UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4108
OPPENHEIMER CAPITAL APPRECIATION FUND/VA
(Exact name of registrant as specified in charter)
6803 SOUTH TUCSON WAY, CENTENNIAL, COLORADO 80112-3924
(Address of principal executive offices)
(Zip code)
Robert G. Zack, Esq.
OppenheimerFunds, Inc.
Two World Financial Center, New York, New York 10281-1008
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (303) 768-3200
--------------
Date of fiscal year end: DECEMBER 31
-----------
Date of reporting period: JANUARY 1, 2003 - DECEMBER 31, 2003
ITEM 1. REPORTS TO STOCKHOLDERS.
FUND PERFORMANCE DISCUSSION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. Over the 12-month period ended
December 31, 2003, the Fund delivered slightly stronger gains than its
benchmark, the S&P 500 Index. The Fund's performance was driven primarily by the
stock market's broadly based upward trend. Performance relative to the benchmark
benefited from the Fund's emphasis on technology- and consumer-discretionary
stocks.
The Fund's investment strategy focuses on companies that we believe offer
strong potential for above-average growth, but that exhibit reasonable
valuations relative to their future growth prospects. In particular, we target
companies with a history of positive earnings or cash flow, together with
increasing earnings momentum and the potential for positive earnings surprises.
During the last 12 months, we found a growing number of investment
opportunities meeting these criteria among technology stocks we believed were
poised for renewed cyclical growth. These included semiconductor makers, such as
Intel Corp., and networking/hardware companies, such as Cisco Systems, Inc. and
Dell, Inc. Technology holdings delivered many of the Fund's greatest gains. We
also identified a relatively large number of attractive investments among
consumer discretionary stocks in such areas as media, leisure and other forms of
entertainment. The Fund's top performers included the two major cruise lines,
Carnival Corp. and Royal Caribbean Cruises Ltd., which rebounded as the business
has proven to be surprisingly resilient despite significant challenges, mainly a
downturn in overall travel and the need to absorb significant new fleet
capacity. The Fund's performance was also helped by the strong performance of
cable service providers, such as Comcast Corp., media companies such as Time
Warner, Inc., and significant weightings in capital market sensitive financials,
for example brokerage firms.
Other significant contributors included biotechnology company Genentech, Inc.
and electronic game developer Electronic Arts, Inc., both of which rose sharply
during the period. We sold the Fund's positions in both companies when they
reached our price targets, reflecting the Fund's disciplined investment approach
and our sensitivity to stock valuation.
On the negative side, Viacom, Inc., one of the Fund's larger holdings, rose
more modestly than other media holdings. We also failed to fully participate in
the strong growth experienced by industrial stocks in spring and summer 2003
because of the Fund's slightly underweighted exposure to that area, until
relatively late in the year. The Fund's portfolio holdings, allocations and
strategies are subject to change.
COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow show the
performance of a hypothetical $10,000 investment in each share class of the Fund
held until December 31, 2003. 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 September 18, 2001. 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 S&P 500 Index,
an unmanaged index of equity securities that is a measure of the general
domestic stock 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 CAPITAL APPRECIATION FUND/VA
FUND PERFORMANCE DISCUSSION
- --------------------------------------------------------------------------------
NON-SERVICE SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Appreciation Fund/VA (Non-Service)
S&P 500 Index
[LINE GRAPH]
Oppenheimer Capital Appreciation S&P 500
Fund/VA (Non-Service) Index
12/31/1993 $10,000 $10,000
03/31/1994 9,748 9,621
06/30/1994 9,514 9,662
09/30/1994 10,120 10,133
12/31/1994 10,097 10,131
03/31/1995 10,997 11,117
06/30/1995 12,163 12,176
09/30/1995 13,241 13,143
12/31/1995 13,798 13,934
03/31/1996 14,758 14,682
06/30/1996 15,366 15,340
09/30/1996 16,362 15,814
12/31/1996 17,275 17,131
03/31/1997 17,109 17,591
06/30/1997 19,834 20,660
09/30/1997 22,398 22,207
12/31/1997 21,885 22,845
03/31/1998 24,673 26,029
06/30/1998 25,613 26,893
09/30/1998 21,409 24,224
12/31/1998 27,137 29,378
03/31/1999 28,916 30,841
06/30/1999 31,430 33,011
09/30/1999 29,919 30,955
12/31/1999 38,441 35,557
03/31/2000 44,053 36,371
06/30/2000 42,062 35,405
09/30/2000 41,840 35,062
12/31/2000 38,353 32,321
03/31/2001 34,382 28,491
06/30/2001 36,481 30,158
09/30/2001 29,020 25,733
12/31/2001 33,530 28,482
03/31/2002 32,558 28,561
06/30/2002 27,094 24,737
09/30/2002 22,792 20,466
12/31/2002 24,524 22,190
03/31/2003 23,719 21,491
06/30/2003 27,560 24,798
09/30/2003 28,772 25,454
12/31/2003 32,113 28,551
AVERAGE ANNUAL TOTAL RETURNS OF NON-SERVICE SHARES OF THE FUND AT 12/31/03
1-Year 30.94% 5-Year 3.42% 10-Year 12.37% Inception Date 4/3/1985
SERVICE SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Capital Appreciation Fund/VA (Service shares)
S&P 500 Index
[LINE GRAPH]
Oppenheimer Capital Appreciation S&P 500
Fund/VA (Service shares) Index
09/18/2001 $10,000 $10,000
09/30/2001 10,000 10,000
12/31/2001 11,551 11,068
03/31/2002 11,209 11,099
06/30/2002 9,311 9,613
09/30/2002 7,825 7,953
12/31/2002 8,422 8,623
03/31/2003 8,131 8,352
06/30/2003 9,448 9,637
09/30/2003 9,859 9,892
12/31/2003 11,007 11,095
AVERAGE ANNUAL TOTAL RETURNS OF SERVICE SHARES OF THE FUND AT 12/31/03
1-Year 30.69% Since Inception 4.29% Inception Date 9/18/2001
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR MORE CURRENT
PERFORMANCE DATA, CALL US AT 1.800.981.2871. THE FUND'S TOTAL RETURNS SHOULD NOT
BE EXPECTED TO BE THE SAME AS THE RETURNS OF OTHER FUNDS, WHETHER OR NOT BOTH
FUNDS HAVE THE SAME PORTFOLIO MANAGERS AND/OR SIMILAR NAMES.
INVESTORS SHOULD CONSIDER THE FUND'S INVESTMENT OBJECTIVES, RISKS, AND CHARGES
AND EXPENSES CAREFULLY BEFORE INVESTING. THE FUND'S PROSPECTUS CONTAINS THIS AND
OTHER INFORMATION ABOUT THE FUND, AND MAY BE OBTAINED BY ASKING YOUR FINANCIAL
ADVISOR OR CALLING US AT 1.800.981.2871. READ THE PROSPECTUS CAREFULLY BEFORE
INVESTING.
GRAPHS ARE NOT DRAWN TO SAME SCALE. AN EXPLANATION OF THE CALCULATION OF THE
PERFORMANCE IS IN THE STATEMENT OF ADDITIONAL INFORMATION.
4 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
STATEMENT OF INVESTMENTS December 31, 2003
- --------------------------------------------------------------------------------
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------
COMMON STOCKS--94.0%
- ----------------------------------------------------------------
CONSUMER DISCRETIONARY--20.6%
- ----------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--4.3%
Carnival Corp. 746,400 $ 29,654,472
- ----------------------------------------------------------------
International Game Technology 382,000 13,637,400
- ----------------------------------------------------------------
Royal Caribbean Cruises Ltd. 882,500 30,702,175
- ----------------------------------------------------------------
Starwood Hotels & Resorts
Worldwide, Inc. 110,700 3,981,879
----------------
77,975,926
- ----------------------------------------------------------------
HOUSEHOLD DURABLES--0.4%
Ethan Allen Interiors, Inc. 181,500 7,601,220
- ----------------------------------------------------------------
MEDIA--13.5%
Clear Channel Communications, Inc. 521,200 24,407,796
- ----------------------------------------------------------------
Comcast Corp., Cl. A Special,
Non-Vtg. 1 1,844,700 57,702,216
- ----------------------------------------------------------------
Cox Communications, Inc., Cl. A 1 150,300 5,177,835
- ----------------------------------------------------------------
Liberty Media Corp., Cl. A 1 491,000 5,837,990
- ----------------------------------------------------------------
New York Times Co., Cl. A 202,900 9,696,591
- ----------------------------------------------------------------
News Corp. Ltd. (The),
Sponsored ADR 633,300 22,862,130
- ----------------------------------------------------------------
Omnicom Group, Inc. 103,300 9,021,189
- ----------------------------------------------------------------
Time Warner, Inc. 1 2,185,200 39,311,748
- ----------------------------------------------------------------
Univision Communications, Inc.,
Cl. A 1 444,165 17,628,909
- ----------------------------------------------------------------
Viacom, Inc., Cl. B 1,264,300 56,109,634
----------------
247,756,038
- ----------------------------------------------------------------
MULTILINE RETAIL--1.4%
Federated Department Stores, Inc. 105,000 4,948,650
- ----------------------------------------------------------------
Nordstrom, Inc. 37,900 1,299,970
- ----------------------------------------------------------------
Target Corp. 496,000 19,046,400
----------------
25,295,020
- ----------------------------------------------------------------
SPECIALTY RETAIL--1.0%
Abercrombie & Fitch Co., Cl. A 1 71,000 1,754,410
- ----------------------------------------------------------------
Gap, Inc. (The) 590,600 13,707,826
- ----------------------------------------------------------------
Weight Watchers International, Inc. 1 89,500 3,434,115
----------------
18,896,351
- ----------------------------------------------------------------
CONSUMER STAPLES--6.6%
- ----------------------------------------------------------------
BEVERAGES--3.7%
Anheuser-Busch Cos., Inc. 626,100 32,982,948
- ----------------------------------------------------------------
Coca-Cola Co. (The) 167,900 8,520,925
- ----------------------------------------------------------------
PepsiCo, Inc. 571,300 26,634,006
----------------
68,137,879
- ----------------------------------------------------------------
FOOD & STAPLES RETAILING--0.9%
Costco Wholesale Corp. 1 193,000 7,175,740
- ----------------------------------------------------------------
Wal-Mart Stores, Inc. 172,700 9,161,735
----------------
16,337,475
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------
FOOD PRODUCTS--0.5%
General Mills, Inc. 215,500 $ 9,762,150
- ----------------------------------------------------------------
HOUSEHOLD PRODUCTS--0.8%
Procter & Gamble Corp. (The) 152,300 15,211,724
- ----------------------------------------------------------------
PERSONAL PRODUCTS--0.5%
Estee Lauder Cos., Inc. (The), Cl. A 213,100 8,366,306
- ----------------------------------------------------------------
TOBACCO--0.2%
Altria Group, Inc. 67,400 3,667,908
- ----------------------------------------------------------------
ENERGY--5.6%
- ----------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--1.5%
BJ Services Co. 1 253,000 9,082,700
- ----------------------------------------------------------------
Halliburton Co. 169,200 4,399,200
- ----------------------------------------------------------------
Noble Corp. 1 139,500 4,991,310
- ----------------------------------------------------------------
Rowan Cos., Inc. 1 190,100 4,404,617
- ----------------------------------------------------------------
Schlumberger Ltd. 33,800 1,849,536
- ----------------------------------------------------------------
Varco International, Inc. 1 128,100 2,642,703
----------------
27,370,066
- ----------------------------------------------------------------
OIL & GAS--4.1%
Amerada Hess Corp. 91,500 4,865,055
- ----------------------------------------------------------------
BP plc, ADR 96,900 4,782,015
- ----------------------------------------------------------------
Burlington Resources, Inc. 125,300 6,939,114
- ----------------------------------------------------------------
ConocoPhillips 79,300 5,199,701
- ----------------------------------------------------------------
Encana Corp. 237,340 9,366,872
- ----------------------------------------------------------------
Exxon Mobil Corp. 764,000 31,324,000
- ----------------------------------------------------------------
TotalFinaElf SA, Sponsored ADR 131,600 12,174,316
----------------
74,651,073
- ----------------------------------------------------------------
FINANCIALS--12.1%
- ----------------------------------------------------------------
COMMERCIAL BANKS--2.1%
Bank of America Corp. 232,900 18,732,147
- ----------------------------------------------------------------
Bank One Corp. 375,400 17,114,486
- ----------------------------------------------------------------
U.S. Bancorp 62,500 1,861,250
----------------
37,707,883
- ----------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--7.7%
American Express Co. 502,800 24,250,044
- ----------------------------------------------------------------
Citigroup, Inc. 977,500 47,447,850
- ----------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 38,300 3,781,359
- ----------------------------------------------------------------
J.P. Morgan Chase & Co. 251,100 9,222,903
- ----------------------------------------------------------------
Merrill Lynch & Co., Inc. 226,300 13,272,495
- ----------------------------------------------------------------
Morgan Stanley 584,600 33,830,802
- ----------------------------------------------------------------
Schwab (Charles) Corp. 874,800 10,357,632
----------------
142,163,085
- ----------------------------------------------------------------
INSURANCE--1.8%
American International Group, Inc. 328,350 21,763,038
- ----------------------------------------------------------------
Everest Re Group Ltd. 37,000 3,130,200
- ----------------------------------------------------------------
XL Capital Ltd., Cl. A 100,300 7,778,265
----------------
32,671,503
5 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
STATEMENT OF INVESTMENTS Continued
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------
REAL ESTATE--0.5%
Host Marriott Corp. 1 763,900 $ 9,411,248
- ----------------------------------------------------------------
HEALTH CARE--13.3%
- ----------------------------------------------------------------
BIOTECHNOLOGY--3.2%
Amgen, Inc. 1 260,300 16,086,540
- ----------------------------------------------------------------
Biogen Idec, Inc. 1 247,500 9,103,050
- ----------------------------------------------------------------
Celgene Corp. 1 153,600 6,915,072
- ----------------------------------------------------------------
Chiron Corp. 1 48,800 2,781,112
- ----------------------------------------------------------------
Gilead Sciences, Inc. 1 185,900 10,808,226
- ----------------------------------------------------------------
Invitrogen Corp. 1 50,900 3,563,000
- ----------------------------------------------------------------
Serono SA, ADR 281,300 4,936,815
- ----------------------------------------------------------------
Sicor, Inc. 1 197,000 5,358,400
----------------
59,552,215
- ----------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--3.0%
Applera Corp./Applied
Biosystems Group 183,400 3,798,214
- ----------------------------------------------------------------
Medtronic, Inc. 721,300 35,062,393
- ----------------------------------------------------------------
Millipore Corp. 1 261,500 11,257,575
- ----------------------------------------------------------------
Nektar Therapeutics 1 120,100 1,634,561
- ----------------------------------------------------------------
Varian Medical Systems, Inc. 1 58,500 4,042,350
- ----------------------------------------------------------------
VISX, Inc. 1 7,800 180,570
----------------
55,975,663
- ----------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--1.3%
Aetna, Inc. 240,000 16,219,200
- ----------------------------------------------------------------
Apria Healthcare Group, Inc. 1 57,300 1,631,331
- ----------------------------------------------------------------
UnitedHealth Group, Inc. 97,600 5,678,368
----------------
23,528,899
- ----------------------------------------------------------------
PHARMACEUTICALS--5.8%
Abbott Laboratories 58,400 2,721,440
- ----------------------------------------------------------------
Barr Laboratories, Inc. 1 146,300 11,257,785
- ----------------------------------------------------------------
Bristol-Myers Squibb Co. 235,100 6,723,860
- ----------------------------------------------------------------
Dr. Reddy's Laboratories Ltd.,
Sponsored ADR 141,900 4,491,135
- ----------------------------------------------------------------
GlaxoSmithKline plc, ADR 96,500 4,498,830
- ----------------------------------------------------------------
Medicis Pharmaceutical Corp., Cl. A 67,000 4,777,100
- ----------------------------------------------------------------
Merck & Co., Inc. 55,800 2,577,960
- ----------------------------------------------------------------
Perrigo Co. 354,200 5,568,024
- ----------------------------------------------------------------
Pfizer, Inc. 903,700 31,927,721
- ----------------------------------------------------------------
Roche Holdings AG 104,534 10,544,262
- ----------------------------------------------------------------
Teva Pharmaceutical Industries Ltd.,
Sponsored ADR 366,700 20,795,557
----------------
105,883,674
- ----------------------------------------------------------------
INDUSTRIALS--10.0%
- ----------------------------------------------------------------
AEROSPACE & DEFENSE--1.9%
Honeywell International, Inc. 394,000 13,171,420
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------
AEROSPACE & DEFENSE Continued
L-3 Communications Holdings, Inc. 1 17,900 $ 919,344
- ----------------------------------------------------------------
Northrop Grumman Corp. 84,200 8,049,520
- ----------------------------------------------------------------
United Technologies Corp. 138,200 13,097,214
----------------
35,237,498
- ----------------------------------------------------------------
AIR FREIGHT & LOGISTICS--1.3%
Expeditors International of
Washington, Inc. 180,500 6,797,630
- ----------------------------------------------------------------
FedEx Corp. 125,200 8,451,000
- ----------------------------------------------------------------
United Parcel Service, Inc., Cl. B 101,800 7,589,190
----------------
22,837,820
- ----------------------------------------------------------------
BUILDING PRODUCTS--0.1%
York International Corp. 52,400 1,928,320
- ----------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES--1.1%
Dun & Bradstreet Corp. 1 117,700 5,968,567
- ----------------------------------------------------------------
Waste Management, Inc. 436,500 12,920,400
----------------
18,888,967
- ----------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--3.9%
3M Co. 76,000 6,462,280
- ----------------------------------------------------------------
General Electric Co. 1,917,600 59,407,248
- ----------------------------------------------------------------
Tyco International Ltd. 222,100 5,885,650
----------------
71,755,178
- ----------------------------------------------------------------
MACHINERY--1.1%
Danaher Corp. 54,100 4,963,675
- ----------------------------------------------------------------
Dover Corp. 108,800 4,324,800
- ----------------------------------------------------------------
Ingersoll-Rand Co., Cl. A 167,100 11,342,748
----------------
20,631,223
- ----------------------------------------------------------------
ROAD & RAIL--0.6%
Canadian National Railway Co. 84,400 5,340,832
- ----------------------------------------------------------------
Norfolk Southern Corp. 258,700 6,118,255
----------------
11,459,087
- ----------------------------------------------------------------
INFORMATION TECHNOLOGY--22.2%
- ----------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--3.1%
Cisco Systems, Inc. 1 1,090,100 26,478,529
- ----------------------------------------------------------------
Lucent Technologies, Inc. 1 1,552,900 4,410,236
- ----------------------------------------------------------------
Nokia Oyj, Sponsored ADR 1,514,100 25,739,700
----------------
56,628,465
- ----------------------------------------------------------------
COMPUTERS & PERIPHERALS--2.8%
Dell, Inc. 1 565,000 19,187,400
- ----------------------------------------------------------------
EMC Corp. 1 357,600 4,620,192
- ----------------------------------------------------------------
International Business Machines Corp. 298,700 27,683,516
- ----------------------------------------------------------------
Maxtor Corp. 1 69,200 768,120
6 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------
COMPUTERS & PERIPHERALS Continued
Seagate Technology International,
Inc. (Escrow Shares) 1,2,3 325,000 $ --
----------------
52,259,228
- ----------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.0%
Sanmina-SCI Corp. 1 689,400 8,693,334
- ----------------------------------------------------------------
Vishay Intertechnology, Inc. 1 425,900 9,753,110
----------------
18,446,444
- ----------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--1.4%
United Online, Inc. 1 68,500 1,150,115
- ----------------------------------------------------------------
Yahoo!, Inc. 1 525,600 23,741,352
----------------
24,891,467
- ----------------------------------------------------------------
IT SERVICES--1.3%
Accenture Ltd., Cl. A 1 99,300 2,613,576
- ----------------------------------------------------------------
First Data Corp. 180,900 7,433,181
- ----------------------------------------------------------------
Infosys Technologies Ltd. 117,000 14,267,461
----------------
24,314,218
- ----------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--6.9%
Analog Devices, Inc. 148,200 6,765,330
- ----------------------------------------------------------------
Applied Materials, Inc. 1 245,400 5,509,230
- ----------------------------------------------------------------
ASML Holding NV1 316,300 6,341,815
- ----------------------------------------------------------------
ATI Technologies, Inc. 1 97,300 1,471,176
- ----------------------------------------------------------------
Cypress Semiconductor Corp. 1 595,600 12,722,016
- ----------------------------------------------------------------
Intel Corp. 1,346,200 43,347,640
- ----------------------------------------------------------------
International Rectifier Corp. 1 139,700 6,902,577
- ----------------------------------------------------------------
LSI Logic Corp. 1 364,300 3,231,341
- ----------------------------------------------------------------
National Semiconductor Corp. 1 186,200 7,338,142
- ----------------------------------------------------------------
STMicroelectronics NV 207,000 5,591,070
- ----------------------------------------------------------------
Taiwan Semiconductor
Manufacturing Co. Ltd., ADR 863,392 8,841,134
- ----------------------------------------------------------------
Texas Instruments, Inc. 600,900 17,654,442
----------------
125,715,913
- ----------------------------------------------------------------
SOFTWARE--5.7%
Adobe Systems, Inc. 437,400 17,189,820
- ----------------------------------------------------------------
Cadence Design Systems, Inc. 1 496,700 8,930,666
- ----------------------------------------------------------------
Intuit, Inc. 1 84,900 4,492,059
- ----------------------------------------------------------------
Microsoft Corp. 2,280,900 62,815,986
- ----------------------------------------------------------------
Network Associates, Inc. 1 188,900 2,841,056
- ----------------------------------------------------------------
Veritas Software Corp. 1 245,400 9,119,064
----------------
105,388,651
- ----------------------------------------------------------------
MATERIALS--2.5%
- ----------------------------------------------------------------
CHEMICALS--2.0%
Air Products & Chemicals, Inc. 175,200 9,255,816
- ----------------------------------------------------------------
Dow Chemical Co. 156,100 6,489,077
MARKET VALUE
SHARES SEE NOTE 1
- ----------------------------------------------------------------
CHEMICALS Continued
Ecolab, Inc. 144,200 $ 3,946,754
- ----------------------------------------------------------------
Praxair, Inc. 451,600 17,251,120
----------------
36,942,767
- ----------------------------------------------------------------
METALS & MINING--0.5%
Alcoa, Inc. 249,900 9,496,200
- ----------------------------------------------------------------
TELECOMMUNICATION SERVICES--0.4%
- ----------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--0.4%
Telefonos de Mexico SA,
Sponsored ADR 212,800 7,028,784
- ----------------------------------------------------------------
UTILITIES--0.7%
- ----------------------------------------------------------------
GAS UTILITIES--0.6%
Kinder Morgan Management LLC 273,500 11,749,560
- ----------------------------------------------------------------
WATER UTILITIES--0.1%
Philadelphia Suburban Corp. 71,250 1,574,625
----------------
Total Common Stocks
(Cost $1,594,511,969) 1,725,097,721
- ----------------------------------------------------------------
OTHER SECURITIES--0.5%
Nasdaq-100 Unit Investment Trust
(Cost $6,838,977) 242,900 8,856,134
PRINCIPAL
AMOUNT
- ----------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--5.7%
Undivided interest of 6.52% in joint
repurchase agreement (Principal Amount/
Market Value $1,603,898,000, with a
maturity value of $1,603,979,086) with
PaineWebber, Inc., 0.91%, dated
12/31/03, to be repurchased at
$104,628,289 on 1/2/04, collateralized
by Federal Home Loan Mortgage Corp.,
5%--5.50%, 9/1/33--11/1/33, with a value
of $405,980,626 and Federal National
Mortgage Assn., 4.50%, 10/1/33, with a
value of $1,234,398,060 (Cost
$104,623,000) $104,623,000 104,623,000
- ----------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE
(COST $1,705,973,946) 100.2% 1,838,576,855
- ----------------------------------------------------------------
LIABILITIES IN EXCESS
OF OTHER ASSETS (0.2) (3,638,304)
------------------------------
NET ASSETS 100.0% $1,834,938,551
==============================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Non-income producing security.
2. Identifies issues considered to be illiquid. See Note 6 of Notes to Financial
Statements.
3. Received as the result of issuer reorganization. Currently has minimal market
value.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
STATEMENT OF ASSETS AND LIABILITIES December 31, 2003
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $1,705,973,946)--see accompanying statement $1,838,576,855
- --------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 5,619,312
Interest and dividends 1,459,805
Other 9,388
---------------
Total assets 1,845,665,360
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES
Bank overdraft 2,440,942
- --------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Investments purchased 5,803,071
Shares of beneficial interest redeemed 2,328,574
Shareholder reports 57,030
Distribution and service plan fees 50,591
Trustees' compensation 7,128
Transfer and shareholder servicing agent fees 1,667
Other 37,806
---------------
Total liabilities 10,726,809
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS $1,834,938,551
===============
- --------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
Par value of shares of beneficial interest $ 52,890
- --------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 2,065,853,562
- --------------------------------------------------------------------------------------------------------------------
Accumulated net investment income 5,752,602
- --------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (369,323,412)
- --------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies 132,602,909
---------------
NET ASSETS $1,834,938,551
===============
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Non-Service shares:
Net asset value, redemption price per share and offering price per share (based on net assets
of $1,715,239,877 and 49,423,613 shares of beneficial interest outstanding) $34.70
- --------------------------------------------------------------------------------------------------------------------
Service shares:
Net asset value, redemption price per share and offering price per share (based on net assets
of $119,698,674 and 3,466,565 shares of beneficial interest outstanding) $34.53
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
8 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
STATEMENT OF OPERATIONS For the Year Ended December 31, 2003
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $197,252) $ 15,168,088
- ---------------------------------------------------------------------------------------------------
Interest 913,839
--------------
Total investment income 16,081,927
- ---------------------------------------------------------------------------------------------------
EXPENSES
Management fees 9,930,998
- ---------------------------------------------------------------------------------------------------
Distribution and service plan fees--Service shares 119,754
- ---------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Non-Service shares 10,397
Service shares 11,601
- ---------------------------------------------------------------------------------------------------
Shareholder reports 95,470
- ---------------------------------------------------------------------------------------------------
Trustees' compensation 38,270
- ---------------------------------------------------------------------------------------------------
Custodian fees and expenses 23,894
- ---------------------------------------------------------------------------------------------------
Other 93,717
--------------
Total expenses 10,324,101
Less reduction to custodian expenses (770)
--------------
Net expenses 10,323,331
- ---------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 5,758,596
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments (149,729,911)
Foreign currency transactions 283,516
--------------
Net realized loss (149,446,395)
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 557,260,852
Translation of assets and liabilities denominated in foreign currencies 1,737,209
--------------
Net change in unrealized appreciation (depreciation) 558,998,061
- ---------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 415,310,262
==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
9 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 5,758,596 $ 5,733,438
- -----------------------------------------------------------------------------------------------------------------------------
Net realized loss (149,446,395) (179,603,959)
- -----------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 558,998,061 (369,716,665)
---------------------------------
Net increase (decrease) in net assets resulting from operations 415,310,262 (543,587,186)
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income:
Non-Service shares (5,643,286) (10,120,100)
Service shares (84,026) (1,731)
- -----------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
Net increase (decrease) in net assets resulting from beneficial interest transactions:
Non-Service shares (18,705,242) (83,859,897)
Service shares 87,031,915 19,162,943
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
Total increase (decrease) 477,909,623 (618,405,971)
- -----------------------------------------------------------------------------------------------------------------------------
Beginning of period 1,357,028,928 1,975,434,899
---------------------------------
End of period [including accumulated net investment income
of $5,752,602 and $5,696,906, respectively] $1,834,938,551 $1,357,028,928
=================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
NON-SERVICE SHARES YEAR ENDED DECEMBER 31 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
Net asset value, beginning of period $26.62 $36.58 $46.63 $49.84 $ 36.67
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .12 .11 .18 .27 .06
Net realized and unrealized gain (loss) 8.07 (9.89) (5.86) .02 14.68
----------------------------------------------------------------
Total from investment operations 8.19 (9.78) (5.68) .29 14.74
- -----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.11) (.18) (.27) (.06) (.13)
Distributions from net realized gain -- -- (4.10) (3.44) (1.44)
----------------------------------------------------------------
Total dividends and/or distributions to shareholders (.11) (.18) (4.37) (3.50) (1.57)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $34.70 $26.62 $36.58 $46.63 $49.84
================================================================
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 1 30.94% (26.86)% (12.58)% (0.23)% 41.66%
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $1,715,240 $1,338,769 $1,975,345 $2,095,803 $1,425,197
- -----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,468,297 $1,630,430 $2,000,314 $1,922,099 $1,002,835
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 2
Net investment income 0.39% 0.35% 0.51% 0.66% 0.21%
Total expenses 0.67% 3 0.66% 3 0.68% 3 0.67% 3 0.70% 3
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 48% 32% 45% 38% 56%
<FN>
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. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
2. Annualized for periods of less than one full year.
3. Reduction to custodian expenses less than 0.01%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</FN>
11 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
SERVICE SHARES YEAR ENDED DECEMBER 31 2003 2002 2001 1
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $26.53 $36.56 $31.66
- -----------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .08 .20 -- 2
Net realized and unrealized gain (loss) 8.02 (10.05) 4.90
------------------------------------
Total from investment operations 8.10 (9.85) 4.90
- -----------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.10) (.18) --
Distributions from net realized gain -- -- --
------------------------------------
Total dividends and/or distributions to shareholders (.10) (.18) --
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $34.53 $26.53 $36.56
====================================
- -----------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 30.69% (27.09)% 15.51%
- -----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $119,699 $18,260 $90
- -----------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 48,178 $ 6,263 $16
- -----------------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 0.14% 0.26% 0.11%
Total expenses 0.94% 5 0.81% 5,6 0.81% 5
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 48% 32% 45%
<FN>
1. For the period from September 18, 2001 (inception of offering) to December 31, 2001.
2. Less than $0.005 per share.
3. 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. Returns do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
4. Annualized for periods of less than one full year.
5. Reduction to custodian expenses less than 0.01%.
6. Voluntary waiver of transfer agent fees less than 0.01%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</FN>
12 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Capital Appreciation Fund/VA (the Fund) is a separate series of
Oppenheimer Variable Account Funds (the Trust), an open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek capital appreciation by
investing in securities of well-known, established companies. 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 with respect to the Fund in general and exclusive voting
rights on matters that affect that class alone. 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. Securities traded on NASDAQ are valued based on the closing price
provided by NASDAQ 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. Securities whose values have been
materially affected by what the Manager identifies as a significant event
occurring before the Fund's assets are valued but after the close of their
respective foreign exchanges will be fair valued. Fair value is determined in
good faith using 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).
- --------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION. The Fund's accounting records 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. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. Secured by U.S. government securities, these balances
are invested in one or more repurchase agreements. 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. 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 on a
daily basis 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.
13 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
FEDERAL TAXES. The Fund intends to comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders.
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.
NET UNREALIZED
APPRECIATION
BASED ON COST OF
SECURITIES AND
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS
NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME
INCOME GAIN CARRYFORWARD 1,2,3 TAX PURPOSES
--------------------------------------------------------------------------------------------
$5,752,560 $-- $360,623,877 $123,903,415
1. As of December 31, 2003, the Fund had $360,611,657 of net capital loss
carryforwards available to offset future realized capital gains, if any, and
thereby reduce future taxable gain distributions. As of December 31, 2003,
details of the capital loss carryforwards were as follows:
EXPIRING
-------------------------
2009 $ 14,552,938
2010 152,282,354
2011 193,776,365
------------
Total $360,611,657
============
2. During the fiscal years ended December 31, 2003 and December 31, 2002, the
Fund did not utilize any capital loss carryforwards.
3. As of December 31, 2003, the Fund had $12,220 of post-October foreign
currency losses which were deferred.
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of dividends and
distributions made during the fiscal year from net investment income or net
realized gains may differ from their ultimate characterization for federal
income tax purposes. Also, due to timing of dividends and distributions, the
fiscal year in which amounts are distributed may differ from the fiscal year in
which the income or net realized gain was recorded by the Fund. Accordingly, the
following amounts have been reclassified for December 31, 2003. Net assets of
the Fund were unaffected by the reclassifications.
INCREASE TO
INCREASE TO ACCUMULATED NET
ACCUMULATED NET REALIZED LOSS
INVESTMENT INCOME ON INVESTMENTS
-----------------------------------------------
$24,412 $24,412
The tax character of distributions paid during the years ended December 31, 2003
and December 31, 2002 was as follows:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2003 DECEMBER 31, 2002
--------------------------------------------------------------------------
Distributions paid from:
Ordinary income $5,727,312 $10,121,831
The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of December 31, 2003 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.
Federal tax cost of securities $1,714,673,440
==============
Gross unrealized appreciation $ 238,995,026
Gross unrealized depreciation (115,091,611)
--------------
Net unrealized appreciation $ 123,903,415
==============
14 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a deferred
compensation plan for independent trustees that enables trustees to elect to
defer receipt of all or a portion of the annual compensation they are entitled
to receive from the Fund. Under the plan, deferred amounts are treated as though
equal dollar amounts had been invested in shares of the Fund or are invested in
other Oppenheimer funds selected by the Trustee. Deferral of trustees' fees
under the plan will not affect the net assets of the Fund, and will not
materially affect the Fund's assets, liabilities or net investment income per
share. Amounts will be deferred until distributed in accordance to the Plan.
- --------------------------------------------------------------------------------
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. Income and capital gain distributions, if
any, are declared and paid annually.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
EXPENSE OFFSET ARRANGEMENT. The reduction of custodian fees, if applicable,
represents earnings on cash balances maintained by the Fund.
- --------------------------------------------------------------------------------
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, 2003 YEAR ENDED DECEMBER 31, 2002
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
NON-SERVICE SHARES
Sold 11,371,657 $ 330,561,752 13,374,630 $ 416,985,488
Dividends and/or distributions reinvested 223,231 5,643,286 282,921 10,120,100
Redeemed (12,455,978) (354,910,280) (17,368,883) (510,965,485)
--------------------------------------------------------------------
Net decrease (861,090) $ (18,705,242) (3,711,332) $ (83,859,897)
====================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
SERVICE SHARES
Sold 2,961,561 $ 92,475,323 733,299 $ 20,471,072
Dividends and/or distributions reinvested 3,339 84,026 48 1,731
Redeemed (186,681) (5,527,434) (47,465) (1,309,860)
--------------------------------------------------------------------
Net increase 2,778,219 $ 87,031,915 685,882 $ 19,162,943
====================================================================
- --------------------------------------------------------------------------------
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, 2003, were
$736,318,474 and $682,956,005, respectively.
15 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Fund which provides for a fee at an
annual rate of 0.75% of the first $200 million of average annual net assets,
0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of the
next $200 million and 0.60% of average annual net assets over $800 million.
- --------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS a per account fee. For the year ended December 31, 2003, the Fund paid
$20,025 to OFS for services to the Fund.
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.
- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. Risks to the Fund include the potential inability of the
counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using prevailing foreign currency exchange rates.
Unrealized appreciation and depreciation on foreign currency contracts are
reported in the Statement of Assets and Liabilities as a receivable or payable
and in the Statement of Operations with the change in unrealized appreciation or
depreciation.
The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.
As of December 31, 2003, the Fund had no outstanding foreign currency
contracts.
- --------------------------------------------------------------------------------
6. ILLIQUID SECURITIES
As of December 31, 2003, 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, 2003 was zero.
16 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
- --------------------------------------------------------------------------------
7. BORROWING AND LENDING ARRANGEMENTS
The Fund entered into an "interfund borrowing and lending arrangement" with
other funds in the Oppenheimer funds complex, to allow funds to borrow for
liquidity purposes. The arrangement was initiated pursuant to exemptive relief
granted by the Securities and Exchange Commission (the SEC) to allow these
affiliated funds to lend money to, and borrow money from, each other, in an
attempt to reduce borrowing costs below those of bank loan facilities. The SEC's
order requires the Fund's Board of Trustees to adopt operating policies and
procedures to administer interfund borrowing and lending. Under the arrangement
the Fund may lend money to other Oppenheimer funds and may borrow from other
Oppenheimer funds at a rate set by the Fund's Board of Trustees, based upon a
recommendation by the Manager. The Fund's borrowings, if any, are subject to
asset coverage requirements under the Investment Company Act and the provisions
of the SEC order and other applicable regulations. If the Fund borrows money,
there is a risk that the loan could be called on one day's notice, in which case
the Fund might have to borrow from a bank at higher rates if a loan were not
available from another Oppenheimer fund. If the Fund lends money to another
fund, it will be subject to the risk that the other fund might not repay the
loan in a timely manner, or at all.
The Fund had no interfund borrowings or loans outstanding during the year
ended or at December 31, 2003.
17 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER CAPITAL
APPRECIATION FUND/VA:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Capital Appreciation Fund/VA, a series of Oppenheimer Variable
Account Funds, including the statement of investments, as of December 31, 2003,
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, 2003, 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 Capital Appreciation Fund/VA as of December 31, 2003, 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
February 12, 2004
18 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In early 2004, if applicable, shareholders of record received information
regarding all dividends and distributions paid to them by the Fund during
calendar year 2003. Regulations of the U.S. Treasury Department require the Fund
to report this information to the Internal Revenue Service.
Dividends of $0.1144 and $0.1030 per share were paid to Non-Service and
Service shareholders, respectively, on March 14, 2003, all of which was
designated as ordinary income for federal income tax purposes.
Dividends, if any, paid by the Fund during the fiscal year ended December 31,
2003 which are not designated as capital gain distributions should be multiplied
by 100% to arrive at the amount eligible for the corporate dividend-received
deduction.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local tax regulations, we recommend
that you consult your tax advisor for specific guidance.
PORTFOLIO PROXY VOTING
POLICIES AND PROCEDURES Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which
the Fund votes proxies relating to securities ("portfolio proxies") held by the
Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures
is available (i) without charge, upon request, by calling the Fund toll-free at
1.800.225.5677, (ii) on the Fund's website at www.oppenheimerfunds.com, and
(iii) on the SEC's website at www.sec.gov. In addition, the Fund will be
required to file new Form N-PX, with its complete proxy voting record for the 12
months ended June 30th, no later than August 31st of each year. The first such
filing is due no later than August 31, 2004, for the twelve months ended June
30, 2004. Once filed, the Fund's Form N-PX filing will be available (i) without
charge, upon request, by calling the Fund toll-free at 1.800.225.5677, and (ii)
on the SEC's website at www.sec.gov.
19 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
TRUSTEES AND OFFICERS Unaudited
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NAME, POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS HELD BY TRUSTEE;
FUND, LENGTH OF SERVICE, AGE NUMBER OF FUNDS IN FUND COMPLEX CURRENTLY OVERSEEN BY TRUSTEE
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY, CENTENNIAL, CO
TRUSTEES 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, UNTIL HIS OR HER RESIGNATION,
RETIREMENT, DEATH OR REMOVAL.
WILLIAM L. ARMSTRONG, Chairman of the following private mortgage banking companies: Cherry Creek Mortgage Company
Chairman of the Board (since 1991), Centennial State Mortgage Company (since 1994), The El Paso Mortgage Company
(since 2003) and (since 1993), Transland Financial Services, Inc. (since 1997); Chairman of the following
Trustee (since 1999) private companies: Great Frontier Insurance (insurance agency) (since 1995), Ambassador Media
Age: 66 Corporation and Broadway Ventures (since 1984); a director of the following public companies:
Helmerich & Payne, Inc. (oil and gas drilling/production company) (since 1992) and
UNUMProvident (insurance company) (since 1991). Mr. Armstrong is also a Director/Trustee of
Campus Crusade for Christ and the Bradley Foundation. Formerly a director of the following:
Storage Technology Corporation (a publicly-held computer equipment company) (1991-February
2003), and International Family Entertainment (television channel) (1992-1997), 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 38
portfolios in the OppenheimerFunds complex.
ROBERT G. AVIS, Formerly, Director and President of A.G. Edwards Capital, Inc. (General Partner of private
Trustee (since 1995) equity funds) (until February 2001); Chairman, President and Chief Executive Officer of A.G.
Age: 72 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 38 portfolios in the OppenheimerFunds complex.
GEORGE C. BOWEN, Formerly (until April 1999): Senior Vice President (from September 1987) and Treasurer (from
Trustee (since 1997) March 1985) of OppenheimerFunds, Inc. (the Manager); Vice President (from June 1983) and
Age: 67 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 OppenheimerFunds plc
(offshore fund management subsidiaries of the Manager). Oversees 38 portfolios in the
OppenheimerFunds complex.
EDWARD L. CAMERON, A member of The Life Guard of Mount Vernon, George Washington's home (since June 2000).
Trustee (since 1999) Formerly (March 2001 - May 2002) Director of Genetic ID, Inc. and its subsidiaries (a privately
Age: 65 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 38 portfolios in the OppenheimerFunds complex.
JON S. FOSSEL, Chairman and Director (since 1998) of Rocky Mountain Elk Foundation (a not-for-profit
Trustee (since 1990) foundation); and a director (since October 1999) of P.R. Pharmaceuticals (a privately held
Age: 61 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 Financial Services, Inc. (until October
1995). Oversees 38 portfolios in the OppenheimerFunds complex.
20 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
SAM FREEDMAN, Director of Colorado Uplift (a non-profit charity) (since September 1984). Formerly (until
Trustee (since 1996) October 1994) Mr. Freedman held several positions in subsidiary or affiliated companies of the
Age: 63 Manager. Oversees 38 portfolios in the OppenheimerFunds complex.
BEVERLY L. HAMILTON, Trustee (since 1996) of MassMutual Institutional Funds and of MML Series Investment Fund
Trustee (since 2002) (open-end investment companies); Director of MML Services (since April 1987) and America Funds
Age: 57 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 37 portfolios in the OppenheimerFunds complex.
ROBERT J. MALONE, Chairman and CEO (since 2003) of Steele Street State Bank (a commercial banking entity);
Trustee (since 2002) Director (since 2001) of Jones Knowledge, Inc. (a privately held company), U.S. Exploration,
Age: 59 Inc., (since 1997), Colorado UpLIFT (a non-profit organization) (since 1986) and a trustee of
the Gallagher Family Foundation (non-profit organization) (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. (a REIT) (1993-2000). Oversees 37 portfolios
in the OppenheimerFunds complex.
F. WILLIAM MARSHALL, JR., Trustee (since 1996) of MassMutual Institutional Funds and of MML Series Investment Fund
Trustee (since 2000) (open-end investment companies); Trustee (since 1987), Chairman of the Board (since 2003) and
Age: 61 Chairman of the investment committee (since 1994) for the Worcester Polytech Institute;
President and Treasurer (since January 1999) of the SIS Fund (a private not for profit
charitable fund); Trustee (since 1995) of the Springfield Library and Museum Association;
Trustee (since 1996) of the Community Music School of Springfield. Formerly, member of the
investment committee of the Community Foundation of Western Massachusetts (1998 - 2003);
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 38 portfolios in the
OppenheimerFunds complex.
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INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IN THE CHART BELOW IS TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET,
AND OFFICER NEW YORK, NY 10281-1008. MR. MURPHY SERVES FOR AN INDEFINITE TERM, UNTIL HIS RESIGNATION, DEATH
OR REMOVAL.
JOHN V. MURPHY, Chairman, Chief Executive Officer and director (since June 2001) and President (since September
President and Trustee 2000) of the Manager; President and a director or trustee of other Oppenheimer funds; President
(since 2001) and a director (since July 2001) of Oppenheimer Acquisition Corp. and of Oppenheimer
Age: 54 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 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 72 portfolios as a
Trustee/Officer and 10 portfolios as an Officer in the OppenheimerFunds complex.
21 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
TRUSTEES AND OFFICERS Unaudited / Continued
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OFFICERS THE ADDRESS OF THE OFFICERS IN THE CHART BELOW IS AS FOLLOWS: FOR MS. PUTNAM AND MR. ZACK, TWO
WORLD FINANCIAL CENTER, 225 LIBERTY STREET, NEW YORK, NY 10281-1008, FOR MR. WIXTED, 6803 S.
TUCSON WAY, CENTENNIAL, CO 80112-3924. EACH OFFICER SERVES FOR AN ANNUAL TERM OR UNTIL HIS OR
HER EARLIER RESIGNATION, DEATH OR REMOVAL.
JANE PUTNAM, Vice President of the Manager (since October 1995); an officer of 2 portfolios in the
Vice President and OppenheimerFunds complex.
Portfolio Manager
(since 1994)
Age: 42
BRIAN W. WIXTED, Senior Vice President and Treasurer (since March 1999) of the Manager; Treasurer (since March
Treasurer (since 1999) 1999) of HarbourView Asset Management Corporation, Shareholder Services, Inc., Oppenheimer Real
Age: 44 Asset Management Corporation, Shareholder Financial Services, Inc., Oppenheimer Partnership
Holdings, Inc., OFI Private Investments, Inc. (since March 2000), OppenheimerFunds
International Ltd. and OppenheimerFunds plc (offshore fund management subsidiaries of the
Manager) (since May 2000) and OFI Institutional Asset Management, Inc. (since November 2000);
Treasurer and Chief Financial Officer (since May 2000) of OFI 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 82 portfolios in the OppenheimerFunds complex.
ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since February 2002) of the
Vice President and Secretary Manager; General Counsel and a director (since November 2001) of OppenheimerFunds Distributor,
(since 2001) Inc.; Senior Vice President and General Counsel (since November 2001) of HarbourView Asset
Age: 55 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., OFI 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 Senior Vice President (May 1985-January 2004), 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 OppenheimerFunds plc (October 1997-November 2001). An officer of 82
portfolios in the OppenheimerFunds complex.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION
ABOUT THE FUND'S TRUSTEES AND IS AVAILABLE WITHOUT CHARGE UPON REQUEST.
22 | OPPENHEIMER CAPITAL APPRECIATION FUND/VA
ITEM 2. CODE OF ETHICS
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar functions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Trustees of the Fund has determined that Edward L.
Cameron, the Chairman of the Board's Audit Committee, and George C. Bowen, a
member of the Board's Audit Committee, possess the technical attributes
identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as "audit
committee financial experts," and has designated Messrs. Cameron and Bowen as
the Audit Committee's financial experts. Messrs. Cameron and Bowen are
"independent" Trustees pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees
The principal accountant for the audit of the registrant's annual
financial statements billed $21,000 in fiscal 2003 and $20,000 in
fiscal 2002.
(b) Audit-Related Fees
The principal accountant for the audit of the registrant's annual
financial statements billed no such fees to the registrant during
the last two fiscal years.
The principal accountant for the audit of the registrant's annual
financial statements billed $75,000 in fiscal 2003 and $65,000 in
fiscal 2002 to the registrant's investment adviser or any entity
controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant.
Such fees would include, among others: due diligence related to
mergers and acquisitions, accounting consultations and audits in
connection with acquisitions, internal control reviews and
consultation concerning financial accounting and reporting
standards.
(c) Tax Fees
The principal accountant for the audit of the registrant's annual
financial statements billed no such fees to the registrant during
the last two fiscal years.
The principal accountant for the audit of the registrant's annual
financial statements billed $11,600 in fiscal 2003 and $6,500 in
fiscal 2002 to the registrant's investment adviser or any entity
controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant.
Such fees would include, among others: tax compliance, tax
planning and tax advice. Tax compliance generally involves
preparation of original and amended tax returns, claims for a
refund and tax payment-planning services. Tax planning and tax
advice includes assistance with tax audits and appeals, tax advice
related to mergers and acquisitions and requests for rulings or
technical advice from taxing authorities.
(d) All Other Fees
The principal accountant for the audit of the registrant's annual
financial statements billed no such fees to the registrant during
the last two fiscal years.
The principal accountant for the audit of the registrant's annual
financial statements billed $0 in fiscal 2003 and $3,500 in
fiscal 2002 to the registrant's investment adviser or any entity
controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant.
Such fees would include services provided to the registrant's
Board of Trustees with respect to the annual renewal of the
registrant's investment advisory agreement.
(e) (1) During its regularly scheduled periodic meetings, the
registrant's audit committee will pre-approve all audit,
audit-related, tax and other services to be provided by the
principal accountants of the registrant.
The audit committee has delegated pre-approval authority to its
Chairman for any subsequent new engagements that arise between
regularly scheduled meeting dates provided that any fees such
pre-approved are presented to the audit committee at its next
regularly scheduled meeting.
Pre-approval of non-audit services is waived provided that: 1) the
aggregate amount of all such services provided constitutes no more
than five percent of the total amount of fees paid by the
registrant to it principal accountant during the fiscal year in
which services are provided 2) such services were not recognized
by the registrant at the time of engagement as non-audit services
and 3) such services are promptly brought to the attention of the
audit committee of the registrant and approved prior to the
completion of the audit.
(2) 100%
(f) Not applicable as less than 50%.
(g) The principal accountant for the audit of the registrant's annual
financial statements billed $86,600 in fiscal 2003 and $75,000 in
fiscal 2002 to the registrant and the registrant's investment
adviser or any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the
registrant related to non-audit fees. Those billings did not
include any prohibited non-audit services as defined by the
Securities Exchange Act of 1934.
(h) The registrant's audit committee of the board of trustees has
considered whether the provision of non-audit services that were
rendered to the registrant's investment adviser, and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal account's independence. No such services
were rendered.
ITEM 5. NOT APPLICABLE
ITEM 6. RESERVED
ITEM 7. NOT APPLICABLE
ITEM 8. NOT APPLICABLE
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable for fiscal periods ending December 31, 2003.
ITEM 10. CONTROLS AND PROCEDURES
(a) Based on their evaluation of registrant's disclosure controls and
procedures (as defined in rule 30a-2(c) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(c)) as of December 31, 2003, registrant's
principal executive officer and principal financial officer found
registrant's disclosure controls and procedures to provide reasonable
assurances that information required to be disclosed by registrant in
the reports that it files under the Securities Exchange Act of 1934 (a)
is accumulated and communicated to registrant's management, including
its principal executive officer and principal financial officer, to
allow timely decisions regarding required disclosure, and (b) is
recorded, processed, summarized and reported, within the time periods
specified in the rules and forms adopted by the U.S. Securities and
Exchange Commission.
(b) There have been no significant changes in registrant's internal
controls over financial reporting that occurred during the registrant's
second fiscal half-year that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 11. EXHIBITS.
(A) EXHIBIT ATTACHED HERETO. (ATTACH CODE OF ETHICS AS EXHIBIT)
(B) EXHIBITS ATTACHED HERETO. (ATTACH CERTIFICATIONS AS EXHIBITS)