, excluding interest and taxes, exceed 1% of the average daily net asset value, the Investment Adviser will pay the excess. No such reimbursement was required during the year. Expenses include $18,200 of fees paid to JP Investment Management Company under an Agency Agreement to provide shareholder accounting services. Note 4. Investment Transactions: Purchases and sales of investment securities, excluding short-term securities, were $38,620,653 and $44,365,481, respectively. Realized gains and losses are reported on an identified cost basis. Accumulated undistributed net realized gain at December 31, 1995 was $4,426,292. At December 31, 1995, the aggregate gross unrealized appreciation and depreciation of portfolio securities was as follows: Unrealized appreciation $15,175,922 Unrealized depreciation ( 332,695) Net unrealized appreciation $14,843,227 Note 5. Expense Offset Arrangement: The Fund has an arrangement with its custodian and transfer agent whereby credits earned on cash balances maintained at the custodian are used to offset custody and transfer agent charges. These credits amounted to $18,225 for the year ended December 31, 1995. Note 6. Selected Financial Information:
Years Ended December 31, 1995 1994 1993 1992 1991 Per share operating performance (for a share outstanding throughout the year) Net asset value, beginning of year $16.77 $18.19 $18.17 $17.69 $13.76 Income from investment operations: Net investment income .36 .34 .28 .29 .37 Net realized and unrealized gain (loss) on investments 4.45 ( 1.10) 1.26 .75 3.91 Total from investment operations 4.81 ( .76) 1.54 1.04 4.28 Less distributions: Dividends from net investment income ( .36) ( .17) ( .27) ( .33) ( .35) Distributions from net realized gains ( 2.26) ( .49) ( 1.25) ( .23) _ Total distributions ( 2.62) ( .66) ( 1.52) ( .56) ( .35) Net asset value, end of year $18.96 $16.77 $18.19 $18.17 $17.69 Total return 33.39% ( 4.34)% 9.25% 6.16% 31.61% Ratios/supplemental data: Net assets, end of year (000 omitted) $71,601 $58,360 $56,625 $45,480 $37,319 Ratios to average net assets: Expenses .62% .58% .60% .63% .62% Net investment income 2.07 2.03 1.55 1.68 2.37 Portfolio turnover rate 64.13 126.70 23.93 48.72 36.71
Independent Auditor's Report To the Board of Directors and Shareholders JP Capital Appreciation Fund, Inc. We have audited the accompanying statement of assets and liabilities and the statement of investments of JP Capital Appreciation Fund, Inc. as of December 31, 1995, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the selected financial information for each of the five years in the period then ended. These financial statements and selected financial information are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and selected financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and selected financial information are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and selected financial information referred to above present fairly, in all material respects, the financial position of JP Capital Appreciation Fund, Inc. as of December 31, 1995, the results of its operations, the changes in its net assets, and the selected financial information for the periods indicated, in conformity with generally accepted accounting principles. /S/ McGladrey & Pullen, LLP New York, New York January 11, 1996 JP Investment Grade Bond Fund, Inc. 100 North Greene Street Greensboro, North Carolina 27401 Telephone 1-800-458-4498 _______________________________________________________________ Statement of Additional Information May 1, 1996 _______________________________________________________________ Page Table of Investment Objectives and PoliciesB-1 Contents Investment Restrictions B-1 The Investment Adviser B-3 Brokerage B-4 Purchase and Redemption of SharesB-5 The Fund's Directors and OfficersB-5 General Information B-7 Financial Statements B-8 ___________________________________________________ This Statement of Additional Information is not a prospectus but supplements and should be read in conjunction with the current Prospectus dated May 1, 1996 of JP Investment Grade Bond Fund, Inc. ("Fund"). A copy of the Prospectus may be obtained by contacting the Fund at the address or telephone number shown above. Investment Objectives and Policies The Fund's investment objectives and how it hopes to achieve those objectives are described on page one of the Prospectus. There can be no assurance that these objectives will be achieved. The objectives may not be changed without the approval of a majority of the Fund's shareholders. A majority means: the lesser of (i) a majority of the Fund's outstanding voting securities, or (ii) 67 percent of the shares present at a shareholder's meeting at which more than 50 percent of the outstanding shares are present or represented by proxy. Investment Restrictions In addition to, or amplification of, the investment restrictions set forth in the Prospectus, the Fund may not: 1. Issue senior securities. 2. Purchase securities on margin or sell short, except it may obtain such short-term credits as are necessary for the clearance of transactions. 3. Write, purchase or sell puts, calls or combinations thereof. 4. Borrow money except that, as a temporary measure for extraordinary or emergency purposes and not for investment purposes, the Fund may borrow up to 5% of the value of its total assets. 5. Act as an underwriter of securities of other issuers, except that the Fund may invest up to 10% of the value of its net assets (at time of investment) in portfolio securities which the Fund might not be free to sell to the public without registration of such securities under the Securities Act of 1933. It may be difficult for the Fund to sell restricted securities at prices representing their fair market value except pursuant to an effective registration statement under the Securities Act of 1933. If registration of restricted securities is necessary, a considerable period of time may elapse between the decision to sell and the effective date of the registration statement. During that time the price of securities to be sold may be affected by adverse market conditions. In purchasing restricted securities, the Fund will endeavor to have the issuer agree to register the securities on request and pay the registration expenses. The Fund may be obliged, however, to bear all or part of these expenses. The Fund's Board of Directors will value restricted securities in good faith in determining the net asset value of Fund shares. The valuations will be made on an individual basis in light of the particular circumstances affecting each restricted security, including market value (if any), the period of time the restrictions are in force, and other relevant factors. The Fund has not for the past 12 months owned any restricted securities and has no present intention of acquiring such securities. 6. Purchase or sell real estate or interests in real estate, nor interest in real estate investment trusts or real estate limited partnerships (however, the Fund may purchase interests in real estate in investment trusts whose securities are registered under the Securities Act of 1933 and readily marketable). 7. Engage in the purchase and sale of commodities or commodity contracts. 8. Make loans, except to the extent that either of the following is deemed to constitute a loan: (a) purchases of a portion of an issue of a debt security distributed to the public; or (b) investments in "repurchase agreements". 9. Purchase the securities (except U.S. Government securities) of any one issuer if immediately after and as a result of such purchase (a) the value of the holdings of the Fund in the securities of such issuer exceeds 5% of the value of the Fund's total assets, or (b) the Fund owns more than 10% of the outstanding voting securities of any one class of securities of such issuer. 10. Purchase the securities of open-end investment companies. The Fund may purchase the securities of other investment companies provided that (a) immediately after such purchase the Fund and companies controlled by the Fund, or other investment companies having the same investment adviser as the Fund, do not own more than 10% of the investment company whose securities are being purchased; (b) the Fund cannot invest more than 10% of its total assets in the securities of other investment companies; and (c) such purchases are made in the open market where no commission or profit to a sponsor or dealer results other than the customary broker's commission. The restrictions of the preceding sentence do not apply in connection with a merger, consolidation, or plan of reorganization. 11. Mortgage, pledge, hypothecate, or in any manner transfer, as security for indebtedness, any securities owned or held by the Fund. 12. Participate on a joint or joint and several basis in any trading account in securities or effect a short sale of any security, except in connection with an underwriting in which it is a participant in the circumstances specified in Paragraph 5. 13. Purchase or retain the securities of any issuer if those officers and directors of the Fund, its adviser or underwriter owning individually more than 0.5% of the securities of such issuer together own more than 5% of the securities of such issuer. 14. Invest in companies for the purpose of exercising control or management. 15. Invest in foreign securities other than securities issued by Canadian companies. 16. Invest in interests of oil, gas, or other mineral exploration or development programs. The investment restrictions in Paragraphs 1 through 13 above and on page one of the Prospectus are fundamental policies and may not be changed without the approval of a majority of the Fund's shareholders. The policies mentioned in Paragraphs 14-16 above are not fundamental and may be changed without shareholder approval. While the Fund will not purchase illiquid, including restricted, securities if such purchase would cause its then total investment in such securities to exceed 10% of the value of its net assets, the Fund could through the decrease in values of its other securities, for example, at sometime own illiquid, including restricted, securities having a value in excess of 10% of the value of its net assets. In that event, the Fund will promptly take such action as it s Board of Directors deems appropriate to assure the continued liquidity of the Fund. The Investment Adviser The Fund's investment adviser, JP Investment Management Company ("JP Management"), like Investor Services, is a wholly-owned subsidiary of Jefferson-Pilot Corporation, an insurance holding company. E.J. Yelton, John C. Ingram, W. Hardee Mills, and J. Gregory Poole are officers and/or directors of the Fund and of JP Management. Their positions with the Fund and/or JP Management are (with the Fund position shown first) President, Treasurer and Director/President and Director; Director/Senior Vice President, Treasurer and Director; Vice President/Vice President; and Secretary/Secretary, respectively. JP Management's services are provided under an Investment Advisory Agreement with the Fund dated November 12, 1982. Under the terms of the agreement, JP Management provides personnel, including executive officers for the Fund, and compensates the Fund's directors who are affiliated with JP Management or its affiliated companies. JP Management also furnishes, or causes to be furnished, at its own expense office space, facilities and necessary executive and other personnel for conducting the Fund's affairs and pays all expenses incurred by it or the Fund in connection with the administration of the investment affairs of the Fund. The Fund pays all other corporate expenses incurred in its operations, including its taxes (if any), brokerage commissions on portfolio transactions, expenses relating to the issue, transfer redemption and pricing of shares, disbursement of dividends and other distributions, custodian fees, auditing and legal expenses, compensation of unaffiliated directors, and expenses in connection with meetings of directors and shareholders. As compensation for its services, JP Management receives from the Fund a fee at an annual rate of 1/2 of 1% of the Fund's average net asset value. The fee is payable monthly, on the basis of the Fund's average daily net asset value during the monthly period computed in the manner used in determining the public offering price of Fund shares (see "How To Determine Net Asset Value" in the prospectus). If, in any fiscal year, the total of the fund's ordinary business expenses (including the investment advisory fee but excluding taxes, portfolio brokerage commissions and interest) exceeds 1% of the Fund's average daily net asset value, JP Management pays the excess. The payment of the investment advisory fee at the end of any month is reduced or postponed so that at the end of any month there is not any accrued but unpaid liability under this expense limitation. The Fund's ordinary business expenses did not, during fiscal years 1993, 1994, or 1995 exceed 1% of its average daily net asset value. The amount of JP Management's advisory fee for fiscal year 1993 was $136,114, for fiscal 1994 was $137,358, and for fiscal year 1995 was $132,446. JP Management has also agreed in an Agency Agreement dated November 12, 1982 to serve as the Fund's stock transfer agent, dividend paying agent and to provide shareholder accounting, bookkeeping, pricing and related services to the Fund. The Fund has agreed to reimburse JP Management for expenses incurred by JP Management in providing these services, including an amount intended to reimburse JP Management for that portion of its general administrative expense allocable to such services. The amount paid to JP Management by the Fund under the Agency Agreement for fiscal year 1993 was $7,492, for fiscal year 1994 was $11,750, and for fiscal year 1995 was $12,000. Under a Service Agreement between the Fund, JP Management, Jefferson-Pilot Life Insurance Company and Jefferson-Pilot Investments, Inc. ("Companies"), which agreement is dated January 25, 1984, the Companies have agreed to furnish such personnel, services and facilities as may be reasonably needed by JP Management in connection with its performance under the Investment Advisory Agreement, and JP Management has agreed to compensate the Companies for their services in this regard. Because of the arrangements under the Service Agreement, the Companies might be deemed to be investment advisers of the Fund, and the Service Agreement an investment advisory contract, for purposes of the Investment Company Act of 1940. However, the Companies have been advised by counsel that they are not by reason of such arrangements investment advisers under that Act. For the years ended December 31, 1993, 1994 and 1995 the aggregate amount paid by JP Management to the Companies under this Service Agreement and similar service agreements between JP Management, the Companies and other mutual funds managed by JP Management was $352,095, $444,313, and $347,048, respectively. The Investment Advisory Agreement and the Service Agreement may, independently of each other, continue in force from year to year if the continuance of each such agreement is approved at least annually by the Fund's Board of Directors, including the specific approval with respect to the continuance of each such agreement of a majority of the Directors who are not parties to the particular agreement or interested persons (as the term is defined in the Investment Company Act of 1940) of any such party, cast in person at a meeting called for the purpose of voting on approval of the particular agreement. The Investment Advisory Agreement and the Service Agreement may each be terminated at any time without the payment of any penalty on 60 days' notice to the other parties either by a vote of the Fund's Board of Directors or by a vote of the majority of the Fund's shareholders. The Investment Advisory Agreement and the Service Agreement will automatically terminate in the event of their assignment. The Investment Advisory Agreement may be terminated by JP Management on 90 days' written notice to the Fund. The Service Agreement may be terminated on 90 days' written notice to the Fund and the other parties by JP Management or any of the Companies. The Fund's name has been adopted with the permission of Jefferson-Pilot Corporation and its continued use is subject to the right of Jefferson-Pilot Corporation to withdraw this permission at any time. If the permission is withdrawn, but JP Management proposes to continue as the Fund's investment adviser, the Investment Advisory Agreement will be submitted to Fund shareholders for approval. Brokerage Transactions on stock exchanges and other agency transactions involve the payment by the Fund of negotiated brokerage commissions. Such commissions vary among different brokers. Also, a particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. There is generally no stated commission in the case of securities traded in the over-the-counter markets, or for fixed income securities (which currently includes most of the Fund's portfolio transactions), but the price paid by the Fund usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid by the Fund includes a disclosed, fixed commission or discount retained by the underwriter or dealer. JP Management, which places all orders for the purchase and sale of securities for the Fund, has no formula for the allocation of brokerage business in the purchase and sale of securities for the Fund. Purchase and sale orders are placed with the primary objective of obtaining the best execution. Subject to the foregoing, orders are placed with broker-dealer firms giving consideration to the quality, quantity and nature of the firms' professional services which include execution, clearance procedures, and statistical data and research information to the Fund and JP Management. In pursuing this objective, JP Management may purchase securities in the over-the-counter market, utilizing the services of principal market makers unless better execution can be obtained elsewhere, and may purchase securities listed on an exchange from non-exchange members in transactions off the exchange. Although any statistical, research or other information and services provided by broker-dealers may be useful to JP Management, its dollar value is indeterminable and its availability does not serve to materially reduce JP Management's normal research activities or expenses. Any such information, which includes such matters as general economic and security market reviews, industry and company reviews, evaluations of securities and recommendations as to the purchase and sale of securities, must still be analyzed and reviewed by JP Management's personnel. JP Management may, in recognition of the value of brokerage or research services provided by the broker, pay such broker a brokerage commission in excess of that which another broker might have charged for effecting the same transaction. JP Management will not, however, effect a transaction at such higher commission unless it determines in good faith that the amount of the higher commission is reasonable in relation to the value to the Fund of the brokerage and research services being provided. Statistical research or other information or services received by JP Management from broker-dealers may be used by JP Management in servicing various of its clients (including the Fund), although not all these services are necessarily useful and of value in servicing the Fund. The total amount of brokerage commission on purchase and sale transactions in fiscal year 1993 was zero, in fiscal year 1994 was zero, and in 1995 was zero. Purchase and Redemption of Shares Reference is made to the information in the Prospectus under "How to Purchase Shares" and "How to Redeem Shares" which describes the manner in which the net asset value of the shares of the fund is computed as of the close of trading on each day the New York Stock Exchange is open for trading, and on any other day in which there is a sufficient degree of trading in the Fund's portfolio securities to materially affect net asset value, and how the offering price is determined based on such net asset value. It also sets forth specific directions for the redemption of shares at net asset value. The Fund's shares are not valued on New Year's Day, President's Day, Good Friday, Memorial Day, July 4, Labor Day, Thanksgiving Day or Christmas Day, as the New York Stock Exchange closes on those days. The Fund's Directors and Officers The following list of the Fund's directors and executive officers, all of whom are also directors and/or officers of Jefferson-Pilot Capital Appreciation Fund, Inc., JP Capital Appreciation Fund, Inc., and Jefferson-Pilot Investment Grade Bond Fund, Inc., includes information as to their principal occupations during the past five years and their principal affiliations. Name, Address & Position Principal Occupation During Past 5 years E. J. Yelton* Senior Vice President - Investments, Director, President Jefferson-Pilot Corporation and 100 North Greene Street Executive Vice President - Investments, Greensboro, North Carolina Jefferson-Pilot Life Insurance Company since October 1993; prior thereto, President and CEO, ING North America Investment Centre/Member of ING Group; Director Jefferson-Pilot Investor Services; President and Director, JP Management John C. Ingram* Senior Vice President, Jefferson-Pilot Life Director Insurance Company since November 1988 and 100 North Greene Street prior thereto, Vice President; Senior Vice Greensboro, North Carolin President, Treasurer and Director, JP Management Richard Wolcott McEnally Professor of Investment Banking, University Director of North Carolina at Chapel Hill 401 Brookside Drive Chapel Hill, North Carolina William Edward Moran Senior Vice President, Connors Investor Director Services, Inc since January 1995; prior Greensboro, North Carolina thereto Chancellor, University of North Carolina at Greensboro J. Lee Lloyd Managing Director, Lloyd & Company since Director April 1991; prior thereto, Vice President, 16 Irving Park Lane Goldman, Sachs & Co. Greensboro, North Carolina J. Gregory Poole Assistant Secretary, Jefferson-Pilot Corp, Secretary since January 1994; Associate Counsel and Jefferson-Pilo Assistant Secretary, Life Insurance Company 100 North Gree Street since February 1994; Attorney and Assistant Greensboro, North Carolina Secretary, January 1994, and prior thereto, Attorney *Messrs. Yelton and Ingram are interested persons (as that term is defined in the Investment Company Act of 1940, as amended) of the Fund. The following officers of the Fund also serve as officers and/or directors of JP Management and Investor Services: E. J. Yelton, President and Treasurer of the Fund, is President and a Director of JP Management and a Director of Investor Services; W. Hardee Mills, Jr., Vice President of the Fund, is Vice President of JP Management; and J. Gregory Poole, Secretary of the Fund, is Secretary of Investor Services and JP Management. Each director of the Fund also services as director for 3 other funds in the Jefferson-Pilot Investment Management Fund Complex. Messrs. Yelton, Poole and Mills hold positions with the other companies in the Jefferson-Pilot Investment Management Fund Complex similar to the positions held with the Fund. The other companies within the Fund Complex have the same investment adviser as does the Fund. The following table provides information regarding the compensation each nominee for director was paid by the Fund and the Fund Complex for the year ended December 31, 1995.
COMPENSATION TABLE (1) (2) (3) (4) (5) Pension Estimate Total Name of Aggregate Retirement Annual Compensation Person, Compensation Benefits Accrued Benefits upon From Fund Position from Fund as Part of Fund Retirement and 3 other Expenses funds in Complex John C. Ingram $ 0 $ 0 $ 0 $ 0 Director J. Lee Lloyd 1,220 0 0 4,880 Director Richard W. 1,220 0 0 4,880 McEnally Director William E. Moran 1,220 0 0 4,880 Director E. J. Yelton 0 0 0 0 Director, President, Treasurer
The Board of Directors met five times during the year. During the year ended December 31, 1995, directors not employed by the Fund or its affiliates received a $100 director's fee for each meeting attended, amounting to an aggregate of $500. In addition, each of the non-affiliated directors receives a fee of $720 per year, payable in equal monthly installments. General Information As of April 12, 1996 Jefferson-Pilot Life Insurance Company owned beneficially 236,976 share or 8.80% of the Fund's outstanding shares. That company owns of record all of the Fund's outstanding shares, with the shares not owned beneficially being owned for the said company's separate account. The shares owed for the company's separate account are deemed to be beneficially owned by owners of variable annuity contracts issued by the separate account. Jefferson-Pilot Life Insurance Company, like JP Investment Management Company, is a wholly-owned subsidiary of Jefferson-Pilot Corporation, Greensboro, North Carolina. Investors Fiduciary Trust Co., 127 W. 10th Street, 12th Floor, Kansas City, MO 64105, acting as custodian, has custody of all the Fund's securities and cash. That company attends to the collection of principal and income, and payment for and collection of proceeds of securities bought and sold by the Fund. The Fund's independent accountants are McGladrey & Pullen, LLP, 555 Fifth Avenue, 8th Floor, New York, New York 10017-2416, who audit and report on the Fund's annual financial statements, review certain regulatory reports, prepare the Fund's income tax returns, and perform other professional accounting, auditing, tax and advisory services when engaged to do so by the Fund. The selection of independent accountants will be submitted annually to the Fund's shareholders for approval. Shareholders will receive annual audited financial statements and semi-annual unaudited financial statements. Statement of Assets and Liabilities December 31, 1995 Assets Investment in securities at value (cost $25,529,797) $ 27,427,014 Cash 297,338 Receivables: Interest 438,565 Capital shares sold 17,903 Total Assets 28,180,820 Liabilities Accrued expenses 44,378 Total Liabilities 44,378 Net Assets Net Assets, equivalent to $11.26 per share on 2,499,086 shares of capital stock outstanding (Note 2) $ 28,136,442 See Notes to Financial Statements. Statement of Operations Year Ended December 31, 1995 Investment Income: Interest $1,937,728 Expenses: Investment Adviser's fee (Note 3) 132,446 Custodian and Transfer Agent fees 10,700 Directors' fees 3,660 Professional fees 20,400 Shareholder accounting services (Note 3) 12,000 Other 5,483 Total expenses 184,689 Less expenses offset (Note 5) ( 10,700) Net expenses 173,989 Investment income - net 1,763,739 Realized and Unrealized Gain (Loss) on Investments: Net realized loss on investments ( 133,355) Unrealized appreciation of investments for the year 3,044,389 Net gain on investments 2,911,034 Net increase in net assets from operations $4,674,773 See Notes to Financial Statements. Statements of Changes in Net Assets
Years Ended December 31, 1995 and 1994 19951994 Increase (Decrease) in Net Assets from: Operations: Investment income - net $ 1,763,739 $ 1,869,403 Net realized loss on investments ( 133,355) ( 602,753) Unrealized appreciation (depreciation) for the year 3,044,389 ( 3,000,854) Net increase (decrease) in net assets from operations 4,674,773 ( 1,734,204) Dividends paid to shareholders from: Investment income - net ( 1,787,395) ( 1,809,110) Net realized gain on investments _ ( 86,113) Capital share transactions (Note 2) ( 28,492) ( 1,090,522) Total increase (decrease) 2,858,886 ( 4,719,949) Net Assets Beginning of year 25,277,556 29,997,505 End of year (including undistributed net investment income of $36,637 and $60,293, respectively) $28,136,442 $25,277,556
See Notes to Financial Statements. Statement of Investments December 31, 1995
Face Ratings* Amount Issue Value Bonds _ 91.45% U.S. Government - 28.54% $ 500,000 U.S. Treasury Notes 51/8% due 11/30/98 $ 498,360 500,000 U.S. Treasury Notes 63/8% due 8/15/02 524,295 500,000 U.S. Treasury Notes 61/2% due 4/30/99 518,280 500,000 U.S. Treasury Notes 67/8% due 3/31/00 528,205 1,100,000 U.S. Treasury Notes 71/2% due 1/31/96 1,101,892 500,000 U.S. Treasury Bonds 81/2% due 5/15/97 521,405 500,000 U.S. Treasury Notes 81/2% due 7/15/97 524,140 500,000 U.S. Treasury Bonds 87/8% due 8/15/17 669,685 750,000 U.S. Treasury Notes 93/8% due 4/15/96 758,558 500,000 U.S. Treasury Bonds 103/8% due 11/15/09 659,685 1,000,000 U.S. Treasury Bonds 123/4% due 11/15/10 1,523,120 Mortgage-Backed Securities - 10.67% 1,000,000 Federal Home Loan Mortgage Corporation 6% due 3/15/09 945,000 2,000,000 Federal Home Loan Mortgage Corporation 7% due 9/15/23 1,981,240 Industrials - 32.94% Finance - 15.14% A1 1,000,000 Ford Motor Credit Company 63/4% Notes due 8/15/08 1,026,890 750,000 Merrill Lynch & Company, Inc. 67/8% Notes due 3/01/03 780,908 A1 1,000,000 Morgan Stanley Group, Inc. 7% Senior Notes due 10/01/13 1,010,220 A3 750,000 Smith Barney Holdings, Inc. 71/2% Notes due 5/01/02 801,270 A1 500,000 SunTrust Banks, Inc. 87/8% Notes due 2/01/98 532,075 Foods - 2.87% Aa2 750,000 Archer-Daniels-Midland Company 71/8% Debs. due 3/01/13 788,580 Machinery - Industrial/Specialty - 2.04% A2 500,000 Johnson Controls, Inc. 7.70% Debs. due 3/01/15 558,625 Natural Gas - 1.48% Baa2 400,000 Tennessee Gas Pipeline Company 91/4% S.F. Debs. due 5/15/96 404,716 Pollution Control - 1.93% Baa2 500,000 Laidlaw, Inc. 7.70% Debs. due 8/15/02 528,225 Railroads - 5.54% Baa2 750,000 Kansas City Southern Industries, Inc. 65/8% Senior Notes due 3/01/05 757,627 A1 750,000 United States Leasing International, Inc. 65/8% Senior Notes due 5/15/03 763,035 Telecommunications - 1.91% A2 500,000 Northern Telecom, Limited 67/8% Senior Notes due 10/01/02 524,475 Tobacco - 2.03% A2 500,000 Philip Morris Companies, Inc. 81/4% Senior Notes due 10/15/03 557,400 Utilities - 19.30% Utilities - Electric - 4.11% A2 500,000 Midwest Power Systems, Inc. 7% 1st Mtge. due 2/15/05 526,620 A1 500,000 South Carolina Electric & Gas Company 9% 1st & Ref. Mtge. due 7/15/06 601,705 Utilities - Gas - 9.61% A1 1,000,000 Consolidated Natural Gas Company 65/8% Debs. due 12/01/13 988,070 A2 500,000 National Fuel Gas Company 73/4% Debs. due 2/01/04 542,855 Baa1 500,000 Texas Gas Transmission 85/8% Notes due 4/01/04 565,270 Aa2 500,000 Washington Gas Light Company 83/4% 1st Mtge. due 7/01/19 539,600 Utilities - Telephone - 5.58% A2 1,000,000 Alltel Corporation 61/2% Debs. due 11/01/13 995,950 A3 500,000 United Telephone Company of Pennsylvania 73/8% 1st Mtge. Ser. Y due 12/01/02 533,305 Total Bonds (Cost - $23,184,069+) 25,081,286 Short-Term Securities - 8.55% A1 1,000,000 American Express Credit Corporation, 1/10/96 998,442 A1 1,000,000 Bell Atlantic Financial Services, Inc., 1/16/96 997,453 A1 350,000 Chevron Oil Finance Company, 1/03/96 349,833 Total Short-Term Securities (Cost - $2,345,728+) 2,345,728 Total Investments (Cost - $25,529,797+) $27,427,014
* Bonds are rated by Moody's Investors Service, Inc. and Commercial Paper is rated by Standard & Poor's Corporation. + Aggregate cost for Federal income tax purposes is the same. See Notes to Financial Statements. Notes to Financial Statements Note 1. Significant Accounting Policies: JP Investment Grade Bond Fund, Inc. is an open-end management investment company registered under the Investment Company Act of 1940. The Fund's primary investment objective is to seek the maximum level of current income as is consistent with prudent risk. The Fund attempts to achieve this objective by investing primarily in high-rated fixed income securities and dividend paying common stocks, however, other types of securities may be purchased depending upon the judgement of management. The following is a summary of significant accounting policies followed in the preparation of its financial statements: Valuation of Securities - Fixed income securities are valued by using market quotations or independent pricing services which utilize prices provided by market makers or estimates based on yield data related to similar securities; short-term securities are stated at amortized cost which approximates value. Federal Income Taxes - It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable income to its shareholders. Therefore, no provision for Federal income tax is required. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. General - Securities transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is accrued as earned. Note 2. Capital Stock: At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were authorized and capital paid-in amounted to $26,980,405. Transactions in capital stock were as follows:
Year Ended Year Ended December 31, 1995 December 31, 1994 Shares Amount Shares Amount Sold 468,268$5,156,966 234,140 $2,530,665 Issued on reinvestment of dividends 148,693 1,613,218 163,631 1,718,913 Redeemed (624,497) ( 6,798,676) (501,208) ( 5,340,100) Net decrease ( 7,536) ($ 28,492) (103,437) ($1,090,522)
Note 3. Investment Advisory Fee and other Transactions with Affiliates: JP Investment Management Company received investment advisory fees of $132,446 during the year ended December 31, 1995. This fee is computed at the annual rate of 0.5% of the Fund's average daily net asset value. If the Fund's expenses, excluding interest and taxes, exceed 1% of the average daily net asset value, the Investment Adviser will pay the excess. No such reimbursement was required during the year. Expenses include $12,000 of fees paid to JP Investment Management Company under an Agency Agreement to provide shareholder accounting services. Note 4. Investment Transactions: Purchases and sales of investment securities, excluding short-term securities, were $6,320,164 and $8,185,971, respectively. Realized gains and losses are reported on an identified cost basis. Accumulated net realized loss at December 31, 1995 was $777,816. This loss is available to offset future realized capital gains and expires in 2003. At December 31, 1995, the aggregate gross unrealized appreciation and depreciation of portfolio securities was as follows: Unrealized appreciation $1,898,074 Unrealized depreciation ( 858) Net unrealized appreciation $1,897,216 Note 5. Expense Offset Arrangement: The Fund has an arrangement with its custodian and transfer agent whereby credits earned on cash balances maintained at the custodian are used to offset custody and transfer agent charges. These credits amounted to $10,700 for the year ended December 31, 1995. Note 6. Selected Financial Information:
Years Ended December 31, 1995 1994 1993 1992 1991 Per share operating performance (for a share outstanding throughout the year) Net asset value, beginning of year$10.08$11.49$11.19$11.24$10.61 Income from investment operations: Net investment income .73 .73 .74 .74 .85 Net realized and unrealized gain(loss) on investments 1.19 ( 1.40) .36 ( .03) .62 Total from investment operations 1.92 ( .67) 1.10 .71 1.47 Less distributions: Dividends from net investment income ( .74) ( .71) ( .73) ( .76) ( .84) Distributions from net realized gains _ ( .03) ( .07) _ _ Total distributions ( .74) ( .74) ( .80) ( .76) ( .84) Net asset value, end of year $11.26 $10.08 $11.49 $11.19 $11.24 Total return 19.44% ( 5.92)% 10.10% 6.67% 14.61% Ratios/supplemental data: Net assets, end of year (000 omitted) $28,136 $25,278 $29,997 $23,622 $19,134 Ratios to average net assets: Expenses .70% .65% .59% .67% .72% Net investment income 6.66 6.80 6.33 6.65 7.88 Portfolio turnover rate 26.16 28.93 19.88 18.05 7.23
Independent Auditor's Report To the Board of Directors and Shareholders JP Investment Grade Bond Fund, Inc. We have audited the accompanying statement of assets and liabilities and the statement of investments of JP Investment Grade Bond Fund, Inc. as of December 31, 1995, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the selected financial information for each of the five years in the period then ended. These financial statements and selected financial information are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and selected financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and selected financial information are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and selected financial information referred to above present fairly, in all material respects, the financial position of JP Investment Grade Bond Fund, Inc. as of December 31, 1995, the results of its operations, the changes in its net assets, and the selected financial information for the periods indicated, in conformity with generally accepted accounting principles. McGladrey & Pullen, LLP /s/ McGladrey & Pullen, LLP New York, New York January 11, 1996 A MUTUAL FUND SEEKING GROWTH OF CAPITAL This report and accompanying financial statements are submitted for information of the Fund shareholders and are not to be considered as an offer or solicitation of offers to buy or sell any shares of the Fund. Such offering is made only if preceded or accompanied by an effective prospectus. FUND DIRECTORS AND OFFICERS INVESTMENT ADVISER AND TRANSFER AGENT E. J. YELTON, Ph.D., DIRECTOR, JP Investment Management Company PRESIDENT, AND TREASURER 100 North Greene Street Greensboro, North Carolina 27401 JOHN C. INGRAM, CFA, DIRECTOR CUSTODIAN J. LEE LLOYD, DIRECTOR Investors Fiduciary Trust Company 127 West Tenth Street RICHARD W. McENALLY, CFA, DIRECTOR Kansas City, Missouri 64105 WILLIAM E. MORAN, DIRECTOR CERTIFIED PUBLIC ACCOUNTANTS McGladrey & Pullen, LLP W. HARDEE MILLS, CFA, VICE PRESIDENT 555 Fifth Avenue New York, New York 10017 J. GREGORY POOLE, SECRETARY GREGORY D. WALKER, CFA, PORTFOLIO MANAGER JP CAPITAL APPRECIATION FUND, INC. 100 North Greene Street P.O. Box 21008 Greensboro, North Carolina 27420 INVESTMENT ACTIVITY On December 31, 1995, the net asset value of your Fund was $18.96. Dividends totaling $.361 from net investment income and $2.257 from net capital gains have been paid year to date. On a total return basis, for 1995, the JP Capital Appreciation Fund increased 33.39% while the S&P 500 increased 37.53%. The Fund's annual returns for one, three, five and ten-year periods ending December 31, 1995 are as follows: 1 Year - 33.39% 3 Years - 11.70 5 Years - 14.26 10 Years - 12.07 In 1995, your fund outperformed 75% of the Growth and Income mutual funds tracked by Lipper Analytical Services. Signs of economic weakness were evident as 1996 ushered in a new year. As recently as August of last year, upward earnings estimate revisions by stock analysts outpaced downward revisions by an astounding six to one margin. By mid-January 1996, earnings estimate revisions have reversed and downward revisions now outnumber upward revisions by a two to one margin. With the slowing of profit growth, we have witnessed a concurrent fall in the breadth of the market. That is, while the stock market is posting new highs, this performance is driven by fewer and fewer stocks. In fact, calculations by the Wall Street firm, Smith Barney, reveal that the entire advance of the S&P 500 from September 30, 1995 to December 18 (the date of the study) was attributable to only 18 of the 500 stocks. In other words, fewer than 5% of the stocks in the S&P 500 provided 100% of the appreciation. As referred to in our previous update, we believe that profits will continue to surprise on the downside as economic growth slows. This is not to say that we believe that the stock market will provide negative returns for the year. As inflation continues to remain restrained, the Federal Reserve will have more leeway to lower interest rates. Lower rates can support higher stock valuations. We believe that the low volatility of the markets we have experienced in the recent past will reverse. The Dow Jones Industrial Average's (DJIA) biggest correction in 1995 was 3.3%, occurring in mid-July. In an average year the DJIA corrects -9.3%. With the declining market breadth, we expect a more volatile year as investors attempt to separate the winners from the losers. 1996 stock market performance is unlikely to match that of 1995. In fact, 1995, as measured by the S&P 500, was the fifth best year in market history. We do see a positive return for the stock market this year; however, we believe it will be driven by a relatively few number of stocks. These stocks will likely be of high quality, stable growth companies. These are the stocks which typically outperform when the profit cycle has peaked and economic growth begins to slow. If the Fed lowers interest rates, we can expect the economically sensitive companies to benefit but with a lag. The positive benefit that cyclical companies will receive from lower interest rates is not likely to be experienced this year even if the Fed aggressively lowers rates early. PORTFOLIO DIVERSIFICATION SECTOR % OF TOTAL NET ASSETS Credit Cyclicals .00 Financial 14.62 Consumer Services 6.36 Consumer Staples 17.11 Consumer Cyclicals 6.89 Capital Goods - Technology 10.68 Capital Goods 4.04 Energy 10.76 Basic Industries 4.12 Transportation 1.35 Utilities 13.68 Conglomerates .93 Cash 9.46 Your continued support and interest in the JP Capital Appreciation Fund are appreciated, and we welcome any questions. JP Capital Appreciation Fund, Inc. /s/ E. J. Yelton President January 29, 1996 TEN LARGEST HOLDINGS December 31, 1995
COMPANY MARKET VALUE PERCENT OF FUND Monsanto Company $ 1,996,750 2.8 General Electric Company 1,800,000 2.5 Atlantic Richfield Company 1,506,200 2.1 Royal Dutch Petroleum Company 1,481,812 2.1 Countrywide Credit Industries, Inc. 1,479,000 2.1 Equifax, Inc. 1,466,325 2.0 Sara Lee Corporation 1,434,375 2.0 Capital Cities/ABC, Inc. 1,431,150 2.0 RJR Nabisco Holdings, Inc. Pfd C 1,402,500 2.0 Schering-Plough Corporation 1,390,650 1.9 ----------- ---- $15,388,762 21.5
STATEMENT OF INVESTMENTS December 31, 1995
NUMBER OF SHARES COMMON STOCKS - 87.34% OR PRINCIPAL AMOUNT VALUE Aerospace/Defense - 1.79% Lockheed-Martin Corporation 9,300 $ 734,700 Loral Corporation 16,000 566,000 Auto & Truck - .17% Honda Motor Company, Ltd. 3,000 126,000 Banks - 4.04% Bank of New York Company, Inc. 19,400 945,750 Chase Manhattan Corporation 10,000 606,250 Citicorp 20,600 1,385,350 Biotechnology - 1.61% Amgen, Inc. 19,800 1,173,150* Broadcasting - 2.32% Capital Cities/ABC, Inc. 11,600 1,431,150 US West Media Group, Inc. 13,400 254,600* Chemicals - Major -3.76% Dow Chemical Company 10,400 731,900 Monsanto Company 16,300 1,996,750 Computer Software - 1.39% Informix Corporation 10,000 300,000* Silicon Graphics Computer System 13,800 379,500* Sybase, Inc. 9,200 328,900* Conglomerates - .92% AlliedSignal, Inc. 14,000 665,000 Drugs - 5.90% Lilly (Eli) & Company 10,090 567,562 Merck & Company, Inc. 9,000 591,750 Mylan Laboratories, Inc. 29,400 690,900 Pharmacia-Upjohn, Inc. 27,000 1,046,250 Schering-Plough Corporation 25,400 1,390,650 Electric Equipment - Major - 3.51% General Electric Company 25,000 1,800,000 Kuhlman Corporation 60,000 750,000 Electronics - Instrument - 2.42% General Instrument Corporation 14,000 327,250* 3Com Corporation 15,000 699,375* Varian Associates, Inc. 15,300 730,575 Electronics - Semi - 1.64% LSI Logic Corporation 11,800 386,450* Texas Instruments, Inc. 15,600 807,300 Entertainment - .91% Disney, (Walt) & Company 11,200 660,800 Financial Services - .48% Money Store, Inc. 22,500 348,750 Foods - 1.98% Sara Lee Corporation 45,000 1,434,375 Footwear - 1.34% Nike, Inc. 14,000 974,750 Hospital - Management - 3.04% Columbia/HCA Healthcare Corporation 16,600 842,450 Medaphis Corporation 21,000 777,000* Vencor, Inc. 18,000 585,000* Hospital - Supplies - 2.69% Baxter International, Inc. 10,000 418,750 Guidant Corporation 8,916 376,701 Johnson & Johnson 13,500 1,155,938 Information Processing - 2.02% Equifax, Inc. 68,600 1,466,325 Insurance - Multi-Line - 4.31% Aflac, Inc. 17,600 763,400 Allstate Corporation 20,500 843,063 American General Corporation 12,200 425,475 CIGNA Corporation 10,600 1,094,450 Insurance - Property & Casualty - .82% Prudential Reinsurance Holdings, Inc. 25,500 596,063 Machinery - Agricultural - .48% Varity Corporation 9,300 345,262* Merchandising - Department - 1.57% Dayton Hudson Corporation 6,400 480,000 Federated Department Stores, Inc. 24,000 660,000* Merchandising - Drugs - 1.01% Eckerd Corporation 16,500 736,312* Merchandising - Special - 2.17% Borders Group, Inc. 43,500 804,750* Circuit City Stores, Inc. 28,000 773,500 Miscellaneous Consumer Cyclical - .46% Kelly Services, Inc.12,000 333,000 Miscellaneous Financial - 4.77% Countrywide Credit Industries, Inc. 68,000 1,479,000 Dean Witter, Discover & Company 11,000 517,000 Federal Home Loan Mortgage Corporation 8,000 668,000 First USA, Inc. 18,000 798,750 Natural Gas - Diversified - .65% Questar Corporation 14,000 469,000 Oils - Integrated Domestic - 5.40% Amoco Corporation 15,600 1,121,250 Atlantic Richfield Company 13,600 1,506,200 Enron Oil & Gas Company 29,500 708,000 Phillips Petroleum Company 17,200 586,950 Oils - Integrated International - 3.91% Mobil Corporation 12,100 1,355,200 Royal Dutch Petroleum Company 10,500 1,481,812 Oil Services - .66% Oceaneering International, Inc. 37,000 476,375* Paper & Forest Products - .30% Sonoco Products Company 8,400 220,500 Railroads - .88% CSX Corporation 14,000 638,750 Telecommunications - 1.27% DSC Communications Corporation 25,000 921,875* Textile - Apparel - 1.08% Intimate Brands, Inc. 20,200 303,000 Ross Stores, Inc. 25,000 478,125 Tobacco - 1.74% Philip Morris Companies, Inc. 14,000 1,267,000 Transportation - Miscellaneous - .45% Federal Express Corporation 4,400 325,050* Utilities - Communications - 6.34% Bell Atlantic Corporation 6,300 421,312 BellSouth Corporation 12,600 548,100 Century Telephone Enterprises, Inc. 14,000 444,500 Frontier Corporation 43,000 1,290,000 SBC Communications, Inc. 6,400 368,000 Sprint Corporation 26,500 1,056,688 US West Communications Group, Inc. 13,400 479,050 Utilities - Electric - 7.14% American Electric Power Company, Inc. 11,550 467,775 CMS Energy Corporation 16,200 483,975 Carolina Power & Light Company 6,700 231,150 CINergy Corporation 22,800 698,250 Consolidated Edison Company of New York, Inc. 9,900 316,800 Dominion Resources, Inc. 7,650 315,563 Entergy Corporation 19,800 579,150 FPL Group, Inc. 13,600 630,700 Illinova Corporation 15,900 477,000 Northeast Utilities 14,500 353,438 PECO Energy Company 8,300 250,037 Public Service Enterprise Group, Inc. 12,550 384,344 ----------- Total Common Stocks (Cost - $48,612,918+) 63,426,845 ----------- Preferred Stocks - 1.93% Tobacco - 1.93% RJR Nabisco Holdings, Inc. Pfd. C. 220,000 1,402,500 ----------- Total Preferred Stocks (Cost - $1,373,200+) 1,402,500 ----------- Short-Term Securities - 10.73% Chevron Oil Finance Company, 1/08/96 $ 250,000 249,686 du Pont (E.I.) de Nemours & Company, 1/10/96 2,500,000 2,495,972 Ford Motor Credit Company, 1/10/96 1,700,000 1,697,280 General Electric Capital Corporation, 1/02/96 1,750,000 1,749,436 IBM Credit Corporation, 1/04/96 1,600,000 1,598,964 ----------- Total Short-Term Securities (Cost - $7,791,338+) 7,791,338 ----------- Total Investments (Cost - $57,777,456+) $72,620,683 ----------- -----------
* Non-income producing. + Aggregate cost for Federal income tax purposes is the same. See Notes to Financial Statements. STATEMENT OF ASSETS AND LIABILITIES December 31, 1995 ASSETS Investment in securities at value (cost $57,777,456) $ 72,620,683 Cash 234,191 Receivables: Capital shares sold 73,582 Dividends 101,730 ------------ Total Assets 73,030,186 ------------ LIABILITIES Payables: Securities purchased 1,354,110 Accrued expenses 74,577 ------------ Total Liabilities 1,428,687 ------------ NET ASSETS Net Assets, equivalent to $18.96 per share on 3,776,774 shares of capital stock outstanding (Note 2) $ 71,601,499 ------------ ------------ See Notes to Financial Statements. STATEMENT OF OPERATIONS Year Ended December 31, 1995 Investment Income: Interest $ 263,977 Dividends 1,469,132 ----------- Total inc 1,733,109 ----------- Expenses: Investment Adviser's fee (Note 3) 325,646 Custodian and Transfer Agent fees 26,499 Directors' fees 3,660 Professional fees 25,800 Shareholder accounting services (Note 3) 18,200 Other 2,197 ----------- Total expenses 402,002 Less expenses offset (Note 5) ( 18,225) ----------- Net expenses 383,777 ----------- Investment income - net 1,349,332 ----------- Realized and Unrealized Gain on Investments: Net realized gain on investments 4,429,313 Unrealized appreciation of investments for the year 12,830,999 ---------- Net gain on investments 17,260,312 ---------- Net increase in net assets from operations $18,609,644 ----------- ----------- [/TABLE] See Notes to Financial Statements. STATEMENTS OF CHANGES IN NET ASSETS Years Ended December 31, 1995 and 1994 1995 1994 Increase in Net Assets from: Operations: Investment income - net $ 1,349,332 $ 1,187,225 Net realized gain on investments 4,429,313 7,856,540 Unrealized appreciation (depreciation) for the year 12,830,999 (11,642,733) ------------ ----------- Net increase (decrease) in net assets from operations 18,609,644 ( 2,598,968) Dividends paid to shareholders from: Investment income -- net ( 1,318,791) ( 574,936) Net realized gain on investments ( 7,845,335) ( 1,564,793) Capital share transactions (Note 2) 3,796,147 6,473,023 ------------ ----------- Total increase 13,241,665 1,734,326 Net Assets Beginning of year 58,359,834 56,625,508 ------------ ----------- End of year (including undistributed net investment income of $693,205 and $662,664, respectively) $71,601,499 $58,359,834 ------------ ----------- ------------ ----------- See Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES: JP Capital Appreciation Fund, Inc. is an open-end management investment company registered under the Investment Company Act of 1940. The Fund's primary investment objective is long-term capital appreciation. The Fund seeks to achieve this objective by investing substantially all of its assets in common stocks of companies recognized as leaders in their respective industries, however, other types of securities may be purchased depending upon the judgement of management. The following is a summary of significant accounting policies followed in the preparation of its financial statements: VALUATION OF SECURITIES - Investments are stated at value based on the closing prices reported on national securities exchanges on the last business day of the year, or for over-the-counter securities, at the last bid price, except that short-term securities are stated at amortized cost which approximates value. FEDERAL INCOME TAXES - It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable income to its shareholders. Therefore, no provision for Federal income tax is required. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. GENERAL - Securities transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is accrued as earned. NOTE 2. CAPITAL STOCK: At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were authorized and capital paid-in amounted to $51,638,775. Transactions in capital stock were as follows:
Year Ended Year Ended December 31, 1995 December 31, 1994 ----------------------- ----------------------- Shares Amount Shares Amount ------ ------ ------ ------ Sold 425,888 $ 7,340,776 547,769 $9,476,781 Issued on reinvestment of dividends 620,704 9,124,856 120,270 2,129,830 Redeemed (749,300) (12,669,485) (301,292) (5,133,588) -------- ----------- -------- ---------- Net increase 297,292 $ 3,796,147 366,747 $6,473,023 -------- ----------- -------- ---------- -------- ----------- -------- ----------
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: JP Investment Management Company received investment advisory fees of $325,646 during the year ended December 31, 1995. This fee is computed at the annual rate of 0.5% of the Fund's average daily net asset value. If the Fund's expenses, excluding interest and taxes, exceed 1% of the average daily net asset value, the Investment Adviser will pay the excess. No such reimbursement was required during the year. Expenses include $18,200 of fees paid to JP Investment Management Company under an Agency Agreement to provide shareholder accounting services. NOTE 4. INVESTMENT TRANSACTIONS: Purchases and sales of investment securities, excluding short-term securities, were $38,620,653 and $44,365,481, respectively. Realized gains and losses are reported on an identified cost basis. Accumulated undistributed net realized gain at December 31, 1995 was $4,426,292. At December 31, 1995, the aggregate gross unrealized appreciation and depreciation of portfolio securities was as follows: Unrealized appreciation $15,175,922 Unrealized depreciation ( 332,695) ---------- Net unrealized appreciation $14,843,227 ----------- ----------- NOTE 5. EXPENSE OFFSET ARRANGEMENT: The Fund has an arrangement with its custodian and transfer agent whereby credits earned on cash balances maintained at the custodian are used to offset custody and transfer agent charges. These credits amounted to $18,225 for the year ended December 31, 1995. NOTE 6. SELECTED FINANCIAL INFORMATION:
Years Ended December 31, ---------------------------------------------- 1995 1994 1993 1992 1991 PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year $16.77 $18.19 $18.17 $17.69 $13.76 ------ ------ ------ ------ ------ Income from investment operations: Net investment income .36 .34 .28 .29 .37 Net realized and unrealized gain (loss) on investments 4.45 ( 1.10) 1.26 .75 3.91 ------ ------ ------ ------ ------ Total from investment operations 4.81 ( .76) 1.54 1.04 4.28 ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income ( .36) ( .17) ( .27) ( .33) ( .35) Distributions from net realized gains ( 2.26) ( .49) ( 1.25) ( .23) -- ------ ------ ------ ------ ------ Total distributions ( 2.62) ( .66) ( 1.52) ( .56) ( .35) ------ ------ ------ ------ ------ Net asset value, end of year $18.96 $16.77 $18.19 $18.17 $17.69 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN 33.39% ( 4.34)% 9.25% 6.16% 31.61% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (000 omitted) $71,601 $58,360 $56,625 $45,480 $37,319 Ratios to average net assets: Expenses .62% .58% .60% .63% .62% Net investment income 2.07 2.03 1.55 1.68 2.37 Portfolio turnover rate 64.13 126.70 23.93 48.72 36.71
INDEPENDENT AUDITORS REPORT To the Board of Directors and Shareholders JP Capital Appreciation Fund, Inc. We have audited the accompanying statement of assets and liabilities and the statement of investments of JP Capital Appreciation Fund, Inc. as of December 31, 1995, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the selected financial information for each of the five years in the period then ended. These financial statements and selected financial information are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and selected financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and selected financial information are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and selected financial information referred to above present fairly, in all material respects, the financial position of JP Capital Appreciation Fund, Inc. as of December 31, 1995, the results of its operations, the changes in its net assets, and the selected financial information for the periods indicated, in conformity with generally accepted accounting principles. McGladrey & Pullen, LLP /s/ McGladrey & Pullen, LLP New York, New York January 11, 1996 A MUTUAL FUND SEEKING MAXIMUM INCOME This report and accompanying financial statements are submitted for information of the Fund shareholders and are not to be considered as an offer or solicitation of offers to buy or sell any shares of the Fund. Such offering is made only if preceded or accompanied by an effective prospectus. FUND DIRECTORS AND OFFICERS INVESTMENT ADVISER AND TRANSFER AGENT E. J. YELTON, Ph.D., DIRECTOR, JP Investment Management Company PRESIDENT, AND TREASURER 100 North Greene Street Greensboro, North Carolina 27401 JOHN C. INGRAM, CFA, DIRECTOR CUSTODIAN J. LEE LLOYD, DIRECTOR Investors Fiduciary Trust Company 127 West Tenth Street RICHARD W. McENALLY, CFA, DIRECTOR Kansas City, Missouri 64105 WILLIAM E. MORAN, DIRECTOR CERTIFIED PUBLIC ACCOUNTANTS McGladrey & Pullen, LLP W. HARDEE MILLS, CFA, VICE PRESIDENT 555 Fifth Avenue New York, New York 10017 J. GREGORY POOLE, SECRETARY H. LUSBY BROWN, CFA PORTFOLIO MANAGER JP INVESTMENT GRADE BOND FUND, INC. 100 North Greene Street P.O. Box 21008 Greensboro, North Carolina 27420 17 INVESTMENT ACTIVITY On December 31, 1995, the net asset value of your Fund was $11.26. The Fund paid dividends of $.735 per share from interest income during 1995. The Fund's year-to-date returns and annual returns for one, three, five, and ten-year periods ending December 31, 1995 are as follows: Year-to-Date 1 Year - 19.44% 3 Years - 7.34 5 Years - 8.63 10 Years - 8.78 In 1995, the bond market recovered from one of its worst years in history to record one of its best years in history. The rally actually began in late 1994 and picked up steam in 1995, as the Federal Reserve dropped the target for Federal Funds to 5.75%. A developing picture of mediocre economic growth and low inflation kept the rally going throughout the summer as the market began to forecast slower growth in 1996. The bond market rally was led by expectations that the Fed would continue to ease and, as a result, the yield curve steepened with the two-year Note rallying over 250 BP while the 30-year Bond only rallied about 190 BP. Long-term corporate bonds had the best overall returns in 1995, due to tightening credit spreads caused by heavy demand for higher yielding assets and light supply. Mortgage-backed securities generally underperformed the market during the year as falling interest rates sparked prepayment fears, limiting any increase in prices for these bonds. The outlook for the bond market in 1996 is currently clouded by the actions of the Congress and the White House regarding the Federal budget. The market is discounting a favorable outcome in budget deliberations which could translate into lower federal borrowing and fiscal drag from reduced government spending. The market is also discounting a continuation of Federal Reserve easing in 1996 warranted by slow growth and low inflation. While the prospects for these scenarios seem very good, the market is at risk to be disappointed. The risk/reward profile for the bond market clearly favors shorter maturities and a slightly more defensive stance at this time. On December 31, 1995, the Fund's assets were invested approximately 89.14% in medium and long-term bonds. 18 PORTFOLIO DIVERSIFICATION SECTOR % OF TOTAL NET ASSETS U.S Government 27.82 Industrials 20.13 Financials 11.98 Electric Utilities 4.01 Telephone Utilities 5.43 Gas Utilities 9.37 Cash Equivalents 10.86 Mortgage-Backed Securities 10.40 Your continued support and interest in the JP Investment Grade Bond Fund are appreciated, and we welcome any questions. JP Investment Grade Bond Fund, Inc. /s/ E. J. Yelton President January 29, 1996 19 STATEMENT OF INVESTMENTS December 31, 1995
FACE RATINGS* AMOUNT ISSUE VALUE BONDS - 91.45% U.S. GOVERNMENT - 28.54% $ 500,000 U.S. Treasury Notes 5 1/8% due 11/30/98 $ 498,360 500,000 U.S. Treasury Notes 6 3/8% due 8/15/02 524,295 500,000 U.S. Treasury Notes 6 1/2% due 4/30/99 518,280 500,000 U.S. Treasury Notes 6 7/8% due 3/31/00 528,205 1,100,000 U.S. Treasury Notes 7 1/2% due 1/31/96 1,101,892 500,000 U.S. Treasury Bonds 8 1/2% due 5/15/97 521,405 500,000 U.S. Treasury Notes 8 1/2% due 7/15/97 524,140 500,000 U.S. Treasury Bonds 8 7/8% due 8/15/17 669,685 750,000 U.S. Treasury Notes 9 3/8% due 4/15/96 758,558 500,000 U.S. Treasury Bonds 10 3/8% due 11/15/09 659,685 1,000,000 U.S. Treasury Bonds 12 3/4% due 11/15/10 1,523,120 MORTGAGE-BACKED SECURITIES - 10.67% 1,000,000 Federal Home Loan Mortgage Corporation 6% due 3/15/09 945,000 2,000,000 Federal Home Loan Mortgage Corporation 7% due 9/15/23 1,981,240 INDUSTRIALS - 32.94% FINANCE - 15.14% A1 1,000,000 Ford Motor Credit Company 6 3/4% Notes due 8/15/08 1,026,890 A1 750,000 Merrill Lynch & Company, Inc. 6 7/8% Notes due 3/01/03 780,908 A1 1,000,000 Morgan Stanley Group, Inc. 7% Senior Notes due 10/01/13 1,010,220 A3 750,000 Smith Barney Holdings, Inc. 7 1/2% Notes due 5/01/02 801,270 A1 500,000 SunTrust Banks, Inc. 8 7/8% Notes due 2/01/98 532,075 FOODS - 2.87% Aa2 750,000 Archer-Daniels-Midland Company 7 1/8% Debs. due 3/01/13 788,580 MACHINERY - INDUSTRIAL/SPECIALTY - 2.04% A2 500,000 Johnson Controls, Inc. 7.70% Debs. due 3/01/15 558,625 NATURAL GAS - 1.48% Baa2 400,000 Tennessee Gas Pipeline Company 9 1/4% S.F. Debs. due 5/15/96 404,716 POLLUTION CONTROL - 1.93% Baa2 500,000 Laidlaw, Inc. 7.70% Debs. due 8/15/02 528,225 RAILROADS - 5.54% Baa2 750,000 Kansas City Southern Industries, Inc. 6 5/8% Senior Notes due 3/01/05 757,627 A1 750,000 United States Leasing International, Inc. 6 5/8% Senior Notes due 5/15/03 763,035 TELECOMMUNICATIONS - 1.91% A2 500,000 Northern Telecom, Limited 6 7/8% Senior Notes due 10/01/02 524,475 TOBACCO - 2.03% A2 500,000 Philip Morris Companies, Inc. 8 1/4% Senior Notes due 10/15/03 557,400 UTILITIES - 19.30% UTILITIES - ELECTRIC - 4.11% A2 500,000 Midwest Power Systems, Inc. 7% 1st Mtge. due 2/15/05 526,620 A1 500,000 South Carolina Electric & Gas Company 9% 1st & Ref. Mtge. due 7/15/06 601,705 UTILITIES - GAS - 9.61% A1 1,000,000 Consolidated Natural Gas Company 6 5/8% Debs. due 12/01/13 988,070 A2 500,000 National Fuel Gas Company 7 3/4% Debs. due 2/01/04 542,855 Baa1 500,000 Texas Gas Transmission 8 5/8% Notes due 4/01/04 565,270 Aa2 500,000 Washington Gas Light Company 8 3/4% 1st Mtge. due 7/01/19 539,600 UTILITIES - TELEPHONE - 5.58% A2 1,000,000 Alltel Corporation 6 1/2% Debs. due 11/01/13 995,950 A3 500,000 United Telephone Company of Pennsylvania 7 3/8% 1st Mtge. Ser. Y due 12/01/02 533,305 ---------- Total Bonds (Cost - $23,184,069+) 25,081,286 ---------- SHORT-TERM SECURITIES - 8.55% A1 1,000,000 American Express Credit Corporation, 1/10/96 998,442 A1 1,000,000 Bell Atlantic Financial Services, Inc., 1/16/96 997,453 A1 350,000 Chevron Oil Finance Company, 1/03/96 349,833 ---------- Total Short-Term Securities (Cost - $2,345,728+) 2,345,728 ----------- Total Investments (Cost - $25,529,797+) $27,427,014 ----------- -----------
* Bonds are rated by Moody's Investors Service, Inc. and Commercial Paper is rated by Standard & Poor's Corporation. + Aggregate cost for Federal income tax purposes is the same. See Notes to Financial Statements. STATEMENT OF ASSETS AND LIABILITIES December 31, 1995 ASSETS Investment in securities at value (cost $25,529,797) $ 27,427,014 Cash 297,338 Receivables: Interest 438,565 Capital shares sold 17,903 ------------ Total Assets 28,180,820 ------------ LIABILITIES Accrued expenses 44,378 ------------ Total Liabilities 44,378 ------------ NET ASSETS Net Assets, equivalent to $11.26 per share on 2,499,086 shares of capital stock outstanding (Note 2) $ 28,136,442 ------------ ------------ See Notes to Financial Statements. STATEMENT OF OPERATIONS Year Ended December 31, 1995 Investment Income: Interest $1,937,728 ---------- Expenses: Investment Adviser's fee (Note 3) 132,446 Custodian and Transfer Agent fees 10,700 Directors' fees 3,660 Professional fees 20,400 Shareholder accounting services (Note 3) 12,000 Other 5,483 ---------- Total expenses 184,689 Less expenses offset (Note 5) ( 10,700) ---------- Net expenses 173,989 ---------- Investment income - net 1,763,739 ---------- Realized and Unrealized Gain (Loss) on Investments: Net realized loss on investments ( 133,355) Unrealized appreciation of investments for the year 3,044,389 ---------- Net gain on investments 2,911,034 ---------- Net increase in net assets from operations $4,674,773 ---------- ---------- See Notes to Financial Statements. 25 STATEMENTS OF CHANGES IN NET ASSETS Years Ended December 31, 1995 and 1994
1995 1994 Increase (Decrease) in Net Assets from: Operations: Investment income - net $ 1,763,739 $ 1,869,403 Net realized loss on investments ( 133,355) ( 602,753) Unrealized appreciation (depreciation) for the year 3,044,389 ( 3,000,854) ------------ ------------ Net increase (decrease) in net assets from operations 4,674,773 ( 1,734,204) Dividends paid to shareholders from: Investment income - net ( 1,787,395) ( 1,809,110) Net realized gain on investments --- ( 86,113) Capital share transactions (Note 2) ( 28,492) ( 1,090,522) ------------ ------------ Total increase (decrease) 2,858,886 ( 4,719,949) Net Assets Beginning of year 25,277,556 29,997,505 ------------ ------------ End of year (including undistributed net investment income of $36,637 and $60,293, respectively $28,136,442 $25,277,556 ------------ ------------ ------------ ------------
See Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES: JP Investment Grade Bond Fund, Inc. is an open-end management investment company registered under the Investment Company Act of 1940. The Fund's primary investment objective is to seek the maximum level of current income as is consistent with prudent risk. The Fund attempts to achieve this objective by investing primarily in high-rated fixed income securities and dividend paying common stocks, however, other types of securities may be purchased depending upon the judgement of management. The following is a summary of significant accounting policies followed in the preparation of its financial statements: VALUATION OF SECURITIES -- Fixed income securities are valued by using market quotations or independent pricing services which utilize prices provided by market makers or estimates based on yield data related to similar securities; short-term securities are stated at amortized cost which approximates value. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable income to its shareholders. Therefore, no provision for Federal income tax is required. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. GENERAL -- Securities transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is accrued as earned. NOTE 2. CAPITAL STOCK: At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were authorized and capital paid-in amounted to $26,980,405. Transactions in capital stock were as follows:
Year Ended Year Ended December 31, 1995 December 31, 1994 ---------------------- ----------------------- Shares Amount Shares Amount ------- ---------- -------- ---------- Sold 468,268$5,156,966 234,140 $2,530,665 Issued on reinvestment of dividends 148,693 1,613,218 163,631 1,718,913 Redeemed (624,497) ( 6,798,676) (501,208) ( 5,340,100) -------- ----------- -------- ----------- Net decrease ( 7,536) ($ 28,492) (103,437) ($1,090,522) -------- ----------- -------- ----------- -------- ----------- -------- -----------
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: JP Investment Management Company received investment advisory fees of $132,446 during the year ended December 31, 1995. This fee is computed at the annual rate of 0.5% of the Fund's average daily net asset value. If the Fund's expenses, excluding interest and taxes, exceed 1% of the average daily net asset value, the Investment Adviser will pay the excess. No such reimbursement was required during the year. Expenses include $12,000 of fees paid to JP Investment Management Company under an Agency Agreement to provide shareholder accounting services. NOTE 4. INVESTMENT TRANSACTIONS: Purchases and sales of investment securities, excluding short-term securities, were $6,320,164 and $8,185,971, respectively. Realized gains and losses are reported on an identified cost basis. Accumulated net realized loss at December 31, 1995 was $777,816. This loss is available to offset future realized capital gains and expires in 2003. At December 31, 1995, the aggregate gross unrealized appreciation and depreciation of portfolio securities was as follows: Unrealized appreciation $1,898,074 Unrealized depreciation ( 858) ---------- Net unrealized appreciation $1,897,216 ---------- ---------- NOTE 5. EXPENSE OFFSET ARRANGEMENT: The Fund has an arrangement with its custodian and transfer agent whereby credits earned on cash balances maintained at the custodian are used to offset custody and transfer agent charges. These credits amounted to $10,700 for the year ended December 31, 1995. NOTE 6. SELECTED FINANCIAL INFORMATION:
Years Ended December 31, ----------------------------------------------- 1995 1994 1993 1992 1991 ------------------------ ------ Per share operating performance (for a share outstanding throughout the year) Net asset value, beginning of year $10.08 $11.49 $11.19 $11.24 $10.61 ------ ------ ------ ------ ------ Income from investment operations: Net investment income .73 .73 .74 .74 .85 Net realized and unrealized gain (loss) on investments 1.19 ( 1.40) .36 ( .03) .62 ------ ------ ------ ------ ------ Total from investment operations 1.92 ( .67) 1.10 .71 1.47 ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income ( .74) ( .71) ( .73) ( .76) ( .84) Distributions from net realized gains -- ( .03) ( .07) -- -- ------ ------ ------ ------ ------ Total distributions ( .74) ( .74) ( .80) ( .76) ( .84) ------ ------ ------ ------ ------ Net asset value, end of year $11.26 $10.08 $11.49 $11.19 $11.24 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Total return 19.44% ( 5.92)% 10.10% 6.67% 14.61% Ratios/supplemental data: Net assets, end of year (000 omitted) $28,136 $25,278 $29,997 $23,622 $19,134 Ratios to average net assets: Expenses .70% .65% .59% .67% .72% Net investment income 6.66 6.80 6.33 6.65 7.88 Portfolio turnover rate 26.16 28.93 19.88 18.05 7.23
CHANGES IN INVESTMENT POSITIONS For the Period July 1, 1995 to December 31, 1995 ADDITIONS ELIMINATIONS Smith Barney Holdings, Inc. Baltimore Gas & Electric Company 7 1/2% Notes due 5/01/02 9 1/8% 1st Mtge. due 10/15/95 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Shareholders JP Investment Grade Bond Fund, Inc. We have audited the accompanying statement of assets and liabilities and the statement of investments of JP Investment Grade Bond Fund, Inc. as of December 31, 1995, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the selected financial information for each of the five years in the period then ended. These financial statements and selected financial information are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and selected financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and selected financial information are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1995, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and selected financial information referred to above present fairly, in all material respects, the financial position of JP Investment Grade Bond Fund, Inc. as of December 31, 1995, the results of its operations, the changes in its net assets, and the selected financial information for the periods indicated, in conformity with generally accepted accounting principles. McGladrey & Pullen, LLP /s/ McGladrey & Pullen, LLP New York, New York January 11, 1996 ----------------------------------- ANNUAL REPORT DECEMBER 31, 1995 JP CAPITAL APPRECIATION FUND JP INVESTMENT GRADE BOND FUND ----------------------------------- JP Capital Appreciation Fund, Inc. This report and accompanying financial statements are submitted for information of the Fund shareholders and are not to be considered as an offer or solicitation of offers to buy or sell any shares of the Fund. Such offering is made only if preceded or accompanied by an effective prospectus. FUND DIRECTORS AND OFFICERS INVESTMENT ADVISER AND TRANSFER AGENT E. J. YELTON, Ph.D., DIRECTOR JP Investment Management Company PRESIDENT, AND TREASURER 100 North Greene Street Greensboro, North Carolina 27401 JOHN C. INGRAM, CFA, DIRECTOR J. LEE LLOYD, DIRECTOR CUSTODIAN Investors Fiduciary Trust Company RICHARD W. McENALLY, CFA, DIRECTOR 127 West Tenth Street Kansas City, Missouri 64105 WILLIAM E. MORAN, DIRECTOR W. HARDEE MILLS, CFA, VICE PRESIDENT J. GREGORY POOLE, SECRETARY GREGORY D. WALKER, CFA, PORTFOLIO MANAGER JP CAPITAL APPRECIATION FUND, INC. 100 North Greene Street P.O. Box 21008 Greensboro, North Carolina 27420 INVESTMENT ACTIVITY On June 30, 1996, the net asset value of your Fund was $19.44. Dividends totaling $.184 per share from net investment income and $1.172 per share from capital gains have been paid year to date. On a total return basis for the first half of the year, the JP Capital Appreciation Fund increased 10.23%, while the S&P 500 increased 10.10%. Through June 30, 1996, JP Capital Appreciation Fund's historical compound annual rate of total return is shown below for the following holding periods: 1 Year -- 25.58% 3 Years -- 14.36% 5 Years -- 13.75% 10 Years -- 11.07% The second quarter saw the S&P 500 reach a new all-time high on May 24 after inflation and interest rate fears began to moderate. The S&P 500 returned 4.5% for the quarter marking the sixth consecutive quarter of positive performance. Stocks of smaller companies and stocks of cyclical companies, having benefited from the perception of a stronger than expected economy, began to lag toward the end of the second quarter as concerns over corporate profits began to arise again. This concern began anew after anecdotal signs of an economy which was stronger than expected began to stimulate fears of a Federal Reserve interest rate hike. Since the S&P 500's peak in May, investors have begun a flight to quality. Defensive growth names have since outperformed the market due to their tendency to provide superior relative earnings if the Federal Reserve indeed places the brakes on economic growth with higher interest rates. Your Fund has outperformed both the median Lipper Growth and Income manager as well as the S&P 500 year to date. The Fund is in the top 20% of all Growth and Income funds for the trailing twelve months according to Lipper Analytical Services. This outperformance continues as of this writing with the market exhibiting continued weakness. The current market correction should be viewed as a positive event. Veteran investors consider corrections as a healthy means of removing speculative excesses from the marketplace. Witness the NASDAQ composite, comprised mainly of smaller companies, often technology stocks, which has fallen 15% from its April high. Fortunately, lower stock prices based on investor skittishness and fear, present the seasoned long-term investor with buying opportunities. We do not question that it is becoming late in this bull market. The liquidity provided by the Federal Reserve, as well as that provided by other central banks, has been the critical catalyst for this aging worldwide bull market. This accommodative posture by the Federal Reserve may be coming to an end. In his recent testimony before Congress, Federal Reserve Chairman Greenspan appeared to hint that the war against inflation may be just beginning. We do not base our management strategy on a forecast of the economy or interest rates. We continue to believe that the stocks of companies with superior earnings growth relative to their peers and which are trading at attractive valuations are the companies we wish to own in the portfolio. Irrespective of the overall market direction we believe that this strategy, over time, will result in superior relative performance. PORTFOLIO DIVERSIFICATION SECTOR % OF TOTAL NET ASSETS Credit Cyclicals 0.00 Financial 15.90 Consumer Growth Staples 3.83 Consumer Staples 16.24 Consumer Cyclicals 4.04 Capital Goods -- Technology 11.11 Capital Goods 3.85 Energy 8.58 Basic Industries 3.66 Transportation 1.27 Utilities 11.94 Conglomerates .98 Cash 18.60 Your continued support and interest in the JP Capital Appreciation Fund are appreciated, and we welcome any questions. JP Capital Appreciation Fund, Inc. /s/ E.J. Yelton President July 29, 1996 TEN LARGEST HOLDINGS June 30, 1996
COMPANY MARKET VALUE PERCENT OF FUND General Electric Company $ 2,162,500 2.6 Tellabs, Inc. 1,969,125 2.4 Citicorp 1,702,075 2.1 Countrywide Credit Industries, Inc. 1,683,000 2.1 Monsanto Company 1,673,750 2.0 Royal Dutch Petroleum Company 1,614,375 2.0 Atlantic Richfield Company 1,611,600 2.0 Xerox Corporation 1,605,000 2.0 Schering-Plough Corporation 1,593,850 1.9 Vencor, Inc. 1,464,000 1.8 ----------- ---- $ 17,079,275 20.9
STATEMENT OF INVESTMENTS June 30, 1996 (Unaudited) NUMBER OF SHARES COMMON STOCKS -- 79.76% OR PRINCIPAL AMOUNT VALUE Aerospace/Defense -- .96% Lockheed-Martin Corporation 9,300$ 781,200 Banks -- 5.47% Bank of New York Company, Inc. 19,400 994,250 Chase Manhattan Corporation 10,400 734,500 Citicorp 20,600 1,702,075 Mellon Bank Corporation 18,000 1,026,000 Biotechnology -- .25% Alliance Pharmaceutical Corporation 12,100 198,138* Broadcasting -- .30% US West Media Group, Inc. 13,400 244,550* Chemicals -- Major -- 3.38% Imperial Chemical Industries, Inc. 22,000 1,080,750 Monsanto Company 51,500 1,673,750 Computer Software -- 3.10% SunGard Data Systems, Inc. 23,000 920,000* Xerox Corporation 30,000 1,605,000 Conglomerates -- .98% AlliedSignal, Inc. 14,000 799,750 Drugs -- 5.74% Lilly (Eli) & Company 20,090 1,305,850 Merck & Company, Inc. 9,000 581,625 Pharmacia & Upjohn, Inc. 27,000 1,198,125 Schering-Plough Corporation 25,400 1,593,850 Electric Equipment -- Major -- 2.65% General Electric Company 25,000 2,162,500 5 Electronics -- Instrument -- .97% Varian Associates, Inc. 15,300 791,775 Electronics -- Semi -- .55% Atmel Corporation 15,000 451,875* Foods -- 1.79% Sara Lee Corporation 45,000 1,456,875 Hospital -- Management -- 3.54% Columbia/HCA Healthcare Corporation 26,600 1,419,775 Vencor, Inc. 48,000 1,464,000* Hospital -- Supplies -- 3.64% Baxter International, Inc. 10,000 472,500 Guidant Corporation 9,916 488,363 Johnson & Johnson 27,000 1,336,500 St. Jude Medical, Inc. 20,000 665,000* Insurance -- Multi-Line -- 5.40% AFLAC, Inc. 26,400 788,700 Aetna Life & Casualty Company 20,000 1,430,000 Allstate Corporation 20,500 935,312 CIGNA Corporation 10,600 1,249,475 Insurance -- Property & Casualty -- .96% Everest Reinsurance Holdings, Inc. 25,500 659,813 IPC Holdings, Ltd. 6,000 120,750 Merchandising -- Department -- 1.91% Consolidated Stores Corporation 20,000 735,000* Federated Department Stores, Inc. 24,000 819,000 Merchandising -- Drugs -- 1.34% Eckerd Corporation 33,000 746,625* Thrifty Payless Holdings, Inc. 20,000 345,000* Merchandising -- Special -- 1.72% Borders Group, Inc. 43,500 1,402,875* Miscellaneous Consumer Cyclical -- .43% Kelly Services, Inc. 12,000 351,000 Miscellaneous Financial -- 4.12% Countrywide Credit Industries, Inc. 68,000 1,683,000 Federal Home Loan Mortgage Corporation 8,000 684,000 First USA, Inc. 18,000 990,000 Natural Gas -- Diverified -- .58% Questar Corporation 14,000 476,000 Oils -- Integrated Domestic -- 4.38% Amoco Corporation 15,600 1,129,050 Atlantic Richfield Company 13,600 1,611,600 Oils -- Integrated International -- 3.65% Mobil Corporation 12,100 1,356,713 Royal Dutch Petroleum Company 10,500 1,614,375 Paper & Forest Products -- .29% Sonoco Products Company 8,400 238,350 Pollution Control -- 1.21% WMX Technologies, Inc. 30,000 982,500 Railroads -- .83% CSX Corporation 14,000 675,500 Telecommunications -- 5.40% DSC Communications Corporation 25,000 750,000* Loral Space & Communications, Ltd. 16,000 218,000* Lucent Technologies, Inc. 33,000 1,249,875* Tellabs, Inc. 29,500 1,969,125* 360 Communications Company 8,833 211,992* Tobacco -- 1.79% Philip Morris Companies, Inc. 14,000 1,456,000 7 Transportation -- Miscellaneous -- .44% Federal Express Corporation 4,400 360,800* Utilities -- Communications -- 5.59% Bell Atlantic Corporation 6,300 401,625 BellSouth Corporation 12,600 533,925 Century Telephone Enterprises, Inc. 14,000 446,250 Frontier Corporation 43,000 1,316,875 SBC Communications, Inc. 6,400 315,200 Sprint Corporation 26,500 1,113,000 US West Communications Group, Inc. 13,400 427,125 Utilities -- Electric -- 6.10% American Electric Power Company, Inc. 11,550 492,319 CMS Energy Corporation 16,200 500,175 Carolina Power & Light Company 6,700 254,600 CINergy Corporation 22,800 729,600 Consolidated Edison Company of NY, Inc. 9,900 289,575 Dominion Resources, Inc. 7,650 306,000 Entergy Corporation 19,800 561,825 FPL Group, Inc. 13,600 625,600 Illinova Corporation 15,900 457,125 Northeast Utilities 14,500 193,937 PECO Energy Company 8,300 215,800 Public Service Enterprise Group, Inc. 12,550 343,556 Utilities -- Water -- .30% American Water Works Company, Inc. 6,000 241,500 ----------- Total Common Stocks (Cost -- $49,158,263+) 64,985,805 ----------- PREFERRED STOCKS -- 1.92% Telecommunications -- .16% TCI Communications, Inc., $2.125 Cum. Pfd. Ser. A 3,000 132,375 Tobacco -- 1.76% RJR Nabisco Holdings, Inc., Pfd. C. 220,000 1,430,000 ----------- Total Preferred Stocks (Cost -- $1,523,200+) 1,562,375 ----------- SHORT-TERM SECURITIES -- 18.32% American Express Credit Corporation, 7/03/96 $ 500,000 499,780 American Express Credit Corporation, 7/03/96 2,000,000 1,999,123 Chevron Oil Finance Company, 7/08/96 2,750,000 2,746,749 Exxon Asset Management Company, 7/10/96 3,000,000 2,995,625 Ford Motor Credit Company, 7/17/96 2,500,000 2,493,672 General Electric Capital Corporation, 7/05/96 1,500,000 1,498,911 Hershey Foods Corporation, 7/12/96 2,700,000 2,695,185 ----------- Total Short-Term Securities (Cost -- $14,929,045+) 14,929,045 ----------- Total Investments (Cost -- $65,610,508+) $81,477,225 ----------- ----------- *Non-income producing. +Aggregate cost for Federal income tax purposes is the same. See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 (Unaudited) ASSETS Investments in securities at value (cost $65,610,508) $ 81,477,225 Cash 446,968 Receivables: Capital shares sold 45,793 Dividends 67,442 ------------ Total Assets 82,037,428 ------------ LIABILITIES Payables: Securities purchased 227,597 Accrued expenses 58,331 ------------ Total Liabilities 285,928 ------------ NET ASSETS Net Assets, equivalent to $19.44 per share on 4,205,010 shares of capital stock outstanding (Note 2) $ 81,751,500 ------------ ------------ See Notes to Financial Statements.
10
STATEMENT OF OPERATIONS Six Months Ended June 30, 1996 (Unaudited) Investment Income: Interest $ 286,477 Dividends 778,721 ------------ Total income 1,065,198 ------------ Expenses: Investment Adviser's fee (Note 3) 190,021 Custodian and Transfer Agent fees 14,182 Directors' fees 2,490 Professional fees 12,900 Shareholder accounting services (Note 3) 9,150 Other 663 ------------ Total expenses 229,406 Less expenses offset (Note 5) ( 8,982) ------------ Net expenses 220,424 ------------ Investment income -- net 844,774 ------------ Realized and Unrealized Gain on Investments: Net realized gain on investments 5,612,860 Unrealized appreciation of investments for the period 1,023,490 ------------ Net gain on investments 6,636,350 ------------ Net increase in net assets from operations $ 7,481,124 ------------ ------------ See Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS Six Months Ended June 30, 1996 (Unaudited) and Year Ended December 31, 1995
SIX MONTHS YEAR ENDED ENDED JUNE 30, DECEMBER 31, 1996 1995 -------------- ------------ Increase (Decrease) in Net Assets from: Operations: Investment income -- net $ 844,774 $ 1,349,332 Net realized gain on investments 5,612,860 4,429,313 Unrealized appreciation for the period 1,023,490 12,830,999 ----------- ----------- Net increase in net assets from operations 7,481,124 18,609,644 Dividends paid to shareholders from: Investment income -- net ( 696,526) ( 1,318,791) Net realized gain on investments ( 4,436,566) ( 7,845,335) Capital share transactions (Note 2) 7,801,969 3,796,147 ----------- ----------- Total increase 10,150,001 13,241,665 Net Assets Beginning of period 71,601,499 58,359,834 ----------- ----------- End of period (including undistributed net investment income of $841,453 and $693,205, respectively) $81,751,500 $71,601,499 ----------- ----------- ----------- -----------
See Notes to Financial Statements. NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES: JP Capital Appreciation Fund, Inc. is an open-end management investment company registered under the Investment Company Act of 1940. The Fund's primary investment objective is long-term capital appreciation. The Fund seeks to achieve this objective by investing substantially all of its assets in common stocks of companies recognized as leaders in their respective industries, however, other types of securities may be purchased depending upon the judgment of management. The following is a summary of significant accounting policies followed in the preparation of its financial statements: VALUATION OF SECURITIES -- Investments are stated at value based on the closing prices reported on national securities exchanges on the last business day of the period, or for over-the-counter securities, at the last bid price, except that short-term securities are stated at amortized cost which approximates value. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable income to its shareholders. Therefore, no provision for Federal income tax is required. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. GENERAL -- Securities transactions are accounted for on the trade date. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is accrued as earned. NOTE 2. CAPITAL STOCK: At June 30, 1996, 10,000,000 shares of capital stock ($1.00 par value) were authorized and capital paid-in amounted to $59,440,744. Transactions in capital stock were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995 ---------------- ----------------- SHARES AMOUNT SHARES AMOUNT ------- ----------- ------- ----------- Sold 286,099 $ 5,352,786 425,888 $ 7,340,776 Issued on reinvestment of dividends 283,884 5,112,753 620,704 9,124,856 Redeemed (141,747) ( 2,663,570) (749,300) (12,669,485) ------- ----------- ------- ----------- Net increase 428,236 $ 7,801,969 297,292 $ 3,796,147 ------- ----------- ------- ----------- ------- ----------- ------- -----------
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: JP Investment Management Company received investment advisory fees of $190,021 during the six months ended June 30, 1996. This fee is computed at the annual rate of 0.5% of the Fund's average daily net asset value. If the Fund's expenses, excluding interest and taxes, exceed 1% of the average daily net asset value, the Investment Adviser will pay the excess. No such reimbursement was required during the period. Expenses include $9,150 of fees paid to JP Investment Management Company under an Agency Agreement to provide shareholder accounting services. NOTE 4. INVESTMENT TRANSACTIONS: Purchases and sales of investment securities, excluding short-term securities, were $19,729,765 and $24,436,992, respectively. Realized gains and losses are reported on an identified cost basis. Accumulated undistributed net realized gain at June 30, 1996 was $5,602,586. At June 30, 1996, the aggregate gross unrealized appreciation and depreciation of portfolio securities was as follows: Unrealized appreciation $16,664,050 Unrealized depreciation ( 797,333) ----------- Net unrealized appreciation $15,866,717 ----------- ----------- NOTE 5. EXPENSE OFFSET ARRANGEMENT: The Fund has an arrangement with its custodian and transfer agent whereby credits earned on cash balances maintained at the custodian are used to offset custody and transfer agent charges. These credits amounted to $8,982 for the period ended June 30, 1996. NOTE 6. SELECTED FINANCIAL INFORMATION:
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ----------------------------------------------- 1996 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFROMANCE (for a share outstanding throughout the period) Net asset value, beginning of period $18.96 $16.77 $18.19 $18.17 $17.69 $13.76 ------- ------- ------- ------- ------- ------- Income from investment operations: Net investment income .20 .36 .34 .28 .29 .37 Net realized and unrealized gain (loss) on investments 1.63 4.45 ( 1.10) 1.26 .75 3.91 ------- ------- ------- ------- ------- ------- Total from investment operations 1.83 4.81 ( .76) 1.54 1.04 4.28 ------- ------- ------- ------- ------- ------- Less distributions: Dividends from net investment income ( .18) ( .36) ( .17) ( .27) ( .33) ( .35) Distributions from net realized gains ( 1.17) ( 2.26) ( .49) ( 1.25) ( .23) -- ------- ------- ------- ------- ------- ------- Total distributions ( 1.35) ( 2.62) ( .66) ( 1.52) ( .56) ( .35) ------- ------- ------- ------- ------- ------- Net asset value, end of period $19.44 $18.96 $16.77 $18.19 $18.17 $17.69 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- TOTAL RETURN 10.23% 33.39% ( 4.34)% 9.25% 6.16% 31.61% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $81,752 $71,601 $58,360 $56,625 $45,480 $37,319 Ratios to average net assets: Expenses .60%+^ .62%^ .58% .60% .63% .62% Net investment income 2.22+ 2.07 2.03 1.55 1.68 2.37 Portfolio turnover rate 30.32 64.13 126.70 23.93 48.72 36.71
+Annualized. ^Pursuant to new regulations, ratio includes expenses paid by expense offset arrangements. A MUTUAL FUND SEEKING MAXIMUM INCOME This report and accompanying financial statements are submitted for information of the Fund shareholders and are not to be considered as an offer or solicitation of offers to buy or sell any shares of the Fund. Such offering is made only if preceded or accompanied by an effective prospectus. FUND DIRECTORS AND OFFICERS INVESTMENT ADVISER AND TRANSFER AGENT E. J. YELTON, Ph.D., DIRECTOR, JP Investment Management Company PRESIDENT, AND TREASURER 100 North Greene Street Greensboro, North Carolina 27401 JOHN C. INGRAM, CFA, DIRECTOR CUSTODIAN J. LEE LLOYD, DIRECTOR Investors Fiduciary Trust Company 127 West Tenth Street RICHARD W. McENALLY, CFA, DIRECTOR Kansas City, Missouri 64105 WILLIAM E. MORAN, DIRECTOR W. HARDEE MILLS, CFA, VICE PRESIDENT J. GREGORY POOLE, SECRETARY H. LUSBY BROWN, CFA, PORTFOLIO MANAGER JP INVESTMENT GRADE BOND FUND, INC. 100 North Greene Street P.O. Box 21008 Greensboro, North Carolina 27420 INVESTMENT ACTIVITY On June 30, 1996, the net asset value of your Fund was $10.88. The Fund paid dividends of $.175 per share from interest income during the first half of 1996. The Fund's year-to-date returns and annual returns for one, three, five, and ten-year periods ending June 30, 1996 are as follows: Year-to-Date (1.78%) 1 Year -- 4.50% 3 Years -- 4.23% 5 Years -- 7.29% 10 Years -- 7.53% The bond market experienced these negative returns due to fears that the economy was growing too rapidly causing Federal Reserve to resort to a tightening of monetary policy to prevent inflation. Since the beginning of the year, yields have increased approximately 100 basis points in intermediate and long maturity bonds, thus reducing bond prices. The actions of the bond market in 1996 stem from expectations derived from strong growth in payroll employment. This eliminated any expectations that the Fed would cut short-term rates, causing the yield curve to steepen for longer maturities. Corporate bonds outperformed Treasuries during the past six months due to narrowing credit spreads caused by improved credit quality in most sectors. Mortgage-backed securities also outperformed Treasuries as prepayment assumptions declined with the rise in interest rates. So far, the damage to the bond market has been inflicted solely on expectations. Our view that inflation is unlikely to be a serious threat to bond yields has proven to be accurate so far, as the CPI is still less that 3% on a year-over- year basis. We believe that real yields on bonds are attractive at current levels. If the Fed acts to raise short-term rates to choke off the prospects for any future inflation, then bonds could become even more attractive. Despite the attractiveness of real long-term rates, the bond market remains at risk until the economy exhibits signs of a slowdown. We will continue to maintain a somewhat neutral interest rate risk profile based on our short-term expectations of bond market volatility; however, we maintain that in the long run bonds should provide good relative returns. PORTFOLIO DIVERSIFICATION SECTOR % OF TOTAL NET ASSETS U. S. Government 39.95 Mortgage-Backed Securities 9.01 Industrials 16.34 Financials 10.43 Electric Utilities 3.43 Telephone Utilities 4.62 Gas Utilities 8.09 Cash Equivalents 8.13 Your continued support and interest in the JP Investment Grade Bond Fund are appreciated, and we welcome any questions. JP Investment Grade Bond Fund, Inc. /s/E.J. Yelton President July 29, 1996
STATEMENT OF INVESTMENTS June 30, 1996 (Unaudited) FACE RATINGS* AMOUNT ISSUE VALUE BONDS -- 94.26% U.S. GOVERNMENT -- 40.99% $ 500,000 U.S. Treasury Notes 5 1/8% due 11/30/98 $ 487,890 2,500,000 U.S. Treasury Notes 5 7/8% due 4/30/98 2,490,225 1,500,000 U.S. Treasury Notes 6 3/8% due 3/31/01 1,493,430 500,000 U.S. Treasury Notes 6 3/8% due 8/15/02 496,015 500,000 U.S. Treasury Notes 6 1/2% due 4/30/99 502,655 1,000,000 U.S. Treasury Notes 6 1/2% due 5/15/05 986,870 500,000 U.S. Treasury Notes 6 7/8% due 3/31/00 507,265 1,500,000 U.S. Treasury Bonds 7 1/8% due 2/15/23 116,170 500,000 U.S. Treasury Bonds 8 1/2% due 5/15/97 511,485 500,000 U.S. Treasury Notes 8 1/2% due 7/15/97 513,045 500,000 U.S. Treasury Bonds 8 7/8% due 8/15/17 600,310 500,000 U.S. Treasury Bonds 10 3/8% due 11/15/09 611,485 1,000,000 U.S. Treasury Bonds 12 3/4% due 11/15/10 1,404,220 MORTGAGE-BACKED SECURITIES -- 9.24% 1,000,000 Federal Home Loan Mortgage Corporation 6% due 3/15/09 97,500 2,000,000 Federal Home Loan Mortgage Corporation 7% due 9/15/23 1,835,000 INDUSTRIALS -- 27.47% FINANCE -- 13.20% A1 1,000,000 Ford Motor Credit Company 6 3/4% Notes due 8/15/08 938,000 A1 750,000 Merrill Lynch & Company, Inc. 6 7/8% Notes due 3/01/03 739,185 A1 1,000,000 Morgan Stanley Group, Inc. 7% Senior Notes due 10/01/13 942,040 A2 750,000 Smith Barney Holdings, Inc. 7 1/2% Notes due 5/01/02 767,070 A1 500,000 SunTrust Banks, Inc. 8 7/8% Notes due 2/01/98 518,155 FOODS -- 2.46% Aa2 750,000 Archer-Daniels-Midland Company 7 1/8% Debs. due 3/01/13 727,822 MACHINERY -- INDUSTRIAL/SPECIALTY -- 1.77% A2 500,000 Johnson Controls, Inc. 7.70% Debs. due 3/01/15 523,435 POLLUTION CONTROL -- 1.72% Baa2 500,000 Laidlaw, Inc. 7.70% Debs. due 8/15/02 508,850 RAILROADS -- 4.84% Baa2 750,000 Kansas City Southern Industries, Inc. 6 5/8% Senior Notes due 3/01/05 705,660 A1 750,000 United States Leasing International, Inc. 6 5/8% Senior Notes due 5/15/03 725,108 TELECOMMUNICATIONS -- 1.69% A2 500,000 Northern Telecom, Limited 6 7/8% Senior Notes due 10/01/02 498,895 TOBACCO -- 1.79% A2 500,000 Philip Morris Companies, Inc. 8 1/4% Senior Notes due 10/15/03 527,680 UTILITIES -- 16.56% UTILITIES -- ELECTRIC -- 3.52% A2 500,000 Midwest Power Systems, Inc. 7% 1st Mtge. due 2/15/05 488,425 A1 500,000 South Carolina Electric & Gas Company 9% 1st & Ref. Mtge. due 7/15/06 553,475 UTILITIES -- GAS -- 8.30% A1 1,000,000 Consolidated Natural Gas Company 6 5/8% Debs. due 12/01/13 894,370 A2 500,000 National Fuel Gas Company 7 3/4% Debs. due 2/01/04 506,500 Baa1 500,000 Texas Gas Transmission 8 5/8% Notes due 4/01/04 535,160 22 Aa2 500,000 Washington Gas Light Company 8 3/4% 1st Mtge. due 7/01/19 519,435 UTILITIES -- TELEPHONE -- 4.74% A2 1,000,000 Alltel Corporation 6 1/2% Debs. due 11/01/13 899,020 A3 500,000 United Telephone Company of Pennsylvania 7 3/8% 1st Mtge. Ser. Y due 12/01/02 501,445 ----------- Total Bonds (Cost -- $27,422,632+) 27,873,295 ----------- SHORT-TERM SECURITIES -- 5.74% A1 700,000 Ford Motor Credit Company, 7/01/96 699,899 A1 1,000,000 General Electric Capital Corporation, 7/10/96 998,508 ----------- Total Short-Term Securities (Cost -- $1,698,407+) 1,698,407 ----------- Total Investments (Cost -- $29,121,039+) $29,571,702 ----------- -----------
*Bonds are rated by Moody's Investors Service, Inc. and Commercial Paper is rated by Standard & Poor's Corporation. +Aggregate cost for Federal income tax purposes is the same. See Notes to Financial Statements. STATEMENT OF ASSETS AND LIABILITIES June 30, 1996 (Unaudited) ASSETS Investment in securities at value (cost $29,121,039) $ 29,571,702 Cash 312,275 Receivables: Interest 477,646 Capital shares sold ------------ Total Assets 30,372,445 ----------- LIABILITIES Accrued expenses 33,950 ------------ Total Liabilities 33,950 ------------ NET ASSETS Net Assets, equivalent to $10.88 per share on 2,788,539 shares of capital stock outstanding (Note 2) $ 30,338,495 ------------ ------------ See Notes to Financial Statements. STATEMENT OF OPERATIONS Six Months Ended June 30, 1996 (Unaudited) Investment Income: Interest $ 1,007,907 ------------ Expenses: Investment Adviser's fee (Note 3) 72,939 Custodian and Transfer Agent fees 8,267 Directors' fees 2,490 Professional fees 10,500 Shareholder accounting services (Note 3) 5,460 Other 3,405 ------------ Total expenses 103,061 Less expenses offet (Note 5) ( 8,240) ------------ Net expenses 94,821 ------------ Investment income -- 913,086 Realized and Unrealized Loss on Investments: Net realized loss on investments ( 1,750) Unrealized depreciation of investments for the period ( 1,446,554) ------------ Net loss on investments ( 1,448,304) ------------ Net decrease in net assets from operations ($ 535,218) ------------ ------------ See Notes to Financial Statements. STATEMENTS OF CHANGES IN NET ASSETS Six Months Ended June 30, 1996 (Unaudited) and Year Ended December 31, 1995
SIX MONTHS Year Ended ENDED JUNE 30, December 31, 1996 1995 -------------- ------------ Increase (Decrease) in Net Assets from: Operations: Investment income -- net $ 913,086 $ 1,763,739 Net realized loss on investments (1,750) ( 133,355) Unrealized appreciation (depreciation) for the period ( 1,446,554) 3,044,389 ----------- ----------- Net increase (decrease) in net assets from operations ( 535,218) 4,674,773 Dividends paid to shareholders from: Investment income -- net ( 469,416) ( 1,787,395) Capital share transactions (Note 2) 3,206,687 ( 28,492) ----------- ----------- Total increase 2,202,053 2,858,886 Net Assets Beginning of period 28,136,442 25,277,556 ----------- ----------- End of period (including undistributed net investment income of $480,307 and $36,637, respectively) $30,338,495 $28,136,442 ----------- ----------- ----------- -----------
See Notes to Financial Statements. 26 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. SIGNIFICANT ACCOUNTING POLICIES: JP Investment Grade Bond Fund, Inc. is an open-end management investment company registered under the Investment Company Act of 1940. The Fund's primary investment objective is to seek the maximum level of current income as is consistent with prudent risk. The Fund attempts to achieve this objective by investing primarily in high-rated fixed income securities and dividend paying common stocks, however, other types of securities may be purchased depending upon the judgment of management. The following is a summary of significant accounting policies followed in the preparation of its financial statements: VALUATION OF SECURITIES -- Fixed income securities are valued by using market quotations or independent pricing services which utilize prices provided by market makers or estimates based on yield data related to similar securities; short-term securities are stated at amortized cost which approximates value. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable income to its shareholders. Therefore, no provision for Federal income tax is required. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. GENERAL -- Securities transactions are accounted for on the trade date. Distributions to shareholders are recorded on the ex-dividend date. Interest income is accrued as earned. NOTE 2. CAPITAL STOCK: At June 30, 1996, 10,000,000 shares of capital stock ($1.00 par value) were authorized and capital paid-in amounted to $30,187,092. Transactions in capital stock were as follows:
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995 ---------------- ----------------- SHARES AMOUNT SHARES AMOUNT ------- ---------- ------- ---------- Sold 401,902 $4,444,769 468,268 $5,156,966 Issued on reinvestment of dividends 39,391 427,945 148,693 1,613,218 Redeemed (151,840) (1,666,027) (624,497) (6,798,676) ------- ---------- ------- ---------- Net increase (decrease) 289,453 $3,206,687 (7,536) ($28,492) ------- ---------- ------- ---------- ------- ---------- ------- ----------
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES: JP Investment Management Company received investment advisory fees of $72,939 during the six months ended June 30, 1996. This fee is computed at the annual rate of 0.5% of the Fund's average daily net asset value. If the Fund's expenses, excluding interest and taxes, exceed 1% of the average daily net asset value, the Investment Adviser will pay the excess. No such reimbursement was required during the period. Expenses include $5,460 of fees paid to JP Investment Management Company under an Agency Agreement to provide shareholder accounting services. NOTE 4. INVESTMENT TRANSACTIONS: Purchases and sales of investment securities, excluding short-term securities, were $6,485,781 and $2,250,000, respectively. Realized gains and losses are reported on an identified cost basis. Accumulated net realized loss at June 30, 1996 was $779,567. This loss is available to offset future realized gains. At June 30, 1996, the aggregate gross unrealized appreciation and depreciation of portfolio securities was as follows: Unrealized appreciation $823,321 Unrealized depreciation ( 372,658) ---------- Net unrealized appreciation $450,663 ---------- ---------- NOTE 5. EXPENSE OFFSET ARRANGEMENT: The Fund has an arrangement with its custodian and transfer agent whereby credits earned on cash balances maintained at the custodian are used to offset custody and transfer agent charges. These credits amounted to $8,240 for the period ended June 30, 1996. NOTE 6. SELECTED FINANCIAL INFORMATION:
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ---------------------------------------------- 1996 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ ------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period $11.26 $10.08 $11.49 $11.19 $11.24 $10.61 ------ ------ ------ ------ ------ ------ Income from investment operations: Net investment income .33 .73 .73 .74 .74 .85 Net realized and unrealized gain (loss) on investments ( .54) 1.19 ( 1.40) .36 ( .03) .62 ------ ------ ------ ------ ------ ------ Total from investment operations ( .21) 1.92 ( .67) 1.10 .71 1.47 ------ ------ ------ ------ ------ ------ Less distributions: Dividends from net investment income ( .17) ( .74) ( .71) ( .73) ( .76) ( .84) Distributions from net realized gains -- -- ( .03) ( .07) -- -- ------ ------ ------ ------ ------ ------ Total distributions ( .17) ( .74) ( .74) ( .80) ( .76) ( .84) ------ ------ ------ ------ ------ ------ Net asset value, end of period $10.88 $11.26 $10.08 $11.49 $11.19 $11.24 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ TOTAL RETURN ( 1.78)% 19.44% ( 5.92)% 10.10% 6.67% 14.61% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000 omitted) $30,388 $28,136 $25,278 $29,997 $23,622 $19,134 Ratios to average net assets: Expenses .71%+^ .70%^ .65% .59% .67% .72% Net investment income 6.26+ 6.66 6.80 6.33 6.65 7.88 Portfolio turnover rate 9.12 26.16 28.93 19.88 18.05 7.23
+Annualized. ^Pursuant to new regulations, ratio includes expenses paid by expense offset arrangements. CHANGES IN INVESTMENT POSITIONS For the Period January 1, 1996 to June 30, 1996 ADDITIONS ELIMINATIONS U.S. Treasury Tennessee Gas Pipeline Company 5 7/8% Notes due 4/30/98 9 1/4% S. F. Debs. due 5/15/96 U.S. Treasury U.S. Treasury 6 3/8% Notes due 3/31/01 7 1/2% Notes due 1/31/96 U.S. Treasury U.S. Treasury 6 1/2% Notes due 5/15/05 9 3/8% Notes due 4/15/96 U.S. Treasury 7 1/8% Bonds due 2/15/23 SEMI-ANNUAL REPORT JUNE 30, 1996 JP CAPITAL APPRECIATION FUND JP INVESTMENT GRADE BOND FUND
PRO FORMA COMBINING STATEMENTS OF INVESTMENTS December 31, 1995 (Unaudited) Oppenheimer Growth Fund and JP Capital Appreciation Fund, Inc. SHARES MARKET VALUE ------------------------------------ ----------------------------------------- Oppenheimer JP Capital Pro Forma Oppenheimer JP Capital Pro Forma Growth Appreciation Combined Growth Appreciation Combined ------------------------------------------------------------------------------- COMMON STOCKS - 83.3% BASIC MATERIALS - 5.4% CHEMICALS - 4.2% Dow Chemical Company - 10,400 10,400 $ - $ 731,900 $ 731,900 FMC Corp.(1) 4,000 - 4,000 270,500 - 270,500 Georgia Gulf Corp. 19,000 - 19,000 584,250 - 584,250 IMC Global, Inc. 16,000 - 16,000 654,000 - 654,000 Monsanto Company - 16,300 16,300 - 1,996,750 1,996,750 Morton International, Inc. 29,000 - 29,000 1,040,375 - 1,040,375 PPG Industries, Inc. 18,000 - 18,000 823,500 - 823,500 Sterling Chemicals, Inc.(1) 80,600 - 80,600 654,875 - 654,875 Terra Industries, Inc. 46,000 - 46,000 649,750 - 649,750 Union Carbide Corp. 17,000 - 17,000 637,500 - 637,500 ------------------------------------------------------------------------------- 5,314,750 2,728,650 8,043,400 METALS - 0.2% Reynolds Metals Co. 7,000 - 7,000 396,375 - 396,375 ------------------------------------------------------------------------------- PAPER - 1.0% Boise Cascade Corp. 17,000 - 17,000 588,625 - 588,625 Bowater, Inc. 5,000 - 5,000 177,500 - 177,500 Federal Paper Board Co. 7,000 - 7,000 363,125 - 363,125 Sonoco Products Company - 8,400 8,400 - 220,500 220,500 Willamette Industries, Inc. 11,000 - 11,000 618,750 - 618,750 ------------------------------------------------------------------------------- 1,748,000 220,500 1,968,500 CONSUMER CYCLICALS - 10.3% AUTOS & HOUSING - 0.9% Honda Motor Company, Ltd. - 3,000 3,000 - 126,000 126,000 Pulte Corp. 17,000 - 17,000 571,625 - 571,625 Toll Brothers, Inc.(1) 46,000 - 46,000 1,058,000 - 1,058,000 ------------------------------------------------------------------------------- 1,629,625 126,000 1,755,625 LEISURE & ENTERTAINMENT - 2.4% Applebee's International, Inc. 18,000 - 18,000 409,500 - 409,500 Callaway Golf Co. 25,000 - 25,000 565,625 - 565,625 ITT Corp. (New) 5,000 - 5,000 265,000 - 265,000 McDonald's Corp. 11,000 - 11,000 496,375 - 496,375 Walt Disney Co. 25,000 11,200 36,200 1,475,000 660,800 2,135,800 Wendy's International, Inc. 33,800 - 33,800 718,250 - 718,250 ------------------------------------------------------------------------------- 3,929,750 660,800 4,590,550 MEDIA - 1.0% Capital Cities/ABC, Inc. - 11,600 11,600 - 1,431,150 1,431,150 US West Media Group, Inc.(1) - 13,400 13,400 - 254,600 254,600 Viacom, Inc., Cl. B(1) 3,667 - 3,667 173,724 - 173,724 ------------------------------------------------------------------------------ 173,724 1,685,750 1,859,474 RETAIL: GENERAL - 2.6% Dayton Hudson Corporation - 6,400 6,400 - 480,000 480,000 Federated Department Stores, Inc.(1) - 24,000 24,000 - 660,000 660,000 Jones Apparel Group, Inc.(1) 17,100 - 17,100 673,312 - 673,312 May Department Stores Co. 6,000 - 6,000 253,500 - 253,500 Nautica Enterprises, Inc. 10,200 - 10,200 446,250 - 446,250 Tommy Hilfiger Corp. 22,500 - 22,500 953,437 - 953,437 Wal-Mart Stores, Inc. 26,000 - 26,000 581,750 - 581,750 Warnaco Group, Inc. (The), Cl. A 33,000 - 33,000 825,000 - 825,000 ------------------------------------------------------------------------------- 3,733,249 1,140,000 4,873,249 RETAIL: SPECIALTY - 3.4% Bed Bath & Beyond, Inc.(1) 9,000 - 9,000 349,312 - 349,312 Borders Group, Inc.(1) - 43,500 43,500 - 804,750 804,750 Circuit City Stores, Inc. - 28,000 28,000 - 773,500 773,500 Gap, Inc. (The) 10,000 - 10,000 420,000 - 420,000 General Nutrition Cos., Inc.(1) 40,000 - 40,000 920,000 - 920,000 Home Depot, Inc. 24,000 - 24,000 1,149,000 - 1,149,000 Intimate Brands, Inc. - 20,200 20,200 - 303,000 303,000 Nike, Inc. - 14,000 14,000 - 974,750 974,750 OfficeMax, Inc.(1) 8,000 - 8,000 179,000 - 179,000 Ross Stores, Inc. - 25,000 25,000 - 478,125 478,125 ------------------------------------------------------------------------------- 3,017,312 3,334,125 6,351,437 CONSUMER NON-CYCLICALS - 18.0% BEVERAGES - 0.9% Boston Beer Co., Inc., Cl. A(1) 6,600 - 6,600 156,750 - 156,750 Coca-Cola Co. (The) 10,000 - 10,000 742,500 - 742,500 PepsiCo, Inc. 10,000 - 10,000 558,750 - 558,750 Whitman Corp. 8,000 - 8,000 186,000 - 186,000 ------------------------------------------------------------------------------- 1,644,000 - 1,644,000 FOOD - 2.7% ConAgra, Inc. 4,000 - 4,000 165,000 - 165,000 H.J. Heinz Co. 15,000 - 15,000 496,875 - 496,875 IBP, Inc. 20,000 - 20,000 1,010,000 - 1,010,000 Kroger Co.(1) 14,000 - 14,000 525,000 - 525,000 Safeway, Inc.(1) 16,000 - 16,000 824,000 - 824,000 Sara Lee Corporation - 45,000 45,000 - 1,434,375 1,434,375 Smithfield Foods, Inc.(1) 21,000 - 21,000 666,750 - 666,750 ------------------------------------------------------------------------------- 3,687,625 1,434,375 5,122,000 HEALTHCARE/DRUGS - 7.8% Abbott Laboratories 27,000 - 27,000 1,127,250 - 1,127,250 Amgen, Inc.(1) 8,000 19,800 27,800 475,000 1,173,150 1,648,150 Baxter International, Inc. - 10,000 10,000 - 418,750 418,750 Bristol-Myers Squibb Co. 6,500 - 6,500 558,187 - 558,187 Eckerd Corporation(1) - 16,500 16,500 - 736,312 736,312 Guidant Corporation - 8,916 8,916 - 376,701 376,701 Johnson & Johnson 12,000 13,500 25,500 1,027,500 1,155,938 2,183,438 Lilly (Eli) & Company - 10,090 10,090 - 567,562 567,562 Merck & Company, Inc. - 9,000 9,000 - 591,750 591,750 Mylan Laboratories, Inc. - 29,400 29,400 - 690,900 690,900 Pfizer, Inc. 26,500 - 26,500 1,669,500 - 1,669,500 Pharmacia-Upjohn, Inc. - 27,000 27,000 - 1,046,250 1,046,250 Schering-Plough Corp. 16,000 25,400 41,400 876,000 1,390,650 2,266,650 Warner-Lambert Co. 6,000 - 6,000 582,750 - 582,750 Watson Pharmaceuticals, Inc.(1) 6,000 - 6,000 294,000 - 294,000 --------------------------------------------------------------------------- 6,610,187 8,147,963 14,758,150 HEALTHCARE/SUPPLIES & SERVICES - 3.8% Columbia/HCA Healthcare Corp. 12,000 16,600 28,600 609,000 842,450 1,451,450 Cordis Corp.(1) 2,000 - 2,000 201,000 - 201,000 HealthCare COMPARE Corp.(1) 20,000 - 20,000 870,000 - 870,000 Lincare Holdings, Inc.(1) 35,000 - 35,000 875,000 - 875,000 Medaphis Corporation(1) - 21,000 21,000 - 777,000 777,000 Medtronic, Inc. 34,000 - 34,000 1,899,750 - 1,899,750 Nellcor Puritan Bennett, Inc.(1) 8,800 - 8,800 510,400 - 510,400 Vencor, Inc.(1) - 18,000 18,000 - 585,000 585,000 ------------------------------------------------------------------------------- 4,965,150 2,204,450 7,169,600 HOUSEHOLD GOODS - 0.6% Procter & Gamble Co. 13,000 - 13,000 1,079,000 - 1,079,000 ------------------------------------------------------------------------------- TOBACCO - 2.2% Philip Morris Cos., Inc. 16,000 14,000 30,000 1,448,000 1,267,000 2,715,000 UST, Inc. 41,000 - 41,000 1,368,375 - 1,368,375 ------------------------------------------------------------------------------- 2,816,375 1,267,000 4,083,375 ENERGY - 5.0% OIL-INTEGRATED - 5.0% Amoco Corporation - 15,600 15,600 - 1,121,250 1,121,250 Atlantic Richfield Company - 13,600 13,600 - 1,506,200 1,506,200 Enron Oil & Gas Company - 29,500 29,500 - 708,000 708,000 Mobil Corp. 6,000 12,100 18,100 672,000 1,355,200 2,027,200 Oceaneering International, Inc.(1) - 37,000 37,000 - 476,375 476,375 Phillips Petroleum Company - 17,200 17,200 - 586,950 586,950 Questar Corporation - 14,000 14,000 - 469,000 469,000 Royal Dutch Petroleum Co. 3,500 10,500 14,000 493,938 1,481,812 1,975,750 USX-Marathon Group 25,000 - 25,000 487,500 - 487,500 YPF Sociedad Anonima, Sponsored ADR 5,000 - 5,000 108,125 - 108,125 ------------------------------------------------------------------------------- 1,761,563 7,704,787 9,466,350 FINANCIAL - 14.0% BANKS - 4.2% Bank of Boston Corp. 23,000 - 23,000 1,063,750 - 1,063,750 Bank of New York Company, Inc. - 19,400 19,400 - 945,750 945,750 Chase Manhattan Corp. 6,000 10,000 16,000 363,750 606,250 970,000 Chemical Banking Corp. 9,000 - 9,000 528,750 - 528,750 Citicorp - 20,600 20,600 - 1,385,350 1,385,350 First Interstate Bancorp 6,500 - 6,500 887,250 - 887,250 Midlantic Corp. 12,000 - 12,000 787,500 - 787,500 NationsBank Corp. 10,000 - 10,000 696,250 - 696,250 State Street Boston Corp. 16,600 - 16,600 747,000 - 747,000 ------------------------------------------------------------------------------- 5,074,250 2,937,350 8,011,600 DIVERSIFIED FINANCIAL - 6.6% Advanta Corp., Cl. A 15,000 - 15,000 573,750 - 573,750 Countrywide Credit Industries, Inc. - 68,000 68,000 - 1,479,000 1,479,000 Dean Witter, Discover & Company - 11,000 11,000 - 517,000 517,000 Donaldson, Lufkin & Jenrette, Inc.(1) 6,200 - 6,200 193,750 - 193,750 Federal Home Loan Mortgage Corp. 8,000 8,000 16,000 668,000 668,000 1,336,000 Federal National Mortgage Assn. 8,000 - 8,000 993,000 - 993,000 First USA, Inc. 25,000 18,000 43,000 1,109,375 798,750 1,908,125 Green Tree Financial Corp. 56,000 - 56,000 1,477,000 - 1,477,000 Money Store, Inc. (The) 23,000 22,500 45,500 359,375 348,750 708,125 Morgan Stanley Group, Inc. 3,000 - 3,000 241,875 - 241,875 Price (T. Rowe) Associates 20,400 - 20,400 1,004,700 - 1,004,700 Schwab (Charles) Corp. (The) 29,000 - 29,000 583,625 - 583,625 Travelers Group, Inc. 24,000 - 24,000 1,509,000 - 1,509,000 ------------------------------------------------------------------------------ 8,713,450 3,811,500 12,524,950 INSURANCE - 3.2% AFLAC, Inc. 5,250 17,600 22,850 227,719 763,400 991,119 Allstate Corporation - 20,500 20,500 - 843,063 843,063 American General Corporation - 12,200 12,200 - 425,475 425,475 CIGNA Corporation - 10,600 10,600 - 1,094,450 1,094,450 ITT Hartford Group, Inc. 5,000 - 5,000 241,875 - 241,875 MGIC Investment Corp. 14,100 - 14,100 764,925 - 764,925 Prudential Reinsurance Holdings, Inc. - 25,500 25,500 - 596,063 596,063 SunAmerica, Inc. 24,000 - 24,000 1,140,000 - 1,140,000 ------------------------------------------------------------------------------- 2,374,519 3,722,451 6,096,970 INDUSTRIAL - 7.0% ELECTRICAL EQUIPMENT - 2.7% Emerson Electric Co. 17,500 - 17,500 1,430,625 - 1,430,625 General Electric Co. 13,000 25,000 38,000 936,000 1,800,000 2,736,000 Honeywell, Inc. 2,000 - 2,000 97,250 - 97,250 Kemet Corp. 6,000 - 6,000 143,250 - 143,250 Kuhlman Corporation - 60,000 60,000 - 750,000 750,000 ------------------------------------------------------------------------------- 2,607,125 2,550,000 5,157,125 INDUSTRIAL MATERIALS - 1.0% Ball Corp. 10,000 - 10,000 275,000 - 275,000 Centex Corp. 14,000 - 14,000 486,500 - 486,500 Fluor Corp. 8,000 - 8,000 528,000 - 528,000 Rayonier, Inc. 19,400 - 19,400 647,475 - 647,475 ------------------------------------------------------------------------------- 1,936,975 - 1,936,975 INDUSTRIAL SERVICES - 0.8% Danka Business System PLC, Sponsored ADR 21,000 - 21,000 777,000 - 777,000 Kelly Services, Inc. - 12,000 12,000 - 333,000 333,000 Manpower, Inc. 12,500 - 12,500 351,563 - 351,563 ------------------------------------------------------------------------------- 1,128,563 333,000 1,461,563 MANUFACTURING - 1.0% AlliedSignal, Inc. - 14,000 14,000 - 665,000 665,000 ITT Industries, Inc. 5,000 - 5,000 120,000 - 120,000 Kulicke & Soffa Industries, Inc. 20,000 - 20,000 465,000 - 465,000 Varity Corp.(1) 9,000 9,300 18,300 334,125 345,262 679,387 ------------------------------------------------------------------------------- 919,125 1,010,262 1,929,387 TRANSPORTATION - 1.5% Burlington Northern Santa Fe Corp. 7,000 - 7,000 546,000 - 546,000 Canadian Pacific Ltd. 47,000 - 47,000 851,875 - 851,875 CSX Corporation - 14,000 14,000 - 638,750 638,750 Federal Express Corporation(1) - 4,400 4,400 - 325,050 325,050 Illinois Central Corp. 10,000 - 10,000 383,750 - 383,750 ------------------------------------------------------------------------------- 1,781,625 963,800 2,745,425 TECHNOLOGY - 17.8% AEROSPACE/DEFENSE - 1.1% Goodrich (B.F.) Co. 12,000 - 12,000 817,500 - 817,500 Lockheed-Martin Corporation - 9,300 9,300 - 734,700 734,700 Loral Corporation - 16,000 16,000 - 566,000 566,000 ------------------------------------------------------------------------------- 817,500 1,300,700 2,118,200 COMPUTER HARDWARE - 3.3% 3Com Corp.(1) 10,000 - 10,000 466,250 - 466,250 Adaptec, Inc.(1) 20,000 - 20,000 820,000 - 820,000 Cabletron Systems, Inc.(1) 22,000 - 22,000 1,782,000 - 1,782,000 Cisco Systems, Inc.(1) 7,000 - 7,000 522,375 - 522,375 Compaq Computer Corp.(1) 22,000 - 22,000 1,056,000 - 1,056,000 EMC Corp.(1) 36,000 - 36,000 553,500 - 553,500 Gateway 2000, Inc.(1) 22,000 - 22,000 539,000 - 539,000 Sun Microsystems, Inc.(1) 12,000 - 12,000 547,500 - 547,500 ------------------------------------------------------------------------------- 6,286,625 - 6,286,625 COMPUTER SOFTWARE - 6.5% Automatic Data Processing, Inc. 19,000 - 19,000 1,410,750 - 1,410,750 BMC Software, Inc.(1) 30,000 - 30,000 1,282,500 - 1,282,500 Cheyenne Software, Inc.(1) 41,000 - 41,000 1,071,125 - 1,071,125 Computer Associates International, Inc. 6,000 - 6,000 341,250 - 341,250 First Data Corp. 20,000 - 20,000 1,337,500 - 1,337,500 Informix Corp.(1) 35,000 10,000 45,000 1,050,000 300,000 1,350,000 Microsoft Corp.(1) 30,000 - 30,000 2,632,500 - 2,632,500 Oracle Corp.(1) 33,600 - 33,600 1,423,800 - 1,423,800 Silicon Graphics Computer System(1) - 13,800 13,800 - 379,500 379,500 Sterling Software, Inc.(1) 12,000 - 12,000 748,500 - 748,500 Sybase, Inc.(1) - 9,200 9,200 - 328,900 328,900 ------------------------------------------------------------------------------- 11,297,925 1,008,400 12,306,325 ELECTRONICS - 3.9% Arrow Electronics, Inc.(1) 11,000 - 11,000 474,375 - 474,375 Cypress Semiconductor Corp.(1) 50,000 - 50,000 637,500 - 637,500 General Instrument Corp.(1) 15,000 14,000 29,000 350,625 327,250 677,875 Intel Corp. 26,000 - 26,000 1,475,500 - 1,475,500 LSI Logic Corporation(1) - 11,800 11,800 - 386,450 386,450 Motorola, Inc. 15,000 - 15,000 855,000 - 855,000 Phillips Electronics NV, ADR 19,000 - 19,000 681,625 - 681,625 Texas Instruments, Inc. - 15,600 15,600 - 807,300 807,300 3Com Corporation(1) - 15,000 15,000 - 699,375 699,375 Varian Associates, Inc. - 15,300 15,300 - 730,575 730,575 ------------------------------------------------------------------------------- 4,474,625 2,950,950 7,425,575 TELECOMMUNICATIONS-TECHNOLOGY - 3.0% AT&T Corp. 18,000 - 18,000 1,165,500 - 1,165,500 DSC Communications Corporation(1) - 25,000 25,000 - 921,875 921,875 Equifax, Inc. - 68,600 68,600 - 1,466,325 1,466,325 Hong Kong Telecommunications Ltd., Sponsored ADR 5,000 - 5,000 88,750 - 88,750 L.M. Ericsson Telephone Co., Cl. B, ADR 33,000 - 33,000 643,500 - 643,500 Telecom Corp. of New Zealand Ltd., Sponsored ADR 7,000 - 7,000 485,625 - 485,625 Tellabs, Inc. 21,800 - 21,800 806,600 - 806,600 ------------------------------------------------------------------------------- 3,189,975 2,388,200 5,578,175 UTILITIES - 5.8% ELECTRIC UTILITIES - 2.7% American Electric Power Company, Inc. - 11,550 11,550 - 467,775 467,775 Carolina Power & Light Company - 6,700 6,700 - 231,150 231,150 CINergy Corporation - 22,800 22,800 - 698,250 698,250 CMS Energy Corporation - 16,200 16,200 - 483,975 483,975 Consolidated Edison Company of New York, Inc. - 9,900 9,900 - 316,800 316,800 Dominion Resources, Inc. - 7,650 7,650 - 315,563 315,563 Entergy Corporation - 19,800 19,800 - 579,150 579,150 FPL Group, Inc. - 13,600 13,600 - 630,700 630,700 Illinova Corporation - 15,900 15,900 - 477,000 477,000 Northeast Utilities - 14,500 14,500 - 353,438 353,438 PECO Energy Company - 8,300 8,300 - 250,037 250,037 Public Service Enterprise Group, Inc. - 12,550 12,550 - 384,344 384,344 ------------------------------------------------------------------------------- - 5,188,182 5,188,182 TELEPHONE UTILITIES - 3.1% Bell Atlantic Corporation - 6,300 6,300 - 421,312 421,312 BellSouth Corp. 5,000 12,600 17,600 217,500 548,100 765,600 Century Telephone Enterprises, Inc. - 14,000 14,000 - 444,500 444,500 Cincinnati Bell, Inc. 17,000 - 17,000 590,750 - 590,750 Frontier Corporation - 43,000 43,000 - 1,290,000 1,290,000 SBC Communications, Inc. - 6,400 6,400 - 368,000 368,000 Sprint Corporation - 26,500 26,500 - 1,056,688 1,056,688 Telefonos de Mexico SA, Sponsored ADR 13,500 - 13,500 430,313 - 430,313 US West Communications Group, Inc. - 13,400 13,400 - 479,050 479,050 ------------------------------------------------------------------------------- 1,238,563 4,607,650 5,846,213 ----------------------------------------- TOTAL COMMON STOCKS (COST $70,729,607, $48,612,918+, Combined $119,342,525) 94,347,530 63,426,845 157,774,375 ----------------------------------------- PREFERRED STOCKS - 0.8% TOBACCO - 0.8% RJR Nabisco Holdings, Inc. Pfd. C. - 220,000 220,000 - 1,402,500 1,402,500 ------------------------------------------------------------------------------- TOTAL PREFERRED STOCKS (COST $1,373,200+) - 1,402,500 1,402,500 ----------------------------------------- Principal Amount ----------------------------------- SHORT-TERM SECURITIES - 4.1% Chevron Oil Finance Company, 1/8/96 - $ 250,000 $ 250,000 - 249,686 249,686 du Pont (E.I.) de Nemours & Company, 1/10/96 - 2,500,000 2,500,000 - 2,495,972 2,495,972 Ford Motor Credit Company, 1/10/96 - 1,700,000 1,700,000 - 1,697,280 1,697,280 General Electric Capital Corporation, 1/2/96 - 1,750,000 1,750,000 - 1,749,436 1,749,436 IBM Credit Corporation, 1/4/96 - 1,600,000 1,600,000 - 1,598,964 1,598,964 ------------------------------------------------------------------------------- TOTAL SHORT-TERM SECURITIES (COST $7,791,338+) - 7,791,338 7,791,338 ----------------------------------------- REPURCHASE AGREEMENTS - 12.4% Repurchase agreement with First Chicago Capital Markets, 5.90%, dated 12/29/95, to be repurchased at $18,011,800 on 1/2/96, collateralized by U.S. Treasury Nts., 5.125%-8.75%, 12/31/96-11/5/04, with a value of $9,770,530, U.S. Treasury Bonds, 6.25%-11.25%, 8/15/03-8/15/23, with a value of $5,921,176, and U.S. Treasury Bills maturing 11/14/96, with a value of $2,685,168 $18,000,000 - $18,000,000 18,000,000 - 18,000,000 Repurchase agreement with PaineWebber, Inc., 5.90%, dated 12/29/95, to be repurchased at $5,473,586 on 1/2/96 collateralized by U.S. Treasury Nts., 6.875%, 8/31/99, with a value of $1,954,613, and U.S. Treasury Bonds, 7.125%-7.625%, 11/15/22-2/15/23, with a value of $3,682,864 5,470,000 - 5,470,000 5,470,000 - 5,470,000 ------------------------------------------------------------------------------- TOTAL REPURCHASE AGREEMENTS (COST $23,470,000) 23,470,000 - 23,470,000 ----------------------------------------- Total Investments, at Value (Cost $94,199,607, $57,777,456+, Combined $151,977,063) 100.0% 101.4% 100.6% 117,817,530 72,620,683 190,438,213 Liabilities in Excess of Other Assets 0.0 (1.4) (0.6) (107,640) (1,019,184) (1,126,824) ------------------------------------------------------------------------------- NET ASSETS 100.0% 100.0% 100.0% $117,709,890 $71,601,499 $189,311,389 ========================================================== =====================
1. Non-income producing security. + Aggregate cost for federal income tax purposes is the same.
PRO FORMA COMBINING STATEMENTS OF ASSETS AND LIABILITIES December 31, 1995 (Unaudited) Oppenheimer Bond Fund and JP Investment Grade Bond Fund, Inc. Oppenheimer JP Investment Combined Bond Grade Bond Oppenheimer Fund Fund, Inc. Bond Fund -------------------------------------------------- ASSETS: Investments, at value (cost * ) (including repurchase agreements **) $205,386,016 $27,427,014 $232,813,030 Cash 475,368 297,338 772,706 Receivables: Dividends and interest 3,482,730 438,565 3,921,295 Shares of beneficial interest sold 1,549,125 17,903 1,567,028 Investments sold 1,271,263 -- 1,271,263 Other 7,575 -- 7,575 -------------------------------------------------- Total assets 212,172,077 28,180,820 240,352,897 -------------------------------------------------- LIABILITIES: Unrealized depreciation on forward foreign currency exchange contracts 15,522 -- 15,522 Payables and other liabilities: Investments purchased 779,747 -- 779,747 Shares of beneficial interest redeemed 98,746 -- 98,746 Other 46,292 44,378 90,670 -------------------------------------------------- Total liabilities 940,307 44,378 984,685 -------------------------------------------------- NET ASSETS $211,231,770 $28,136,442 $239,368,212 ================================================== COMPOSITION OF NET ASSETS: SHARES OF BENEFICIAL INTEREST OUTSTANDING 17,842,418 2,499,086 20,218,807 NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $11.84 $11.26 $11.84 *Cost $196,548,402 $25,529,797 $222,078,199 **Repurchase Agreements $8,500,000 -- $8,500,000
PRO FORMA COMBINING STATEMENTS OF OPERATIONS For the Year Ended December 31, 1995 (Unaudited) Oppenheimer Bond Fund and JP Investment Grade Bond Fund, Inc. Oppenheimer JP Investment Combined Bond Grade Bond ProForma Oppenheimer Fund Fund, Inc. Adjustments Bond Fund -------------------------------------------------------------------- INVESTMENT INCOME: Interest (net of withholding taxes of *) $13,096,739 $1,937,728 $15,034,467 Dividends 81,190 -- 81,190 -------------------------------------------------------------------- Total income 13,177,929 1,937,728 15,115,657 -------------------------------------------------------------------- EXPENSES: Management fees 1,280,422 132,446 90,000 1,502,868 Custodian fees and expenses 37,714 10,700 (10,700) 37,714 Shareholder reports 8,042 -- 8,042 Shareholder accounting expenses -- 12,000 (12,000) -- Legal and auditing fees 12,506 20,400 (20,400) 12,506 Insurance expenses 5,140 -- 5,140 Trustees' fees and expenses 2,637 3,660 6,297 Registration and filing fees 16,773 -- 16,773 Other 1,193 5,483 6,676 -------------------------------------------------------------------- Total expenses 1,364,427 184,689 46,900 1,596,016 Less Reimbursement -- (10,700) 10,700 -- -------------------------------------------------------------------- Net Expenses 1,364,427 173,989 57,600 1,596,016 -------------------------------------------------------------------- NET INVESTMENT INCOME 11,813,502 1,763,739 (57,600) 13,519,641 -------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) from: Investments 861,074 (133,355) 727,719 Closing and expiration of options written (14,352) -- (14,352) Foreign currency transactions 463,409 -- 463,409 Net change in unrealized appreciation or depreciation on: Investments 13,439,159 3,044,389 16,483,548 Translation of assets and liabilities denominated in foreign currencies (120,740) -- (120,740) -------------------------------------------------------------------- Net realized and unrealized gain 14,628,550 2,911,034 17,539,584 -------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $26,442,052 $4,674,773 (57,600) $31,059,225 ========================================================== ========== *Withholding taxes $7,577 -- $7,577
PRO FORMA COMBINING STATEMENTS OF INVESTMENTS December 31, 1995 (Unaudited) Oppenheimer Bond Fund and Jefferson Pilot Investment Grade Bond Fund, Inc.
PRINCIPAL AMOUNT(1) MARKET VALUE ------------------------------------------ ----------------------------------------- OPPENHEIMER JEFFERSON PRO FORMA OPPENHEIMER JEFFERSON PRO FORMA BOND PILOT COMBINED BOND PILOT COMBINED Certificates of Deposit - 1.7% Citibank CD: 19%, 1/19/96(2) IDR 2,853,750,000 -- 2,853,750,000 $ 1,248,126 $ -- $ 1,248,126 27.40%, 3/22/96(2) HUF 139,510,000 -- 139,510,000 1,021,112 -- 1,021,112 Indonesia (Republic of) Bank Negara CD, Zero Coupon, 15.914%, 6/17/96(2)(3) IDR 2,000,000,000 -- 2,000,000,000 805,011 -- 805,011 Krungthai Thanakit CD, Zero Coupon, 11.533%, 2/29/96(2)(3) THB 25,000,000 -- 25,000,000 968,966 -- 968,966 ------------------------------------------ ----------------------------------------- Total Certificates of Deposit 4,043,215 -- 4,043,215 Short-Term Notes - 1.0% American Express Credit Corporation, 1/10/96 -- 1,000,000 1,000,000 -- 998,442 998,442 Bell Atlantic Financial Services, Inc., 1/16/96 -- 1,000,000 1,000,000 -- 997,453 997,453 Chevron Oil Finance Company, 1/03/96 -- 350,000 350,000 -- 349,833 349,833 ------------------------------------------ ----------------------------------------- Total Short-Term Securities -- 2,345,728 2,345,728 Mortgage-Backed Obligations - 17.3% Government Agency - 11.3% FHLMC/FNMA/Sponsored - 8.0% Federal Home Loan Mortgage Corp: 6%, 3/15/09 -- 1,000,000 1,000,000 -- 945,000 945,000 7%, 9/15/23 -- 2,000,000 2,000,000 -- 1,981,240 1,981,240 Federal National Mortgage Assn: 7%, 11/1/25 1,888,319 -- 1,888,319 1,903,653 -- 1,903,653 7%, 11/1/25 7,990,664 -- 7,990,664 8,055,548 -- 8,055,548 Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, 8.75%, 11/25/05 3,000,000 -- 3,000,000 3,262,500 -- 3,262,500 Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, 10.40%, 4/25/19 2,000,000 -- 2,000,000 2,193,120 -- 2,193,120 Interest-Only Stripped Mtg.-Backed Security, Trust 257, Cl. 2, 11.79%, 2/1/24(4) 2,638,404 -- 2,638,404 739,990 -- 739,990 ------------------------------------------ ----------------------------------------- 16,154,811 2,926,240 19,081,051 GNMA/Guaranteed - 3.3% Government National Mortgage Assn.: 6%, 10/20/25 4,986,569 -- 4,986,569 5,036,435 -- 5,036,435 6%, 10/20/24 2,939,612 -- 2,939,612 3,009,429 -- 3,009,429 ------------------------------------------ ----------------------------------------- 8,045,864 -- 8,045,864 Private - 6.0% Commercial - 2.7% FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, Series 1994-C1: Cl. 2-D, 8.70%, 9/25/25(5) 1,500,000 -- 1,500,000 1,617,187 -- 1,617,187 Cl. 2-E, 8.70%, 9/25/25(5) 1,500,000 -- 1,500,000 1,604,531 -- 1,604,531 Merrill Lynch Mortgage Investors, Inc., Mtg. Pass-Through Certificates, Series 1995-C2, C, 7.70%, 6/15/21(6) 993,670 -- 993,670 1,025,033 -- 1,025,033 Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates: Series 1992-CHF, Cl. C, 8.25%, 12/25/20 1,053,588 -- 1,053,588 1,079,599 -- 1,079,599 Series 1992-CHF, Cl. E, 8.25%, 12/25/20 931,256 -- 931,256 913,795 -- 913,795 Series 1994-C1, Cl. A, 7.25%, 6/25/26 302,117 -- 302,117 301,740 -- 301,740 ------------------------------------------ ----------------------------------------- 6,541,885 -- 6,541,885 Multi-Family - 3.3% Countrywide Funding Corp., Series 1993-12, Cl. B1, 6.625%, 2/25/24 1,000,000 -- 1,000,000 942,500 -- 942,500 Resolution Trust Corp., Commercial Mtg. Pass-Through Certificates: Series 1991-M5, Cl. A, 9%, 3/25/17 2,295,071 -- 2,295,071 2,429,907 -- 2,429,907 Series 1994-C1, Cl. C, 8%, 6/25/26 1,500,000 -- 1,500,000 1,603,594 -- 1,603,594 Series 1995-C1, Cl. D, 6.90%, 2/25/27 3,000,000 -- 3,000,000 2,865,000 -- 2,865,000 ------------------------------------------ ----------------------------------------- 7,841,001 -- 7,841,001 ----------------------------------------- Total Mortgage-Backed Obligations 38,583,561 2,926,240 41,509,801 U.S. Government Obligations - 38.9% Treasury - 38.9% U.S. Treasury Bonds: 6.875%, 8/15/25 8,000,000 -- 8,000,000 9,027,495 -- 9,027,495 7.125%, 2/15/23 3,000,000 -- 3,000,000 3,427,500 -- 3,427,500 8%, 11/15/21 5,000,000 -- 5,000,000 6,259,375 -- 6,259,375 8.5% 5/15/97 -- 500,000 500,000 -- 521,405 521,405 8.875% 8/15/17 -- 500,000 500,000 -- 669,685 669,685 10.375% 11/15/09 -- 500,000 500,000 -- 659,685 659,685 12.75% 11/15/10 -- 1,000,000 1,000,000 -- 1,523,120 1,523,120 U.S. Treasury Nts.: 5.125% 11/30/98 -- 500,000 500,000 -- 498,360 498,360 6%, 12/31/97 3,000,000 -- 3,000,000 3,047,811 -- 3,047,811 6.25%, 5/31/00 10,000,000 -- 10,000,000 10,343,750 -- 10,343,750 6.375%, 6/30/97 1,000,000 -- 1,000,000 1,017,187 -- 1,017,187 6.375% 8/15/02 -- 500,000 500,000 -- 524,295 524,295 6.50%, 5/15/05-8/15/05 18,000,000 -- 18,000,000 19,182,809 -- 19,182,809 6.5% 4/30/99 -- 500,000 500,000 -- 518,280 518,280 6.875%, 3/31/00 5,000,000 500,000 5,500,000 5,289,065 528,205 5,817,270 7.25%, 5/15/04-8/15/04 7,000,000 -- 7,000,000 7,787,812 -- 7,787,812 7.375%, 11/15/97 2,000,000 -- 2,000,000 2,076,250 -- 2,076,250 7.50%, 2/15/05 5,000,000 -- 5,000,000 5,676,559 -- 5,676,559 7.5% 1/31/96 -- 1,100,000 1,100,000 -- 1,101,892 1,101,892 7.75%, 12/31/99-1/31/00 6,000,000 -- 6,000,000 6,519,374 -- 6,519,374 7.875%, 6/30/96-11/15/04 3,000,000 -- 3,000,000 3,329,999 -- 3,329,999 8.5% 7/15/97 -- 500,000 500,000 -- 524,140 524,140 9.25%, 8/15/98 2,000,000 -- 2,000,000 2,193,124 -- 2,193,124 9.375% 4/15/96 -- 750,000 750,000 -- 758,558 758,558 ------------------------------------------ ----------------------------------------- Total U.S. Government Obligations 85,178,110 7,827,625 93,005,735 Foreign Government Obligations - 12.2% Australia (Commonwealth of) Bonds, 12.50%, 1/15/98 AUD 960,000 -- 960,000 782,889 -- 782,889 Canada (Government of) Bonds: 7.75%, 9/1/99 CAD 347,000 -- 347,000 266,514 -- 266,514 Series A-76, 9%, 6/1/25 CAD 321,000 -- 321,000 274,798 -- 274,798 Colombia (Republic of) 1989-1990 Integrated Loan Facility Bonds, 6.875%, 7/1/01(6)(7) 1,714,400 -- 1,714,400 1,594,392 -- 1,594,392 Corporacion Andina de Fomento Sr. Unsec. Debs.: 6.625%, 10/14/98(5) 1,000,000 -- 1,000,000 999,375 -- 999,375 7.25%, 4/30/98(5) 1,000,000 -- 1,000,000 998,125 -- 998,125 Denmark (Kingdom of) Bonds: 7%, 11/10/24 DKK 6,300,000 -- 6,300,000 1,014,039 -- 1,014,039 8%, 3/15/06 DKK 1,880,000 -- 1,880,000 357,728 -- 357,728 Financiera Energetica Nacional: Nts., 6.625%, 12/13/96 2,350,000 -- 2,350,000 2,347,062 -- 2,347,062 SA Medium-Term Nts., 9%, 11/8/99 400,000 -- 400,000 419,500 -- 419,500 France (Government of) Obligation Assimilable du Tresor Debs., 9.50%, 6/25/98 FRF 1,196,000 -- 1,196,000 267,600 -- 267,600 Germany (Republic of) Bonds: 7.75%, 10/1/04 DEM 5,350,000 -- 5,350,000 4,106,853 -- 4,106,853 Series 94, 6.25%, 1/4/24 DEM 2,900,000 -- 2,900,000 1,887,370 -- 1,887,370 International Bank for Reconstruction and Development Bonds, 12.50%, 7/25/97 NZD 1,000,000 -- 1,000,000 696,248 -- 696,248 Italy (Republic of) Treasury Bonds, Buoni del Tesoro Poliennali, 10.50%, 4/1/00 ITL 4,515,000,000 -- 4,515,000,000 2,872,821 -- 2,872,821 National Treasury Management Agency (Irish Government) Bonds, 8%, 10/18/00 IEP 405,000 -- 405,000 682,226 -- 682,226 New Zealand (Republic of) Bonds, 10%, 7/15/97 NZD 1,720,000 -- 1,720,000 1,155,621 -- 1,155,621 Norwegian Government Bonds, 9.50%, 10/31/02 NOK 11,340,000 -- 11,340,000 2,124,639 -- 2,124,639 Poland (Republic of) Debs., 7.75%, 7/13/00 1,500,000 -- 1,500,000 1,530,000 -- 1,530,000 Portugal (Republic of) Gtd. Bonds, Obrigicion do tes Medio Prazo, 11.875%, 2/23/00 PTE 65,000,000 -- 65,000,000 468,838 -- 468,838 South Africa (Republic of) Debs., 9.625%, 12/15/99 1,000,000 -- 1,000,000 1,082,500 -- 1,082,500 Spain (Kingdom of) Gtd. Bonds, Bonos y Obligacion del Estado, 12.25%, 3/25/00 ESP 156,000,000 -- 156,000,000 1,405,755 -- 1,405,755 Sweden (Kingdom of) Bonds, Series 1028, 11%, 1/21/99 SEK 4,400,000 -- 4,400,000 714,422 -- 714,422 United Kingdom Treasury: Debs., 8.50%, 12/7/05 GBP 337,000 -- 337,000 562,305 -- 562,305 Nts., 10%, 2/26/01 GBP 310,000 -- 310,000 544,176 -- 544,176 Western Australia Treasury Corp. Gtd. Bonds, Series 98, 12.50%, 4/1/98 AUD 200,000 -- 200,000 164,222 -- 164,222 ------------------------------------------ ----------------------------------------- Total Foreign Government Obligations 29,320,018 -- 29,320,018 Municipal Bonds and Notes - 0.8% Pinole, California Redevelopment Agency Tax Allocation Taxable Bonds, Pinole Vista Redevelopment, Series B, 8.35%, 8/1/17 670,000 -- 670,000 733,429 -- 733,429 Dade County, Florida Educational Facilities Authority: Exchangeable Revenue Bonds, University of Miami, Prerefunded, MBIA Insured, 7.65%, 4/1/10 175,000 -- 175,000 201,294 -- 201,294 Revenue Bonds, University of Miami, MBIA Insured, 7.65%, 4/1/10 205,000 -- 205,000 230,154 -- 230,154 Taxable Exchange Revenue Bonds, University of Miami, MBIA Insured, 9.70%, 4/1/10 120,000 -- 120,000 134,724 -- 134,724 Port of Portland, Oregon Special Obligation Taxable Revenue Bonds, PAMCO Project, 9.20%, 5/15/22 500,000 -- 500,000 546,886 -- 546,886 ------------------------------------------ ----------------------------------------- Total Municipal Bonds and Notes (Cost $1,663,728) 1,846,487 -- 1,846,487 Corporate Bonds and Notes - 20.9% Basic Industry - 2.3% Chemicals - 1.0% Quantum Chemical Corp., 10.375% First Mtg. Nts., 6/1/03 2,100,000 -- 2,100,000 2,389,670 -- 2,389,670 Paper - 1.3% Boise Cascade Corp., 9.90% Nts., 3/15/00 750,000 -- 750,000 850,994 -- 850,994 Noranda Forest, Inc., 11% Debs., 7/15/98 CAD 1,000,000 -- 1,000,000 805,629 -- 805,629 Scotia Pacific Holding Co., 7.95% Timber Collateralized Nts., 7/20/15 1,546,483 -- 1,546,483 1,571,753 -- 1,571,753 ------------------------------------------ ----------------------------------------- 3,228,376 -- 3,228,376 Consumer Related - 2.9% Food/Beverages/Tobacco - 1.3% Archer-Daniels-Midland Company, 7.125% Debs., 3/01/13 -- 750,000 750,000 -- 788,580 788,580 Dr. Pepper/Seven-Up Cos., Inc., 0%/11.50% Sr. Sub. Disc. Nts., 11/1/02(8) 1,315,000 -- 1,315,000 1,239,388 -- 1,239,388 Philip Morris Cos., Inc., 8.875% Nts., 7/1/96 500,000 -- 500,000 507,702 -- 507,702 Philip Morris Companies, Inc., 8.25% Senior Notes, 10/15/03 -- 500,000 500,000 -- 557,400 557,400 ------------------------------------------ ----------------------------------------- 1,747,090 1,345,980 3,093,070 Healthcare - 0.5% R.P. Scherer Corp., 6.75% Sr. Nts., 2/1/04 1,250,000 -- 1,250,000 1,189,530 -- 1,189,530 Hotel/Gaming - 0.2% Circus Circus Enterprises, Inc., 6.75% Nts., 7/15/03 375,000 -- 375,000 379,439 -- 379,439 Textile/Apparel - 0.5% Fruit of the Loom, Inc., 7% Debs., 3/15/11 1,097,000 -- 1,097,000 1,108,417 -- 1,108,417 Toys - 0.4% Mattel, Inc., 6.875% Sr. Nts., 8/1/97 1,000,000 -- 1,000,000 1,017,927 -- 1,017,927 Energy - 3.0% BP America, Inc., 10.875% Nts., 8/1/01 CAD 650,000 -- 650,000 551,957 -- 551,957 Coastal Corp.: 11.75% Sr. Debs., 6/15/06 2,000,000 -- 2,000,000 2,126,614 -- 2,126,614 9.75% Sr. Debs., 8/1/03 200,000 -- 200,000 238,950 -- 238,950 Enron Corp., 9.875% Debs., 6/15/03 375,000 -- 375,000 457,052 -- 457,052 McDermott, Inc., 9.375% Nts., 3/15/02 400,000 -- 400,000 454,472 -- 454,472 Mitchell Energy & Development Corp., 9.25% Sr. Nts., 1/15/02 1,000,000 -- 1,000,000 1,146,689 -- 1,146,689 Sonat, Inc., 9.50% Nts., 8/15/99 250,000 -- 250,000 278,659 -- 278,659 Southwest Gas Corp., 9.75% Debs., Series F, 6/15/02 500,000 -- 500,000 585,022 -- 585,022 Tenneco, Inc.: 10% Debs., 3/15/08 400,000 -- 400,000 497,656 -- 497,656 7.875% Nts., 10/1/02 650,000 -- 650,000 709,766 -- 709,766 ------------------------------------------ ----------------------------------------- 7,046,837 -- 7,046,837 Financial Services - 3.2% Banks & Thrifts - 2.6% Banco Ganadero SA, Zero Coupon Sr. Unsub. Unsec. Nts., 9.931%, 6/15/96 (3)(5) 500,000 -- 500,000 479,040 -- 479,040 BankAmerica Corp., 7.50% Sr. Nts., 3/15/97 100,000 -- 100,000 102,362 -- 102,362 Chemical New York Corp., 9.75% Sub. Capital Nts., 6/15/99 200,000 -- 200,000 224,742 -- 224,742 First Chicago Corp.: 11.25% Sub. Nts., 2/20/01 750,000 -- 750,000 923,495 -- 923,495 9% Sub. Nts., 6/15/99 150,000 -- 150,000 165,177 -- 165,177 First Chicago NBD Bancorp, 7.25% Sub. Debs., 8/15/04 165,000 -- 165,000 176,247 -- 176,247 First Fidelity Bancorporation, 8.50% Sub. Capital Nts., 4/1/98 100,000 -- 100,000 105,456 -- 105,456 Ford Motor Credit Company, 6.75% Nts., 8/15/08 -- 1,000,000 1,000,000 -- 1,026,890 1,026,890 Merrill Lynch & Company, Inc. 6.875% Nts., 3/01/03 -- 750,000 750,000 -- 780,908 780,908 Morgan Stanley Group, Inc. 7% Sr. Nts, 10/01/13 -- 1,000,000 1,000,000 -- 1,010,220 1,010,220 Smith Barney Holdings, Inc 7.5% Nts., 5/01/02 -- 750,000 750,000 -- 801,270 801,270 SunTrust Banks, Inc. 8.875% Nts., 2/01/98 -- 500,000 500,000 -- 532,075 532,075 ------------------------------------------ ----------------------------------------- 2,176,519 4,151,363 6,327,882 Diversified Financial - 0.6% American Car Line Co., 8.25% Equipment Trust Certificates, Series 1993-A, 4/15/08 627,000 -- 627,000 659,134 -- 659,134 Lehman Brothers Holdings, Inc., 8.375% Nts., 2/15/99 700,000 -- 700,000 744,198 -- 744,198 ------------------------------------------ ----------------------------------------- 1,403,332 -- 1,403,332 Manufacturing - 1.0% Automotive - 0.8% Chrysler Corp., 10.95% Debs., 8/1/17 800,000 -- 800,000 898,110 -- 898,110 General Motors Acceptance Corp.: 5.50% Nts., 12/15/01 300,000 -- 300,000 289,647 -- 289,647 7.75% Nts., 4/15/97 700,000 -- 700,000 713,318 -- 713,318 ------------------------------------------ ----------------------------------------- 1,901,075 -- 1,901,075 Other- 0.2% Johnson Controls, Inc., 7.70% Debs., 3/01/15 -- 500,000 500,000 -- 558,625 558,625 Media - 3.6% Cable Television - 1.9% Time Warner Entertainment LP/Time Warner, Inc., 8.375% Sr. Debs., 3/15/23 1,850,000 -- 1,850,000 2,009,405 -- 2,009,405 TKR Cable I, Inc., 10.50% Sr. Debs., 10/30/07 2,200,000 -- 2,200,000 2,588,914 -- 2,588,914 ------------------------------------------ ----------------------------------------- 4,598,319 -- 4,598,319 Diversified Media - 1.2% GSPI Corp., 10.15% First Mtg. Bonds, 6/24/10 (5) 1,151,691 -- 1,151,691 1,389,228 -- 1,389,228 News America Holdings, Inc.: 10.125% Gtd. Sr. Debs., 10/15/12 500,000 -- 500,000 608,130 -- 608,130 12% Sr. Nts., 12/15/01 500,000 -- 500,000 558,673 -- 558,673 Time Warner, Inc., 9.15% Debs., 2/1/23 300,000 -- 300,000 342,093 -- 342,093 ------------------------------------------ ----------------------------------------- 2,898,124 -- 2,898,124 Entertainment/Film - 0.3% Columbia Pictures Entertainment, Inc., 9.875% Sr. Sub. Nts., 2/1/98 500,000 -- 500,000 541,242 -- 541,242 Eastman Kodak Co., 10% Nts., 6/15/01 250,000 -- 250,000 254,730 -- 254,730 ------------------------------------------ ----------------------------------------- 795,972 -- 795,972 Other - 0.2% Laidlaw, Inc. 7.70% Debs., 8/15/02 -- 500,000 500,000 -- 528,225 528,225 Retail - 0.3% Drug Stores - 0.3% Hook-SupeRx, Inc., 10.125% Sr. Nts., 6/1/02 600,000 -- 600,000 657,191 -- 657,191 Transportation - 0.8% Railroads - 0.8% Kansas City Southern Industries, Inc., 6.625% Senior Notes, 3/1/05 -- 750,000 750,000 -- 757,627 757,627 Union Pacific Corp., 9.65% Medium-Term Nts., 4/17/00 400,000 -- 400,000 455,554 -- 455,554 United States Leasing International, Inc. 6.625% Senior Notes 5/15/03 -- 750,000 750,000 -- 763,035 763,035 ------------------------------------------ ----------------------------------------- 455,554 1,520,662 1,976,216 Utilities - 3.3% Electric Utilities - 1.4% Commonwealth Edison Co., 6.50% Nts., 7/15/97 775,000 -- 775,000 779,528 -- 779,528 Long Island Lighting Co., 7% Nts., 3/1/04 150,000 -- 150,000 144,552 -- 144,552 Midwest Power Systems, Inc. 7% 1st Mtge., 2/15/05 -- 500,000 500,000 -- 526,620 526,620 New Zealand Electric Corp., 10% Debs., 6/15/96 NZD 650,000 -- 650,000 426,765 -- 426,765 Public Service Co. of Colorado, 8.75% First Mtg. Bonds, 3/1/22 750,000 -- 750,000 852,330 -- 852,330 South Carolina Electric & Gas Company 9% 1st & Ref. Mtg., 7/15/06 -- 500,000 500,000 -- 601,705 601,705 ------------------------------------------ ----------------------------------------- 2,203,175 1,128,325 3,331,500 Telephone Utilities - 0.6% Alltel Corporation 6.5% Debs., 11/01/13 -- 1,000,000 1,000,000 -- 995,950 995,950 United Telephone Company of Pennsylvania 7.375% 1st Mtge., Ser. Y, 12/01/02 -- 500,000 500,000 -- 533,305 533,305 ------------------------------------------ ----------------------------------------- -- 1,529,255 1,529,255 Gas Utilities - 1.3% Consolidated Natural Gas Company, 6.625% Debs., 12/01/13 -- 1,000,000 1,000,000 -- 988,070 988,070 National Fuel Gas Company, 7.75% Debs., 2/01/04 -- 500,000 500,000 -- 542,855 542,855 Texas Gas Transmission, 8.625% Notes, 4/01/04 -- 500,000 500,000 -- 565,270 565,270 Washington Gas Light Company, 8.75%, 1st Mtge., 7/01/19 -- 500,000 500,000 -- 539,600 539,600 Tennessee Gas Pipeline Company, 9.25% S.F. Debs., 5/15/96 -- 400,000 400,000 -- 404,716 404,716 ------------------------------------------ ----------------------------------------- -- 3,040,511 3,040,511 Telecommunications - 0.5% GTE Corp., 9.375% Debs., 12/1/00 500,000 -- 500,000 567,703 -- 567,703 Northern Telecom, Limited 6.875% Senior Notes, 10/01/02 -- 500,000 500,000 -- 524,475 524,475 ------------------------------------------ ----------------------------------------- 567,703 524,475 1,092,178 ----------------------------------------- Total Corporate Bonds and Notes 35,764,250 14,327,421 50,091,671 Shares ------------------------------------------ Preferred Stocks - 0.4% Atlantic Richfield Co., 9% Exchangeable Notes for Common Stock of Lyondell Petrochemical Co., 9/15/97 15,000 -- 15,000 352,500 -- 352,500 BankAmerica Corp., 8.375%, Series K 25,000 -- 25,000 646,875 -- 646,875 ------------------------------------------ ----------------------------------------- Total Preferred Stocks 999,375 -- 999,375 Principal Amount(1) ------------------------------------------ Structured Instruments - 0.5% Merrill Lynch & Co., Inc. Units, 9.75%, 6/15/99 (representing debt of Chemical Banking Corp., sub. capital nts., and equity of Citicorp, 7.75% preferred, series 22)(7)(9) $ 1,000,000 -- $ 1,000,000 1,151,000 -- 1,151,000 Repurchase Agreement - 3.6% Repurchase agreement with First Chicago Capital Markets, 5.90%, dated 12/29/95, to be repurchased at $8,505,572 on 1/2/96, collateralized by U.S. Treasury Nts., 5.125%-8.75%, 12/31/96- 11/5/04, with a value of $4,613,862, U.S. Treasury Bonds, 6.25%-11.25%, 8/15/03-8/15/23, with a value of $2,796,111, and U.S. Treasury Bills maturing 11/14/96, with a value of $1,267,996 8,500,000 -- 8,500,000 8,500,000 -- 8,500,000 ----------------------------------------- Total Investments, at Value (Cost $196,548,402, $25,529,797, Combined $222,078,199) 97.2% 97.5% 97.3% 205,386,016 27,427,014 232,813,030 Other Assets Net of Liabilities 2.8 2.5 2.7 5,845,754 709,428 6,555,182 --------------------------------- ----------------------------------------- Net Assets 100.0% 100.0% 100.0% $211,231,770 $28,136,442 $239,368,212 ================================= =========================================
1. Principal amount is reported in U.S. Dollars, except for those denoted in the following currencies: AUD - Australian Dollar IDR - Indonesian Rupiah CAD - Canadian Dollar IEP - Irish Punt DEM - German Deutsche Mark ITL - Italian Lira DKK - Danish Krone NOK - Norwegian Krone ESP - Spanish Peseta NZD - New Zealand Dollar FRF - French Franc PTE - Portuguese Escudo GBP - British Pound Sterling SEK - Swedish Krone HUF - Hungarian Forint THB - Thai Baht 2. Indexed instrument for which the principal amount and/or interest due at maturity is affected by the relative value of a foreign currency. 3. For zero coupon bonds, the interest rate shown is the effective yield on the date of purchase. 4. Interest-Only Strips represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These securities typically decline in price as interest rates decline. Most other fixed-income securities increase in price when interest rates decline. The principal amount of the underlying pool represents the notional amount on which current interest is calculated. The price of these securities is typically more sensitive to changes in prepayment rates than traditional mortgage-backed securities (for example, GNMA pass-throughs). Interest rates disclosed represent current yields based upon the current cost basis and estimated timing and amount of future cash flows. 5. Represents a security sold under Rule 144A, which is exempt from registration under the Securities Act of 1933, as amended. This security has been determined to be liquid under guidelines established by the Board of Trustees. These securities amount to $7,087,486 or 3.36% (Combined 2.96%) of the Fund's net assets, at December 31, 1995. 6. Represents the current interest rate for a variable rate security. 7. Identifies issues considered to be illiquid. 8. Denotes a step bond: a zero coupon bond that converts to a fixed rate of interest at a designated future date. 9. Units may be comprised of several components, such as debt and equity and/or warrants to purchase equity at some point in the future. For units which represent debt securities, principal amount disclosed represents total underlying principal.
PRO FORMA COMBINING STATEMENTS OF ASSETS AND LIABILITIES December 31, 1995 (Unaudited) Oppenheimer Growth Fund and JP Capital Appreciation Fund, Inc. OPPENHEIMER JP CAPITAL COMBINED GROWTH APPRECIATION OPPENHEIMER FUND FUND, INC. GROWTH FUND ----------------------------------------------- ASSETS: Investments, at value (cost * ) (including repurchase agreements **) $117,817,530 $72,620,683 $190,438,213 Cash 49,380 234,191 283,571 Receivables: Dividends and interest 106,959 101,730 208,689 Shares of beneficial interest sold 364,845 73,582 438,427 Investments sold 595,258 -- 595,258 Other 5,982 -- 5,982 ----------------------------------------------- Total assets 118,939,954 73,030,186 191,970,140 ----------------------------------------------- LIABILITIES: Payables and other liabilities: Investments purchased 970,555 1,354,110 2,324,665 Shares of beneficial interest redeemed 231,518 -- 231,518 Other 27,991 74,577 102,568 ----------------------------------------------- Total liabilities 1,230,064 1,428,687 2,658,751 ----------------------------------------------- NET ASSETS $117,709,890 $71,601,499 $189,311,389 =============================================== SHARES OF BENEFICIAL INTEREST OUTSTANDING 4,997,725 3,776,774 8,038,128 NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $23.55 $18.96 $23.55 *Cost $94,199,607 $57,777,456 $151,977,063 **Repurchase Agreements $23,470,000 -- $23,470,000
PRO FORMA COMBINING STATEMENTS OF ASSETS AND LIABILITIES JUNE 30, 1996 (UNAUDITED) OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND AND JP CAPITAL APPRECIATION FUND, INC. OPPENHEIMER JP CAPITAL COMBINED GROWTH APPRECIATION OPPENHEIMER FUND FUND GROWTH FUND --------------------------------------------------- ASSETS: Investments, at value (cost * ) (including repurchase agreements **) $144,789,612 $81,477,225 $226,266,837 Cash 231,093 446,968 678,061 Receivables: Dividends and interest 92,377 67,442 159,819 Shares of beneficial interest sold 188,713 45,793 234,506 Investments sold 1,096,302 - 1,096,302 Other 3,708 - 3,708 ---------------------------------------------------- Total assets 146,401,805 82,037,428 228,439,233 ---------------------------------------------------- Payables and other liabilities: Investments purchased 1,655,939 227,597 1,883,536 Shares of beneficial interest redeemed 644 - 644 Custodian fees 3,287 - 3,287 Other 19,727 58,331 78,058 ---------------------------------------------------- Total liabilities 1,679,597 285,928 1,965,525 ---------------------------------------------------- NET ASSETS $144,722,208 $81,751,500 $226,473,708 ==================================================== COMPOSITION OF NET ASSETS: Paid-in capital $107,561,054 $59,440,744 $167,001,798 Undistributed net investment income 684,501 841,453 1,525,954 Accumulated net realized gain from investments and foreign currency transactions 5,825,003 5,602,586 11,427,589 Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies 30,651,650 15,866,717 46,518,367 ---------------------------------------------------- NET ASSETS $144,722,208 $81,751,500 $226,473,708 ==================================================== SHARES OF BENEFICIAL INTEREST OUTSTANDING 5,972,737 4,205,324 9,346,716 NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $24.23 $19.44 $24.23 *Cost $114,137,962 $65,610,508 $179,748,470 **Repurchase agreements $17,400,000 - $17,400,000
PRO FORMA COMBINING STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1996 OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND AND JP CAPITAL APPRECIATION FUND, INC. OPPENHEIMER JP CAPITAL COMBINED GROWTH APPRECIATION PROFORMA OPPENHEIMER FUND FUND ADJUSTMENTS GROWTH FUND ---------------------------------------------------------------------- INVESTMENT INCOME: Interest $ 619,167 $ 286,477 $ - $ 905,644 Dividends 593,891 778,721 - 1,372,612 ---------------------------------------------------------------------- Total income 1,213,058 1,065,198 - 2,278,256 ---------------------------------------------------------------------- EXPENSES: Management fees 488,805 190,021 175,000 853,826 Custodian fees and expenses 5,212 14,182 (14,182) 5,212 Legal and auditing fees 5,513 12,900 (12,900) 5,513 Insurance expenses 2,251 - - 2,251 Trustees' fees and expenses 1,103 2,490 (2,490) 1,103 Registration and filing fees 5,888 9,150 - 15,038 Other 229 663 - 892 ---------------------------------------------------------------------- Total expenses 509,001 229,406 145,428 883,835 ---------------------------------------------------------------------- Less reimbursement - (8,982) 8,982 - ---------------------------------------------------------------------- Net expenses 509,001 220,424 154,410 883,835 ---------------------------------------------------------------------- NET INVESTMENT INCOME 704,057 844,774 (154,410) 1,394,421 ---------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN: Net realized gain from investments 5,982,807 5,612,860 - 11,595,667 Net change in unrealized appreciation or depreciation on investments 7,033,727 1,023,490 - 8,057,217 ---------------------------------------------------------------------- Net realized and unrealized gain 13,016,534 6,636,350 - 19,652,884 ---------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,720,591 $7,481,124 ($154,410) $21,047,305 ========================================================== ============
PRO FORMA COMBINING STATEMENTS OF INVESTMENTS JUNE 30, 1996 (UNAUDITED) OPPENHEIMER VARIABLE ACCOUNT FUNDS - OPPENHEIMER GROWTH FUND AND JP CAPITAL APPRECIATION FUND, INC. PRINCIPAL AMOUNT MARKET VALUE (NOTE 1) -------------------------------------- ------------------------------------------ OPPENHEIMER JP CAPITAL PRO FORMA OPPENHEIMER JP CAPITAL PRO FORMA GROWTH APPRECIATION COMBINED GROWTH APPRECIATION COMBINED ========================================================== ========================================================== ================ COMMON STOCKS - 80.0% - ------------------------------------------------------------------------------------------------------------------------------------ BASIC MATERIALS -4.4% - ------------------------------------------------------------------------------------------------------------------------------------ CHEMICALS -3.7% ---------------------------------------------------------------------------------------------------------------------------- FMC Corp. (1) $ 8,200 $ - $ 8,200 $ 535,050 $ $ 535,050 ---------------------------------------------------------------------------------------------------------------------------- Imperial Chemical Industries, Inc. - 22,000 22,000 - 1,080,750 1,080,750 ---------------------------------------------------------------------------------------------------------------------------- IMC Global, Inc. 19,000 - 19,000 714,875 - 714,875 ---------------------------------------------------------------------------------------------------------------------------- Monsanto Company - 51,500 51,500 - 1,673,750 1,673,750 ---------------------------------------------------------------------------------------------------------------------------- Morton International, Inc. 29,000 - 29,000 1,080,250 - 1,080,250 ---------------------------------------------------------------------------------------------------------------------------- PPG Industries, Inc. 3,200 - 3,200 156,000 - 156,000 ---------------------------------------------------------------------------------------------------------------------------- Praxair, Inc. 31,600 - 31,600 1,335,100 - 1,335,100 ---------------------------------------------------------------------------------------------------------------------------- Sterling Chemicals, Inc. (1) 31,600 - 31,600 367,350 - 367,350 ---------------------------------------------------------------------------------------------------------------------------- Terra Industries, Inc. 51,000 - 51,000 631,125 - 631,125 ---------------------------------------------------------------------------------------------------------------------------- Union Carbide Corp. 19,000 - 19,000 755,250 - 755,250 ------------------------------------------ 5,575,000 2,754,500 8,329,500 - ------------------------------------------------------------------------------------------------------------------------------------ PAPER -0.7% ---------------------------------------------------------------------------------------------------------------------------- Boise Cascade Corp. 12,000 - 12,000 439,500 - 439,500 ---------------------------------------------------------------------------------------------------------------------------- Bowater, Inc. 14,000 - 14,000 526,750 - 526,750 ---------------------------------------------------------------------------------------------------------------------------- Sonoco Products Company - 8,400 8,400 - 238,350 238,350 ---------------------------------------------------------------------------------------------------------------------------- Willamette Industries, Inc. 6,000 - 6,000 357,000 - 357,000 ------------------------------------------ 1,323,250 238,350 1,561,600 - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER CYCLICALS - 9.7% - ------------------------------------------------------------------------------------------------------------------------------------ AUTOS & HOUSING - 0.8% ---------------------------------------------------------------------------------------------------------------------------- AutoZone, Inc. (1) 12,000 - 12,000 417,000 - 417,000 ---------------------------------------------------------------------------------------------------------------------------- Pulte Corp. 22,000 - 22,000 588,500 - 588,500 ---------------------------------------------------------------------------------------------------------------------------- Toll Brothers, Inc. (1) 46,000 - 46,000 753,250 - 753,250 ------------------------------------------ 1,758,750 - 1,758,750 - ------------------------------------------------------------------------------------------------------------------------------------ LEISURE & ENTERTAINMENT - 2.8% ---------------------------------------------------------------------------------------------------------------------------- Alaska Air Group, Inc. (1) 25,000 - 25,000 684,375 - 684,375 ---------------------------------------------------------------------------------------------------------------------------- AMR Corp. 5,000 - 5,000 455,000 - 455,000 ---------------------------------------------------------------------------------------------------------------------------- Callaway Golf Co. 25,000 - 25,000 831,250 - 831,250 ---------------------------------------------------------------------------------------------------------------------------- Delta Air Lines, Inc. 8,000 - 8,000 664,000 - 664,000 ---------------------------------------------------------------------------------------------------------------------------- Disney (Walt) Co. 25,000 - 25,000 1,571,875 - 1,571,875 ---------------------------------------------------------------------------------------------------------------------------- ITT Corp. (New) (1) 5,000 - 5,000 331,250 - 331,250 ---------------------------------------------------------------------------------------------------------------------------- McDonald's Corp. 11,000 - 11,000 514,250 - 514,250 ---------------------------------------------------------------------------------------------------------------------------- Outback Steakhouse, Inc. (1) 20,000 - 20,000 689,687 - 689,687 ---------------------------------------------------------------------------------------------------------------------------- Wendy's International, Inc. 35,800 - 35,800 666,775 - 666,775 ------------------------------------------ 6,408,462 - 6,408,462 - ------------------------------------------------------------------------------------------------------------------------------------ MEDIA - 0.2% ---------------------------------------------------------------------------------------------------------------------------- US West Media Group (1) - 13,400 13,400 - 244,550 244,550 ---------------------------------------------------------------------------------------------------------------------------- Viacom, Inc., Cl. B (1) 3,667 - 3,667 142,555 - 142,555 ------------------------------------------ 142,555 244,550 387,105 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL: GENERAL - 3.8% ---------------------------------------------------------------------------------------------------------------------------- Consolidated Stores Corporation (1) - 20,000 20,000 - 735,000 735,000 ---------------------------------------------------------------------------------------------------------------------------- Donna Karan International, Inc. 40,100 - 40,100 1,122,800 - 1,122,800 ---------------------------------------------------------------------------------------------------------------------------- Eckerd Corp. (1) 44,000 33,000 77,000 995,500 746,625 1,742,125 ---------------------------------------------------------------------------------------------------------------------------- Federated Department Stores, Inc. - 24,000 24,000 - 819,000 819,000 ---------------------------------------------------------------------------------------------------------------------------- Jones Apparel Group, Inc. (1) 19,100 - 19,100 938,287 - 938,287 ---------------------------------------------------------------------------------------------------------------------------- Liz Claiborne, Inc. 11,000 - 11,000 380,875 - 380,875 ---------------------------------------------------------------------------------------------------------------------------- Nautica Enterprises, Inc. (1) 20,000 - 20,000 575,000 - 575,000 ---------------------------------------------------------------------------------------------------------------------------- Thrifty Payless Holdings, Inc. - 20,000 20,000 - 345,000 345,000 ---------------------------------------------------------------------------------------------------------------------------- Tommy Hilfiger Corp. (1) 20,800 - 20,800 1,115,400 - 1,115,400 ---------------------------------------------------------------------------------------------------------------------------- Wal-Mart Stores, Inc. 37,000 - 37,000 938,875 - 938,875 ------------------------------------------ 6,066,737 2,645,625 8,712,362 - ------------------------------------------------------------------------------------------------------------------------------------ RETAIL: SPECIALTY - 2.1% ---------------------------------------------------------------------------------------------------------------------------- Bed Bath & Beyond, Inc. (1) 18,000 - 18,000 481,500 - 481,500 ---------------------------------------------------------------------------------------------------------------------------- Borders Group Inc. (1) - 43,500 43,500 - 1,402,875 1,402,875 ---------------------------------------------------------------------------------------------------------------------------- Gap, Inc. (The) 20,000 - 20,000 642,500 - 642,500 ---------------------------------------------------------------------------------------------------------------------------- General Nutrition Cos., Inc. (1) 18,400 - 18,400 322,000 - 322,000 ---------------------------------------------------------------------------------------------------------------------------- Home Depot, Inc. 22,000 - 22,000 1,188,000 - 1,188,000 ---------------------------------------------------------------------------------------------------------------------------- Lands' End, Inc. (1) 28,000 - 28,000 693,000 - 693,000 ------------------------------------------ 3,327,000 1,402,875 4,729,875 - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER NON-CYCLICALS -16.9% - ------------------------------------------------------------------------------------------------------------------------------------ BEVERAGES - 1.0% ---------------------------------------------------------------------------------------------------------------------------- Boston Beer Co., Inc., Cl. A (1) 13,000 - 13,000 312,000 - 312,000 ---------------------------------------------------------------------------------------------------------------------------- Coca-Cola Co. (The) 22,000 - 22,000 1,075,250 - 1,075,250 ---------------------------------------------------------------------------------------------------------------------------- PepsiCo, Inc. 20,000 - 20,000 707,500 - 707,500 ---------------------------------------------------------------------------------------------------------------------------- Whitman Corp. 5,000 - 5,000 120,625 - 120,625 ------------------------------------------ 2,215,375 - 2,215,375 - ------------------------------------------------------------------------------------------------------------------------------------ FOOD - 2.4% ---------------------------------------------------------------------------------------------------------------------------- Casey's General Stores, Inc. 13,000 - 13,000 258,375 - 258,375 ---------------------------------------------------------------------------------------------------------------------------- H.J. Heinz Co. 15,000 - 15,000 455,625 - 455,625 ---------------------------------------------------------------------------------------------------------------------------- JP Foodservice, Inc. (1) 25,600 - 25,600 640,000 - 640,000 ---------------------------------------------------------------------------------------------------------------------------- Kroger Co. (1) 25,000 - 25,000 987,500 - 987,500 ---------------------------------------------------------------------------------------------------------------------------- Richfood Holdings, Inc. 16,000 - 16,000 520,000 - 520,000 ---------------------------------------------------------------------------------------------------------------------------- Safeway, Inc. (1) 32,000 - 32,000 1,056,000 - 1,056,000 ---------------------------------------------------------------------------------------------------------------------------- Sara Lee Corporation - 45,000 45,000 - 1,456,875 1,456,875 ------------------------------------------ 3,917,500 1,456,875 5,374,375 - ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE/DRUGS - 5.6% ---------------------------------------------------------------------------------------------------------------------------- Abbott Laboratories 17,000 - 17,000 739,500 - 739,500 ---------------------------------------------------------------------------------------------------------------------------- Amgen, Inc. (1) 8,000 - 8,000 432,000 - 432,000 ---------------------------------------------------------------------------------------------------------------------------- Bristol-Myers Squibb Co. 6,500 - 6,500 585,000 - 585,000 ---------------------------------------------------------------------------------------------------------------------------- Johnson & Johnson 28,516 27,000 55,516 1,411,542 1,336,500 2,748,042 ---------------------------------------------------------------------------------------------------------------------------- Lilly (Eli) & Company - 20,090 20,090 - 1,305,850 1,305,850 ---------------------------------------------------------------------------------------------------------------------------- Merck & Company, Inc. - 9,000 9,000 - 581,625 581,625 ---------------------------------------------------------------------------------------------------------------------------- Pfizer, Inc. 26,500 - 26,500 1,891,437 - 1,891,437 ---------------------------------------------------------------------------------------------------------------------------- Pharmacia & Upjohn, Inc. - 27,000 27,000 - 1,198,125 1,198,125 ---------------------------------------------------------------------------------------------------------------------------- Schering-Plough Corp. 16,000 25,400 41,400 1,004,000 1,593,850 2,597,850 ---------------------------------------------------------------------------------------------------------------------------- Warner-Lambert Co. 10,000 - 10,000 550,000 - 550,000 ------------------------------------------ 6,613,479 6,015,950 12,629,429 - ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE/SUPPLIES & SERVICES - 5.5% ---------------------------------------------------------------------------------------------------------------------------- Alliance Pharmaceutical Corporation (1) - 12,100 12,100 - 198,138 198,138 ---------------------------------------------------------------------------------------------------------------------------- Baxter International - 10,000 10,000 - 472,500 472,500 ---------------------------------------------------------------------------------------------------------------------------- Boston Scientific Corp. (1) 21,000 - 21,000 945,000 - 945,000 ---------------------------------------------------------------------------------------------------------------------------- Columbia/HCA Healthcare Corp. 8,000 26,600 34,600 427,000 1,419,775 1,846,775 ---------------------------------------------------------------------------------------------------------------------------- Guidant Corporation - 9,916 9,916 - 488,363 488,363 ---------------------------------------------------------------------------------------------------------------------------- HealthCare COMPARE Corp. (1) 20,000 - 20,000 975,000 - 975,000 ---------------------------------------------------------------------------------------------------------------------------- HEALTHSOUTH Corp. (1) 17,000 - 17,000 612,000 - 612,000 ---------------------------------------------------------------------------------------------------------------------------- Lincare Holdings, Inc. (1) 21,000 - 21,000 824,250 - 824,250 ---------------------------------------------------------------------------------------------------------------------------- Medtronic, Inc. 26,000 - 26,000 1,456,000 - 1,456,000 ---------------------------------------------------------------------------------------------------------------------------- Nellcor Puritan Bennett, Inc. (1) 15,800 - 15,800 766,300 - 766,300 ---------------------------------------------------------------------------------------------------------------------------- Oxford Health Plans, Inc. (1) 16,000 - 16,000 658,000 - 658,000 ---------------------------------------------------------------------------------------------------------------------------- Sofamor Danek Group, Inc. (1) 17,000 - 17,000 471,750 - 471,750 ---------------------------------------------------------------------------------------------------------------------------- St. Jude Medical, Inc. (1) - 20,000 20,000 - 665,000 665,000 ---------------------------------------------------------------------------------------------------------------------------- Vencor, Inc. (1) - 48,000 48,000 - 1,464,000 1,464,000 ---------------------------------------------------------------------------------------------------------------------------- Ventritex, Inc. (1) 18,000 - 18,000 308,250 - 308,250 ---------------------------------------------------------------------------------------------------------------------------- VISX, Inc. (1) 11,000 - 11,000 375,375 - 375,375 ------------------------------------------ 7,818,925 4,707,776 12,526,701 - ------------------------------------------------------------------------------------------------------------------------------------ HOUSEHOLD GOODS - 0.4% ---------------------------------------------------------------------------------------------------------------------------- Procter & Gamble Co. 11,000 - 11,000 996,875 - 996,875 - ------------------------------------------------------------------------------------------------------------------------------------ TOBACCO - 2.0% ---------------------------------------------------------------------------------------------------------------------------- Philip Morris Cos., Inc. 15,000 14,000 29,000 1,560,000 1,456,000 3,016,000 ---------------------------------------------------------------------------------------------------------------------------- UST, Inc. 41,000 - 41,000 1,404,250 - 1,404,250 ------------------------------------------ 2,964,250 1,456,000 4,420,250 - ------------------------------------------------------------------------------------------------------------------------------------ ENERGY -4.2% - ------------------------------------------------------------------------------------------------------------------------------------ ENERGY SERVICES & PRODUCERS - 0.8% ---------------------------------------------------------------------------------------------------------------------------- Global Marine, Inc. (1) 27,000 - 27,000 374,625 - 374,625 ---------------------------------------------------------------------------------------------------------------------------- Questar Corporation - 14,000 14,000 - 476,000 476,000 ---------------------------------------------------------------------------------------------------------------------------- Sonat Offshore Drilling, Inc. 18,000 - 18,000 909,000 - 909,000 ------------------------------------------ 1,283,625 476,000 1,759,625 - ------------------------------------------------------------------------------------------------------------------------------------ OIL-INTEGRATED - 3.4% ---------------------------------------------------------------------------------------------------------------------------- Amerada Hess Corporation - 15,500 15,500 - 831,187 831,187 ---------------------------------------------------------------------------------------------------------------------------- Amoco Corporation - 15,600 15,600 - 1,129,050 1,129,050 ---------------------------------------------------------------------------------------------------------------------------- Atlantic Richfield Company - 13,600 13,600 - 1,611,600 1,611,600 ---------------------------------------------------------------------------------------------------------------------------- Mobil Corp. 6,000 12,100 18,100 672,750 1,356,713 2,029,463 ---------------------------------------------------------------------------------------------------------------------------- Royal Dutch Petroleum Co. 3,500 10,500 14,000 538,125 1,614,375 2,152,500 ------------------------------------------ 1,210,875 6,542,925 7,753,800 - ------------------------------------------------------------------------------------------------------------------------------------ FINANCIAL - 15.9% - ------------------------------------------------------------------------------------------------------------------------------------ BANKS -4.6% ---------------------------------------------------------------------------------------------------------------------------- Bank of Boston Corp. 23,000 - 23,000 1,138,500 - 1,138,500 ---------------------------------------------------------------------------------------------------------------------------- Bank of New York Company, Inc. - 19,400 19,400 - 994,250 994,250 ---------------------------------------------------------------------------------------------------------------------------- BankAmerica Corp. 7,500 - 7,500 568,125 - 568,125 ---------------------------------------------------------------------------------------------------------------------------- Chase Manhattan Corp. (New) 15,240 10,400 25,640 1,076,325 734,500 1,810,825 ---------------------------------------------------------------------------------------------------------------------------- Citicorp - 20,600 20,600 - 1,702,075 1,702,075 ---------------------------------------------------------------------------------------------------------------------------- Mellon Bank Corp - 18,000 18,000 - 1,026,000 1,026,000 ---------------------------------------------------------------------------------------------------------------------------- NationsBank Corp. 10,000 - 10,000 826,250 - 826,250 ---------------------------------------------------------------------------------------------------------------------------- PNC Bank Corp. 24,600 - 24,600 731,850 - 731,850 ---------------------------------------------------------------------------------------------------------------------------- State Street Boston Corp. 18,600 - 18,600 948,600 - 948,600 ---------------------------------------------------------------------------------------------------------------------------- Wells Fargo & Co. 3,166 - 3,166 756,278 - 756,278 ------------------------------------------ 6,045,928 4,456,825 10,502,753 - ------------------------------------------------------------------------------------------------------------------------------------ DIVERSIFIED FINANCIAL - 6.9% ---------------------------------------------------------------------------------------------------------------------------- Advanta Corp., Cl. A 15,000 - 15,000 765,000 - 765,000 ---------------------------------------------------------------------------------------------------------------------------- Associates First Capital Corp., Cl. A (1) 15,000 - 15,000 564,375 - 564,375 ---------------------------------------------------------------------------------------------------------------------------- Countrywide Credit Industries Inc. - 68,000 68,000 - 1,683,000 1,683,000 ---------------------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp. 8,000 8,000 16,000 684,000 684,000 1,368,000 ---------------------------------------------------------------------------------------------------------------------------- Federal National Mortgage Assn. 32,000 - 32,000 1,072,000 - 1,072,000 ---------------------------------------------------------------------------------------------------------------------------- First USA, Inc. 25,000 18,000 43,000 1,375,000 990,000 2,365,000 --------------------------------------------------------------------------------------------------------------------------- Franklin Resources, Inc. 23,000 - 23,000 1,403,000 - 1,403,000 ---------------------------------------------------------------------------------------------------------------------------- Green Tree Financial Corp. 56,000 - 56,000 1,750,000 - 1,750,000 ---------------------------------------------------------------------------------------------------------------------------- Price (T. Rowe) Associates 43,200 - 43,200 1,328,400 - 1,328,400 ---------------------------------------------------------------------------------------------------------------------------- Salomon, Inc. 18,000 - 18,000 792,000 - 792,000 ---------------------------------------------------------------------------------------------------------------------------- Schwab (Charles) Corp. (New) 29,000 - 29,000 710,500 - 710,500 ---------------------------------------------------------------------------------------------------------------------------- Travelers Group, Inc. 40,500 - 40,500 1,847,812 - 1,847,812 ------------------------------------------ 12,292,087 3,357,000 15,649,087 - ------------------------------------------------------------------------------------------------------------------------------------ INSURANCE -4.4% ---------------------------------------------------------------------------------------------------------------------------- AFLAC Inc. - 26,400 26,400 - 788,700 788,700 ---------------------------------------------------------------------------------------------------------------------------- Aetna Life & Casualty Company - 20,000 20,000 - 1,430,000 1,430,000 ---------------------------------------------------------------------------------------------------------------------------- Allstate Corp. 20,000 20,500 40,500 912,500 935,312 1,847,812 ---------------------------------------------------------------------------------------------------------------------------- Amerin Corp. (1) 18,500 - 18,500 494,875 - 494,875 ---------------------------------------------------------------------------------------------------------------------------- CIGNA Corporation - 10,600 10,600 - 1,249,475 1,249,475 ---------------------------------------------------------------------------------------------------------------------------- Everest Reinsurance Holdings, Inc. - 25,500 25,500 - 659,813 659,813 ---------------------------------------------------------------------------------------------------------------------------- IPC Holdings, Ltd. - 6,000 6,000 - 120,750 120,750 ---------------------------------------------------------------------------------------------------------------------------- ITT Hartford Group, Inc. 5,000 - 5,000 266,250 - 266,250 ---------------------------------------------------------------------------------------------------------------------------- Loews Corp. 11,000 - 11,000 867,625 - 867,625 ---------------------------------------------------------------------------------------------------------------------------- MGIC Investment Corp. 14,100 - 14,100 791,363 - 791,363 ---------------------------------------------------------------------------------------------------------------------------- SunAmerica, Inc. 24,000 - 24,000 1,356,000 - 1,356,000 ------------------------------------------ 4,688,613 5,184,050 9,872,663 - ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL -6.6% - ------------------------------------------------------------------------------------------------------------------------------------ ELECTRICAL EQUIPMENT - 2.1% ---------------------------------------------------------------------------------------------------------------------------- Emerson Electric Co. 16,500 - 16,500 1,491,188 - 1,491,188 ---------------------------------------------------------------------------------------------------------------------------- General Electric Co. 9,000 25,000 34,000 778,500 2,162,500 2,941,000 ---------------------------------------------------------------------------------------------------------------------------- Kemet Corp. (1) 20,000 - 20,000 400,000 - 400,000 ------------------------------------------ 2,669,688 2,162,500 4,832,188 - ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL MATERIALS - 1.4% ---------------------------------------------------------------------------------------------------------------------------- Centex Corp. 21,000 - 21,000 653,625 - 653,625 ---------------------------------------------------------------------------------------------------------------------------- Fluor Corp. 6,000 - 6,000 392,250 - 392,250 ---------------------------------------------------------------------------------------------------------------------------- Rayonier, Inc. 23,400 - 23,400 889,200 - 889,200 ---------------------------------------------------------------------------------------------------------------------------- WMX Technologies - 30,000 30,000 - 982,500 982,500 ---------------------------------------------------------------------------------------------------------------------------- Wolverine Tube, Inc. (1) 5,000 - 5,000 175,000 - 175,000 ------------------------------------------ 2,110,075 982,500 3,092,575 - ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIAL SERVICES - 0.8% ---------------------------------------------------------------------------------------------------------------------------- Danka Business Systems PLC, Sponsored ADR 13,000 - 13,000 380,250 - 380,250 ---------------------------------------------------------------------------------------------------------------------------- DecisionOne Holdings Corp. (1) 23,600 - 23,600 560,500 - 560,500 ---------------------------------------------------------------------------------------------------------------------------- Kelly Services - 12,000 12,000 - 351,000 351,000 ---------------------------------------------------------------------------------------------------------------------------- Manpower, Inc. 12,500 - 12,500 490,625 - 490,625 ------------------------------------------ 1,431,375 351,000 1,782,375 - ------------------------------------------------------------------------------------------------------------------------------------ MANUFACTURING -0.8% ---------------------------------------------------------------------------------------------------------------------------- AGCO Corp. 19,200 - 19,200 532,800 - 532,800 ---------------------------------------------------------------------------------------------------------------------------- AlliedSignal - 14,000 14,000 - 799,750 799,750 ---------------------------------------------------------------------------------------------------------------------------- ITT Industries, Inc. 3,000 - 3,000 75,375 - 75,375 ---------------------------------------------------------------------------------------------------------------------------- Kulicke & Soffa Industries, Inc. (1) 33,000 - 33,000 482,625 - 482,625 ------------------------------------------ 1,090,800 799,750 1,890,550 - ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 1.5% ---------------------------------------------------------------------------------------------------------------------------- Burlington Northern Santa Fe Corp. 7,000 - 7,000 566,125 - 566,125 ---------------------------------------------------------------------------------------------------------------------------- Canadian Pacific Ltd. 62,000 - 62,000 1,364,000 - 1,364,000 ---------------------------------------------------------------------------------------------------------------------------- CSX Corporation - 14,000 14,000 - 675,500 675,500 ---------------------------------------------------------------------------------------------------------------------------- Federal Express Corporation (1) - 4,400 4,400 - 360,800 360,800 ---------------------------------------------------------------------------------------------------------------------------- Illinois Central Corp. 15,000 - 15,000 425,625 - 425,625 ------------------------------------------ 2,355,750 1,036,300 3,392,050 - ------------------------------------------------------------------------------------------------------------------------------------ TECHNOLOGY - 17.6% - ------------------------------------------------------------------------------------------------------------------------------------ AEROSPACE/DEFENSE - 0.7% ---------------------------------------------------------------------------------------------------------------------------- Goodrich (B.F.) Co. 24,000 - 24,000 897,000 - 897,000 ---------------------------------------------------------------------------------------------------------------------------- Lockheed-Martin Corporation - 9,300 9,300 - 781,200 781,200 ------------------------------------------ 897,000 781,200 1,678,200 - ------------------------------------------------------------------------------------------------------------------------------------ COMPUTER HARDWARE - 2.2% ---------------------------------------------------------------------------------------------------------------------------- Adaptec, Inc. (1) 12,000 - 12,000 568,500 - 568,500 ---------------------------------------------------------------------------------------------------------------------------- Cabletron Systems, Inc. (1) 15,000 - 15,000 1,029,375 - 1,029,375 ---------------------------------------------------------------------------------------------------------------------------- Compaq Computer Corp. (1) 16,000 - 16,000 788,000 - 788,000 ---------------------------------------------------------------------------------------------------------------------------- EMC Corp. (1) 36,000 - 36,000 670,500 - 670,500 ---------------------------------------------------------------------------------------------------------------------------- Gateway 2000, Inc. (1) 30,800 - 30,800 1,047,200 - 1,047,200 ---------------------------------------------------------------------------------------------------------------------------- Seagate Technology, Inc. (1) 19,000 - 19,000 855,000 - 855,000 ------------------------------------------ 4,958,575 - 4,958,575 - ------------------------------------------------------------------------------------------------------------------------------------ COMPUTER SOFTWARE - 6.9% ---------------------------------------------------------------------------------------------------------------------------- Automatic Data Processing, Inc. 20,000 - 20,000 772,500 - 772,500 ---------------------------------------------------------------------------------------------------------------------------- BMC Software, Inc. (1) 22,000 - 22,000 1,314,500 - 1,314,500 ---------------------------------------------------------------------------------------------------------------------------- Computer Associates International, Inc. 6,000 - 6,000 427,500 - 427,500 ---------------------------------------------------------------------------------------------------------------------------- First Data Corp. 29,000 - 29,000 2,309,125 - 2,309,125 ---------------------------------------------------------------------------------------------------------------------------- Informix Corp. (1) 35,000 - 35,000 787,500 - 787,500 ---------------------------------------------------------------------------------------------------------------------------- Microsoft Corp. (1) 33,000 - 33,000 3,964,125 - 3,964,125 ---------------------------------------------------------------------------------------------------------------------------- Oracle Corp. (1) 45,400 - 45,400 1,790,463 - 1,790,463 ---------------------------------------------------------------------------------------------------------------------------- PLATINUM Technology, Inc. (1) 33,000 - 33,000 499,125 - 499,125 ---------------------------------------------------------------------------------------------------------------------------- Sterling Software, Inc. (1) 11,000 - 11,000 847,000 - 847,000 ---------------------------------------------------------------------------------------------------------------------------- SunGard Data Systems, Inc. (1) - 23,000 23,000 - 920,000 920,000 ---------------------------------------------------------------------------------------------------------------------------- System Software Associates, Inc. 27,500 - 27,500 467,500 - 467,500 ---------------------------------------------------------------------------------------------------------------------------- Xerox Corporation - 30,000 30,000 - 1,605,000 1,605,000 ------------------------------------------ 13,179,338 2,525,000 15,704,338 - ------------------------------------------------------------------------------------------------------------------------------------ ELECTRONICS - 3.1% ---------------------------------------------------------------------------------------------------------------------------- Applied Materials, Inc. (1) 32,000 - 32,000 976,000 - 976,000 ---------------------------------------------------------------------------------------------------------------------------- Arrow Electronics, Inc. (1) 8,000 - 8,000 345,000 - 345,000 ---------------------------------------------------------------------------------------------------------------------------- Atmel Corporation - 15,000 15,000 - 451,875 451,875 --------------------------------------------------------------------------------------------------------------------------- Cypress Semiconductor Corp. (1) 55,000 - 55,000 660,000 - 660,000 ---------------------------------------------------------------------------------------------------------------------------- Intel Corp. 26,000 - 26,000 1,909,375 - 1,909,375 ---------------------------------------------------------------------------------------------------------------------------- LSI Logic Corp. (1) 16,000 - 16,000 416,000 - 416,000 ---------------------------------------------------------------------------------------------------------------------------- Motorola, Inc. 10,000 - 10,000 628,750 - 628,750 ---------------------------------------------------------------------------------------------------------------------------- Novellus Systems, Inc. (1) 8,200 - 8,200 295,200 - 295,200 ---------------------------------------------------------------------------------------------------------------------------- Philips Electronics NV, ADR 11,000 - 11,000 358,875 - 358,875 ---------------------------------------------------------------------------------------------------------------------------- Tegal Corp. (1) 15,000 - 15,000 108,750 - 108,750 ---------------------------------------------------------------------------------------------------------------------------- Varian Associaties, Inc. - 15,300 15,300 - 791,775 791,775 ------------------------------------------ 5,697,950 1,243,650 6,941,600 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOMMUNICATIONS-TECHNOLOGY - 4.7% ---------------------------------------------------------------------------------------------------------------------------- 3Com Corp. (1) 3,000 - 3,000 137,250 - 137,250 ---------------------------------------------------------------------------------------------------------------------------- 360 Communications Company (1) - 8,833 8,833 - 211,992 211,992 ---------------------------------------------------------------------------------------------------------------------------- Cisco Systems, Inc. (1) 23,000 - 23,000 1,302,375 - 1,302,375 ---------------------------------------------------------------------------------------------------------------------------- DSC Communicatinos Corportaion (1) - 25,000 25,000 - 750,000 750,000 ---------------------------------------------------------------------------------------------------------------------------- Hong Kong Telecommunications Ltd., Sponsored ADR 21,000 - 21,000 378,000 - 378,000 ---------------------------------------------------------------------------------------------------------------------------- L.M. Ericsson Telephone Co., Cl. B, ADR 42,000 - 42,000 903,000 - 903,000 ---------------------------------------------------------------------------------------------------------------------------- Loral Space & Communications, Ltd. (1) - 16,000 16,000 - 218,000 218,000 ---------------------------------------------------------------------------------------------------------------------------- Lucent Technologies, Inc. (1) 6,200 33,000 39,200 234,825 1,249,875 1,484,700 ---------------------------------------------------------------------------------------------------------------------------- Newbridge Networks Corp. (1) 23,000 - 23,000 1,506,500 - 1,506,500 ---------------------------------------------------------------------------------------------------------------------------- Telecom Corp. of New Zealand Ltd., Sponsored ADR 7,000 - 7,000 467,250 - 467,250 ---------------------------------------------------------------------------------------------------------------------------- Tellabs, Inc. (1) 19,800 29,500 49,300 1,324,125 1,969,125 3,293,250 ------------------------------------------ 6,253,325 4,398,992 10,652,317 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES -4.7% - ------------------------------------------------------------------------------------------------------------------------------------ ELECTRIC UTLITIES - 2.2% ---------------------------------------------------------------------------------------------------------------------------- American Electric Power Company, Inc. - 11,550 11,550 - 492,319 492,319 ---------------------------------------------------------------------------------------------------------------------------- CMS Energy Corporation - 16,200 16,200 - 500,175 500,175 ---------------------------------------------------------------------------------------------------------------------------- Carolina Power & Light Company - 6,700 6,700 - 254,600 254,600 ---------------------------------------------------------------------------------------------------------------------------- CINergy Corporation - 22,800 22,800 - 729,600 729,600 ---------------------------------------------------------------------------------------------------------------------------- Consolidated Edison Company of NY Inc. - 9,900 9,900 - 289,575 289,575 ---------------------------------------------------------------------------------------------------------------------------- Dominion Resources, Inc. - 7,650 7,650 - 306,000 306,000 ---------------------------------------------------------------------------------------------------------------------------- Entergy Corporation - 19,800 19,800 - 61,825 561,825 ---------------------------------------------------------------------------------------------------------------------------- FPL Group, Inc. - 13,600 13,600 - 625,600 625,600 ---------------------------------------------------------------------------------------------------------------------------- Illinova Corporation - 15,900 15,900 - 457,125 457,125 ---------------------------------------------------------------------------------------------------------------------------- Northeast Utilities - 14,500 14,500 - 193,937 193,937 ---------------------------------------------------------------------------------------------------------------------------- PECO Energy Company - 8,300 8,300 - 215,800 215,800 ---------------------------------------------------------------------------------------------------------------------------- Public Service Enterprise Group, Inc. - 12,550 12,550 - 343,556 343,556 ------------------------------------------ - 4,970,112 4,970,112 - ------------------------------------------------------------------------------------------------------------------------------------ TELEPHONE UTILITIES -2.4% ---------------------------------------------------------------------------------------------------------------------------- Bell Atlantic Corporation - 6,300 6,300 - 401,625 401,625 ---------------------------------------------------------------------------------------------------------------------------- BellSouth Corp. 3,000 12,600 15,600 127,125 533,925 661,050 ---------------------------------------------------------------------------------------------------------------------------- Century Telephone Enterprises, Inc. - 14,000 14,000 - 446,250 446,250 ---------------------------------------------------------------------------------------------------------------------------- Cincinnati Bell, Inc. 13,800 - 13,800 719,325 - 719,325 ---------------------------------------------------------------------------------------------------------------------------- Fromtier Corporation - 43,000 43,000 - 1,316,875 1,316,875 ---------------------------------------------------------------------------------------------------------------------------- SBC Communications Inc. - 6,400 6,400 - 315,200 315,200 ---------------------------------------------------------------------------------------------------------------------------- Sprint Corporation - 26,500 26,500 - 1,113,000 1,113,000 ---------------------------------------------------------------------------------------------------------------------------- US West Communications Group - 13,400 13,400 - 427,125 427,125 ------------------------------------------ 846,450 4,554,000 5,400,450 - ------------------------------------------------------------------------------------------------------------------------------------ WATER UTILITIES - 0.1% ---------------------------------------------------------------------------------------------------------------------------- American Water Works Company, Inc. - 6,000 6,000 - 241,500 241,500 ------------------------------------------ Total Common Stocks (Cost $85,487,962, $49,158,263+, Combined $134,646,225) 116,139,612 64,985,805 181,125,417 ========================================================== ========================================================== ================ PREFERRED STOCKS - 0.7% - ------------------------------------------------------------------------------------------------------------------------------------ TELECOMMUNICATIONS - 0.1% ---------------------------------------------------------------------------------------------------------------------------- TCI Communications, Inc. $2.125 Cum Pfd. Ser A - 3,000 3,000 - 132,375 132,375 - ------------------------------------------------------------------------------------------------------------------------------------ TOBACCO - 0.6% ---------------------------------------------------------------------------------------------------------------------------- RJR Nabisco Holdings, Inc. Pfd. C - 220,000 220,000 - 1,430,000 1,430,000 ------------------------------------------ Total Preferred Stocks (Cost $1,523,200+) - 1,562,375 1,562,375 ========================================================== ========================================================== ================ SHORT-TERM NOTES - 11.6% ---------------------------------------------------------------------------------------------------------------------------- American Express Credit Corporation 7/03/96 - 500,000 500,000 - 499,780 499,780 ---------------------------------------------------------------------------------------------------------------------------- American Express Credit Corporation 7/03/96 - 2,000,000 2,000,000 - 1,999,123 1,999,123 ---------------------------------------------------------------------------------------------------------------------------- Chevron Oil Finance Company 7/08/96 - 2,750,000 2,750,000 - 2,746,749 2,746,749 ---------------------------------------------------------------------------------------------------------------------------- Exxon Asset Management Company 7/10/96 - 3,000,000 3,000,000 - 2,995,625 2,995,625 ---------------------------------------------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corp., 5.27%, 7/1/96 11,250,000 - 11,250,000 11,250,000 - 11,250,000 ---------------------------------------------------------------------------------------------------------------------------- Ford Motor Credit Company 7/17/96 - 2,500,000 2,500,000 - 2,493,672 2,493,672 ---------------------------------------------------------------------------------------------------------------------------- General Electric Capital Corporation 7/05/96 - 1,500,000 1,500,000 - 1,498,911 1,498,911 ---------------------------------------------------------------------------------------------------------------------------- Hershey Foods Corporation 7/12/96 - 2,700,000 2,700,000 - 2,695,185 2,695,185 ------------------------------------------ Total Short-Term Securities (Cost $11,250,000, $14,929,145, Combined $26,179,145) 11,250,000 14,929,045 26,179,045 ========================================================== ========================================================== ================ REPURCHASE AGREEMENT - 7.7% ---------------------------------------------------------------------------------------------------------------------------- Repurchase agreement with Canadian Imperial Bank of Commerce, 5.45%, dated 6/28/96, to be repurchased at $17,407,903 on 7/1/96, collateralized by U.S. Treasury Bonds, 9.125%-11.25%, 2/15/15- 5/11/18, with a value of $6,150,689, and U.S. Treasury Nts., 5.25%-8.50%, 1/11/97-11/15/04, with a value of $11,623,981 (Cost $17,400,000) 17,400,000 - 17,400,000 17,400,000 - 17,400,000 ---------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS, AT VALUE (COST $114,137,962, $65,610,508, COMBINED $179,748,470) 100.0% 99.7% 100.0% 144,789,612 81,477,225 226,266,837 ---------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS NET OF LIABILITIES/ LIABILITIES IN EXCESS OF OTHER ASSETS 0.0 0.3 0.0 (67,404) 274,275 206,871 ---------------------------------- ------------------------------------------ NET ASSETS 100.0% 100.0% 100.0% $144,722,208 $81,751,500 $226,473,708 ================================== ==========================================
1. Non-income producing security. + Aggregate cost for Federal income tax purposes is the same. OPPENHEIMER VARIABLE ACCOUNT FUNDS FORM N-14 PART C OTHER INFORMATION Item 15. Indemnification Reference is made to Article IV of Registrant's Declaration of Trust filed as Exhibit 24(b)(1) to Registrant's Registration Statement and incorporated herein by reference. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of Registrant pursuant to the foregoing provisions or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. Item 16.Exhibits (1)Sixth Restated Declaration of Trust dated February 28, 1995: Filed with Registrant's Post-Effective Amendment No. 27, 4/27/95, and incorporated herein by reference. (2)By-Laws, amended as of 6/26/90; Previously filed with Registrant's Post-Effective Amendment No. 25, 2/13/95, and incorporated herein by reference. (3) Not applicable. (4) Agreement and Plan of Reorganization: See Exhibit A to Part A of this Registration Statement. (5)(i) Oppenheimer Growth Fund specimen share certificate: Filed with Registrant's Post-Effective Amendment No. 25, 4/29/94, and incorporated herein by reference. (ii) Oppenheimer Bond Fund specimen share certificate: Filed with Registrant's Post-Effective Amendment No. 24, 4/24/94, and incorporated herein by reference. (6)(i) Investment Advisory Agreement for Oppenheimer Growth Fund dated 9/1/94: Filed with Post-Effective Amendment No. 26, 2/13/95, and incorporated herein by reference. (ii) Investment Advisory Agreement for Oppenheimer Bond Fund dated 9/1/94: Filed with Post-Effective Amendment No. 26, 2/13/95, and incorporated herein by reference. (7) Not applicable. (8) Not applicable. (9) Custody Agreement between Oppenheimer Variable Account Funds and The Bank of New York, dated 11/12/92: Previously filed with Registrant's Post-Effective Amendment No. 21, 3/12/93, refiled with Registrant's Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102 of Regulation S-T, and incorporated herein by reference. (10) Not Applicable. 11.(i) Opinion and Consent of Counsel, 3/14/85: Previously filed with Registrant's Pre-Effective Amendment No. 1, 3/20/85, refiled with Registrant's Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102 of Regulation S-T, and incorporated hereinby reference. (ii)Opinion and Consent of Counsel, 4/28/86: Previously filed with Registrant's Post-Effective Amendment No. 5, 8/12/86, refiled with Registrant's Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102 of Regulation S-T, and incorporated herein by reference. (iii) Opinion and Consent of Counsel, 7/31/86: Previously filed with Registrant's Post-Effective Amendment No. 5, 8/12/86, refiled with Registrant's Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102 of Regulation S-T, and incorporated herein by reference. (iv) Opinion and Consent of Counsel, 1/21/87: Previously filed with Registrant's Post-Effective Amendment No. 7, 2/6/87, refiled with Registrant's Post-Effective Amendment No. 27, 4/27/95, pursuant to Item 102 of Regulation S-T, and incorporated herein by reference. (v) Opinion and Consent of Counsel, dated July 31, 1990: Previously filed with Registrant's Post-Effective Amendment No. 15, 9/19/90, refiled with Registrant's Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102 of Regulation S-T, and incorporated herein by reference. (vi) Opinion and Consent of Counsel dated April 23, 1993: Previously filed with Registrant's Post-EffectiveAmendment No. 22, 4/30/93, refiled with Registrant's Post-Effective Amendment No. 27, 4/27/95 pursuant to Item 102 of Regulation S-T, and incorporated herein by reference. (vii) Opinion and Consent of Counsel dated April 18, 1995: Filed herewith. Previously filed with Registrant's Post-Effective Amendment NO. 29, 4/22/96, and incorporated herein by reference. (12) Tax Opinion Relating to the Reorganization: Draft Opinion filed herewith. (13) Not applicable. (14) (i) Consent of Deloitte & Touche LLP: Filed herewith. (ii) Consents of McGladrey & Pullen LLP: Filed herewith. (15) Not applicable. (16) Powers of Attorney and Certified Board Resolution: Power of Attorney for Sam Freedman filed herewith; Powers of Attorney Previously filed (Bridget A. Macaskill) with Registrant's Post-Effective Amendment NO. 29, 4/22/96, and incorporated herein by reference and (all other Trustees) and Certified Board Resolution with Registrant's Post-Effective Amendment No. 19, 3/1/94, and incorporated herein by reference. (17)(i) Declaration of Registrant under Rule 24f-2: Filed herewith. (ii) Financial Data Schedules: Filed herewith Item 17.Undertakings (1) Not applicable. (2) Not applicable. SIGNATURES As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the registrant, in the City of Denver and State of Colorado on the 11th day of September, 1996. OPPENHEIMER VARIABLE ACCOUNT FUNDS By: /s/ Bridget A. Macaskill ---------------------------------- Bridget A. Macaskill, President As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
Signatures Title Date /s/ James C. Swain* Chairman of the - ------------------ Board of Trustees September 11, 1996 James C. Swain /s/ George C. Bowen* Chief Financial - ------------------- and Accounting September 11, 1996 George C. Bowen Officer and Treasurer /s/ Bridget A. Macaskill* President (Principal Executive - ----------------------- Officer) Bridget A. Macaskill and Trustee September 11, 1996 /s/ Robert G. Avis* Trustee September 11, 1996 - ------------------ Robert G. Avis /s/ William A. Baker* Trustee September 11, 1996 - -------------------- William A. Baker /s/ Charles Conrad, Jr.* Trustee September 11, 1996 - ----------------------- Charles Conrad, Jr. /s/ Sam Freedman* Trustee September 11, 1996 - ----------------------- Sam Freedman /s/ Raymond J. Kalinowski* Trustee September 11, 1996 - ------------------------- Raymond J. Kalinowski /s/ C. Howard Kast* Trustee September 11, 1996 - ------------------ C. Howard Kast /s/ Robert M. Kirchner* Trustee September 11, 1996 - ---------------------- Robert M. Kirchner /s/ Ned M. Steel* Trustee September 11, 1996 - ---------------- Ned M. Steel *By: /s/ Robert G. Zack - -------------------------------- Robert G. Zack, Attorney-in-Fact
OPPENHEIMER VARIABLE ACCOUNT FUNDS EXHIBIT INDEX Exhibit Description - ------- ----------- 16(12) Tax Opinion Relating to the Reorganization 16(14)(i) Independent Auditors' Consent 16(14)(ii) Independent Auditors' Consent 16(16) Power of Attorney for Sam Freedman 16(17)(i) Declaration of Registrant under Rule 24f-2 16(17)(ii) Financial Data Schedules EX-8 2 [Letterhead of Sutherland, Asbill & Brennan] As a condition to the closing of the Reorganization, Oppenheimer Fund and JP Fund will receive the opinion of Sutherland, Asbill & Brennan to the effect that, based on the Reorganization Agreement, information given by Jefferson-Pilot Corporation, certain representations and other representations as such firm shall reasonably request, existing provisions of the Code, Treasury Regulations issued thereunder, current Revenue Rulings, Revenue Procedures and court decisions, for Federal income tax purposes: (a) The reorganization contemplated by the Reorganization Agreement will constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code and JP Fund and Oppenheimer Fund will each be a "party to the reorganization" within the meaning of Section 368(b) of the Code. (b) No gain or loss will be recognized by Oppenheimer Fund upon the receipt of the assets transferred to it by JP Fund in exchange for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain identified liabilities of JP Fund. (Section 1032) (c) No gain or loss will be recognized by JP Fund upon the transfer of its assets to Oppenheimer Fund in exchange solely for shares of Oppenheimer Fund and the assumption by Oppenheimer Fund of certain identified liabilities of JP Fund (if any) and the subsequent distribution by JP Fund of such shares to the shareholders of JP Fund. (Section 361) (d) No gain or loss will be recognized by JP Fund shareholders upon the exchange of the JP Fund shares solely for the shares of Oppenheimer Fund. (Section 354) (e) The basis of the shares of Oppenheimer Fund received by each JP Fund shareholder pursuant to the reorganization will be the same as the adjusted basis of that shareholder's JP Fund shares surrendered in exchange therefor. (Section 358) (f) The holding period of shares of Oppenheimer Fund to be received by each JP Fund shareholder will include the shareholder's holding period for the JP Fund shares surrendered in exchange therefor, provided such JP Fund shares were held as capital assets on the Closing Date. (Section 1223) (g) Oppenheimer Fund's basis for the assets transferred to it by JP Fund will be the same as JP Fund's tax basis for the assets immediately prior to the reorganization. (Section 362(b)) (h) Oppenheimer Fund's holding period for the transferred assets will include JP Fund's holding period therefor. (Section 1223) (i) Oppenheimer Fund will succeed to and take into account the items of JP Fund described in Section 381(c) of the Code, including the earnings and profits, or deficit in earnings and profits, of JP Fund as of the date of the transaction, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code. (j) No gain or loss will be recognized by the owners of variable contracts issued by Jefferson-Pilot Life Insurance Company through the Variable Account on the transfer of JP Fund's assets to Oppenheimer Fund in exchange solely for the shares of beneficial interest of Oppenheimer Fund and Oppenheimer Fund's assumption of certain JP Fund liabilities (if any) and the subsequent distribution by JP Fund of those shares to the Variable Account. MERGE\600JP.OPI EX-23 3 INDEPENDENT AUDITORS' CONSENT We consent to use in this Registration Statement of Oppenheimer Variable Account Funds on Form N-14 of our report dated January 22, 1996 appearing in the December 31, 1995 Annual Report of Oppenheimer Bond Fund and Oppenheimer Growth Fund (each of which are series of Oppenheimer Variable Account Funds), included as part of the Statement of Additional Information, which is part of such Registration Statement. /s/ Deloitte & Touche LLP - ------------------------------ DELOITTE & TOUCHE LLP Denver, Colorado September 12, 1996 EX-23 4 [Letterhead of McGladrey & Pullen, LLP] CONSENT OF INDEPENDENT AUDITORS We hereby consent to the use of our report dated January 11, 1996 on financial statements of JP Capital Appreciation Fund, Inc. referred to therein in this Registration Statement on Form N-14. We also consent to the reference to our firm in the Proxy Statement under the caption "Ratification of Selection of Independent Auditors", in the JP Capital Appreciation Fund, Inc. Prospectus and Statement of Additional Information under the captions "Condensed Financial Information", and "General Information", respectively. /s/ McGladrey & Pullen, LLP New York, New York September 6, 1996 MERGE/600CON.MP [Letterhead of McGladrey & Pullen, LLP] CONSENT OF INDEPENDENT AUDITORS We hereby consent to the use of our report dated January 11, 1996 on financial statements of JP Investment Grade Bond Fund, Inc. referred to therein in this Registration Statement on Form N-14. We also consent to the reference to our firm in the Proxy Statement under the caption "Ratification of Selection of Independent Auditors", in the JP Investment Grade Bond Fund, Inc. Prospectus and Statement of Additional Information under the captions "Condensed Financial Information", and "General Information", respectively. /s/ McGladrey & Pullen, LLP New York, New York September 6, 1996 EX-24 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Andrew J. Donohue or Robert G. Zack, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his capacity as a trustee of OPPENHEIMER VARIABLE ACCOUNT FUNDS, a Massachusetts business trust (the "Fund"), to sign on his behalf any and all Registration Statements (including any post-effective amendments to Registration Statements) under the Securities Act of 1933, the Investment Company Act of 1940 and any amendments and supplements thereto, and other documents in connection thereunder, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as to all intents and purposes as she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and each of them, may lawfully do or cause to be done by virtue hereof. Dated this 27th day of June, 1996. /s/ Sam Freedman _________________________ Sam Freedman EX-99 6 [ARTICLE] 6 [CIK] 0000752737 [NAME] OPPENHEIMER GROWTH FUND [SERIES] [NUMBER] 3 [NAME] OPPENHEIMER VARIABLE ACCOUNT FUNDS [PERIOD-TYPE] 12-MOS [FISCAL-YEAR-END] DEC-31-1995 [PERIOD-START] JAN-01-1995 [PERIOD-END] DEC-31-1995 [INVESTMENTS-AT-COST] 94199607 [INVESTMENTS-AT-VALUE] 117817530 [RECEIVABLES] 1067062 [ASSETS-OTHER] 5982 [OTHER-ITEMS-ASSETS] 49380 [TOTAL-ASSETS] 118939954 [PAYABLE-FOR-SECURITIES] 970555 [SENIOR-LONG-TERM-DEBT] 0 [OTHER-ITEMS-LIABILITIES] 259509 [TOTAL-LIABILITIES] 1230064 [SENIOR-EQUITY] 0 [PAID-IN-CAPITAL-COMMON] 84252418 [SHARES-COMMON-STOCK] 4997725 [SHARES-COMMON-PRIOR] 3579510 [ACCUMULATED-NII-CURRENT] 1290629 [OVERDISTRIBUTION-NII] 0 [ACCUMULATED-NET-GAINS] 8548920 [OVERDISTRIBUTION-GAINS] 0 [ACCUM-APPREC-OR-DEPREC] 23617923 [NET-ASSETS] 117709890 [DIVIDEND-INCOME] 992690 [INTEREST-INCOME] 1001964 [OTHER-INCOME] 0 [EXPENSES-NET] 696935 [NET-INVESTMENT-INCOME] 1297719 [REALIZED-GAINS-CURRENT] 8674291 [APPREC-INCREASE-CURRENT] 16396856 [NET-CHANGE-FROM-OPS] 26368866 [EQUALIZATION] 0 [DISTRIBUTIONS-OF-INCOME] 821641 [DISTRIBUTIONS-OF-GAINS] 973385 [DISTRIBUTIONS-OTHER] 0 [NUMBER-OF-SHARES-SOLD] 4302304 [NUMBER-OF-SHARES-REDEEMED] 2980080 [SHARES-REINVESTED] 95991 [NET-CHANGE-IN-ASSETS] 54426716 [ACCUMULATED-NII-PRIOR] 814551 [ACCUMULATED-GAINS-PRIOR] 848014 [OVERDISTRIB-NII-PRIOR] 0 [OVERDIST-NET-GAINS-PRIOR] 0 [GROSS-ADVISORY-FEES] 664977 [INTEREST-EXPENSE] 0 [GROSS-EXPENSE] 696935 [AVERAGE-NET-ASSETS] 88803000 [PER-SHARE-NAV-BEGIN] 17.68 [PER-SHARE-NII] .25 [PER-SHARE-GAIN-APPREC] 6.10 [PER-SHARE-DIVIDEND] .22 [PER-SHARE-DISTRIBUTIONS] .26 [RETURNS-OF-CAPITAL] 0 [PER-SHARE-NAV-END] 23.55 [EXPENSE-RATIO] .79 [AVG-DEBT-OUTSTANDING] 0 [AVG-DEBT-PER-SHARE] 0
EX-27 7
6 752737 Oppenheimer Growth Fund 3 Oppenheimer Variable Account Funds 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 114,137,962 144,789,612 1,377,392 3,708 231,093 146,401,805 1,655,939 0 23,658 1,679,597 0 107,561,054 5,972,737 4,997,725 684,501 0 5,825,003 0 30,651,650 144,722,208 593,891 619,167 0 509,001 704,057 5,982,807 7,033,727 13,720,591 0 1,310,185 8,706,724 0 2,328,692 1,783,960 430,280 27,012,318 1,290,629 8,548,920 0 0 488,805 0 509,001 131,211,000 23.55 0.11 2.49 0.25 1.67 0.00 24.23 0.78 0 0.00
EX-27 8
6 0000752737 OPPENHEIMER BOND FUND 2 OPPENHEIMER VARIABLE ACCOUNT FUNDS 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 196548402 205386016 6303118 7575 475368 212172077 779747 0 160560 940307 0 201057454 17842418 12527081 1342481 0 5361 0 8826474 211231770 81190 13096739 0 1364427 11813502 1310131 13318419 26442052 0 11209883 0 0 7311733 2972687 976291 76164386 1832232 (2398141) 0 0 1280422 0 1364427 170929000 10.78 .72 1.07 .73 0 0 11.84 .80 0 0
EX-27 9
6 752737 Oppenheimer Bond Fund 2 OPPENHEIMER VARIABLE ACCOUNT FUNDS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 310,870,304 311,908,746 6,642,854 4,736 77,997 318,634,333 759,038 0 258,395 1,017,433 0 315,750,262 27,823,143 17,842,418 901,640 0 (92,383) 0 1,057,381 317,616,900 47,527 8,882,639 0 920,357 8,009,809 35,266 (7,769,093) 275,982 0 8,450,650 133,010 0 10,641,027 1,414,825 754,523 106,385,130 1,342,481 5,361 0 0 874,928 0 920,357 236,650,000 11.84 0.33 (0.37) 0.37 0.01 0.00 11.42 0.78 0 0.00
EX-27 10 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPROT OF THE JP CAPITAL APPRECIATION FUND, INC., DATED AS OF DECEMBER 31, 1995 AND FROM FORM N-SAR FOR THE PERIOD ENDING DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 DEC-31-1995 57,777,456 72,620,683 175,312 234,191 0 73,030,186 1,354,110 0 74,577 1,428,687 0 51,638,775 3,776,774 3,479,482 693,205 0 4,426,293 0 14,843,227 71,601,499 1,469,132 263,977 0 383,777 1,349,342 4,429,313 12,830,999 18,609,644 0 1,318,791 7,845,335 0 425,888 749,300 620,704 13,241,665 662,664 7,842,314 0 0 325,646 0 0 65,073,514 16.77 .36 4.45 2.62 0 0 18.96 .62 0 0
EX-27 11
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT OF THE JP INVESTMENT GRADE BOND FUND, INC. DATED AS OF DECEMBER 31, 1995 AND FROM FORM N-SAR FOR THE PERIOD ENDING DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 DEC-31-1995 25,529,797 27,427,014 456,468 297,338 0 28,180,820 0 0 44,378 44,378 0 26,980,405 2,499,086 2,506,622 36,637 0 0 0 1,897,216 28,136,442 0 1,937,728 0 173,989 1,763,739 0 3,044,389 2,911,034 0 1,787,395 0 0 468,268 624,497 148,693 2,858,886 60,293 0 0 0 132,446 0 0 26,494,275 10.08 .73 1.19 .74 0 0 11.26 .70 0 0
EX-27 12 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEMI-ANNUAL REPORT OF THE JP INVESTMENT GRADE BOND FUND, INC. DATED AS OF JUNE 30, 1996 AND FROM FORM N-SAR FOR THE PERIOD ENDING JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1995 JUN-30-1996 29,121,039 29,571,702 488,468 312,275 0 30,372,445 0 0 33,950 33,950 0 30,187,092 2,788,539 2,499,086 480,307 0 0 0 450,663 30,338,495 0 1,007,907 0 94,821 913,086 (1,750) (1,446,554) (535,218) 0 469,416 0 0 401,902 151,840 39,391 2,202,053 36,637 0 0 0 72,939 0 0 29,422,685 11.26 .33 (.54) .17 0 0 10.88 .71 0 0
EX-27 13
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEMI-ANNUAL REPROT OF THE JP CAPITAL APPRECIATION FUND, INC., DATED AS OF JUNE 30, 1996 AND FROM FORM N-SAR FOR THE PERIOD ENDING JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1995 JUN-30-1996 65,610,508 81,477,225 113,235 446,968 0 82,037,428 227,597 0 58,331 285,928 0 59,440,744 4,205,010 3,776,774 841,453 0 5,602,586 0 15,866,717 81,751,500 778,721 286,477 0 220,424 844,774 5,612,860 1,023,490 7,481,124 0 696,526 4,436,566 0 286,099 141,747 283,884 10,150,001 693,205 4,426,292 0 0 190,021 0 0 76,649,904 18.96 .20 1.63 1.35 0 0 19.44 .60 0 0
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