N-30D 1 ra0630_6458vef.txt RA0630_6458VEF December 31, 2002 -------------------------------------------------------------------------------- Oppenheimer Annual Report Bond Fund/VA ------------- A Series of Oppenheimer Variable Account Funds Management Commentaries -------------------------------------------------------------------------------- Performance Update Investment Strategy Discussion Financial Statements [LOGO] OppenheimerFunds(R) The Right Way to Invest OPPENHEIMER BOND FUND/VA -------------------------------------------------------------------------------- Objective Oppenheimer Bond Fund/VA, a Series of Oppenheimer Variable Account Funds, seeks a high level of current income. As a secondary objective, the Fund seeks capital appreciation when consistent with its primary objective. -------------------------------------------------------------------------------- Narrative by Angelo Manioudakis, Ben Gord and Charles Moon, Members of the Portfolio Management Team We're pleased to report that the Fund's performance improved during the course of these twelve months (ended 12/31/02), finishing in the top 50% of its peer group, as measured by Lipper, Inc. 1 At year-end, the Fund's total return was strongly positive. For the third consecutive year, the bond market delivered markedly better returns than stocks. With the exception of high-yield bonds, every sector of the bond market--Treasuries, corporates and agencies/mortgage-backed securities--delivered positive returns. For that we can thank lower interest rates, which support higher bond prices, as well as cautious investors, who were drawn to the relative safety of Treasuries and other higher-quality bonds. Having said that, we should point out that 2002 was anything but a "smooth ride"; the bond market was very turbulent. Mortgage-backed securities (MBSs) were rocked by waves of mortgage prepayments, which can undermine the values of MBSs and make them highly sensitive to interest rate changes. Meanwhile, corporate bonds were buffeted time and again by a host of issues--corporate profitability levels, accounting issues, and government investigations, among others. Ultimately, investment-grade corporates came out ahead while high-yield bonds wound up in negative territory. Our team assumed direction of the Fund on April 23, 2002, not long after three of us--Angelo Manioudakis, Benjamin Gord and Charles Moon--joined OppenheimerFunds. We brought with us the very disciplined approach that we had utilized elsewhere as managers of institutional bond portfolios. Along with a fourth team member, Caleb Wong, we set about applying our approach to Oppenheimer Bond Fund/VA. So far, it has worked very well. Our goal was to create a portfolio that would generate more consistent returns. So, we evaluated each holding in the portfolio, to determine whether it represented a good value for the amount of risk entailed. As a result, we selectively divested more-volatile securities, such as interest-only mortgage-backed securities (IOs), and traded lower-rated (e.g., single-B) high-yield bonds for better-quality issues (e.g., double-B). Fortunately, we made these alterations before the high-yield and mortgage-backed markets became exceptionally volatile in the summer and early fall. We used the proceeds of those sales to construct a larger core portfolio of investment-grade corporates, Treasuries and agencies. We applied analytical tools we have developed over many years to measure the various risks of the overall portfolio--for instance, interest-rate sensitivity and prepayment risk--and made adjustments to keep those risks within acceptable limits. In the end, we wound up with a higher-quality portfolio that still can generate competitive yields. Finally, we believe we are finished repositioning the portfolio. We feel that we have a core portfolio that can withstand the market's volatility fairly well. 1. Source: Lipper, Inc. Lipper rankings are based on total returns, but do not consider sales charges. The Fund's Non-Service shares ranked, in the Lipper Corporate Debt Fund A Rated/VA category, 10/32 for the 1-year, 26/26 for the 5-year and 12/21 for the 10-year periods ended 12/31/02. Lipper ranking is for the Non-Service share class only; other classes may have different performance characteristics. Rankings are relative peer group ratings and do not necessarily mean that the fund had high total returns. Past performance is no guarantee of future results. 2 | OPPENHEIMER BOND FUND/VA We would not be amazed to see continued turmoil in 2003. Right now, the market appears to be preparing for a modest economic recovery, low levels of inflation, and little or no movement in interest rates during '03. If that's the case, interest rates, bond yields and bond prices are likely to change very little over the course of the year. That would mean a lower total-return environment for fixed-income. In the near term, however, with the direction of the economy still unconfirmed, every hint of economic growth or further stagnation will likely prompt an anticipatory reaction in the market. Fortunately, Oppenheimer Bond Fund/VA is well positioned to ride out this turbulence, making it a key 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. The twelve months ended December 31, 2002, were a very positive period for Oppenheimer Bond Fund/VA. In addition to generating a solid total return, the Fund rose from the bottom quartile of general bond funds to the top quintile, as measured by Lipper, Inc. Our management team, which assumed day-to-day responsibility for the portfolio on April 23, 2002, repositioned the Fund's portfolio to make it less risk-sensitive and to pursue more consistent returns over time. Toward that end, we decreased the exposure to lower-rated high-yield securities and certain more esoteric investments (e.g., interest-only mortgage-backed securities) and amplified the investment in investment-grade corporate bonds and U.S. Treasury securities. The higher-grade portfolio performed exceptionally well, benefiting from the lowest interest rates since the early 1960s and from a flight to quality that boosted total returns for all bond-market sectors, except high-yield corporate bonds. The Fund's yield declined slightly, due to lower overall bond yields and to our emphasis on higher-grade securities, which generally have lower coupons than those available on lower-rated bonds. The Fund's holdings, strategy and management 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 May 1, 2002. 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 Lehman Brothers Corporate Bond Index, a broad-based, 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. 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 BOND FUND/VA FUND PERFORMANCE Non-Service Shares Comparison of Change in Value of $10,000 Hypothetical Investments In: [LINE GRAPH] Oppenheimer Bond Lehman Brothers Fund/VA (Non-Service) Corporate Bond Index 12/31/92 10,000 10,000 3/31/93 10,528 10,505 6/30/93 10,851 10,855 9/30/93 11,217 11,232 12/31/93 11,304 11,216 3/31/94 11,089 10,821 6/30/94 11,070 10,651 9/30/94 11,169 10,729 12/31/94 11,085 10,775 3/31/95 11,589 11,413 6/30/95 12,237 12,262 9/30/95 12,450 12,551 12/31/95 12,969 13,172 3/31/96 12,801 12,831 6/30/96 12,926 12,889 9/30/96 13,188 13,147 12/31/96 13,591 13,604 3/31/97 13,531 13,467 6/30/97 13,983 14,022 9/30/97 14,431 14,571 12/31/97 14,849 14,996 3/31/98 15,061 15,225 6/30/98 15,434 15,618 9/30/98 15,872 16,184 12/31/98 15,859 16,282 3/31/99 15,808 16,166 6/30/99 15,591 15,913 9/30/99 15,550 15,958 12/31/99 15,618 15,964 3/31/00 15,775 16,192 6/30/00 15,922 16,391 9/30/00 16,217 16,894 12/31/00 16,570 17,462 3/31/01 17,239 18,209 6/30/01 17,462 18,402 9/30/01 18,147 19,108 12/31/01 17,860 19,279 3/31/02 17,802 19,228 6/30/02 18,284 19,784 9/30/02 19,007 20,672 12/31/02 19,472 21,308 Average Annual Total Returns of Non-service Shares of the Fund at 12/31/02 1-Year 9.02% 5-Year 5.57% 10-Year 6.89% Service Shares Comparison of Change in Value of $10,000 Hypothetical Investments in: [LINE CHART] Oppenheimer Bond Lehman Brothers Fund/VA (Service) Corporate Bond Index 5/1/02 10,000 10,000 6/30/02 10,153 10,148 9/30/02 10,554 10,604 12/31/02 10,803 10,930 Cumulative Total Return of Service Shares of the Fund At 12/31/02 Since Inception (5/1/02) 8.03% 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 4/3/85 for the Non-service shares and 5/1/02 for its Service shares. The performance information in the graphs for the Lehman Brothers Corporate Bond Index begins on 12/31/92 in the first graph and on 4/30/02 for the second graph. Total returns and return performance information 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 graph show change in share value and include reinvestment of all dividends and capital gains distributions. Cumulative total returns are not annualized. Graphs are not drawn to same scale. An explanation of the calculation of the performance is in the Statement of Additional Information. 4 | OPPENHEIMER BOND FUND/VA FINANCIAL STATEMENTS PAGES 6-22 5 | OPPENHEIMER BOND FUND/VA STATEMENT OF INVESTMENTS December 31, 2002 Principal Market Value Amount See Note 1 --------------------------------------------------------------- Asset-Backed Securities--13.9% AQ Finance NIM Trust, Home Equity Collateralized Mtg. Obligations: Series 2001-3A, Cl. Note, 8.835%, 2/25/32 1 $ 371,705 $ 374,416 Series 2002-1, Cl. Note, 9.50%, 6/25/32 2 2,418,513 2,410,955 --------------------------------------------------------------- Capital Auto Receivables Asset Trust, Automobile Mtg. Backed Nts., Series 2002-4, Cl. A2B, 1.74%, 1/17/05 2 6,850,000 6,860,185 --------------------------------------------------------------- CitiFinancial Mortgage Securities, Inc., Home Equity Collateralized Mtg. Obligations, Series 2002-1, Cl. AF1, 2.474%, 9/25/32 2 3,264,536 3,273,665 --------------------------------------------------------------- Daimler Chrysler Auto Trust, Automobile Loan Pass-Through Certificates, Series 2002-B, Cl. A2, 2.20%, 4/6/05 3,910,000 3,926,278 --------------------------------------------------------------- Ford Credit Auto Owner Trust, Automobile Loan Certificates, Series 2002-D, Cl. A2A, 2.10%, 3/15/05 7,140,000 7,168,397 --------------------------------------------------------------- Harley-Davidson Motorcycle Trust, Motorcycle Receivable Nts., Series 2002-2, Cl. A1, 1.91%, 4/16/07 3,646,236 3,656,818 --------------------------------------------------------------- Honda Auto Receivables Owner Trust, Automobile Mtg. Obligations, Series 2002-3, Cl. A2, 2.26%, 12/18/04 4,940,000 4,964,195 --------------------------------------------------------------- Honda Auto Receivables Owner Trust, Automobile Receivables Obligations, Series 2002-4, Cl. A2, 1.66%, 6/15/05 3,750,000 3,753,157 --------------------------------------------------------------- Household Automotive Trust, Automobile Loan Certificates, Series 2002-2, Cl. A2, 2.15%, 12/19/05 3,570,000 3,587,142 --------------------------------------------------------------- Lease Investment Flight Trust, Collateralized Plane Obligations, Series 1A, Cl. D2, 8%, 7/15/31 2 5,754,318 1,265,950 --------------------------------------------------------------- Liberte American Loan Master Trust, Collateralized Loan Obligations, Series 1999-1A, Cl. D2, 6.424%, 11/25/06 2,3 9,000,000 6,226,875 --------------------------------------------------------------- Litigation Settlement Monetized Fee Trust, Asset-Backed Certificates, Series 2001-1A, Cl. A1, 8.33%, 4/25/31 2 5,074,954 5,347,986 --------------------------------------------------------------- Long Beach Asset Holdings Corp. NIM Trust, Home Equity Asset-Backed Pass-Through Certificates, Series 2001-3, 7.87%, 9/25/31 2 1,143,095 1,144,167 --------------------------------------------------------------- M&I Auto Loan Trust, Automobile Loan Certificates, Series 2002-1, Cl. A2, 1.95%, 7/20/05 2,460,000 2,467,818 Principal Market Value Amount See Note 1 --------------------------------------------------------------- Asset-Backed Securities Continued MMCA Auto Lease Trust, Auto Retail Installment Contracts, Series 2002-A, Cl. A2, 1.59%, 5/16/05 2,3 $ 3,510,000 $ 3,513,442 --------------------------------------------------------------- MSF Funding LLC, Collateralized Mtg. Obligations, Series 2000-1, Cl. C, 8.77%, 7/25/07 2,3 869,237 839,423 --------------------------------------------------------------- NC Finance Trust, Collateralized Mtg. Obligations: Series 1999-I, Cl. ECFD, 8.75%, 12/25/28 2 4,282,993 1,884,517 Series 2002-I, Cl. ECFD, 9.25%, 3/25/32 1 3,617,582 3,572,363 --------------------------------------------------------------- Nissan Auto Lease Trust, Auto Lease Obligations, Series 2002-A, Cl. A2, 1.86%, 11/15/04 2 7,060,000 7,060,000 --------------------------------------------------------------- Nissan Auto Receivables Owner Trust, Auto Receivable Nts., Series 2002-C, Cl. A2, 1.94%, 9/15/04 2 5,180,000 5,193,427 --------------------------------------------------------------- ONYX Acceptance Auto Trust, Automobile Asset-Backed Certificates, Series 2002, Cl. A, 13.60%, 2/20/32 1,513,624 1,498,488 --------------------------------------------------------------- Option One Mortgage Securities Corp., Home Equity Collateralized Mtg. Obligations: Series 1999-1, Cl. CTFS, 10.06%, 3/26/29 2 288,327 277,289 Series 1999-3, Cl. CTFS, 10.80%, 12/15/29 326,760 320,429 --------------------------------------------------------------- Salomon Smith Barney Auto Loan Trust, Asset-Backed Auto Loan Obligations, Series 2002-1, Cl. A2, 1.83%, 9/15/05 2 5,330,000 5,310,013 --------------------------------------------------------------- Tobacco Settlement Authority, Asset-Backed Securities, Series 2001-A, 6.79%, 6/1/10 2,100,000 2,230,179 --------------------------------------------------------------- USAA Auto Owner Trust, Automobile Loan Asset-Backed Certificates, Series 2002-1, Cl. A2, 1.95%, 3/15/05 1,610,000 1,614,777 --------------------------------------------------------------- Volkswagen Auto Lease Trust, Automobile Lease Asset-Backed Securities, Series 2002-A, Cl. A2, 1.77%, 2/20/05 6,900,000 6,906,210 --------------------------------------------------------------- Whole Auto Loan Trust, Auto Loans Receivables, Series 2002-1, Cl. A2, 1.88%, 6/15/05 4,540,000 4,546,384 ------------- Total Asset-Backed Securities (Cost $107,701,321) 101,194,945 6 | OPPENHEIMER BOND FUND/VA Principal Market Value Amount See Note 1 --------------------------------------------------------------- Corporate Loans--0.2% Ferrell Cos., Inc., Sr. Sec. Credit Facilities Term Loan, Tranche B, 5.47%, 6/17/06 2,3 (Cost $1,368,337) $ 1,382,159 $ 1,352,788 --------------------------------------------------------------- Mortgage-Backed Obligations--24.7% --------------------------------------------------------------- Government Agency--16.1% --------------------------------------------------------------- FHLMC/FNMA/sponsored--15.9% Asset Securitization Corp., Interest-Only Stripped Mtg.-Backed Security Collateralized Mtg. Obligations, Series 1997-D4, Cl. PS1, 1.097%, 4/14/29 4 50,303,179 2,562,318 --------------------------------------------------------------- Federal Home Loan Mortgage Corp., Gtd. Mtg. Pass-Through Participation Certificates: 8%, 4/1/16 4,484,956 4,856,163 9%, 8/1/22-5/1/25 1,044,947 1,164,784 Series 151, Cl. F, 9%, 5/15/21 193,144 200,201 --------------------------------------------------------------- Federal Home Loan Mortgage Corp., Gtd. Real Estate Mtg. Investment Conduit Multiclass Pass-Through Certificates, Series 2054, Cl. TE, 6.25%, 4/15/24 109,000 111,048 --------------------------------------------------------------- Federal Home Loan Mortgage Corp., Home Equity Loan Structured Pass-Through Certificates, Series HOO2, Cl. A2, 1.861%, 12/15/06 5,820,000 5,793,173 --------------------------------------------------------------- Federal Home Loan Mortgage Corp., Interest-Only Stripped Mtg.-Backed Security: Series 206, Cl. IO, 7.50%, 12/15/29 4 6,856,275 903,100 Series 303, Cl. IO, 7.50%, 11/1/29 4 2,605,457 352,958 --------------------------------------------------------------- Federal National Mortgage Assn.: 6.50%, 3/1/11 212,212 225,261 6.50%, 1/25/33 5 32,350,000 33,684,438 7%, 11/1/25 178,808 189,187 7%, 1/25/33 5 60,618,000 63,762,559 7.50%, 1/1/08-1/1/26 732,172 781,568 8%, 5/1/17 90,266 98,644 --------------------------------------------------------------- Federal National Mortgage Assn., Collateralized Mtg. Obligations, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, Trust 131, Cl. G, 8.75%, 11/25/05 304,008 321,022 --------------------------------------------------------------- Federal National Mortgage Assn., Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates, Trust 1989-17, Cl. E, 10.40%, 4/25/19 254,357 288,151 -------------- 115,260,292 --------------------------------------------------------------- GNMA/Guaranteed--0.2% Government National Mortgage Assn.: 7%, 1/15/09-5/15/09 158,279 170,164 8.50%, 8/15/17-12/15/17 1,249,416 1,382,317 -------------- 1,552,481 Principal Market Value Amount See Note 1 --------------------------------------------------------------- Private--8.6% --------------------------------------------------------------- Commercial--5.4% Asset Securitization Corp., Commercial Mtg. Pass-Through Certificates, Series 1996-MD6, Cl. A3, 7.089%, 11/13/29 3 $ 1,200,000 $ 1,337,713 --------------------------------------------------------------- Asset Securitization Corp., Interest-Only Stripped Mtg.-Backed Security Commercial Mtg. Pass-Through Certificates, Series 1997-D5, Cl. PS1, 8.338%, 2/14/41 4 17,223,827 1,249,064 --------------------------------------------------------------- Capital Lease Funding Securitization LP, Interest-Only Corporate-Backed Pass-Through Certificates, Series 1997-CTL1, 9.305%, 6/22/24 2,4 27,703,411 919,840 --------------------------------------------------------------- Commercial Mortgage Acceptance Corp., Commercial Mtg. Obligations, Series 1996-C1, Cl. D, 7.50%, 12/25/20 2,3 1,103,590 1,109,108 --------------------------------------------------------------- CS First Boston Mortgage Securities Corp., Interest-Only Stripped Mtg.-Backed Security, Series 1998-C1, Cl. AX, 7.226%, 4/11/30 4 23,390,512 1,134,533 --------------------------------------------------------------- DLJ Commercial Mortgage Corp., Commercial Mtg. Pass-Through Certificates, Series 1999-STF1, Cl. B6, 5.01%, 7/5/08 2,8 34,282,670 34,283 --------------------------------------------------------------- DLJ Mortgage Acceptance Corp., Commercial Mtg. Obligations, Series 1996-CF1, Cl. A3, 7.848%, 3/13/28 3 2,000,000 2,266,644 --------------------------------------------------------------- FDIC Trust, Gtd. Real Estate Mtg. Investment Conduit Pass-Through Certificates: Series 1994-C1, Cl.2D, 8.70%, 9/25/25 2 381,974 371,470 Series 1994-C1, Cl.2E, 8.70%, 9/25/25 2 1,500,000 1,457,578 --------------------------------------------------------------- First Union-Chase Commercial Mortgage Trust, Interest-Only Commercial Mtg. Pass-Through Certificates, Series 1999-C2, Cl. IO, 10.117%, 6/15/31 4 88,332,038 3,153,454 --------------------------------------------------------------- First Union-Lehman Brothers Commercial Mortgage Trust, Interest-Only Stripped Mtg.-Backed Security, Series 1998-C2, 10.195%, 5/18/28 4 17,845,330 518,978 --------------------------------------------------------------- GMAC Commercial Mortgage Securities, Inc., Interest-Only Stripped Mtg.-Backed Security Pass-Through Certificates, Series 1997-C1, Cl. X, 11.692%, 7/15/27 4 16,149,676 951,317 --------------------------------------------------------------- Lehman Brothers Commercial Conduit Mortgage Trust, Interest-Only Stripped Mtg.-Backed Security, Series 1998-C1, Cl. IO, 11.541%, 2/18/28 4 24,529,346 1,040,581 7 | OPPENHEIMER BOND FUND/VA STATEMENT OF INVESTMENTS Continued -------------------------------------------------------------------------------- Principal Market Value Amount See Note 1 --------------------------------------------------------------- Commercial Continued Lehman Structured Securities Corp., Collateralized Mtg. Obligations, Series 2002-GE1, Cl. A, 6%, 7/26/24 2 $ 4,013,454 $ 3,911,864 --------------------------------------------------------------- Morgan Stanley Capital I, Inc., Commercial Mtg. Pass-Through Certificates, Series 1996-WF1, Cl. A2, 7.339%, 11/15/28 1,3 4,393,793 4,520,698 --------------------------------------------------------------- NationsBank Trust, Lease Pass-Through Certificates, Series 1997A-1, 7.442%, 1/10/11 3 2,051,757 2,293,272 --------------------------------------------------------------- PNC Mortgage Securities Corp., Collateralized Mtg. Obligations Pass-Through Certificates, Series 1998-12, Cl. 1A2, 5.75%, 1/25/29 9,685,500 9,753,645 --------------------------------------------------------------- Salomon Brothers Mortgage Securities VII, Inc., Interest-Only Commercial Mtg. Pass-Through Certificates, Series 1999-C1, Cl. X, 11.594%, 5/18/32 4 417,966,949 3,265,367 ------------- 39,289,409 --------------------------------------------------------------- Other--0.0% Salomon Brothers Mortgage Securities VI, Inc., Interest-Only Stripped Mtg.-Backed Security, Series 1987-3, Cl. B, (25.42)%, 10/23/17 2,4 27,601 6,055 --------------------------------------------------------------- Salomon Brothers Mortgage Securities VI, Inc., Principal-Only Stripped Mtg.-Backed Security, Series 1987-3, Cl. A, (1.539)%, 10/23/17 2,6 39,474 32,887 ------------- 38,942 --------------------------------------------------------------- Residential--3.2% Countrywide Funding Corp., Mtg. Pass-Through Certificates, Series 1993-12, Cl. B1, 6.625%, 2/25/24 515,102 527,416 --------------------------------------------------------------- Granite Mortgages plc, Mtg.-Backed Obligations, Series 2002-2, Cl. 1A1, 1.929%, 1/21/17 3 3,570,000 3,570,000 --------------------------------------------------------------- Salomon Brothers Mortgage Securities VII, Inc., Commercial Mtg. Pass-Through Certificates, Series 1999-NC2, Cl. M3, 4.67%, 4/25/29 3 1,047,006 1,035,227 --------------------------------------------------------------- Structured Asset Securities Corp., Collateralized Mtg. Obligations, Mtg. Pass-Through Certificates: Series 1998-8, Cl. B, 2.72%, 8/25/28 3 2,397,589 2,323,471 Series 2002-AL1, Cl. B2, 3.45%, 2/25/32 3,240,956 2,800,980 Principal Market Value Amount See Note 1 --------------------------------------------------------------- Residential Continued Washington Mutual Mortgage Securities Corp., Collateralized Mtg. Obligations, Pass-Through Certificates: Series 2002-AR10, Cl. A1, 2.359%, 10/25/32 2,3 $ 2,165,353 $ 2,168,858 Series 2002-AR15, Cl. A1, 2.26%, 11/25/32 2 3,928,864 3,939,674 Series 2002-AR19, Cl. A-1, 1.771%, 1/25/33 7,010,000 7,010,000 ------------- 23,375,626 ------------- Total Mortgage-Backed Obligations (Cost $176,645,235) 179,551,033 --------------------------------------------------------------- U.S. Government Obligations--18.2% --------------------------------------------------------------- Federal Home Loan Mortgage Corp. Unsec. Nts.: 3%, 7/15/04 25,900,000 26,473,763 6.25%, 7/15/32 11,000,000 12,505,834 --------------------------------------------------------------- Federal National Mortgage Assn. Unsec. Nts.: 5.25%, 6/15/06 15,000,000 16,359,150 6%, 5/15/11 5,000,000 5,661,260 6.375%, 6/15/09 24,000,000 27,807,960 --------------------------------------------------------------- U.S. Treasury Bonds, 5.375%, 2/15/31 14,981,000 16,336,316 --------------------------------------------------------------- U.S. Treasury Nts.: 3%, 11/15/07 3,766,000 3,812,488 4%, 11/15/12 21,809,000 22,124,227 5.875%, 11/15/04 550,000 594,194 6.50%, 2/15/10 550,000 657,594 ------------- Total U.S. Government Obligations (Cost $127,214,674) 132,332,786 --------------------------------------------------------------- Foreign Government Obligations--0.4% United Mexican States Nts., 7.50%, 1/14/12 (Cost $2,638,602) 2,610,000 2,799,225 --------------------------------------------------------------- Corporate Bonds and Notes--45.3% --------------------------------------------------------------- Consumer Discretionary--9.5% --------------------------------------------------------------- Auto Components--0.5% Delphi Corp., 6.55% Nts., 6/15/06 3,180,000 3,355,526 --------------------------------------------------------------- Automobiles--3.4% Ford Motor Co., 7.45% Bonds, 7/16/31 5,035,000 4,391,572 --------------------------------------------------------------- General Motors Acceptance Corp.: 6.875% Unsec. Unsub. Nts., 8/28/12 3,970,000 3,920,228 7% Auto Loan Nts., 2/1/12 6,579,000 6,617,849 --------------------------------------------------------------- Hertz Corp. (The), 7.625% Sr. Nts., 6/1/12 9,200,000 8,796,092 --------------------------------------------------------------- U.S. Leasing International, Inc., 6.625% Sr. Nts., 5/15/03 750,000 749,096 ------------- 24,474,837 8 | OPPENHEIMER BOND FUND/VA Principal Market Value Amount See Note 1 --------------------------------------------------------------- Household Durables--0.6% Pulte Corp., 8.125% Sr. Unsec. Nts., 3/1/11 $ 3,890,000 $ 4,361,340 --------------------------------------------------------------- Media--3.8% AOL Time Warner, Inc., 6.875% Nts., 5/1/12 6,800,000 7,196,386 --------------------------------------------------------------- Cox Communications, Inc., 7.125% Nts., 10/1/12 3,450,000 3,838,877 --------------------------------------------------------------- News America Holdings, Inc., 7.75% Sr. Unsec. Debs., 12/1/45 5,826,000 5,743,247 --------------------------------------------------------------- Reed Elsevier Capital, Inc., 6.75% Bonds, 8/1/11 2,810,000 3,176,753 --------------------------------------------------------------- Viacom, Inc., 7.70% Sr. Unsec. Nts., 7/30/10 3,330,000 3,962,024 --------------------------------------------------------------- Walt Disney Co., 6.75% Sr. Nts., 3/30/06 3,665,000 4,005,288 ------------- 27,922,575 --------------------------------------------------------------- Multiline Retail--1.2% Federated Department Stores, Inc., 6.30% Sr. Nts., 4/1/09 5,455,000 5,828,117 --------------------------------------------------------------- Sears Roebuck Acceptance Corp.: 6% Unsec. Bonds, 3/20/03 1,865,000 1,866,106 6.90% Nts., 8/1/03 1,295,000 1,306,656 ------------- 9,000,879 --------------------------------------------------------------- Consumer Staples--2.6% --------------------------------------------------------------- Food & Drug Retailing--1.4% Albertson's, Inc., 7.45% Unsec. Debs., 8/1/29 2,620,000 2,902,431 --------------------------------------------------------------- Kroger Co. (The), 6.75% Nts., 4/15/12 2,635,000 2,921,000 --------------------------------------------------------------- Safeway, Inc., 4.80% Sr. Unsec. Nts., 7/16/07 3,980,000 4,110,429 ------------- 9,933,860 --------------------------------------------------------------- Household Products--0.0% Styling Technology Corp., 10.875% Sr. Unsec. Sub. Nts., 7/1/08 2,7,8 360,000 -- --------------------------------------------------------------- Tobacco--1.2% Philip Morris Cos., Inc., 7.25% Nts., 1/15/03 9,140,000 9,149,862 --------------------------------------------------------------- Energy--0.3% --------------------------------------------------------------- Energy Equipment & Services--0.0% Ocean Rig Norway AS, 10.25% Sr. Sec. Nts., 6/1/08 400,000 362,000 --------------------------------------------------------------- Oil & Gas--0.3% Petroleos Mexicanos, 9.50% Sr. Sub. Nts., 9/15/27 1,730,000 1,941,925 --------------------------------------------------------------- Financials--14.0% --------------------------------------------------------------- Banks--2.7% ABN Amro NA Holding Capital NV, 6.473% Bonds, 12/29/49 1 2,690,000 2,764,150 Principal Market Value Amount See Note 1 --------------------------------------------------------------- Banks Continued Credit Suisse First Boston (USA), Inc., 6.125% Nts., 11/15/11 $ 5,585,000 $ 5,837,286 --------------------------------------------------------------- Dime Capital Trust I, 9.33% Capital Securities, Series A, 5/6/27 4,848,000 5,528,906 --------------------------------------------------------------- Socgen Real Estate LLC, 7.64% Bonds, 12/29/49 1,3 4,800,000 5,285,395 ------------- 19,415,737 --------------------------------------------------------------- Diversified Financials--3.3% Aeltus CBO II Ltd./Aeltus CBO II Corp., 0.319% Sr. Sec. Sub. Bonds, 8/6/09 2 5,622,860 281,205 --------------------------------------------------------------- CIT Group, Inc., 7.75% Sr. Unsec. Unsub. Nts., 4/2/12 3,080,000 3,465,135 --------------------------------------------------------------- Citigroup, Inc., 6.625% Unsec. Sub. Nts., 6/15/32 2,120,000 2,322,316 --------------------------------------------------------------- Goldman Sachs Group, Inc. (The), 6.60% Sr. Unsec. Nts., 1/15/12 2,620,000 2,900,073 --------------------------------------------------------------- Household Finance Corp., 7% Nts., 5/15/12 4,900,000 5,376,241 --------------------------------------------------------------- J.P. Morgan Chase & Co., 6.625% Sub. Nts., 3/15/12 2,675,000 2,904,245 --------------------------------------------------------------- MBNA America Bank NA, 6.625% Sub. Nts., 6/15/12 3,310,000 3,375,108 --------------------------------------------------------------- Morgan Stanley, 6.60% Nts., 4/1/12 3,410,000 3,785,993 ------------- 24,410,316 --------------------------------------------------------------- Insurance--6.4% American International Group, Inc./ SunAmerica Global Financing VI, 6.30% Sr. Sec. Nts., 5/10/11 1 3,860,000 4,261,560 --------------------------------------------------------------- AXA Group, 8.60% Unsec. Sub. Nts., 12/15/30 4,870,000 5,582,496 --------------------------------------------------------------- Farmers Insurance Exchange, 8.625% Nts., 5/1/24 1 1,800,000 1,351,922 --------------------------------------------------------------- John Hancock Global Funding II: 5% Nts., 7/27/07 1 4,015,000 4,211,518 7.90% Nts., 7/2/10 1 2,495,000 2,931,126 --------------------------------------------------------------- Metropolitan Life Global Funding I, 4.75% Nts., 6/20/07 5,250,000 5,526,659 --------------------------------------------------------------- Nationwide CSN Trust, 9.875% Sec. Nts., 2/15/25 1 9,000,000 9,786,897 --------------------------------------------------------------- Nationwide Financial Services, Inc., 5.90% Nts., 7/1/12 3,185,000 3,253,363 --------------------------------------------------------------- Prudential Holdings LLC, 8.695% Bonds, Series C, 12/18/23 1 4,090,000 4,747,247 --------------------------------------------------------------- Prudential Insurance Co. of America, 8.30% Nts., 7/1/25 1 4,670,000 5,233,454 ------------- 46,886,242 9 | OPPENHEIMER BOND FUND/VA STATEMENT OF INVESTMENTS Continued Principal Market Value Amount See Note 1 --------------------------------------------------------------- Real Estate--1.6% EOP Operating LP, 7.75% Unsec. Nts., 11/15/07 $ 3,595,000 $ 4,081,501 --------------------------------------------------------------- Simon DeBartolo Group LP, 6.875% Unsec. Nts., 11/15/06 3,685,000 4,013,101 --------------------------------------------------------------- Vornado Realty LP, 5.625% Sr. Unsec. Unsub. Nts., 6/15/07 3,260,000 3,324,965 -------------- 11,419,567 --------------------------------------------------------------- Health Care--3.1% --------------------------------------------------------------- Health Care Providers & Services--1.5% Anthem, Inc., 6.80% Unsec. Unsub. Bonds, 8/1/12 4,050,000 4,414,646 --------------------------------------------------------------- Cardinal Health, Inc., 4.45% Nts., 6/30/05 3,230,000 3,392,372 --------------------------------------------------------------- WellPoint Health Networks, Inc., 6.375% Nts., 1/15/12 2,720,000 2,957,031 -------------- 10,764,049 --------------------------------------------------------------- Pharmaceuticals--1.6% Bristol-Myers Squibb Co., 5.75% Nts., 10/1/11 9 5,265,000 5,616,128 --------------------------------------------------------------- Pharmacia Corp., 6.60% Sr. Unsec. Nts., 12/1/28 1,730,000 1,961,049 --------------------------------------------------------------- Wyeth, 5.875% Nts., 3/15/04 3,960,000 4,117,798 -------------- 11,694,975 --------------------------------------------------------------- Industrials--6.2% --------------------------------------------------------------- Aerospace & Defense--2.2% Boeing Capital Corp., 5.65% Sr. Unsec. Nts., 5/15/06 4,865,000 5,101,532 --------------------------------------------------------------- Lockheed Martin Corp., 8.20% Nts., 12/1/09 3,565,000 4,411,677 --------------------------------------------------------------- Raytheon Co., 5.70% Sr. Unsec. Nts., 11/1/03 6,475,000 6,603,755 -------------- 16,116,964 --------------------------------------------------------------- Building Products--0.1% GSP I Corp., 10.15% First Mtg. Bonds, 6/24/10 1 854,166 918,070 --------------------------------------------------------------- Commercial Services & Supplies--1.3% PHH Corp., 8.125% Nts., 2/3/03 2 4,550,000 4,561,493 --------------------------------------------------------------- Protection One, Inc./Protection One Alarm Monitoring, Inc., 7.375% Sr. Unsec. Nts., 8/15/05 300,000 247,500 --------------------------------------------------------------- Safety-Kleen Corp., 9.25% Sr. Unsec. Nts., 5/15/09 2,7,8 800,000 32,000 --------------------------------------------------------------- Waste Management, Inc.: 7% Sr. Nts., 7/15/28 3,790,000 3,760,946 7.75% Bonds, 5/15/32 1 610,000 657,367 -------------- 9,259,306 Principal Market Value Amount See Note 1 --------------------------------------------------------------- Industrial Conglomerates--2.0% General Electric Capital Corp.: 6% Nts., 6/15/12 $ 5,000,000 $ 5,408,180 6.75% Nts., Series A, 3/15/32 1,110,000 1,231,334 --------------------------------------------------------------- MMCaps Funding I Ltd., Inc., 8.03% Sr. Nts., 6/15/31 1 7,150,000 7,507,229 -------------- 14,146,743 --------------------------------------------------------------- Road & Rail--0.6% Burlington Northern Santa Fe Corp., 5.90% Sr. Nts., 7/1/12 4,000,000 4,346,404 --------------------------------------------------------------- Materials--0.3% --------------------------------------------------------------- Chemicals--0.3% Union Carbide Corp., 6.25% Nts., 6/15/03 1,985,000 2,004,477 --------------------------------------------------------------- Metals & Mining--0.0% National Steel Corp., 9.875% First Mtg. Bonds, Series D, 3/1/09 7,8 500,000 196,875 --------------------------------------------------------------- Telecommunication Services--5.3% --------------------------------------------------------------- Diversified Telecommunication Services--3.6% Citizens Communications Co., 9.25% Sr. Nts., 5/15/11 1,885,000 2,249,127 --------------------------------------------------------------- Deutsche Telekom International BV, 8.25% Unsec. Unsub. Nts., 6/15/05 3 5,000,000 5,470,680 --------------------------------------------------------------- France Telecom SA, 8.70% Sr. Unsec. Nts., 3/1/06 3 3,265,000 3,577,702 --------------------------------------------------------------- GTE North, Inc., 6.73% Debs., Series G, 2/15/28 3,270,000 3,482,943 --------------------------------------------------------------- New England Telephone & Telegraph Co., 7.875% Debs., 11/15/29 2,335,000 2,820,752 --------------------------------------------------------------- Sprint Capital Corp., 8.75% Nts., 3/15/32 3,270,000 3,115,960 --------------------------------------------------------------- TCI Communications, Inc., 9.80% Sr. Unsec. Debs., 2/1/12 4,700,000 5,658,377 -------------- 26,375,541 --------------------------------------------------------------- Wireless Telecommunication Services--1.7% AT&T Corp.: 6.375% Nts., 3/15/04 3 3,300,000 3,383,708 8.50% Sr. Nts., 11/15/31 3 1,310,000 1,448,885 --------------------------------------------------------------- AT&T Wireless Services, Inc., 7.50% Sr. Unsec. Nts., 5/1/07 7,405,000 7,635,525 -------------- 12,468,118 --------------------------------------------------------------- Utilities--4.0% --------------------------------------------------------------- Electric Utilities--3.0% Dominion Resources, Inc., 8.125% Sr. Unsub. Nts., 6/15/10 3,390,000 3,950,699 --------------------------------------------------------------- Duke Energy Corp., 5.625% Nts., 11/30/12 1,325,000 1,324,818 --------------------------------------------------------------- FirstEnergy Corp., 7.375% Sr. Unsub. Nts., Series C, 11/15/31 4,705,000 4,576,953 10 | OPPENHEIMER BOND FUND/VA Principal Market Value Amount See Note 1 --------------------------------------------------------------- Electric Utilities Continued MidAmerican Energy Holdings Co., 5.875% Sr. Nts., 10/1/12 1 $ 7,015,000 $ 7,124,420 --------------------------------------------------------------- Progress Energy, Inc., 7.10% Nts., 3/1/11 3,835,000 4,234,477 --------------------------------------------------------------- South Carolina Electric & Gas Co., 9% Mtg. Bonds, 7/15/06 500,000 549,436 -------------- 21,760,803 --------------------------------------------------------------- Gas Utilities--1.0% Colorado Interstate Gas Corp., 10% Sr. Debs., 6/15/05 500,000 495,314 --------------------------------------------------------------- Kinder Morgan, Inc., 6.50% Nts., 9/1/12 1 1,980,000 2,072,951 --------------------------------------------------------------- NiSource Finance Corp., 7.875% Sr. Unsec. Nts., 11/15/10 3,920,000 4,314,568 -------------- 6,882,833 --------------------------------------------------------------- Multi-Utilities--0.0% Enron Corp., 9.875% Debs., 6/15/03 7,8 375,000 50,625 -------------- Total Corporate Bonds and Notes (Cost $322,207,760) 329,620,449 Units --------------------------------------------------------------- Rights, Warrants and Certificates--0.0% Pathmark Stores, Inc. Wts., Exp. 9/19/10 (Cost $14,872) 5,408 4,164 Principal Amount --------------------------------------------------------------- Structured Notes--6.2% JPMorgan Chase Bank, High Yield Index Credit-Linked Trust Nts., 7.55%, 11/15/07 $ 29,550,000 30,067,125 --------------------------------------------------------------- UBS AG, High Grade Credit-Linked Nts., 3.065%, 12/10/04 3 15,300,000 15,284,700 -------------- Total Structured Notes (Cost $44,850,000) 45,351,825 Principal Market Value Amount See Note 1 --------------------------------------------------------------- Joint Repurchase Agreements--4.3% Undivided interest of 4.49% in joint repurchase agreement (Market Value $694,610,000) with Banc One Capital Markets, Inc., 1.07%, dated 12/31/02, to be repurchased at $31,206,855 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 $31,205,000) $ 31,205,000 $ 31,205,000 --------------------------------------------------------------- Total Investments, at Value (Cost $813,845,801) 113.2% 823,412,215 --------------------------------------------------------------- Liabilities in Excess of Other Assets (13.2) (96,189,662) ----------------------------- Net Assets 100.0% $727,222,553 ============================= Footnotes to Statement of Investments 1. Represents securities sold under Rule 144A, which are exempt from registration under the Securities Act of 1933, as amended. These securities have been determined to be liquid under guidelines established by the Board of Trustees. These securities amount to $67,320,783 or 9.30% of the Fund's net assets as of December 31, 2002. 2. Identifies issues considered to be illiquid or restricted--See Note 7 of Notes to Financial Statements. 3. Represents the current interest rate for a variable or increasing rate security. 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. These securities amount to $16,057,565 or 2.21% of the Fund's net assets as of December 31, 2002. 5. When-issued security to be delivered and settled after December 31, 2002. 6. Principal-Only Strips represent the right to receive the monthly principal payments on an underlying pool of mortgage loans. The value of these securities generally increases as interest rates decline and prepayment rates rise. The price of these securities is typically more volatile than that of coupon-bearing bonds of the same maturity. Interest rates disclosed represent current yields based upon the current cost basis and estimated timing of future cash flows. 7. Issuer is in default. 8. Non-income producing security. 9. Securities with an aggregate market value of $2,133,382 are held in collateralized accounts to cover initial margin requirements on open futures sales contracts. See Note 5 of Notes to Financial Statements. See accompanying Notes to Financial Statements. 11 | OPPENHEIMER BOND FUND/VA STATEMENT OF ASSETS AND LIABILITIES December 31, 2002
---------------------------------------------------------------------------------------------------------------- Assets Investments, at value (cost $813,845,801)--see accompanying statement $823,412,215 ---------------------------------------------------------------------------------------------------------------- Receivables and other assets: Interest, dividends and principal paydowns 7,187,734 Investments sold on a when-issued basis 2,806,549 Shares of beneficial interest sold 236,364 Daily variation on futures contracts 57,438 Other 8,093 ------------- Total assets 833,708,393 ---------------------------------------------------------------------------------------------------------------- Liabilities Bank overdraft 5,410,812 ---------------------------------------------------------------------------------------------------------------- Payables and other liabilities: Investments purchased on a when-issued basis 99,967,291 Shares of beneficial interest redeemed 1,059,708 Shareholder reports 14,787 Trustees' compensation 2,613 Distribution and service plan fees 1,073 Transfer and shareholder servicing agent fees 436 Other 29,120 ------------- Total liabilities 106,485,840 ---------------------------------------------------------------------------------------------------------------- Net Assets $727,222,553 ============= ---------------------------------------------------------------------------------------------------------------- Composition of Net Assets Par value of shares of beneficial interest $ 64,282 ---------------------------------------------------------------------------------------------------------------- Additional paid-in capital 736,378,030 ---------------------------------------------------------------------------------------------------------------- Undistributed net investment income 40,713,852 ---------------------------------------------------------------------------------------------------------------- Accumulated net realized loss on investment transactions (58,790,479) ---------------------------------------------------------------------------------------------------------------- Net unrealized appreciation on investments 8,856,868 ------------- Net Assets $727,222,553 ============= ---------------------------------------------------------------------------------------------------------------- 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 $724,787,458 and 64,066,177 shares of beneficial interest outstanding) $11.31 ---------------------------------------------------------------------------------------------------------------- Service shares: Net asset value, redemption price per share and offering price per share (based on net assets of $2,435,095 and 215,409 shares of beneficial interest outstanding) $11.30
See accompanying Notes to Financial Statements. 12 | OPPENHEIMER BOND FUND/VA STATEMENT OF OPERATIONS For the Year Ended December 31, 2002
------------------------------------------------------------------------------------------------------------ Investment Income Interest $45,396,060 ------------------------------------------------------------------------------------------------------------ Dividends 243,249 ------------ Total investment income 45,639,309 ------------------------------------------------------------------------------------------------------------ Expenses Management fees 4,896,856 ------------------------------------------------------------------------------------------------------------ Distribution and service plan fees-Service shares 1,382 ------------------------------------------------------------------------------------------------------------ Transfer and shareholder servicing agent fees: Non-Service shares 10,435 Service shares 14 ------------------------------------------------------------------------------------------------------------ Custodian fees and expenses 31,840 ------------------------------------------------------------------------------------------------------------ Trustees' compensation 27,545 ------------------------------------------------------------------------------------------------------------ Other 33,130 ------------ Total expenses 5,001,202 Less reduction to custodian expenses (8,389) Less voluntary waiver of transfer and shareholder servicing agent fees--Service shares (4) ------------ Net expenses 4,992,809 ------------------------------------------------------------------------------------------------------------ Net Investment Income 40,646,500 ------------------------------------------------------------------------------------------------------------ Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investments (22,890,224) Closing of futures contracts 7,840,025 Closing and expiration of option contracts written 138,286 ------------ Net realized loss (14,911,913) ------------------------------------------------------------------------------------------------------------ Net change in unrealized appreciation on investments 33,764,082 ------------ Net realized and unrealized gain 19,963,596 ------------------------------------------------------------------------------------------------------------ Payment from affiliate 1,111,427 ------------------------------------------------------------------------------------------------------------ Net Increase in Net Assets Resulting From Operations $60,610,096 ============
See accompanying Notes to Financial Statements. 13 | OPPENHEIMER BOND FUND/VA STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 2002 2001 ----------------------------------------------------------------------------------------------------------------------- Operations Net investment income $ 40,646,500 $ 50,640,353 ----------------------------------------------------------------------------------------------------------------------- Net realized gain (loss) (14,911,913) 6,571,787 ----------------------------------------------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) 33,764,082 (14,467,548) ----------------------------------------------------------------------------------------------------------------------- Payment from affiliate 1,111,427 -- ----------------------------- Net increase in net assets resulting from operations 60,610,096 42,744,592 ----------------------------------------------------------------------------------------------------------------------- Dividends and/or Distributions to Shareholders Dividends from net investment income: Non-Service shares (50,820,794) (44,272,510) Service shares -- -- ----------------------------------------------------------------------------------------------------------------------- Beneficial Interest Transactions Net increase in net assets resulting from beneficial interest transactions: Non-Service shares 21,383,866 132,884,316 Service shares 2,348,380 -- ----------------------------------------------------------------------------------------------------------------------- Net Assets Total increase 33,521,548 131,356,398 ----------------------------------------------------------------------------------------------------------------------- Beginning of period 693,701,005 562,344,607 ----------------------------- End of period [including undistributed net investment income of $40,713,852 and $50,773,326, respectively] $727,222,553 $693,701,005 =============================
See accompanying Notes to Financial Statements. 14 | OPPENHEIMER BOND 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 $11.21 $11.25 $11.52 $12.32 $11.91 ----------------------------------------------------------------------------------------------------------------------------- Income (loss) from investment operations: Net investment income .65 .81 .94 .88 .72 Net realized and unrealized gain (loss) .27 .03 (.29) (1.06) .07 Payment from affiliate .01 -- -- -- -- --------------------------------------------------------------- Total from investment operations .93 .84 .65 (.18) .79 ----------------------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income (.83) (.88) (.92) (.57) (.20) Distributions from net realized gain -- -- -- (.05) (.18) --------------------------------------------------------------- Total dividends and/or distributions to shareholders (.83) (.88) (.92) (.62) (.38) ----------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period $11.31 $11.21 $11.25 $11.52 $12.32 =============================================================== ----------------------------------------------------------------------------------------------------------------------------- Total Return Total return at net asset value 1 9.02% 7.79% 6.10% (1.52)% 6.80% Total return before payment from affiliate 2 8.93% N/A N/A N/A N/A ----------------------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $724,787 $693,701 $562,345 $601,064 $655,543 ----------------------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $686,932 $638,820 $557,873 $633,059 $586,242 ----------------------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 3 Net investment income before payment from affiliate 5.91% 2 7.93% 7.94% 7.22% 6.31% Net investment income after payment from affiliate 6.07% N/A N/A N/A N/A Expenses 0.73% 0.77% 0.76% 0.73% 0.74% 4 ----------------------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 157% 186% 260% 256% 76% 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. The Manager voluntarily reimbursed the Class $1,107,704 from an error in the calculation of the Fund's net asset value per share. 3. Annualized for periods of less than one full year. 4. Expense ratio has been calculated without adjustment for the reduction to custodian expenses.
See accompanying Notes to Financial Statements. 15 | OPPENHEIMER BOND FUND/VA FINANCIAL HIGHLIGHTS Continued --------------------------------------------------------------------------------
Service shares Period Ended December 31 2002 1 --------------------------------------------------------------------------------------------------------------- Per Share Operating Data Net asset value, beginning of period $10.46 --------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income .11 Net realized and unrealized gain .72 Payment from affiliate .01 -------- Total from investment operations .84 --------------------------------------------------------------------------------------------------------------- Dividends and/or distributions to shareholders: Dividends from net investment income -- Distributions from net realized gain -- -------- Total dividends and/or distributions to shareholders -- -------- Net asset value, end of period $11.30 ======== --------------------------------------------------------------------------------------------------------------- Total Return Total return at net asset value 2 8.03% Total return before payment from affiliate 3 7.94% --------------------------------------------------------------------------------------------------------------- Ratios/Supplemental Data Net assets, end of period (in thousands) $ 2,435 --------------------------------------------------------------------------------------------------------------- Average net assets (in thousands) $ 834 --------------------------------------------------------------------------------------------------------------- Ratios to average net assets: 4 Net investment income before payment from affiliate 4.37% 3 Net investment income after payment from affiliate 5.04% Expenses 0.98% Expenses, net of reduction to custodian expenses and/or voluntary waiver of transfer agent fees 0.98% 5 --------------------------------------------------------------------------------------------------------------- Portfolio turnover rate 157% 1. For the period from May 1, 2002 (inception of offering) to December 31, 2002. 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. The Manager voluntarily reimbursed the Class $3,723 from an error in the calculation of the Fund's net asset value per share. 4. Annualized for periods of less than one full year. 5. Less than 0.01%. See accompanying Notes to Financial Statements.
16 | OPPENHEIMER BOND FUND/VA NOTES TO FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 1. Significant Accounting Policies Oppenheimer Bond 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 main investment objective is to seek a high level of current income. 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). -------------------------------------------------------------------------------- Securities Purchased on a When-issued Basis. Delivery and payment for securities that have been purchased by the Fund on a when-issued basis can take place a month or more after the trade date. Normally the settlement date occurs within six months after the trade date; however, the Fund may, from time to time, purchase securities whose settlement date extends six months or more beyond trade date. During this period, such securities do not earn interest, are subject to market fluctuation and may increase or decrease in value prior to their delivery. The Fund maintains segregated assets with a market value equal to or greater than the amount of its commitments. These transactions of securities on a when-issued basis may increase the volatility of the Fund's net asset value to the extent the Fund executes such transactions while remaining substantially fully invested. As of December 31, 2002, the Fund had entered into when-issued purchase commitments of $99,967,291 and when-issued sale commitments of $2,806,549. In connection with its ability to purchase securities on a when-issued basis, the Fund may enter into forward roll transactions with respect to mortgage-related securities. Forward roll transactions require the sale of securities for delivery in the current month, and a simultaneous agreement with the same counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. The forward roll may not extend for a period of greater than one year. The Fund generally records the incremental difference between the forward purchase and sell of each forward roll as interest income. Risks to the Fund of entering into forward roll transactions include the potential inability of the counterparty to meet the terms of the agreement; the potential of the Fund to receive inferior securities to what was sold to the counterparty at redelivery; counterparty credit risk; and the potential pay down speed variance between the mortgage-related pools. -------------------------------------------------------------------------------- Structured Notes. The Fund invests in index-linked structured notes whose principal and/or interest payments depend on the performance of an underlying index. The structured notes are leveraged, which increases the volatility of each note's market value relative to the change in the underlying index. Fluctuations in value of these securities are recorded as unrealized gains and losses in the accompanying financial statements. The Fund records a realized gain or 17 | OPPENHEIMER BOND FUND/VA NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- 1. Significant Accounting Policies Continued loss when a structured note is sold or matures. As of December 31, 2002, the market value of these securities comprised of 6.2% of the Fund's net assets, and resulted in unrealized gains in the current period of $501,825. -------------------------------------------------------------------------------- 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 $279,500, representing 0.04% 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. -------------------------------------------------------------------------------- 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 ------------------------- 2008 $13,955,380 2010 44,376,811 ----------- Total $58,332,191 =========== 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 $22,000 of post-October losses available to offset future capital gains, if any. Such losses, if unutilized, will expire in 2011. -------------------------------------------------------------------------------- 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 paydown gains and losses and the recognition of certain foreign currency gains (losses) as ordinary income (loss) for tax purposes. The character 18 | OPPENHEIMER BOND FUND/VA 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 $114,820. Accumulated net realized loss 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 $50,820,794 $44,272,510 Long-term capital gain -- -- Return of capital -- -- ------------------------------------ Total $50,820,794 $44,272,510 ==================================== As of December 31, 2002, the components of distributable earnings on a tax basis were as follows: Undistributed net investment income $40,713,852 Accumulated net realized loss (58,790,479) Net unrealized appreciation 8,856,868 ----------- Total $(9,219,759) =========== -------------------------------------------------------------------------------- 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 1 Year Ended December 31, 2001 Shares Amount Shares Amount ------------------------------------------------------------------------------------------------------------------ Non-Service Shares Sold 18,951,559 $204,469,491 24,573,653 $275,467,781 Dividends and/or distributions reinvested 4,914,970 50,820,794 4,099,306 44,272,510 Redeemed (21,695,172) (233,906,419) (16,752,613) (186,855,975) ----------------------------------------------------------------- Net increase 2,171,357 $ 21,383,866 11,920,346 $132,884,316 =================================================================
19 | OPPENHEIMER BOND FUND/VA NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- 2. Shares of Beneficial Interest Continued
Year Ended December 31, 2002 1 Year Ended December 31, 2001 Shares Amount Shares Amount ------------------------------------------------------------------------------------------------------------------ Service Shares Sold 309,112 $ 3,377,815 -- $ -- Dividends and/or distributions reinvested -- -- -- -- Redeemed (93,703) (1,029,435) -- -- ----------------------------------------------------------------- Net increase 215,409 $ 2,348,380 -- $ -- =================================================================
1. For the year ended December 31, 2002, for Non-Service shares and for the period from May 1, 2002 (inception of offering) to December 31, 2002, for Service shares. -------------------------------------------------------------------------------- 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 $1,350,346,639 and $1,312,356,860, respectively. As of December 31, 2002, unrealized appreciation (depreciation) based on cost of securities for federal income tax purposes of $814,991,805 was composed of: Gross unrealized appreciation $25,444,295 Gross unrealized depreciation (17,023,885) ----------- Net unrealized appreciation $ 8,420,410 =========== 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. -------------------------------------------------------------------------------- 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, 0.60% of the next $200 million and 0.50% of average annual net assets over $1 billion. For the year ended December 31, 2002, the Manager voluntarily agreed to reimburse the Fund in the amount of $1,111,427 for the inaccurate calculation of the Fund's net asset value. The miscalculation of the net asset value resulted from the receipt of an incorrect price from an independent third party pricing service engaged to provide prices for the portfolio of securities. -------------------------------------------------------------------------------- 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 $22.50 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 $1,382. 20 | OPPENHEIMER BOND FUND/VA -------------------------------------------------------------------------------- 5. Futures Contracts A futures contract is a commitment to buy or sell a specific amount of a commodity or financial instrument at a particular price on a stipulated future date at a negotiated price. Futures contracts are traded on a commodity exchange. The Fund may buy and sell futures contracts that relate to broadly based securities indices "financial futures" or debt securities "interest rate futures" in order to gain exposure to or to seek to protect against changes in market value of stock and bonds or interest rates. The Fund may also buy or write put or call options on these futures contracts. The Fund generally sells futures contracts to hedge against increases in interest rates and decreases in market value of portfolio securities. The Fund may also purchase futures contracts to gain exposure to market changes as it may be more efficient or cost effective than actually buying fixed income securities. Upon entering into a futures contract, the Fund is required to deposit either cash or securities (initial margin) in an amount equal to a certain percentage of the contract value. Subsequent payments (variation margin) are made or received by the Fund each day. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains and losses. The Fund recognizes a realized gain or loss when the contract is closed or expires. Securities held in collateralized accounts to cover initial margin requirements on open futures contracts are noted in the Statement of Investments. The Statement of Assets and Liabilities reflects a receivable and/or payable for the daily mark to market for variation margin. Realized gains and losses are reported on the Statement of Operations as closing and expiration of futures contracts. Risks of entering into futures contracts (and related options) include the possibility that there may be an illiquid market and that a change in the value of the contract or option may not correlate with changes in the value of the underlying securities. As of December 31, 2002, the Fund had outstanding futures contracts as follows:
Unrealized Expiration Number of Valuation as of Appreciation Contract Description Dates Contracts December 31, 2002 (Depreciation) ----------------------------------------------------------------------------------------------- Contracts to Purchase U.S. Long Bonds 3/20/03 263 $ 29,636,813 $ 824,578 U.S. Treasury Nts., 2 yr. 3/27/03 558 120,074,625 1,381,766 U.S. Treasury Nts., 10 yr. 3/20/03 20 2,300,938 53,125 ----------- 2,259,469 ----------- Contracts to Sell U.S. Treasury Nts., 5 yr. 3/20/03 1,147 129,897,750 (2,969,015) ----------- $ (709,546) ===========
-------------------------------------------------------------------------------- 6. Option Activity The Fund may buy and sell put and call options, or write put and covered call options on portfolio securities in order to produce incremental earnings or protect against changes in the value of portfolio securities. The Fund generally purchases put options or writes covered call options to hedge against adverse movements in the value of portfolio holdings. When an option is written, the Fund receives a premium and becomes obligated to sell or purchase the underlying security at a fixed price, upon exercise of the option. Options are valued daily based upon the last sale price on the principal exchange on which the option is traded and unrealized appreciation or depreciation is recorded. The Fund will realize a gain or loss upon the expiration or closing of the option transaction. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of the security for a purchased put or call option is adjusted by the amount of premium received or paid. Securities designated to cover outstanding call options are noted in the Statement of Investments where applicable. Shares subject to call, expiration date, exercise price, premium received and market value are detailed in a note to the 21 | OPPENHEIMER BOND FUND/VA NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- 6. Option Activity Continued Statement of Investments. Options written are reported as a liability in the Statement of Assets and Liabilities. Realized gains and losses are reported in the Statement of Operations. The risk in writing a call option is that the Fund gives up the opportunity for profit if the market price of the security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that the Fund pays a premium whether or not the option is exercised. The Fund also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. Written option activity for the year ended December 31, 2002 was as follows:
Call Options Put Options ----------------------------------- ----------------------------------- Principal (000s)/ Principal (000s)/ Number of Amount of Number of Amount of Contracts Premiums Contracts Premiums ------------------------------------------------------------------------------------------------------------------ Options outstanding as of December 31, 2001 -- $ -- -- $ -- Options written 63,087 414,409 2,400 667,688 Options closed or expired (63,087) (414,409) (2,400) (667,688) ----------------------------------------------------------------------- Options outstanding as of December 31, 2002 -- $ -- -- $ -- =======================================================================
-------------------------------------------------------------------------------- 7. Illiquid Securities As of December 31, 2002, investments in securities included issues that are illiquid. A security may be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. The Fund intends to invest no more than 15% of its net assets (determined at the time of purchase and reviewed periodically) in illiquid securities. The aggregate value of illiquid securities subject to this limitation as of December 31, 2002 was $70,786,997, which represents 9.73% of the Fund's net assets. 22 | OPPENHEIMER BOND FUND/VA INDEPENDENT AUDITORS' REPORT -------------------------------------------------------------------------------- To the Board of Trustees and Shareholders of Oppenheimer Bond Fund/VA: We have audited the accompanying statement of assets and liabilities of Oppenheimer Bond 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 Bond 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 23 | OPPENHEIMER BOND 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 $0.8334 per share were paid to Non-Service shareholders, on March 15, 2002, all of which was designated as "ordinary income" for federal income tax purposes. None of the dividends paid by the Fund during the year ended December 31, 2002 are 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. 24 | OPPENHEIMER BOND FUND/VA TRUSTEES AND OFFICERS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Name, Position(s) Held with Principal Occupation(s) During Past 5 Years; Fund, Length of Service, Age Other Trusteeships/Directorships Held by Trustee; Number of Portfolios in Fund Complex Currently Overseen by Trustee INDEPENDENT The Address of each Trustee in the chart below TRUSTEES is 6803 S. Tucson Way, Centennial, CO 80112-3924. 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 Chairman and Trustee 27, 2002) of the Board II Funds, Vice Chairman (since 1985) (until January 2, 2002) of OppenheimerFunds, Age: 69 Inc. (the Manager) and President and a director (until 1997) of Centennial Asset Management Corporation (a wholly-owned investment advisory subsidiary of the Manager). Oversees 41 portfolios in the OppenheimerFunds complex. William L. Armstrong, Chairman of the following private mortgage Trustee (since 1999) banking companies: Cherry Creek Mortgage Company Age: 65 (since 1991), Centennial State Mortgage Company (since 1994), The El Paso Mortgage Company (since 1993), 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 Trustee (since 1993) Capital, Inc. (General Partner of private equity Age: 71 funds) (until February 2001); Chairman, President and Chief Executive Officer of A.G. Edwards 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 Trustee (since 1997) President (from September 1987) and Treasurer Age: 66 (from March 1985) of the Manager; Vice President (from June 1983) and Treasurer (since March 1985) of 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 Manager's 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 OppenheimerFunds 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, Trustee (since 1999) (George Washington's home) (since June 2000). Age: 64 Formerly (March 2001-May 2002) Director of Genetic ID, Inc. and its subsidiaries (a privately held biotech 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 Trustee (since 1990) Mountain Elk Foundation (a not-for-profit Age: 60 foundation); and a director (since October 1999) of P.R. Pharmaceuticals (a privately held company) and 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. 25 | OPPENHEIMER BOND FUND/VA TRUSTEES AND OFFICERS Continued Sam Freedman, A trustee or director of other Oppenheimer Trustee (since 1996) funds. Formerly (until October 1994) Mr. Age: 62 Freedman held several positions in subsidiary or affiliated companies of the Manager. Oversees 41 portfolios in the OppenheimerFunds complex. Beverly L. Hamilton, Trustee (since 1996) of MassMutual Trustee (since 2002) Institutional Funds and of MML Series Age: 56 Investment Fund (open-end investment companies); Director of MML Services (since April 1987) and America Funds Emerging 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 Boston's 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, Trustee (since 2002) Inc. (a privately held company), U.S. Age: 58 Exploration, Inc., (since 1997), Colorado UpLIFT (a non-profit organization) (since 1986) and a trustee of the 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 Trustee (since 2000) Institutional Funds and of MML Series Age: 60 Investment Fund (open-end investment companies); Trustee and Chairman (since May 1987) of the investment committee for the 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 AND OFFICER is 498 Seventh Avenue, New York, NY 10018. Mr. Murphy serves for an indefinite term, until his resignation, retirement, death or removal. John V. Murphy, Chairman, Chief Executive Officer and President and Trustee director (since June 2001) and President (since 2001) (since September 2000) of the Manager; Age: 53 President and a director or trustee of other Oppenheimer funds; President and a director (since July 2001) of Oppenheimer Acquisition Corp. and of Oppenheimer Partnership 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 Manager's parent company); a director (since June 1995) of DLB Acquisition Corporation (a holding company 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. 26 | OPPENHEIMER BOND FUND/VA -------------------------------------------------------------------------------- OFFICERS The address of the Officers in the chart below is as follows: for Messrs. Manioudakis 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. Angelo Manioudakis, Senior Vice President of the Manager (since Vice President (since 2002) April 2002); formerly Executive Director and Age: 35 portfolio manager for Miller, Anderson & Sherrerd, a division of Morgan Stanley Investment Management (August 1993-April 2002). An officer of 9 portfolios in the OppenheimerFunds complex. Brian W. Wixted, Senior Vice President and Treasurer (since Treasurer, Principal March 1999) of the Manager; Treasurer (since Financial and Accounting March 1999) of HarbourView Asset Management Officer Corporation, Shareholder Services, Inc., (since 1999) Oppenheimer Real Asset Management Age: 43 Corporation, Shareholder Financial Services, Inc., Oppenheimer Partnership Holdings, Inc., OFI Private Investments, Inc. (since March 2000), OppenheimerFunds International Ltd. and 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 Vice President and Secretary General Counsel (since February 2002) of the (since 2001) Manager; General Counsel and a director Age: 54 (since November 2001) of OppenheimerFunds Distributor, Inc.; Senior Vice President and General Counsel (since November 2001) of HarbourView Asset Management 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. 27 | OPPENHEIMER BOND FUND/VA OPPENHEIMER BOND 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 Bond Fund/VA, please refer to the Prospectus. To obtain a copy, call your financial advisor, or call OppenheimerFunds, Inc. at 1.800.981.2781. [LOGO] OppenheimerFunds(R) Distributor, Inc. (c) Copyright 2003. OppenheimerFunds, Inc. All rights reserved.