-----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, GAKbs4DVBM7PEfW1cL6/OIIQn6edTZbpRR7Zuf8wrxuagsBipMKJ7OWtM2WqqCNb qhwIQXbTB7iorBVkif1vRA== 0000935069-03-000258.txt : 20030303 0000935069-03-000258.hdr.sgml : 20030303 20030228181833 ACCESSION NUMBER: 0000935069-03-000258 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030303 EFFECTIVENESS DATE: 20030303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPPENHEIMER VARIABLE ACCOUNT FUNDS CENTRAL INDEX KEY: 0000752737 IRS NUMBER: 840974272 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04108 FILM NUMBER: 03587838 BUSINESS ADDRESS: STREET 1: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 BUSINESS PHONE: 3036713200 MAIL ADDRESS: STREET 2: 6803 SOUTH TUCSON WAY CITY: CENTENNIAL STATE: CO ZIP: 80112-3924 FORMER COMPANY: FORMER CONFORMED NAME: OPPENHEIMER VARIABLE LIFE FUNDS DATE OF NAME CHANGE: 19860609 N-30D 1 ra0485_6455vef.txt RA0485_6455VEF December 31, 2002 - -------------------------------------------------------------------------------- Oppenheimer Annual Report Global Securities Fund/VA ------ A Series of Oppenheimer Variable Account Funds Management Commentaries - -------------------------------------------------------------------------------- [GRAPHIC] Performance Update Investment Strategy Discussion Financial Statements [LOGO] OppenheimerFunds(R) The Right Way to Invest OPPENHEIMER GLOBAL SECURITIES FUND/VA - -------------------------------------------------------------------------------- Objective Oppenheimer Global Securities Fund/VA, a series of Oppenheimer Variable Account Funds, seeks long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations that are considered to have appreciation possibilities. - -------------------------------------------------------------------------------- Narrative by Bill Wilby, Portfolio Manager Oppenheimer Global Securities Fund/VA's negative performance for the one-year period ended December 31, 2002 reflected the acute negativity that characterized global markets over the past two and a half years. The market's hit their low on October 9th, but was followed by a six week rally wherein the Fund somewhat participated. At times like these, some might be tempted to discard their investment discipline and take a more shortsighted view. However, as long-term investors, we remain committed to our investment process and are confident that we hold solid companies with above-average earnings potential. We are optimistic that we may have hit the bottom and are on course for an eventual recovery in the coming year. A host of economic, business and political issues exerted significant influence on global markets during the period. In the United States, post-September 11th optimism soon turned to pessimism as investors recoiled in the face of a sluggish economic recovery, accounting and corporate governance scandals, earnings disappointments and the mounting possibility of war with Iraq. Europe, also mired in a sharp economic downturn, fared no better. While mirroring the slumping fortunes of the United States in the aftermath of the terrorist attacks, Europe's woes were exacerbated by severe summer floods, as well as limitations on individual European Union governments to inject fiscal stimulus into their sagging economies. The same held true in Japan, which experienced setbacks to government-advocated financial reforms, although late-period reports of new measures to offset deflation and stabilize the country's banking system gave reason for hope. Meanwhile, some of the better-performing markets during the period were those of Southeast Asia, whose strong exports, rising consumer credit and increased domestic demand proved advantageous. Brazil, which struggled with high debt levels and concerns over the outcome of its October presidential election, has found some resolution, as President Lula has managed to ease and minimize investor concerns regarding a possible default on their debt and a renewed run on their currency. It is important to point out that we invest in companies, not countries or regions. Although we are cognizant of external events within a given market, our focus is not on the events themselves, but rather their impact on the business prospects of existing and prospective holdings. As mentioned earlier, we remain committed to our investment process, which focuses on identifying individual companies anywhere in the world that, in our view, are poised to capitalize on one or more growth trends. Over the years, we have pinpointed four broad areas--including mass affluence, new technologies, restructuring and aging populations--which we believe may drive stock market performance for years to come. Although changing market cycles may at times alter the character of the portfolio, these sweeping global themes have and should continue to provide the framework for our investment decisions. In light of recent market conditions, which offer little in the way of near-term guidance, we maintained our "barbell strategy." This approach combines aggressive positions, such as technology stocks, with more defensive holdings, such as consumer product companies. Even though some of our aggressive holdings hurt the Fund during the last twelve months, we consider this positioning to be sound, given the range of possibilities regarding the scope and sustainability of an eventual economic recovery. We've also built our positions in blue chip tech names such as Microsoft Corp., Ericsson AB (a Swedish wireless telecommunications company), and Vodafone Group, Inc. (the number one wireless provider in Europe). We've sold some large positions to take in profits such as Sanofi-Synthelabo SA and trimmed our position in Reckitt Benckiser plc, which we believe to be fairly valued. 2 | OPPENHEIMER GLOBAL SECURITIES FUND/ VA We describe our investment style as "contrarian growth." By looking closely at a company's profit margins, revenue streams and management strength, while at the same time focusing on bad news that can temporarily depress a stock's value, we have continued to uncover good companies in good businesses at good prices the world over. Despite the challenges we have encountered in recent years, we still feel this is the best way to capture the long-term growth potential of stocks. Although close attention must be paid to the risks posed by individual companies, it is important to remember that investing in foreign securities involves additional risks, such as currency fluctuations, different accounting standards and higher expenses. All of the key indicators, which drive stock prices--earnings, liquidity, and valuations--are now positive. Global earnings have slowly started to turn. Liquidity remains positive as interest rates continue to decline. Finally, valuations, especially outside of the U.S., are now attractive relative to bonds. Although we will certainly approach the coming months with caution, "our one world, one stock market" point of view continues to make Oppenheimer Global Securities Fund/VA an important part of The Right Way to Invest. In reviewing performance, please remember that past performance cannot guarantee future results. Because of ongoing market volatility, the Fund's performance may be subject to fluctuations, and current performance may be less than the results shown. The Fund's portfolio is subject to change. The Fund's investment strategy and focus can change over time. The mention of specific fund holdings does not constitute a recommendation by OppenheimerFunds, Inc. Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested. FUND PERFORMANCE MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. During the fiscal year that ended December 31, 2002, Oppenheimer Global Securities Fund/VA mirrored a difficult operating environment, producing negative absolute returns. Economic, business and political events converged to exert undue pressure on global markets, with the United States and Europe experiencing the brunt of the downturn. Given the often contradictory nature of near-term indicators, the Fund manager maintained a long-term perspective, employing a theme-driven, valuation-sensitive investment approach that seeks "contrarian growth" from fundamentally sound stocks that are believed to be temporarily depressed. The Fund also maintained a "barbell strategy," combining aggressive and defensive positions in hopes of positioning the portfolio for a variety of market conditions. Country, industry and market capitalization weightings were the result of the Fund manager's individual stock selection rather than predetermined target allocations. The Fund's holdings, allocations, management and strategies are subject to change. COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow shows the performance of a hypothetical $10,000 investment in each share class of the Fund held until December 31, 2002. In the case of non-service shares, performance is measured over a ten-year period. In the case of service shares, performance is measured from inception of the class on July 13, 2000. Performance information does not reflect charges that apply to separate accounts investing in the Fund. If these charges were taken into account, performance would be lower. The graphs assume that all dividends and capital gains distributions were reinvested in additional shares. The Fund's performance is compared to the performance of the Morgan Stanley Capital International World Index, an unmanaged index of equity securities listed on stock exchanges of 20 foreign countries and the U.S. Index performance reflects the reinvestment of income but does not consider the effect of transaction costs. The Fund's performance reflects the effects of the Fund's business and operating expenses. While index comparisons may be useful to provide a benchmark for the Fund's performance, it must be noted that the Fund's investments are not limited to the investments in the index. 3 | OPPENHEIMER GLOBAL SECURITIES FUND/VA FUND PERFORMANCE Non-Service shares Comparison of Change in Value of $10,000 Hypothetical Investments in: [LINE CHART] Oppenheimer Global Securities Morgan Stanley Fund/VA (Non-Service) Capital International Date World Index 12/31/1992 $10,000 $10,000 03/31/1993 11,254 10,872 06/30/1993 12,069 11,547 09/30/1993 13,866 12,103 12/31/1993 17,032 12,313 03/31/1994 16,409 12,403 06/30/1994 16,228 12,790 09/30/1994 17,420 13,080 12/31/1994 16,058 13,000 03/31/1995 15,553 13,626 06/30/1995 16,286 14,225 09/30/1995 17,052 15,038 12/31/1995 16,417 15,771 03/31/1996 17,041 16,432 06/30/1996 17,774 16,927 09/30/1996 18,344 17,173 12/31/1996 19,340 17,979 03/31/1997 20,319 18,050 06/30/1997 22,458 20,788 09/30/1997 24,252 21,402 12/31/1997 23,676 20,896 03/31/1998 26,061 23,910 06/30/1998 26,563 24,418 09/30/1998 22,413 21,512 12/31/1998 27,016 26,077 03/31/1999 27,963 27,031 06/30/1999 30,743 28,344 09/30/1999 31,269 27,947 12/31/1999 42,815 32,685 03/31/2000 48,999 33,044 06/30/2000 47,397 31,897 09/30/2000 46,626 30,316 12/31/2000 44,994 28,463 03/31/2001 38,261 24,827 06/30/2001 41,224 25,516 09/30/2001 33,860 21,866 12/31/2001 39,578 23,761 03/31/2002 40,342 23,908 06/30/2002 36,738 21,716 09/30/2002 29,999 17,743 12/31/2002 30,818 19,118 Average Annual Total Returns of Non-Service shares of the Fund at 12/31/02 1-Year -22.13% 5-Year 5.41% 10-Year 11.91% Service shares Comparison of Change in Value of $10,000 Hypothetical Investments in: [LINE CHART] Oppenheimer Global Securities Morgan Stanley Fund/VA (Service) Capital International Date World Index 07/13/2000 $10,000 $10,000 09/30/2000 9,620 9,505 12/31/2000 9,280 8,924 03/31/2001 7,889 7,784 06/30/2001 8,498 8,000 09/30/2001 6,977 6,855 12/31/2001 8,151 7,449 03/31/2002 8,308 7,496 06/30/2002 7,560 6,808 09/30/2002 6,166 5,563 12/31/2002 6,328 5,994 Average Annual Total Returns of Service shares of the Fund at 12/31/02 1-year -22.37% Since inception -16.93% Because of ongoing market volatility, the Fund's performance has been subject to fluctuations and current performance may be less than the results shown. For updates on the Fund's performance, please call us at 1.800.981.2871. Past performance is not predictive of future performance. The inception dates of the Fund were 11/12/90 for the Non-Service shares and 7/13/00 for its Service shares. The performance information in the graphs for the Morgan Stanley Capital International World Index begins on 12/31/92 in the first graph and on 6/30/00 for the second graph. Total returns include changes in net asset value per share and does not include the charges associated with the separate account products which offer this Fund. Such performance would have been lower if such charges were taken into account. Total returns and the ending account value in the graphs show change in share value and include reinvestment of all dividends and capital gains distributions. Graphs are not drawn to same scale. An explanation of the calculation of the performance is in the Statement of Additional Information. 4 | OPPENHEIMER GLOBAL SECURITIES FUND/VA Financial Statements Pages 6-17 5 | OPPENHEIMER GLOBAL SECURITIES FUND/VA STATEMENT OF INVESTMENTS December 31, 2002 Market Value Shares See Note 1 - -------------------------------------------------------------------------------- Common Stocks--97.1% - -------------------------------------------------------------------------------- Consumer Discretionary--15.8% - -------------------------------------------------------------------------------- Auto Components--0.2% Valeo SA 116,474 $ 3,654,612 - -------------------------------------------------------------------------------- Automobiles--2.6% Porsche AG, Preferred 65,782 27,336,526 - -------------------------------------------------------------------------------- Volkswagen Ag 370,456 13,505,401 ------------- 40,841,927 - -------------------------------------------------------------------------------- Hotels, Restaurants & Leisure--0.7% International Game Technology 1 151,600 11,509,472 - -------------------------------------------------------------------------------- Household Durables--2.6% Koninklijke (Royal) Philips Electronics NV 1 324,900 5,693,866 - -------------------------------------------------------------------------------- Nintendo Co. Ltd. 85,872 8,024,947 - -------------------------------------------------------------------------------- Sharp Corp. 1,645,000 15,622,440 - -------------------------------------------------------------------------------- Sony Corp. 287,400 12,012,337 ------------- 41,353,590 - -------------------------------------------------------------------------------- Media--7.2% Comcast Corp., Cl. A 1 188,309 4,438,443 - -------------------------------------------------------------------------------- Grupo Televisa SA, Sponsored GDR 1 406,299 11,347,931 - -------------------------------------------------------------------------------- JC Decaux SA 1 485,714 5,861,645 - -------------------------------------------------------------------------------- Pearson plc 1,547,670 14,314,207 - -------------------------------------------------------------------------------- Reed Elsevier plc 2,497,776 21,392,623 - -------------------------------------------------------------------------------- Singapore Press Holdings Ltd. 1,744,033 18,300,029 - -------------------------------------------------------------------------------- Sirius Satellite Radio, Inc. 1 879,500 562,880 - -------------------------------------------------------------------------------- Television Broadcasts Ltd. 4,640,832 14,639,473 - -------------------------------------------------------------------------------- Wolters Kluwer NV 868,249 15,124,933 - -------------------------------------------------------------------------------- Zee Telefilms Ltd. 4,768,900 9,696,929 ------------- 115,679,093 - -------------------------------------------------------------------------------- Specialty Retail--2.5% Best Buy Co., Inc. 1 227,062 5,483,547 - -------------------------------------------------------------------------------- Circuit City Stores, Inc./ Circuit City Group 1,536,149 11,398,226 - -------------------------------------------------------------------------------- Gap, Inc. (The) 686,700 10,657,584 - -------------------------------------------------------------------------------- New Dixons Group plc 3,067,440 7,160,494 - -------------------------------------------------------------------------------- RadioShack Corp. 2 316,900 5,938,706 ------------- 40,638,557 - -------------------------------------------------------------------------------- Consumer Staples--10.2% - -------------------------------------------------------------------------------- Beverages--2.7% Companhia de Bebidas das Americas, ADR 548,615 8,536,449 - -------------------------------------------------------------------------------- Diageo plc 1,425,700 15,492,833 - -------------------------------------------------------------------------------- Fomento Economico Mexicano SA de CV, UBD 2,757,700 9,948,698 - -------------------------------------------------------------------------------- Market Value Shares See Note 1 - -------------------------------------------------------------------------------- Beverages Continued Grupo Modelo SA de CV, Series C 3,708,000 $ 9,036,124 ------------- 43,014,104 - -------------------------------------------------------------------------------- Food & Drug Retailing--1.0% Boots Co. plc 998,080 9,415,901 - -------------------------------------------------------------------------------- Delhaize Group 141,552 2,632,211 - -------------------------------------------------------------------------------- Seven-Eleven Japan Co. Ltd. 119,000 3,630,067 ------------- 15,678,179 - -------------------------------------------------------------------------------- Food Products--1.0% Cadbury Schweppes plc 2,564,785 15,979,413 - -------------------------------------------------------------------------------- Household Products--3.6% Hindustan Lever Ltd. 4,257,900 16,139,172 - -------------------------------------------------------------------------------- Reckitt Benckiser plc 2,177,459 42,241,170 ------------- 58,380,342 - -------------------------------------------------------------------------------- Personal Products--1.9% Shiseido Co. Ltd. 706,000 9,179,725 - -------------------------------------------------------------------------------- Wella AG, Preference, Non-Vtg 361,397 21,617,251 ------------- 30,796,976 - -------------------------------------------------------------------------------- Energy--5.0% - -------------------------------------------------------------------------------- Oil & Gas--5.0% BP plc, ADR 474,869 19,303,425 - -------------------------------------------------------------------------------- ChevronTexaco Corp. 230,572 15,328,427 - -------------------------------------------------------------------------------- Encana Corp. 351,017 10,838,466 - -------------------------------------------------------------------------------- Husky Energy, Inc. 1,630,615 16,999,765 - -------------------------------------------------------------------------------- Royal Dutch Petroleum Co., NY Shares 385,260 16,959,145 ------------- 79,429,228 - -------------------------------------------------------------------------------- Financials--15.0% - -------------------------------------------------------------------------------- Banks--8.3% ABN Amro Holding NV 1 967,300 15,815,018 - -------------------------------------------------------------------------------- Australia & New Zealand Banking Group Ltd. 2,065,743 20,181,865 - -------------------------------------------------------------------------------- Bank One Corp. 946,539 34,596,000 - -------------------------------------------------------------------------------- Royal Bank of Scotland Group plc (The) 897,727 21,505,331 - -------------------------------------------------------------------------------- Societe Generale, Cl. A 1 335,530 19,541,838 - -------------------------------------------------------------------------------- Wachovia Corp. 586,829 21,384,049 ------------- 133,024,101 - -------------------------------------------------------------------------------- Diversified Financials--4.2% American Express Co. 536,500 18,965,275 - -------------------------------------------------------------------------------- Citigroup, Inc. 204,866 7,209,235 - -------------------------------------------------------------------------------- Credit Saison Co. Ltd. 646,500 11,031,958 - -------------------------------------------------------------------------------- Fannie Mae 238,900 15,368,437 - -------------------------------------------------------------------------------- ICICI Bank Ltd., Sponsored ADR 1,713,750 11,139,375 6 | OPPENHEIMER GLOBAL SECURITIES FUND/VA Market Value Shares See Note 1 - -------------------------------------------------------------------------------- Diversified Financials Continued MBNA Corp. 198,450 $ 3,774,519 ------------- 67,488,799 - -------------------------------------------------------------------------------- Insurance--2.5% ACE Ltd. 485,571 14,246,653 - -------------------------------------------------------------------------------- Berkshire Hathaway, Inc., Cl. B 1 7,040 17,057,920 - -------------------------------------------------------------------------------- Manulife Financial Corp. 367,013 7,989,351 ------------- 39,293,924 - -------------------------------------------------------------------------------- Health Care--16.1% - -------------------------------------------------------------------------------- Biotechnology--3.3% Affymetrix, Inc. 1 250,700 5,738,523 - -------------------------------------------------------------------------------- Amgen, Inc. 1 378,200 18,282,188 - -------------------------------------------------------------------------------- Gilead Sciences, Inc. 1 448,480 15,248,320 - -------------------------------------------------------------------------------- Human Genome Sciences, Inc. 1 234,900 2,069,469 - -------------------------------------------------------------------------------- IDEC Pharmaceuticals Corp. 1 200,500 6,650,585 - -------------------------------------------------------------------------------- Oxford GlycoSciences plc 1 413,272 918,151 - -------------------------------------------------------------------------------- Qiagen NV 1 832,493 4,237,048 ------------- 53,144,284 - -------------------------------------------------------------------------------- Health Care Equipment & Supplies--2.0% Amersham plc 902,670 8,079,839 - -------------------------------------------------------------------------------- Applera Corp./ Applied Biosystems Group 488,500 8,568,290 - -------------------------------------------------------------------------------- Essilor International SA 177,140 7,296,210 - -------------------------------------------------------------------------------- Smith & Nephew plc 1,338,150 8,197,065 ------------- 32,141,404 - -------------------------------------------------------------------------------- Health Care Providers & Services--2.5% Fresenius AG, Preference 413,671 15,823,176 - -------------------------------------------------------------------------------- Oxford Health Plans, Inc. 1 173,000 6,305,850 - -------------------------------------------------------------------------------- Quest Diagnostics, Inc. 1 266,400 15,158,160 - -------------------------------------------------------------------------------- Quintiles Transnational Corp. 1 143,428 1,735,479 ------------- 39,022,665 - -------------------------------------------------------------------------------- Pharmaceuticals--8.3% AstraZeneca plc 215,025 7,684,946 - -------------------------------------------------------------------------------- Aventis SA 1 272,780 14,828,026 - -------------------------------------------------------------------------------- Eisai Co. Ltd. 430,000 9,656,611 - -------------------------------------------------------------------------------- Johnson & Johnson 356,180 19,130,428 - -------------------------------------------------------------------------------- Novartis AG 475,163 17,337,075 - -------------------------------------------------------------------------------- Pfizer, Inc. 525,819 16,074,287 - -------------------------------------------------------------------------------- Sanofi-Synthelabo SA 632,399 38,657,001 - -------------------------------------------------------------------------------- Takeda Chemical Industries Ltd. 233,000 9,738,603 ------------- 133,106,977 Market Value Shares See Note 1 - -------------------------------------------------------------------------------- Industrials--5.9% - -------------------------------------------------------------------------------- Aerospace & Defense--3.7% Bombardier, Inc., Cl. B 1,573,900 $ 5,300,132 - -------------------------------------------------------------------------------- Empresa Brasileira de Aeronautica SA (Embraer), ADR 918,334 14,601,510 - -------------------------------------------------------------------------------- Lockheed Martin Corp. 153,800 8,881,950 - -------------------------------------------------------------------------------- Northrop Grumman Corp. 133,600 12,959,200 - -------------------------------------------------------------------------------- Raytheon Co. 579,600 17,822,700 ------------- 59,565,492 - -------------------------------------------------------------------------------- Commercial Services & Supplies--2.2% Amadeus Global Travel Distribution SA 821,601 3,388,400 - -------------------------------------------------------------------------------- Rentokil Initial plc 5,148,889 18,236,232 - -------------------------------------------------------------------------------- Societe BIC SA 397,229 13,693,592 ------------- 35,318,224 - -------------------------------------------------------------------------------- Information Technology--20.4% - -------------------------------------------------------------------------------- Communications Equipment--5.6% JDS Uniphase Corp. 1 3,421,500 8,451,105 - -------------------------------------------------------------------------------- QUALCOMM, Inc. 1 1,223,300 44,515,887 - -------------------------------------------------------------------------------- Scientific-Atlanta, Inc. 960,400 11,390,344 - -------------------------------------------------------------------------------- Telefonaktiebolaget LM Ericsson AB, B Shares 1 35,438,900 24,810,036 ------------- 89,167,372 - -------------------------------------------------------------------------------- Computers & Peripherals--0.6% International Business Machines Corp. 65,117 5,046,568 - -------------------------------------------------------------------------------- Toshiba Corp. 1 1,647,000 5,162,922 ------------- 10,209,490 - -------------------------------------------------------------------------------- Electronic Equipment & Instruments--1.4% Keyence Corp. 28,700 4,994,143 - -------------------------------------------------------------------------------- Kyocera Corp. 114,800 6,684,655 - -------------------------------------------------------------------------------- Tandberg ASA 1 1,960,500 11,319,611 ------------- 22,998,409 - -------------------------------------------------------------------------------- It Consulting & Services--1.4% Cap Gemini SA 1 135,670 3,100,864 - -------------------------------------------------------------------------------- Infosys Technologies Ltd. 193,900 19,293,556 ------------- 22,394,420 - -------------------------------------------------------------------------------- Semiconductor Equipment & Products--2.2% Applied Materials, Inc. 1 459,700 5,989,891 - -------------------------------------------------------------------------------- Broadcom Corp., Cl. A 1 461,300 6,947,178 - -------------------------------------------------------------------------------- National Semiconductor Corp. 1 1,090,200 16,363,902 - -------------------------------------------------------------------------------- Novellus Systems, Inc. 1 188,300 5,287,464 ------------- 34,588,435 7 | OPPENHEIMER GLOBAL SECURITIES FUND/VA STATEMENT OF INVESTMENTS Continued
Market Value Shares See Note 1 - --------------------------------------------------------------------------------------------------------- Software--9.2% Amdocs Ltd. 1 627,900 $ 6,165,978 - --------------------------------------------------------------------------------------------------------- Cadence Design Systems, Inc. 1 4,448,970 52,453,356 - --------------------------------------------------------------------------------------------------------- Electronic Arts, Inc. 1 251,221 12,503,269 - --------------------------------------------------------------------------------------------------------- Microsoft Corp. 1 612,300 31,655,910 - --------------------------------------------------------------------------------------------------------- Sybase, Inc. 1 1,125,110 15,076,474 - --------------------------------------------------------------------------------------------------------- Symantec Corp. 1 224,900 9,110,699 - --------------------------------------------------------------------------------------------------------- Synopsys, Inc. 1 375,643 17,335,925 - --------------------------------------------------------------------------------------------------------- Trend Micro, Inc. 1 151,500 2,591,599 -------------- 146,893,210 - --------------------------------------------------------------------------------------------------------- Materials--1.1% - --------------------------------------------------------------------------------------------------------- Chemicals--1.1% International Flavors & Fragrances, Inc. 523,430 18,372,393 - --------------------------------------------------------------------------------------------------------- Telecommunication Services--6.6% - --------------------------------------------------------------------------------------------------------- Diversified Telecommunication Services--1.4% BT Group plc 3,916,160 12,294,021 - --------------------------------------------------------------------------------------------------------- Tele Norte Leste Participacoes SA (Telemar), Preference 1,329,455,753 10,252,582 -------------- 22,546,603 - --------------------------------------------------------------------------------------------------------- Wireless Telecommunication Services--5.2% AT&T Corp. 116,420 3,039,726 - --------------------------------------------------------------------------------------------------------- KDDI Corp. 11,898 38,600,573 - --------------------------------------------------------------------------------------------------------- SK Telecom Co. Ltd. 43,540 8,406,610 - --------------------------------------------------------------------------------------------------------- SK Telecom Co. Ltd., ADR 358,700 7,658,245 - --------------------------------------------------------------------------------------------------------- Vodafone Group plc 14,313,420 26,096,396 -------------- 83,801,550 - --------------------------------------------------------------------------------------------------------- Utilities--1.0% - --------------------------------------------------------------------------------------------------------- Gas Utilities--0.6% Hong Kong & China Gas Co. Ltd. 7,912,000 10,247,128 - --------------------------------------------------------------------------------------------------------- Multi-Utilities--0.4% Suez SA 334,590 5,807,504 -------------- Total Common Stocks (Cost $1,735,631,566) 1,556,087,877 Principal Amount - --------------------------------------------------------------------------------------------------------- Non-Convertible Corporate Bonds and Notes--0.0% Telewest Communications plc, 11% Sr. Disc. Debs., 10/1/073 (Cost $1,929,441) $ 2,392,000 442,520 Principal Market Value Amount See Note 1 - --------------------------------------------------------------------------------------------------------- Joint Repurchase Agreements--3.2% Undivided interest of 7.36% in joint repurchase agreement (Market Value $694,610,000) with Banc One Capital Markets, Inc., 1.07% 12/31/02, dated to be repurchased at $51,155,041 on 1/2/03, collateralized by U.S. Treasury Nts., 3%--6.50%, 2/15/03--2/15/12, with a value of $311,989,144 and U.S. Treasury Bonds, 1.75%--9.375%, 4/30/04--2/15/23, with a value of $397,082,690 (Cost $51,152,000) $ 51,152,000 $ 51,152,000 - --------------------------------------------------------------------------------------------------------- Total Investments, at Value (Cost $1,788,713,007) 100.3% 1,607,682,397 - --------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets (0.3) (4,860,152) --------------------------------------- Net Assets 100.0% $ 1,602,822,245 =======================================
Footnotes to Statement of Investments 1. Non-income producing security. 2. A sufficient amount of securities has been designated to cover outstanding foreign currency contracts. See Note 5 of Notes to Financial Statements. 3. Issuer is in default. Distribution of investments representing geographic diversification, as a percentage of total investments at value, is as follows: Geographical Diversification Market Value Percent - ------------------------------------------------------------------------- United States $ 659,156,214 41.0% Great Britain 248,754,565 15.4 Japan 136,930,581 8.5 France 112,441,293 7.0 Germany 78,282,355 4.9 The Netherlands 57,830,010 3.6 India 56,269,032 3.5 Canada 41,127,715 2.6 Brazil 33,390,543 2.1 Mexico 30,332,753 1.9 Hong Kong 24,886,601 1.5 Sweden 24,810,036 1.5 Australia 20,181,865 1.3 Singapore 18,300,029 1.1 Switzerland 17,337,075 1.1 Korea, Republic of (South) 16,064,855 1.0 Bermuda 14,246,653 0.9 Norway 11,319,611 0.7 Spain 3,388,399 0.2 Belgium 2,632,212 0.2 --------------------------------- Total $1,607,682,397 100.0% ================================= See Accompanying Notes to Financial Statements. 8 | OPPENHEIMER GLOBAL SECURITIES FUND/VA STATEMENT OF ASSETS AND LIABILITIES December 31, 2002
- -------------------------------------------------------------------------------------------------------- Assets Investments, at value (cost $1,788,713,007)--see accompanying statement $1,607,682,397 - -------------------------------------------------------------------------------------------------------- Cash 3,064 - -------------------------------------------------------------------------------------------------------- Unrealized appreciation on foreign currency contracts 2,649 - -------------------------------------------------------------------------------------------------------- Receivables and other assets: Shares of beneficial interest sold 3,610,171 Interest and dividends 2,796,582 Investments sold 384,114 Other 14,442 --------------- Total assets 1,614,493,419 - -------------------------------------------------------------------------------------------------------- Liabilities Unrealized depreciation on foreign currency contracts 3,425,503 - -------------------------------------------------------------------------------------------------------- Payables and other liabilities: Investments purchased 7,256,839 Shares of beneficial interest redeemed 932,674 Distribution and service plan fees 29,753 Shareholder reports 18,119 Trustees' compensation 2,471 Transfer and shareholder servicing agent fees 1,877 Other 3,938 --------------- Total liabilities 11,671,174 - -------------------------------------------------------------------------------------------------------- Net Assets $1,602,822,245 =============== - -------------------------------------------------------------------------------------------------------- Composition of Net Assets Par value of shares of beneficial interest $ 90,567 - -------------------------------------------------------------------------------------------------------- Additional paid-in capital 2,015,934,853 - -------------------------------------------------------------------------------------------------------- Undistributed net investment income 16,334,525 - -------------------------------------------------------------------------------------------------------- Accumulated net realized loss on investments and foreign currency transactions (245,306,432) - -------------------------------------------------------------------------------------------------------- Net unrealized depreciation on investments and translation of assets and liabilities denominated in foreign currencies (184,231,268) --------------- Net Assets $1,602,822,245 =============== - -------------------------------------------------------------------------------------------------------- Net Asset Value Per Share Non-Service shares: Net asset value, redemption price per share and offering price per share (based on net assets of $1,549,992,594 and 87,567,213 shares of beneficial interest outstanding) $17.70 - -------------------------------------------------------------------------------------------------------- Service shares: Net asset value, redemption price per share and offering price per share (based on net assets of $52,829,651 and 2,999,306 shares of beneficial interest outstanding) $17.61
See Accompanying Notes to Financial Statements. 9 | OPPENHEIMER GLOBAL SECURITIES FUND/VA STATEMENT OF OPERATIONS For the Year Ended December 31, 2002
- ------------------------------------------------------------------------------------------------ Investment Income Dividends (net of foreign withholding taxes of $2,286,909) $ 24,982,825 - ------------------------------------------------------------------------------------------------ Interest 1,571,890 - ------------------------------------------------------------------------------------------------ Other 82,358 ---------------- Total investment income 26,637,073 - ------------------------------------------------------------------------------------------------ Expenses Management fees 11,712,612 - ------------------------------------------------------------------------------------------------ Custodian fees and expenses 418,643 - ------------------------------------------------------------------------------------------------ Distribution and service plan fees-Service shares 78,934 - ------------------------------------------------------------------------------------------------ Trustees' compensation 48,350 - ------------------------------------------------------------------------------------------------ Transfer and shareholder servicing agent fees 21,767 - ------------------------------------------------------------------------------------------------ Other 9,622 ---------------- Total expenses 12,289,928 Less reduction to custodian expenses (2,504) ---------------- Net expenses 12,287,424 - ------------------------------------------------------------------------------------------------ Net Investment Income 14,349,649 - ------------------------------------------------------------------------------------------------ Realized and Unrealized Gain (Loss) Net realized loss on: Investments (167,487,650) Foreign currency transactions (5,307,838) ---------------- Net realized loss (172,795,488) - ------------------------------------------------------------------------------------------------ Net change in unrealized appreciation (depreciation) on: Investments (net of foreign capital gains tax of $100,090) (369,595,492) Translation of assets and liabilities denominated in foreign currencies 85,933,365 ---------------- Net change (283,662,127) ---------------- Net realized and unrealized loss (456,457,615) - ------------------------------------------------------------------------------------------------ Net Decrease in Net Assets Resulting From Operations $ (442,107,966) ================
See Accompanying Notes to Financial Statements. 10 | OPPENHEIMER GLOBAL SECURITIES FUND/VA STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31, 2002 2001 - ----------------------------------------------------------------------------------------------------- Operations Net investment income $ 14,349,649 $ 13,444,980 - ----------------------------------------------------------------------------------------------------- Net realized loss (172,795,488) (57,715,516) - ----------------------------------------------------------------------------------------------------- Net change in unrealized depreciation (283,662,127) (213,948,491) -------------------------------------- Net decrease in net assets resulting from operations (442,107,966) (258,219,027) - ----------------------------------------------------------------------------------------------------- Dividends And/or Distributions to Shareholders Dividends from net investment income: Non-Service shares (9,494,638) (13,806,412) Service shares (108,690) (14,765) - ----------------------------------------------------------------------------------------------------- Distributions from net realized gain: Non-Service shares -- (255,967,620) Service shares -- (277,910) - ----------------------------------------------------------------------------------------------------- Beneficial Interest Transactions Net increase in net assets resulting from beneficial interest transactions: Non-Service shares 86,880,795 297,559,831 Service shares 41,295,581 19,680,174 - ----------------------------------------------------------------------------------------------------- Net Assets Total decrease (323,534,918) (211,045,729) - ----------------------------------------------------------------------------------------------------- Beginning of period 1,926,357,163 2,137,402,892 -------------------------------------- End of period [including undistributed net investment income of $16,334,525 and $8,817,380 respectively] $ 1,602,822,245 $ 1,926,357,163 ======================================
See Accompanying Notes to Financial Statements. 11 | OPPENHEIMER GLOBAL SECURITIES FUND/VA FINANCIAL HIGHLIGHTS
Non-service Shares Year Ended December 31, 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Data Net asset value, beginning of period $ 22.84 $ 30.33 $ 33.41 $ 22.07 $ 21.37 - ------------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .16 .17 .27 .14 .24 Net realized and unrealized gain (loss) (5.19) (3.85) 1.82 12.21 2.64 -------------------------------------------------------------------- Total from investment operations (5.03) (3.68) 2.09 12.35 2.88 - ------------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.11) (.19) (.09) (.14) (.46) Dividends in excess of net investment income -- -- -- (.13) -- Distributions from net realized gain -- (3.62) (5.08) (.74) (1.72) -------------------------------------------------------------------- Total dividends and/or distributions to shareholders (.11) (3.81) (5.17) (1.01) (2.18) - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 17.70 $ 22.84 $ 30.33 $ 33.41 $ 22.07 ==================================================================== - ------------------------------------------------------------------------------------------------------------------------------- Total Return, At Net Asset Value 1 (22.13)% (12.04)% 5.09% 58.48% 14.11% - ------------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $1,549,993 $1,905,890 $2,136,420 $1,762,366 $ 1,135,029 - ------------------------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $1,776,289 $1,918,335 $2,116,100 $1,251,190 $ 1,055,123 - ------------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 2 Net investment income 0.80% 0.70% 0.83% 0.57% 1.22% Expenses 0.67% 0.70% 0.68% 0.69% 0.74% 3 - ------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 34% 39% 50% 64% 81%
1. Assumes an investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods less than one full year. Total return information does not reflect expenses that apply at the separate account level or to related insurance products. Inclusion of these charges would reduce the total return figures for all periods shown. 2. Annualized for periods of less than one full year. 3. Expense ratio has been calculated without adjustment for the reduction to custodian expenses. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 12 | OPPENHEIMER GLOBAL SECURITIES FUND/VA
Service Shares Year Ended December 31, 2002 2001 2000 1 - ----------------------------------------------------------------------------------------------------------- Per Share Operating Data Net asset value, beginning of period $ 22.78 $ 30.30 $ 32.65 - ----------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .12 .21 .03 Net realized and unrealized loss (5.19) (3.92) (2.38) ------------------------------------------- Total from investment operations (5.07) (3.71) (2.35) - ----------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.10) (.19) -- Distributions from net realized gain -- (3.62) -- ------------------------------------------- Total dividends and/or distributions to shareholders (.10) (3.81) -- - ----------------------------------------------------------------------------------------------------------- Net asset value, end of period $ 17.61 $ 22.78 $ 30.30 =========================================== - ----------------------------------------------------------------------------------------------------------- Total Return, At Net Asset Value 2 (22.37)% (12.17)% (7.20)% - ----------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 52,830 $ 20,467 $ 983 - ----------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 34,847 $ 8,502 $ 325 - ----------------------------------------------------------------------------------------------------------- Ratios to average net assets: 3 Net investment income 0.51% 0.44% 0.60% Expenses 0.90% 0.85% 0.83% - ----------------------------------------------------------------------------------------------------------- Portfolio turnover rate 34% 39% 50%
1. For the period from July 13, 2000 (inception of offering) to December 31, 2000. 2. Assumes an investment on the business day before the first day of the fiscal period (or inception of offering), with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods less than one full year. Total return information does not reflect expenses that apply at the separate account level or to related insurance products. Inclusion of these charges would reduce the total return figures for all periods shown. 3. Annualized for periods of less than one full year. See Accompanying Notes to Financial Statements. 13 | OPPENHEIMER GLOBAL SECURITIES FUND/VA NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Oppenheimer Global Securities Fund/VA (the Fund) is a separate series of Oppenheimer Variable Account Funds (the Trust), an open-end management investment company registered under the Investment Company Act of 1940, as amended. The Fund's investment objective is to seek long-term capital appreciation by investing a substantial portion of assets in securities of foreign issuers, "growth-type" companies, cyclical industries and special situations that are considered to have appreciation possibilities. The Trust's investment advisor is OppenheimerFunds, Inc. (the Manager). The Fund offers two classes of shares. Both classes are sold at their offering price, which is the net asset value per share, to separate investment accounts of participating insurance companies as an underlying investment for variable life insurance policies, variable annuity contracts or other investment products. The class of shares designated as Service shares is subject to a distribution and service plan. All classes of shares have identical rights and voting privileges. Earnings, net assets and net asset value per share may differ by minor amounts due to each class having its own expenses directly attributable to that class. The following is a summary of significant accounting policies consistently followed by the Fund. - -------------------------------------------------------------------------------- Securities Valuation. Securities listed or traded on National Stock Exchanges or other domestic or foreign exchanges are valued based on the last sale price of the security traded on that exchange prior to the time when the Fund's assets are valued. In the absence of a sale, the security is valued at the last sale price on the prior trading day, if it is within the spread of the closing bid and asked prices, and if not, at the closing bid price. Securities (including restricted securities) for which quotations are not readily available are valued primarily using dealer-supplied valuations, a portfolio pricing service authorized by the Board of Trustees, or at their fair value. Fair value is determined in good faith under consistently applied procedures under the supervision of the Board of Trustees. Short-term "money market type" debt securities with remaining maturities of sixty days or less are valued at amortized cost (which approximates market value). - -------------------------------------------------------------------------------- Security Credit Risk. The Fund invests 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 Fund may acquire securities in default, and is not obligated to dispose of securities whose issuers subsequently default. As of December 31, 2002, securities with an aggregate market value of $442,520, representing 0.03% of the Fund's net assets, were in default. - -------------------------------------------------------------------------------- Foreign Currency Translation. The accounting records of the Fund are maintained in U.S. dollars. Prices of securities denominated in foreign currencies are translated into U.S. dollars at the closing rates of exchange. Amounts related to the purchase and sale of foreign securities and investment income are translated at the rates of exchange prevailing on the respective dates of such transactions. The effect of changes in foreign currency exchange rates on investments is separately identified from the fluctuations arising from changes in market values of securities held and reported with all other foreign currency gains and losses in the Fund's Statement of Operations. - -------------------------------------------------------------------------------- Joint Repurchase Agreements. The Fund, along with other affiliated funds of the Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements, secured by U.S. government securities. Securities pledged as collateral for repurchase agreements are held by a custodian bank until the agreements mature. Each agreement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default by the other party to the agreement, retention of the collateral may be subject to legal proceedings. - -------------------------------------------------------------------------------- Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than those attributable to a specific class), gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class. 14 | OPPENHEIMER GLOBAL SECURITIES FUND/VA - -------------------------------------------------------------------------------- Federal Taxes. The Fund intends 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 capital loss carryforwards, if any, to shareholders. As of December 31, 2002, the Fund had available for federal income tax purposes unused capital loss carryforwards as follows: Expiring ------------------------------ 2009 $ 47,254,011 2010 147,620,574 ------------- Total $ 194,874,585 ============= During the fiscal year ended December 31, 2002, the Fund did not utilize any capital loss carryforward. As of December 31, 2002, the Fund had approximately $38,817,000 of post-October losses available to offset future capital gains, if any. Such losses, if unutilized, will expire in 2011. Additionally, the Fund had approximately $3,724,000 of post-October foreign currency losses which were deferred. If unutilized by the Fund in the following fiscal year, such losses will expire. - -------------------------------------------------------------------------------- Dividends and Distributions to Shareholders. Dividends and distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. - -------------------------------------------------------------------------------- Classification of Dividends and Distributions to Shareholders. Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes primarily because of the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes. The character of dividends and distributions made during the fiscal year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes. Also, due to timing of dividends and distributions, the fiscal year in which amounts are distributed may differ from the fiscal year in which the income or net realized gain was recorded by the Fund. The Fund adjusts the classification of distributions to shareholders to reflect the differences between financial statement amounts and distributions determined in accordance with income tax regulations. Accordingly, during the year ended December 31, 2002, amounts have been reclassified to reflect an increase in undistributed net investment income of $2,770,824. Accumulated net realized loss on investments was increased by the same amount. Net assets of the Fund were unaffected by the reclassifications. The tax character of distributions paid during the years ended December 31, 2002 and December 31, 2001 was as follows: Year Ended Year Ended December 31, 2002 December 31, 2001 ------------------------------------------------------------------ Distributions paid from: Ordinary income $ 9,603,328 $ 81,846,743 Long-term capital gain -- 188,219,964 Return of capital -- -- --------------------------------- Total $ 9,603,328 $ 270,066,707 ================================= As of December 31, 2002, the components of distributable earnings on a tax basis were as follows: Undistributed net investment income $ 16,334,525 Accumulated net realized loss (245,306,432) Net unrealized depreciation (184,231,268) --------------- Total $ (413,203,175) =============== 15 | OPPENHEIMER GLOBAL SECURITIES FUND/VA NOTES TO FINANCIAL STATMENTS Continued - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Continued Investment Income. Dividend income is recorded on the ex-dividend date or upon ex-dividend notification in the case of certain foreign dividends where the ex-dividend date may have passed. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Interest income, which includes accretion of discount and amortization of premium, is accrued as earned. - -------------------------------------------------------------------------------- Security Transactions. Security transactions are recorded on the trade date. Realized gains and losses on securities sold are determined on the basis of identified cost. - -------------------------------------------------------------------------------- Other. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. - -------------------------------------------------------------------------------- 2. SHARES OF BENEFICIAL INTEREST The Fund has authorized an unlimited number of $0.001 par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
Year Ended December 31, 2002 Year Ended December 31, 2001 Shares Amount Shares Amount - --------------------------------------------------------------------------------------------------------------------------------- Non-Service Shares Sold 148,964,909 $ 2,936,874,923 71,467,613 $ 1,685,381,975 Dividends and/or distributions reinvested 405,580 9,494,638 11,900,045 269,774,032 Redeemed (145,263,047) (2,859,488,766) (70,355,513) (1,657,596,176) -------------------------------------------------------------------------- Net increase 4,107,442 $ 86,880,795 13,012,145 $ 297,559,831 ========================================================================== - --------------------------------------------------------------------------------------------------------------------------------- Service Shares Sold 5,676,692 $ 108,715,377 1,048,232 $ 23,626,500 Dividends and/or distributions reinvested 4,653 108,690 12,927 292,675 Redeemed (3,580,556) (67,528,486) (195,068) (4,239,001) -------------------------------------------------------------------------- Net increase 2,100,789 $ 41,295,581 866,091 $ 19,680,174 ==========================================================================
3.PURCHASES AND SALES OF SECURITIES The aggregate cost of purchases and proceeds from sales of securities, other than short-term obligations, for the year ended December 31, 2002, were $762,232,713 and $590,218,454, respectively. As of December 31, 2002, unrealized appreciation (depreciation) based on cost of securities for federal income tax purposes of $1,799,438,078 was composed of: Gross unrealized appreciation $ 141,360,482 Gross unrealized depreciation (333,116,163) ------------- Net unrealized appreciation $(191,755,681) ============= The difference between book-basis and tax-basis unrealized appreciation and depreciation, if applicable, is attributable primarily to the tax deferral of losses on wash sales, or return of capital dividends, and the realization for tax purposes of unrealized gain (loss) on certain futures contracts, investments in passive foreign investment companies, and forward foreign currency exchange contracts. 16 | OPPENHEIMER GLOBAL SECURITIES FUND/VA - -------------------------------------------------------------------------------- 4. Fees and Other Transactions With Affiliates Management Fees. Management fees paid to the Manager were in accordance with the investment advisory agreement with the Trust. The annual fees are 0.75% of the first $200 million of average annual net assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the next $200 million and 0.60% of average annual net assets over $800 million. - -------------------------------------------------------------------------------- Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager, acts as the transfer and shareholder servicing agent for the Fund. The Fund pays OFS a $19.75 per account fee. Additionally, funds offered in variable annuity separate accounts are subject to minimum fees of $5,000 for assets of less than $10 million and $10,000 for assets of $10 million or more. The Fund is subject to the minimum fee in the event that the per account fee does not equal or exceed the applicable minimum fee. OFS has voluntarily agreed to limit transfer and shareholder servicing agent fees up to an annual rate of 0.35% of average net assets of the Fund. This undertaking may be amended or withdrawn at any time. - -------------------------------------------------------------------------------- Distribution and Service Plan for Service Shares. The Fund has adopted a Distribution and Service Plan for Service shares to pay OppenheimerFunds Distributor, Inc., the Distributor, for distribution-related services for the Fund's Service shares. Under the Plan, payments are made quarterly at an annual rate of up to 0.25% of the average annual net assets of the Service shares of the Fund. For the year ended December 31, 2002, payments under the Service Plan totaled $78,934. - -------------------------------------------------------------------------------- 5. Foreign Currency Contracts A foreign currency contract is a commitment to purchase or sell a foreign currency at a future date, at a negotiated rate. The Fund may enter into foreign currency contracts for operational purposes and to seek to protect against adverse exchange rate fluctuations. Risks to the Fund include the potential inability of the counterparty to meet the terms of the contract. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Fund and the resulting unrealized appreciation or depreciation are determined using foreign currency exchange rates as provided by a reliable bank, dealer or pricing service. Unrealized appreciation and depreciation on foreign currency contracts are reported in the Statement of Assets and Liabilities as a receivable or payable and in the Statement of Operations with the change in unrealized appreciation or depreciation. The Fund may realize a gain or loss upon the closing or settlement of the foreign currency transactions. Such realized gains and losses are reported with all other foreign currency gains and losses in the Statement of Operations. As of December 31, 2002, the Fund had outstanding foreign currency contracts as follows:
Expiration Contract Valuation as of Unrealized Unrealized Contract Description Dates Amount (000S) December 31, 2002 Appreciation Depreciation - ----------------------------------------------------------------------------------------------------------------------------------- Contracts to Purchase Norwegian Krone [NOK] 1/2/03 1,016NOK $ 146,679 $ 2,649 $ -- Contracts to Sell British Pound Sterling [GBP] 1/2/03 18GBP 28,733 -- 132 Japanese Yen [JPY] 5/1/03-5/2/03 10,445,772JPY 88,424,892 -- 3,424,892 Swiss Franc [CHF] 1/3/03 75CHF 53,885 -- 479 ----------------------------- Total Unrealized Appreciation and Depreciation $ 2,649 $3,425,503 =============================
17 | OPPENHEIMER GLOBAL SECURITIES FUND/VA INDEPENDENT AUDITOR'S REPORT - -------------------------------------------------------------------------------- To the Board of Trustees and Shareholders of Oppenheimer Global Securities Fund/VA: We have audited the accompanying statement of assets and liabilities of Oppenheimer Global Securities Fund/VA, which is a series of Oppenheimer Variable Account Funds, including the statement of investments, as of December 31, 2002, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 as of December 31, 2002, 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, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Oppenheimer Global Securities Fund/VA as of December 31, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Denver, Colorado January 23, 2003 18 | OPPENHEIMER GLOBAL SECURITIES FUND/VA FEDERAL INCOME TAX INFORMATION Unaudited - -------------------------------------------------------------------------------- In early 2003, shareholders of record received information regarding all dividends and distributions paid to them by the Fund during calendar year 2002. Regulations of the U.S. Treasury Department require the Fund to report this information to the Internal Revenue Service. Dividends of $0.1118 and $0.1002 per share were paid to Non-Service and Service shareholders, respectively, on March 15, 2002, all of which was designated as "ordinary income" for federal income tax purposes Dividends paid by the Fund during the fiscal year ended December 31, 2002, which are not designated as capital gain distributions should be multiplied by 38.09% to arrive at the amount eligible for the corporate dividend-received deduction. The foregoing information is presented to assist shareholders in reporting distributions received from the Fund 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 state and local tax regulations, we recommend that you consult your tax advisor for specific guidance. 19 | OPPENHEIMER GLOBAL SECURITIES FUND/VA TRUSTEES AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------ Name, Position(s) Held with Principal Occupation(s) During Past 5 Years; Other Trusteeships/Directorships Held by Trustee; Fund, Length of Service, Age Number of Portfolios in Fund Complex Currently Overseen by Trustee INDEPENDENT The address of each Trustee in the chart below is 6803 S. Tucson Way, Centennial, CO 80112-3924. TRUSTEES Each Trustee serves for an indefinite term, until his or her resignation, retirement, death or removal. James C. Swain, Formerly, Chief Executive Officer (until August 27, 2002) of the Board II Funds, Vice Chairman Chairman and Trustee (until January 2, 2002) of the Manager and President and a director (until 1997) of Centennial (since 1990) Asset Management Corporation (a wholly-owned investment advisory subsidiary of the Manager). Age: 69 Oversees 41 portfolios in the OppenheimerFunds complex. William L. Armstrong, Chairman of the following private mortgage banking companies: Cherry Creek Mortgage Company (since Trustee (since 1999) 1991), Centennial State Mortgage Company (since 1994), The El Paso Mortgage Company (since 1993), Age: 65 Transland Financial Services, Inc. (since 1997); Chairman of the following private companies: Great Frontier Insurance (insurance agency) (since 1995) and Ambassador Media Corporation (since 1984); a director of the following public companies: Storage Technology Corporation (computer equipment company) (since 1991), Helmerich & Payne, Inc. (oil and gas drilling/production company) (since 1992), UNUMProvident (insurance company) (since 1991). Formerly Director of International Family Entertainment (television channel) (1992-1997) and Natec Resources, Inc. (air pollution control equipment and services company) (1991-1995), Frontier Real Estate, Inc. (residential real estate brokerage) (1994-1999), and Frontier Title (title insurance agency) (1995-June 1999); a U.S. Senator (January 1979-January 1991). Oversees 41 portfolios in the OppenheimerFunds complex. Robert G. Avis, Formerly, Director and President of A.G. Edwards Capital, Inc. (General Partner of private equity Trustee (since 1993) funds) (until February 2001); Chairman, President and Chief Executive Officer of A.G. Edwards Age: 71 Capital, Inc. (until March 2000); Vice Chairman and Director of A.G. Edwards, Inc. and Vice Chairman of A.G. Edwards & Sons, Inc. (its brokerage company subsidiary) (until March 1999); Chairman of A.G. Edwards Trust Company and A.G.E. Asset Management (investment advisor) (until March 1999); and a Director (until March 2000) of A.G. Edwards & Sons and A.G. Edwards Trust Company. Oversees 41 portfolios in the OppenheimerFunds complex. George C. Bowen, Formerly (until April 1999): Senior Vice President (from September 1987) and Treasurer (from March Trustee (since 1997) 1985) of the Manager; Vice President (from June 1983) and Treasurer (since March 1985) of Age: 66 OppenheimerFunds Distributor, Inc. (a subsidiary of the Manager); Senior Vice President (since February 1992), Treasurer (since July 1991) Assistant Secretary and a director (since December 1991) of Centennial Asset Management Corporation; Vice President (since October 1989) and Treasurer (since April 1986) of HarbourView Asset Management Corporation (an investment advisory subsidiary of the Manager); President, Treasurer and a director (June 1989-January 1990) of Centennial Capital Corporation (an investment advisory subsidiary of the Manager); Vice President and Treasurer (since August 1978) and Secretary (since April 1981) of Shareholder Services, Inc. (a transfer agent subsidiary of the Manager); Vice President, Treasurer and Secretary (since November 1989) of Shareholder Financial Services, Inc. (a transfer agent subsidiary of the Manager); Assistant Treasurer (since March 1998) of Oppenheimer Acquisition Corp. (the Managers parent corporation); Treasurer (since November 1989) of Oppenheimer Partnership Holdings, Inc. (a holding company subsidiary of the Manager); Vice President and Treasurer (since July 1996) of Oppenheimer Real Asset Management, Inc. (an investment advisory subsidiary of the Manager); Chief Executive Officer and director (since March 1996) of MultiSource Services, Inc. (a broker-dealer subsidiary of the Manager); Treasurer (since October 1997) of Oppenheimer Funds International Ltd. and Oppenheimer Millennium Funds plc (offshore fund management subsidiaries of the Manager). Oversees 41 portfolios in the OppenheimerFunds complex. Edward L. Cameron, A member of The Life Guard of Mount Vernon, (George Washingtons home) (since June 2000). Formerly Trustee (since 1999) (March 2001May 2002) Director of Genetic ID, Inc. and its subsidiaries (a privately held biotech Age: 64 company); a partner with PricewaterhouseCoopers LLP (from 1974-1999) (an accounting firm) and Chairman (from 1994-1998), Price Waterhouse LLP Global Investment Management Industry Services Group. Oversees 41 portfolios in the OppenheimerFunds complex. Jon S. Fossel, Chairman and Director (since 1998) of Rocky Mountain Elk Foundation (a not-for-profit foundation); Trustee (since 1990) and a director (since October 1999) of P.R. Pharmaceuticals (a privately held company) and Age: 60 UNUMProvident (an insurance company) (since June 1, 2002). Formerly Chairman and a director (until October 1996) and President and Chief Executive Officer (until October 1995) of the Manager; President, Chief Executive Officer and a director of Oppenheimer Acquisition Corp., Shareholders Services Inc. and Shareholder Financials Services, Inc. (until October 1995). Oversees 41 portfolios in the OppenheimerFunds complex.
20 | OPPENHEIMER GLOBAL SECURITIES FUND/VA
Sam Freedman, A trustee or director of other Oppenheimer funds. Formerly (until October 1994) Mr. Freedman held Trustee (since 1996) several positions in subsidiary or affiliated companies of the Manager. Oversees 41 portfolios in Age: 62 the OppenheimerFunds complex. Beverly L. Hamilton, Trustee (since 1996) of MassMutual Institutional Funds and of MML Series Investment Fund (open-end Trustee (since 2002) investment companies); Director of MML Services (since April 1987) and America Funds Emerging Age: 56 Markets Growth Fund (since October 1991) (both are investment companies), The California Endowment (a philanthropy organization) (since April 2002), and Community Hospital of Monterey Peninsula, (since February 2002); a trustee (since February 2000) of Monterey International Studies (an educational organization), and an advisor to Unilever (Holland)s pension fund and to Credit Suisse First Bostons Sprout venture capital unit. Mrs. Hamilton also is a member of the investment committees of the Rockefeller Foundation, the University of Michigan and Hartford Hospital. Formerly, President (February 1991-April 2000) ARCO Investment Management Company. Oversees 40 portfolios in the OppenheimerFunds complex. Robert J. Malone, Director (since 2001) of Jones Knowledge, Inc. (a privately held company), U.S. Exploration, Inc., Trustee (since 2002) (since 1997), Colorado UpLIFT (a non-profit organization) (since 1986) and a trustee of the Age: 58 Gallagher Family Foundation (since 2000). Formerly, Chairman of U.S. Bank (a subsidiary of U.S. Bancorp and formerly Colorado National Bank,) (July 1996-April 1, 1999) and a director of Commercial Assets, Inc. (1993-2000). Oversees 40 portfolios in the OppenheimerFunds complex. F. William Marshall, Jr., Trustee (since 1996) of MassMutual Institutional Funds and of MML Series Investment Fund (open-end Trustee (since 2000) investment companies); Trustee and Chairman (since May 1987) of the investment committee for the Age: 60 Worcester Polytech Institute; President and Treasurer (since January 1999) of the SIS Fund (a private not for profit charitable organization); Trustee (since 1995) of the Springfield Library and Museum Association; Trustee (since 1996) of the Community Music School of Springfield; Member of the investment committee of the Community Foundation of Western Massachusetts (since 1998). Formerly, Chairman (January 1999-July 1999) of SIS & Family Bank, F.S.B. (formerly SIS Bank); President, Chief Executive Officer and Director (May 1993-December 1998) of SIS Bankcorp, Inc. and SIS Bank (formerly Springfield Institution for Savings) and Executive Vice President (January 1999-July 1999) of Peoples Heritage Financial Group, Inc. Oversees 41 portfolios in the OppenheimerFunds complex. - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEE The address of Mr. Murphy in the chart below is 498 Seventh Avenue, New York, NY 10018. Mr. Murphy AND OFFICER serves for an indefinite term, until his resignation, retirement, death or removal. John V. Murphy, Chairman, Chief Executive Officer and director (since June 2001) and President (since September President and Trustee 2000) of the Manager; President and a director or trustee of other Oppenheimer funds; President and (since 2001) a director (since July 2001) of Oppenheimer Acquisition Corp. and of Oppenheimer Partnership Age: 53 Holdings, Inc.; a director (since November 2001) of OppenheimerFunds Distributor, Inc.; Chairman and a director (since July 2001) of Shareholder Services, Inc. and of Shareholder Financial Services, Inc.; President and a director (since July 2001) of OppenheimerFunds Legacy Program (a charitable trust program established by the Manager); a director of the following investment advisory subsidiaries of OppenheimerFunds, Inc.: OFI Institutional Asset Management, Inc. and Centennial Asset Management Corporation (since November 2001), HarbourView Asset Management Corporation and OFI Private Investments, Inc. (since July 2001); President (since November 1, 2001) and a director (since July 2001) of Oppenheimer Real Asset Management, Inc.; a director (since November 2001) of Trinity Investment Management Corp. and Tremont Advisers, Inc. (investment advisory affiliates of the Manager); Executive Vice President (since February 1997) of Massachusetts Mutual Life Insurance Company (the Managers parent company); a director (since June 1995) of DLB Acquisition Corporation (a holding com- pany that owns the shares of David L. Babson & Company, Inc.); formerly, Chief Operating Officer (September 2000-June 2001) of the Manager; President and trustee (November 1999-November 2001) of MML Series Investment Fund and MassMutual Institutional Funds (open-end investment companies); a director (September 1999-August 2000) of C.M. Life Insurance Company; President, Chief Executive Officer and director (September 1999-August 2000) of MML Bay State Life Insurance Company; a director (June 1989-June 1998) of Emerald Isle Bancorp and Hibernia Savings Bank (a wholly-owned subsidiary of Emerald Isle Bancorp). Oversees 69 portfolios in the OppenheimerFunds complex.
21 | OPPENHEIMER GLOBAL SECURITIES FUND/VA TRUSTEES AND OFFICERS Continued
- ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS The address of the Officers in the chart below is as follows: for Messrs. Wilby and Zack, 498 Seventh Avenue, New York, NY 10018, for Mr. Wixted, 6803 S. Tucson Way, Centennial, CO 80112-3924. Each Officer serves for an annual term or until his earlier resignation, retirement, death or removal. William L. Wilby, Senior Vice President of the Manager (since July 1994) and of HarbourView Asset Management Vice President (since 1995) Corporation (since May 1999); Senior Investment Officer, Director of International Equities (since Age: 58 May 2000) of the Manager; formerly Vice President of the Manager (October 1991-July 1994) and of HarbourView Asset Management Corporation (June 1992 - May 1999). An officer of 2 portfolios in the OppenheimerFunds complex. Brian W. Wixted, Senior Vice President and Treasurer (since March 1999) of the Manager; Treasurer (since March 1999) Treasurer, Principal Financial of HarbourView Asset Management Corporation, Shareholder Services, Inc., Oppenheimer Real Asset and Accounting Officer Management Corporation, Shareholder Financial Services, Inc., Oppenheimer Partnership Holdings, (since 1999) Inc., OFI Private Investments, Inc. (since March 2000), OppenheimerFunds International Ltd. and Age: 43 Oppenheimer Millennium Funds plc (since May 2000) and OFI Institutional Asset Management, Inc. (since November 2000); Treasurer and Chief Financial Officer (since May 2000) of Oppenheimer Trust Company (a trust company subsidiary of the Manager); Assistant Treasurer (since March 1999) of Oppenheimer Acquisition Corp. and OppenheimerFunds Legacy Program (since April 2000); formerly Principal and Chief Operating Officer (March 1995-March 1999), Bankers Trust Company-Mutual Fund Services Division. An officer of 85 portfolios in the OppenheimerFunds complex. Robert G. Zack, Senior Vice President (since May 1985) and General Counsel (since February 2002) of the Manager; Vice President and Secretary General Counsel and a director (since November 2001) of OppenheimerFunds Distributor, Inc.; Senior (since 2001) Vice President and General Counsel (since November 2001) of HarbourView Asset Management Age: 54 Corporation; Vice President and a director (since November 2000) of Oppenheimer Partnership Holdings, Inc.; Senior Vice President, General Counsel and a director (since November 2001) of Shareholder Services, Inc., Shareholder Financial Services, Inc., OFI Private Investments, Inc., Oppenheimer Trust Company and OFI Institutional Asset Management, Inc.; General Counsel (since November 2001) of Centennial Asset Management Corporation; a director (since November 2001) of Oppenheimer Real Asset Management, Inc.; Assistant Secretary and a director (since November 2001) of OppenheimerFunds International Ltd.; Vice President (since November 2001) of OppenheimerFunds Legacy Program; Secretary (since November 2001) of Oppenheimer Acquisition Corp.; formerly Acting General Counsel (November 2001-February 2002) and Associate General Counsel (May 1981-October 2001) of the Manager; Assistant Secretary of Shareholder Services, Inc. (May 1985-November 2001), Shareholder Financial Services, Inc. (November 1989-November 2001); OppenheimerFunds International Ltd. And Oppenheimer Millennium Funds plc (October 1997-November 2001). An officer of 85 portfolios in the OppenheimerFunds complex.
The Fund's Statement of Additional Information contains additional information about the Fund's Trustees and is available without charge upon request. 22 | OPPENHEIMER GLOBAL SECURITIES FUND/VA OPPENHEIMER GLOBAL SECURITIES FUND/VA A Series of Oppenheimer Variable Account Funds - -------------------------------------------------------------------------------- Investment Advisor OppenheimerFunds, Inc. - -------------------------------------------------------------------------------- Distributor OppenheimerFunds Distributor, Inc. - -------------------------------------------------------------------------------- Transfer Agent OppenheimerFunds Services - -------------------------------------------------------------------------------- Independent Auditors Deloitte & Touche LLP - -------------------------------------------------------------------------------- Legal Counsel to the Fund Myer, Swanson, Adams & Wolf, P.C. - -------------------------------------------------------------------------------- Legal Counsel to the Mayer Brown Rowe & Maw Independent Trustees For more complete information about Oppenheimer Global Securities Fund/VA, please refer to the Prospectus. To obtain a copy, call your financial advisor, or call OppenheimerFunds, Inc. at 1.800.981.2871. 23 | OPPENHEIMER GLOBAL SECURITIES FUND/VA [LOGO] OppenheimerFunds(R) Distributor, Inc. (C)Copyright 2003 OppenheimerFunds, Inc. All rights reserved. -----END PRIVACY-ENHANCED MESSAGE-----