Capital Appreciation Fund/VA

Transcription

1 June 30, 2012 Oppenheimer Capital Appreciation Fund/VA A Series of Oppenheimer Variable Account Funds Semiannual Report SEMIANNUAL REPORT Fund Performance Discussion Listing of Top Holdings Financial Statements

2 OPPENHEIMER CAPITAL APPRECIATION FUND/VA Portfolio Managers: Julie Van Cleave, CFA and Michael Kotlarz 1 Sector Allocation Cumulative Total Returns For the 6-Month Period Ended 6/29/12 2 Non-Service Shares 8.24% Service Shares 8.07 Average Annual Total Returns For the Periods Ended 6/29/ Year 5-Year 10-Year Non-Service Shares 1.45% 0.77% 4.23% Service Shares Expense Ratios For the Fiscal Year Ended 12/30/11 2 Non-Service Shares 0.80% Service Shares 1.05 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 and expense ratios may be lower or higher than the data quoted. For performance data current to the most recent month end, call us at 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. The Fund s total returns do not include the charges associated with the separate account products that offer this Fund. Such performance would have been lower if such charges were taken into account. Expense ratios are as stated in the Fund s prospectus current as of the date of this report. 1. Became a co-portfolio manager June 29, Information Technology Computers & Peripherals Communications Equipment Internet Software & Services IT Services Software Semiconductors & Semiconductor Equipment Electronic Equipment & Instruments Consumer Discretionary Industrials Consumer Staples Health Care Energy Materials Financials 28.4% Portfolio holdings and allocations are subject to change. Percentages are as of June 29, 2012, and are based on the total market value of common stocks. Top Ten Common Stock Holdings Apple, Inc. 8.6% QUALCOMM, Inc. 3.9 Google, Inc., Cl. A 2.8 McDonald s Corp. 2.2 Costco Wholesale Corp. 2.2 Allergan, Inc. 2.0 Walt Disney Co. (The) 1.9 Coca-Cola Co. (The) 1.8 ebay, Inc. 1.8 Union Pacific Corp. 1.7 Portfolio holdings and allocations are subject to change. Percentages are as of June 29, 2012, and are based on net assets. 2 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

3 FUND PERFORMANCE DISCUSSION The Fund s Non-Service shares returned 8.24% during the six-month reporting period. In comparison, the Fund underperformed the Russell 1000 Growth Index (the Index ), which returned 10.08%, and the S&P 500 Index, which returned 9.49% 2. Relative to the Index, the Fund underperformed primarily due to weaker stock selection within the consumer discretionary, information technology and industrials sectors. The Fund outperformed the Index within the health care and materials sectors due to stronger stock selection. Economic and Market Environment The period began during a time of improved market sentiment in which the U.S. managed to avoid a return to recession and European policymakers appeared to take steps to address the region s sovereign debt and banking sector crises. Renewed investor optimism helped produce gains across a number of international equity markets over the first three months of The rebound across equities gained momentum after the European Central Bank implemented the Long-Term Refinancing Operation ( LTRO ) to enhance liquidity for troubled banks and reduce rates on newly issued sovereign debt securities. However, the second quarter was a volatile time for global markets. The fear of contagion from the worsening European sovereign debt crisis and a recession across much of Europe drove negative market sentiment, particularly over May and June. Very high unemployment, soaring debt and higher borrowing costs in Greece, Spain and Italy contributed to serious questions over how to implement austerity measures and restructure debt or instead take a different tact and provide some or all of those countries with additional funds. Perhaps most worrisome of all to investors was the possibility of Greece pulling out of the euro and its ramifications for the future of the Eurozone and its common currency. In the U.S., slower than expected first quarter growth also contributed to a sell-off in the U.S. stock market. Consumer confidence dropped as U.S. unemployment figures ticked slightly upwards after showing signs of improvement from the recession highs. However, the period ended on a positive note for the markets. The results of elections in Greece and continued efforts by European policymakers to stabilize the situation in the region appeared to soothe market jitters slightly in the final days of the period. Fund Review During the reporting period, information technology stock Apple, Inc., the top holding of the Fund at period end, was the Fund s strongest performing holding. Apple continued to out-execute its peers, and its success at innovation and highly recognizable brand led to global growth and share gains across its top revenue producing products iphones, ipads and Mac PCs. Also contributing to performance within information technology was ebay, Inc. ebay provides online marketplaces, including its flagship e-commerce platform ebay.com, as well as StubHub, Half.com and Shopping.com. Online payment services are provided by PayPal and Bill Me Later. The continued growth of PayPal played a large role in the positive performance of ebay this period. Other positive contributors to Fund performance included pharmaceutical stocks Vertex Pharmaceuticals, Inc. and Novo Nordisk AS. Vertex released promising data from a Phase 2 study, which showed that combining experimental drug VX-809 with its recently FDA approved drug Kalydeco led to improvements in lung function in adults with cystic fibrosis. This announcement significantly boosted the company s stock price in May. Novo Nordisk s stock was driven largely by increased sales of Victoza, which is a diabetes drug. The most significant detractor from performance was information technology holding Google, Inc. Google s stock underperformed after reporting fourth quarter results. The U.S. dollar s appreciation against the euro also negatively impacted results, as it impacted the company s translation of euro revenues and profits into U.S. dollars. We remain optimistic about Google s outlook for growth of both revenues and earnings. Juniper Networks, Inc., another information technology stock, also detracted from performance. Juniper, which offers network infrastructure solutions, experienced volatility this period as it reported a decline in revenue. 2. June 29, 2012, was the last business day of the Fund s semiannual period. See Note 1 of the accompanying Notes to Financial Statements. Index returns are calculated through June 30, December 30, 2011 was the last business day of the Fund s 2011 fiscal year. 3 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

4 FUND PERFORMANCE DISCUSSION Outside of the information technology sector, McDonald s Corp. and Joy Global, Inc. hurt the Fund s performance this period. McDonald s stock declined due partly to a decrease in sales in Asian markets, including Japan and China, in the volatile market environment. Joy Global, a manufacturer of mining equipment, experienced a decrease in orders due to a weak coal market in the U.S. Outlook Uncertainty about the Eurozone crisis, the U.S. fiscal cliff and the risk of a hard landing in China continues to weigh on the global economy. Although the U.S. economy continues to grow at a slow pace, it has proven to be more flexible and resilient in comparison to many other developed nations. Looking forward, we expect to see significantly greater differentiation in valuations to occur in the equity market with better valuations awarded to companies with high quality earnings. We employ a disciplined investment process that combines strategic, top-down sector analysis with bottom-up fundamental research. We continue to focus on companies with consistent revenue and earnings growth, which we expect will benefit as investors seek to invest in companies with the brightest prospects. Investors should consider the Fund s investment objective, risks, and charges and expenses carefully before investing. The Fund s prospectus and summary prospectus contain this and other information about the Fund, and may be obtained by asking your financial advisor or calling us at Read prospectuses and summary prospectuses carefully before investing. Total returns include changes in share price and reinvestment of dividends and capital gains distributions in a hypothetical investment for the periods shown. Cumulative total returns are not annualized. 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. 4 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

5 FUND EXPENSES Fund Expenses. As a shareholder of the Fund, you incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees; distribution and service fees; and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1, invested at the beginning of the period and held for the entire 6-month period ended June 29, Actual Expenses. The first section of the table provides information about actual account values and actual expenses. You may use the information in this section for the class of shares you hold, together with the amount you invested, to estimate the expense that you paid over the period. Simply divide your account value by $1, (for example, an $8, account value divided by $1, = 8.60), then multiply the result by the number in the first section under the heading entitled Expenses Paid During Period to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes. The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund s actual expense ratio for each class of shares, and an assumed rate of return of 5% per year for each class before expenses, which is not the actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any charges associated with the separate accounts that offer this Fund. Therefore, the hypothetical lines of the table are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges were included your costs would have been higher. Beginning Account Value January 1, 2012 Ending Account Value June 29, 2012 Actual Non-Service Shares $1, $1, $4.13 Service Shares 1, , Hypothetical (5% return before expenses) Non-Service Shares 1, , Service Shares 1, , Expenses Paid During 6 Months Ended June 29, 2012 Expenses are equal to the Fund s annualized expense ratio for that class, multiplied by the average account value over the period, multiplied by 181/366 (to reflect the one-half year period). Those annualized expense ratios, excluding indirect expenses from affiliated fund, based on the 6-month period ended June 29, 2012 are as follows: Class Expense Ratios Non-Service shares 0.80% Service shares 1.05 The expense ratios reflect voluntary waivers and/or reimbursements of expenses by the Fund s Manager. Some of these undertakings may be modified or terminated at any time, as indicated in the Fund s prospectus. The Financial Highlights tables in the Fund s financial statements, included in this report, also show the gross expense ratios, without such waivers or reimbursements and reduction to custodian expenses, if applicable. 5 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

6 STATEMENT OF INVESTMENTS June 29, 2012* / Unaudited Shares Value Common Stocks 99.5% Consumer Discretionary 15.4% Auto Components 0.9% Johnson Controls, Inc. 303,850 $ 8,419,684 Hotels, Restaurants & Leisure 3.4% McDonald s Corp. 235,790 20,874,489 Yum! Brands, Inc. 165,630 10,669,885 31,544,374 Internet & Catalog Retail 1.7% Amazon.com, Inc. 1 70,984 16,209,196 Media 1.9% Walt Disney Co. (The) 372,640 18,073,040 Specialty Retail 4.2% Bed Bath & Beyond, Inc. 1 38,520 2,380,536 O Reilly Automotive, Inc ,940 14,906,034 Tiffany & Co. 138,750 7,346,813 TJX Cos., Inc. (The) 343,960 14,766,203 39,399,586 Textiles, Apparel & Luxury Goods 3.3% Coach, Inc. 189,620 11,088,978 Nike, Inc., Cl. B 141,620 12,431,404 Ralph Lauren Corp. 56,030 7,847,562 31,367,944 Consumer Staples 12.8% Beverages 4.5% Brown-Forman Corp., Cl. B 121,130 11,731,441 Coca-Cola Co. (The) 219,570 17,168,178 SABMiller plc 340,520 13,677,739 42,577,358 Food & Staples Retailing 2.2% Costco Wholesale Corp. 214,980 20,423,100 Food Products 2.5% Mead Johnson Nutrition Co., Cl. A 123,420 9,936,544 Nestle SA 232,803 13,870,315 23,806,859 Household Products 1.4% Colgate-Palmolive Co. 125,250 13,038,525 Personal Products 1.0% Estee Lauder Cos., Inc. (The), Cl. A 179,580 9,718,870 Tobacco 1.2% Philip Morris International, Inc. 130,610 11,397,029 Energy 9.8% Energy Equipment & Services 4.5% Cameron International Corp ,270 9,023,342 Ensco plc, Cl. A 179,530 8,432,524 Shares Value Energy Equipment & Services Continued National Oilwell Varco, Inc. 165,540 $ 10,667,398 Schlumberger Ltd. 229,510 14,897,494 43,020,758 Oil, Gas & Consumable Fuels 5.3% Apache Corp. 24,600 2,162,094 Chevron Corp. 141,510 14,929,305 ConocoPhillips 116,460 6,507,785 Noble Energy, Inc. 102,070 8,657,577 Occidental Petroleum Corp. 180,650 15,494,351 Phillips ,880 1,957,171 49,708,283 Financials 1.9% Commercial Banks 0.7% Standard Chartered plc 309,610 6,749,738 Consumer Finance 1.2% American Express Co. 189,350 11,022,064 Health Care 12.8% Biotechnology 2.4% Alexion Pharmaceuticals, Inc. 1 67,650 6,717,645 Vertex Pharmaceuticals, Inc ,790 15,981,377 22,699,022 Health Care Equipment & Supplies 1.3% Baxter International, Inc. 236,470 12,568,381 Health Care Technology 0.7% Cerner Corp. 1 80,000 6,612,800 Life Sciences Tools & Services 0.8% Mettler-Toledo International, Inc. 1 47,620 7,421,577 Pharmaceuticals 7.6% Allergan, Inc. 208,280 19,280,480 Bristol-Myers Squibb Co. 442,620 15,912,189 Novo Nordisk AS, Cl. B 111,030 16,035,840 Perrigo Co. 70,740 8,342,368 Roche Holding AG 69,001 11,893,340 71,464,217 Industrials 14.4% Aerospace & Defense 3.2% Precision Castparts Corp. 76,440 12,573,616 TransDigm Group, Inc. 1 43,280 5,812,504 United Technologies Corp. 163,380 12,340,091 30,726,211 Air Freight & Logistics 1.4% United Parcel Service, Inc., Cl. B 165,280 13,017,453 Industrial Conglomerates 1.6% Danaher Corp. 286,080 14,899,046 6 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

7 Shares Value Machinery 5.2% Caterpillar, Inc. 129,660 $ 11,009,431 Cummins, Inc. 78,560 7,613,250 Deere & Co. 122,240 9,885,549 Joy Global, Inc. 156,127 8,857,085 Parker-Hannifin Corp. 150,420 11,564,290 48,929,605 Road & Rail 3.0% Hunt (J.B.) Transport Services, Inc. 108,490 6,466,004 Kansas City Southern, Inc. 80,250 5,582,190 Union Pacific Corp. 136,880 16,331,153 28,379,347 Information Technology 28.3% Communications Equipment 4.6% Juniper Networks, Inc ,650 7,040,212 QUALCOMM, Inc. 654,800 36,459,257 43,499,469 Computers & Peripherals 8.9% Apple, Inc ,190 80,702,960 SanDisk Corp ,070 3,687,034 84,389,994 Electronic Equipment & Instruments 1.0% Corning, Inc. 745,330 9,637,117 Internet Software & Services 4.6% ebay, Inc ,620 17,124,116 Google, Inc., Cl. A 1 45,070 26,143,755 43,267,871 Shares Value Semiconductors & Semiconductor Equipment 2.1% Broadcom Corp., Cl. A 345,290 $ 11,670,802 Texas Instruments, Inc. 272,690 7,823,476 19,494,278 Software 3.3% Intuit, Inc. 206,890 12,278,922 Salesforce.com, Inc. 1 56,290 7,782,655 Vmware, Inc., Cl. A 1 116,320 10,589,773 30,651,350 Materials 4.1% Chemicals 4.1% Ecolab, Inc. 185,470 12,710,257 Monsanto Co. 123,820 10,249,820 Praxair, Inc. 149,062 16,207,511 39,167,588 Total Common Stocks (Cost $642,633,539) 939,221,118 Investment Company 0.3% Oppenheimer Institutional Money Market Fund, Cl. E, 0.20% 2,3 (Cost $2,421,103) 2,421,103 2,421,103 Total Investments, at Value (Cost $645,054,642) 99.8% 941,642,221 Other Assets Net of Liabilities 0.2 1,820,679 Net Assets 100.0% $943,462,900 IT Services 3.8% International Business Machines Corp. 53,590 10,481,132 Teradata Corp ,980 13,320,410 Visa, Inc., Cl. A 98,017 12,117,842 35,919,384 Footnotes to Statement of Investments * June 29, 2012 represents the last business day of the Fund s 2012 semiannual period. See Note 1 of the accompanying Notes. 1. Non-income producing security. 2. Is or was an affiliate, as defined in the Investment Company Act of 1940, at or during the period ended June 29, 2012, by virtue of the Fund owning at least 5% of the voting securities of the issuer or as a result of the Fund and the issuer having the same investment adviser. Transactions during the period in which the issuer was an affiliate are as follows: Shares December 30, 2011 a Gross Additions Gross Reductions Shares June 29, 2012 Oppenheimer Institutional Money Market Fund, Cl. E 8,136,365 80,942,823 86,658,085 2,421,103 Oppenheimer Institutional Money Market Fund, Cl. E $2,421,103 $4,516 a. December 30, 2011 represents the last business day of the Fund s 2011 fiscal year. See Note 1 of the accompanying Notes. 3. Rate shown is the 7-day yield as of June 29, See accompanying Notes to Financial Statements. 7 OPPENHEIMER CAPITAL APPRECIATION FUND/VA Value Income

8 STATEMENT OF ASSETS AND LIABILITIES Unaudited June 29, Assets Investments, at value see accompanying statement of investments: Unaffiliated companies (cost $642,633,539) $ 939,221,118 Affiliated companies (cost $2,421,103) 2,421, ,642,221 Cash 14 Receivables and other assets: Dividends 2,233,045 Investments sold 924,301 Other 53,891 Total assets 944,853,472 Liabilities Payables and other liabilities: Shares of beneficial interest redeemed 619,416 Investments purchased 457,474 Shareholder communications 108,692 Transfer and shareholder servicing agent fees 76,705 Distribution and service plan fees 66,385 Trustees compensation 42,790 Other 19,110 Total liabilities 1,390,572 Net Assets $943,462,900 Composition of Net Assets Par value of shares of beneficial interest $ 22,143 Additional paid-in capital 891,694,025 Accumulated net investment income 1,676,303 Accumulated net realized loss on investments and foreign currency transactions (246,651,011) Net unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies 296,721,440 Net Assets $943,462,900 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 $573,554,436 and 13,421,137 shares of beneficial interest outstanding) $42.74 Service Shares: Net asset value, redemption price per share and offering price per share (based on net assets of $369,908,464 and 8,721,378 shares of beneficial interest outstanding) $ June 29, 2012 represents the last business day of the Fund s 2012 semiannual period. See Note 1 of the accompanying Notes. See accompanying Notes to Financial Statements. 8 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

9 STATEMENT OF OPERATIONS Unaudited For the Six Months Ended June 29, Investment Income Dividends: Unaffiliated companies (net of foreign withholding taxes of $229,184) $ 7,562,326 Affiliated companies 4,516 Interest 395 Total investment income 7,567,237 Expenses Management fees 3,431,960 Distribution and service plan fees Service shares 485,757 Transfer and shareholder servicing agent fees: Non-Service shares 308,009 Service shares 194,360 Shareholder communications: Non-Service shares 11,368 Service shares 6,778 Trustees compensation 26,745 Custodian fees and expenses 13,420 Administration service fees 750 Other 42,145 Total expenses 4,521,292 Less waivers and reimbursements of expenses (18,543) Net expenses 4,502,749 Net Investment Income 3,064,488 Realized and Unrealized Gain (Loss) Net realized gain on: Investments from unaffiliated companies 51,058,068 Foreign currency transactions 891,402 Net realized gain 51,949,470 Net change in unrealized appreciation/depreciation on: Investments 33,083,149 Translation of assets and liabilities denominated in foreign currencies (3,746,717) Net change in unrealized appreciation/depreciation 29,336,432 Net Increase in Net Assets Resulting from Operations $84,350, June 29, 2012 represents the last business day of the Fund s 2012 semiannual period. See Note 1 of the accompanying Notes. See accompanying Notes to Financial Statements. 9 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

10 STATEMENTS OF CHANGES IN NET ASSETS Six Months Ended June 29, (Unaudited) Year Ended December 30, Operations Net investment income $ 3,064,488 $ 5,322,690 Net realized gain 51,949,470 59,047,435 Net change in unrealized appreciation/depreciation 29,336,432 (73,931,651) Net increase (decrease) in net assets resulting from operations 84,350,390 (9,561,526) Dividends and/or Distributions to Shareholders Dividends from net investment income: Non-Service shares (3,878,050) (2,685,368) Service shares (1,503,957) (448,818) (5,382,007) (3,134,186) Beneficial Interest Transactions Net decrease in net assets resulting from beneficial interest transactions: Non-Service shares (113,871,807) (125,913,455) Service shares (34,831,884) (43,268,026) (148,703,691) (169,181,481) Net Assets Total decrease (69,735,308) (181,877,193) Beginning of period 1,013,198,208 1,195,075,401 End of period (including accumulated net investment income of $1,676,303 and $3,993,822, respectively) $943,462,900 $1,013,198, June 29, 2012 and December 30, 2011 represent the last business days of the Fund s respective reporting periods. See Note 1 of the accompanying Notes. See accompanying Notes to Financial Statements. 10 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

11 FINANCIAL HIGHLIGHTS Six Months Ended June 29, Year Ended December 30, Year Ended December 31, Non-Service Shares (Unaudited) Per Share Operating Data Net asset value, beginning of period $39.75 $40.35 $36.94 $25.67 $47.18 $41.43 Income (loss) from investment operations: Net investment income Net realized and unrealized gain (loss) 3.13 (.69) (21.55) 5.78 Total from investment operations 3.28 (.46) (21.45) 5.85 Dividends and/or distributions to shareholders: Dividends from net investment income (.29) (.14) (.06) (.09) (.06) (.10) Net asset value, end of period $42.74 $39.75 $40.35 $36.94 $25.67 $47.18 Total Return, at Net Asset Value % (1.15)% 9.42% 44.52% (45.52)% 14.15% Ratios/Supplemental Data Net assets, end of period (in thousands) $573,554 $637,868 $771,086 $1,074,190 $ 829,931 $1,631,791 Average net assets (in thousands) $619,180 $713,770 $976,242 $ 927,670 $1,256,525 $1,631,686 Ratios to average net assets: 4 Net investment income 0.71% 0.57% 0.31% 0.29% 0.25% 0.15% Total expenses % 0.80% 0.79% 0.78% 0.66% 0.65% Expenses after payments, waivers and/or reimbursements and reduction to custodian expenses 0.80% 0.80% 0.79% 0.78% 0.66% 0.65% Portfolio turnover rate 15% 27% 58% 46% 67% 59% 1. June 29, 2012 and December 30, 2011 represent the last business days of the Fund s respective reporting periods. See Note 1 of the accompanying Notes. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods 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 less than one full year. 5. Total expenses including indirect expenses from affiliated fund were as follows: Six Months Ended June 29, % Year Ended December 30, % Year Ended December 31, % Year Ended December 31, % Year Ended December 31, % Year Ended December 31, % See accompanying Notes to Financial Statements. 11 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

12 FINANCIAL HIGHLIGHTS Continued Six Months Ended June 29, Year Ended December 30, Year Ended December 31, Service Shares (Unaudited) Per Share Operating Data Net asset value, beginning of period $39.40 $39.99 $36.64 $25.42 $46.78 $41.09 Income (loss) from investment operations: Net investment income (loss) (.05) Net realized and unrealized gain (loss) 3.08 (.68) (21.36) 5.74 Total from investment operations 3.18 (.55) (21.36) 5.69 Dividends and/or distributions to shareholders: Dividends from net investment income (.17) (.04) 3 3 Net asset value, end of period $42.41 $39.40 $39.99 $36.64 $25.42 $46.78 Total Return, at Net Asset Value % (1.37)% 9.15% 44.15% (45.66)% 13.86% Ratios/Supplemental Data Net assets, end of period (in thousands) $369,909 $375,330 $423,989 $444,170 $313,931 $546,887 Average net assets (in thousands) $390,710 $407,413 $427,640 $368,634 $454,558 $510,874 Ratios to average net assets: 5 Net investment income (loss) 0.46% 0.32% 0.06% 0.03% 0.00% 6 (0.10)% Total expenses % 1.05% 1.04% 1.04% 0.91% 0.91% Expenses after payments, waivers and/or reimbursements and reduction to custodian expenses 1.05% 1.05% 1.04% 1.03% 0.91% 0.91% Portfolio turnover rate 15% 27% 58% 46% 67% 59% 1. June 29, 2012 and December 30, 2011 represent the last business days of the Fund s respective reporting periods. See Note 1 of the accompanying Notes. 2. Per share amounts calculated based on the average shares outstanding during the period. 3. Less than $0.005 per share. 4. Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Total returns are not annualized for periods 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. 5. Annualized for periods less than one full year. 6. Less than 0.005%. 7. Total expenses including indirect expenses from affiliated fund were as follows: Six Months Ended June 29, % Year Ended December 30, % Year Ended December 31, % Year Ended December 31, % Year Ended December 31, % Year Ended December 31, % See accompanying Notes to Financial Statements. 12 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

13 NOTES TO FINANCIAL STATEMENTS Unaudited 1. Significant Accounting Policies Oppenheimer Capital Appreciation Fund/VA (the Fund ) is a separate series of Oppenheimer Variable Account Funds, 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 Fund s investment adviser 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. Both 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 due to each class having its own expenses, such as transfer and shareholder servicing agent fees and shareholder communications, directly attributable to that class. The following is a summary of significant accounting policies consistently followed by the Fund. Semiannual and Annual Periods. The last day of the Fund s semiannual period was the last day the New York Stock Exchange was open for trading. The Fund s financial statements have been presented through that date to maintain consistency with the Fund s net asset value calculations used for shareholder transactions. The last day of the Fund s fiscal year was the last day the New York Stock Exchange was open for trading. The Fund s financial statements have been presented through that date to maintain consistency with the Fund s net asset value calculations used for shareholder transactions. Investment in Oppenheimer Institutional Money Market Fund. The Fund is permitted to invest daily available cash balances in an affiliated money market fund. The Fund may invest the available cash in Class E shares of Oppenheimer Institutional Money Market Fund ( IMMF ) to seek current income while preserving liquidity. IMMF is a registered open-end management investment company, regulated as a money market fund under the Investment Company Act of 1940, as amended. The Manager is also the investment adviser of IMMF. When applicable, the Fund s investment in IMMF is included in the Statement of Investments. Shares of IMMF are valued at their net asset value per share. As a shareholder, the Fund is subject to its proportional share of IMMF s Class E expenses, including its management fee. The Manager will waive fees and/or reimburse Fund expenses in an amount equal to the indirect management fees incurred through the Fund s investment in IMMF. Foreign Currency Translation. The Fund s accounting records are maintained in U.S. dollars. The values of securities denominated in foreign currencies and amounts related to the purchase and sale of foreign securities and foreign investment income are translated into U.S. dollars as of the close of the Exchange, normally 4:00 P.M. Eastern time, on each day the Exchange is open for trading. Foreign exchange rates may be valued primarily using a reliable bank, dealer or service authorized by the Board of Trustees. Reported net realized gains and losses from foreign currency transactions arise from sales of portfolio securities, sales and maturities of short-term securities, sales of foreign currencies, exchange rate fluctuations between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized appreciation and depreciation on the translation of assets and liabilities denominated in foreign currencies arise from changes in the values of assets and liabilities, including investments in securities at fiscal period end, resulting from changes in exchange rates. 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. 13 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

14 NOTES TO FINANCIAL STATEMENTS Unaudited / Continued 1. Significant Accounting Policies Continued 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. 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. Therefore, no federal income or excise tax provision is required. The Fund files income tax returns in U.S. federal and applicable state jurisdictions. The statute of limitations on the Fund s tax return filings generally remain open for the three preceding fiscal reporting period ends. During the fiscal year ended December 30, 2011, the Fund utilized $62,322,990 of capital loss carryforward to offset capital gains realized in that fiscal year. The Fund had post-october losses of $6,794,494. Details of the fiscal year ended December 30, 2011 capital loss carryforwards are included in the table below. Capital loss carryforwards with no expiration, if any, must be utilized prior to those with expiration dates. Capital losses with no expiration will be carried forward to future years if not offset by gains. Expiring 2016 $ 109,362, ,633,172 No expiration 6,794,494 Total $296,790,277 As of June 29, 2012, it is estimated that the capital loss carryforwards would be $244,840,807 expiring by The estimated capital loss carryforward represents the carryforward as of the end of the last fiscal year, increased or decreased by capital losses or gains realized in the first six months of the current fiscal year. During the six months ended June 29, 2012, it is estimated that the Fund will utilize $51,949,470 capital loss carryforward to offset realized capital gains. 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. 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 June 29, 2012 are noted in the following table. 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 $647,632,126 Gross unrealized appreciation $ 313,078,311 Gross unrealized depreciation (19,068,216) Net unrealized appreciation $294,010,095 Trustees Compensation. The Board of Trustees has adopted a compensation deferral 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. For purposes of determining the amount owed to the Trustee under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of the Fund or in other Oppenheimer funds 14 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

15 selected by the Trustee. The Fund purchases shares of the funds selected for deferral by the Trustee in amounts equal to his or her deemed investment, resulting in a Fund asset equal to the deferred compensation liability. Such assets are included as a component of Other within the asset section of the Statement of Assets and Liabilities. 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 with the compensation deferral plan. Dividends and Distributions to Shareholders. Dividends and distributions to shareholders, which are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles, are recorded on the ex-dividend date. Income and capital gain distributions, if any, are declared and paid annually or at other times as deemed necessary by the Manager. The tax character of distributions is determined as of the Fund s fiscal year end. Therefore, a portion of the Fund s distributions made to shareholders prior to the Fund s fiscal year end may ultimately be categorized as a tax return of capital. 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 is recognized on an accrual basis. Discount and premium, which are included in interest income on the Statement of Operations, are amortized or accreted daily. Custodian Fees. Custodian fees and expenses in the Statement of Operations may include interest expense incurred by the Fund on any cash overdrafts of its custodian account during the period. Such cash overdrafts may result from the effects of failed trades in portfolio securities and from cash outflows resulting from unanticipated shareholder redemption activity. The Fund pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by the Fund, at a rate equal to the Federal Funds Rate plus 0.50%. The Reduction to custodian expenses line item, if applicable, represents earnings on cash balances maintained by the Fund during the period. Such interest expense and other custodian fees may be paid with these earnings. 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. Indemnifications. The Fund s organizational documents provide current and former trustees and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote. 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. 2. Securities Valuation The Fund calculates the net asset value of its shares as of the close of the New York Stock Exchange (the Exchange ), normally 4:00 P.M. Eastern time, on each day the Exchange is open for trading. 15 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

16 NOTES TO FINANCIAL STATEMENTS Unaudited / Continued 2. Securities Valuation Continued The Fund s Board has adopted procedures for the valuation of the Fund s securities and has delegated the day-to-day responsibility for valuation determinations under those procedures to the Manager. The Manager has established a Valuation Committee which is responsible for determining a fair valuation for any security for which market quotations are not readily available. The Valuation Committee s fair valuation determinations are subject to review, approval and ratification by the Fund s Board at its next regularly scheduled meeting covering the calendar quarter in which the fair valuation was determined. Valuation Methods and Inputs Securities are valued using unadjusted quoted market prices, when available, as supplied primarily by third party pricing services or dealers. The following methodologies are used to determine the market value or the fair value of the types of securities described below: Securities traded on a registered U.S. securities exchange (including exchange-traded derivatives other than futures and futures options) are valued based on the last sale price of the security reported on the principal exchange on which it is traded, 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 current day s closing bid and asked prices, and if not, at the current day s closing bid price. A security of a foreign issuer traded on a foreign exchange but not listed on a registered U.S. securities exchange is valued based on the last sale price on the principal exchange on which the security is traded, as identified by the third party pricing service used by the Manager, prior to the time when the Fund s assets are valued. If the last sale price is unavailable, the security is valued at the most recent official closing price on the principal exchange on which it is traded. If the last sales price or official closing price for a foreign security is not available, the security is valued at the mean between the bid and asked price per the exchange or, if not available from the exchange, obtained from two dealers. If bid and asked prices are not available from either the exchange or two dealers, the security is valued by using one of the following methodologies (listed in order of priority); (1) using a bid from the exchange, (2) the mean between the bid and asked price as provided by a single dealer, or (3) a bid from a single dealer. Shares of a registered investment company that are not traded on an exchange are valued at that investment company s net asset value per share. Corporate and government debt securities (of U.S. or foreign issuers) and municipal debt securities, event-linked bonds, loans, mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities are valued at the mean between the bid and asked prices utilizing evaluated prices obtained from third party pricing services or broker-dealers who may use matrix pricing methods to determine the evaluated prices. Short-term money market type debt securities with a remaining maturity of sixty days or less are valued at cost adjusted by the amortization of discount or premium to maturity (amortized cost), which approximates market value. Short-term debt securities with a remaining maturity in excess of sixty days are valued at the mean between the bid and asked prices utilizing evaluated prices obtained from third party pricing services or broker-dealers. Forward foreign currency exchange contracts are valued utilizing current and forward currency rates obtained from third party pricing services. When the settlement date of a contract is an interim date for which a quotation is not available, interpolated values are derived using the nearest dated forward currency rate. 16 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

17 A description of the standard inputs that may generally be considered by the third party pricing vendors in determining their evaluated prices is provided below. Security Type Standard Inputs Generally Considered by Third-Party Pricing Vendors Corporate debt, government debt, municipal, mortgage-backed and asset-backed securities Loans Event-linked bonds Reported trade data, broker-dealer price quotations, benchmark yields, issuer spreads on comparable securities, the credit quality, yield, maturity, and other appropriate factors. Information obtained from market participants regarding reported trade data and brokerdealer price quotations. Information obtained from market participants regarding reported trade data and brokerdealer price quotations. If a market value or price cannot be determined for a security using the methodologies described above, or if, in the good faith opinion of the Manager, the market value or price obtained does not constitute a readily available market quotation, or a significant event has occurred that would materially affect the value of the security the security is fair valued either (i) by a standardized fair valuation methodology applicable to the security type or the significant event as previously approved by the Valuation Committee and the Fund s Board or (ii) as determined in good faith by the Manager s Valuation Committee. The Valuation Committee considers all relevant facts that are reasonably available, through either public information or information available to the Manager, when determining the fair value of a security. Fair value determinations by the Manager are subject to review, approval and ratification by the Fund s Board at its next regularly scheduled meeting covering the calendar quarter in which the fair valuation was determined. Those fair valuation standardized methodologies include, but are not limited to, valuing securities at the last sale price or initially at cost and subsequently adjusting the value based on: changes in company specific fundamentals, changes in an appropriate securities index, or changes in the value of similar securities which may be further adjusted for any discounts related to security-specific resale restrictions. When possible, such methodologies use observable market inputs such as unadjusted quoted prices of similar securities, observable interest rates, currency rates and yield curves. The methodologies used for valuing securities are not necessarily an indication of the risks associated with investing in those securities nor can it be assured that the Fund can obtain the fair value assigned to a security if it were to sell the security. To assess the continuing appropriateness of security valuations, the Manager, or its third party service provider who is subject to oversight by the Manager, regularly compares prior day prices, prices on comparable securities, and sale prices to the current day prices and challenges those prices exceeding certain tolerance levels with the third party pricing service or broker source. For those securities valued by fair valuations, whether through a standardized fair valuation methodology or a fair valuation determination, the Valuation Committee reviews and affirms the reasonableness of the valuations based on such methodologies and fair valuation determinations on a regular basis after considering all relevant information that is reasonably available. Classifications Each investment asset or liability of the Fund is assigned a level at measurement date based on the significance and source of the inputs to its valuation. Various data inputs are used in determining the value of each of the Fund s investments as of the reporting period end. These data inputs are categorized in the following hierarchy under applicable financial accounting standards: 1) Level 1 unadjusted quoted prices in active markets for identical assets or liabilities (including securities actively traded on a securities exchange) 2) Level 2 inputs other than unadjusted quoted prices that are observable for the asset or liability (such as unadjusted quoted prices for similar assets and market corroborated inputs such as interest rates, prepayment speeds, credit risks, etc.) 3) Level 3 significant unobservable inputs (including the Manager s own judgments about assumptions that market participants would use in pricing the asset or liability). 17 OPPENHEIMER CAPITAL APPRECIATION FUND/VA

18 NOTES TO FINANCIAL STATEMENTS Unaudited / Continued 2. Securities Valuation Continued The inputs used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Level 1 Unadjusted Quoted Prices Level 2 Other Significant Observable Inputs Level 3 Significant Unobservable Inputs Assets Table Investments, at Value: Common Stocks Consumer Discretionary $ 145,013,824 $ $ $ 145,013,824 Consumer Staples 107,284,002 13,677, ,961,741 Energy 92,729,041 92,729,041 Financials 11,022,064 6,749,738 17,771,802 Health Care 120,765, ,765,997 Industrials 135,951, ,951,662 Information Technology 266,859, ,859,463 Materials 39,167,588 39,167,588 Investment Company 2,421,103 2,421,103 Total Assets $921,214,744 $20,427,477 $ $941,642,221 There have been no significant changes to the fair valuation methodologies of the Fund during the period. 3. 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: Six Months Ended June 29, 2012 Year Ended December 30, 2011 Shares Amount Shares Amount Non-Service Shares Sold 296,805 $ 12,887,816 1,249,985 $ 50,511,923 Dividends and/or distributions reinvested 89,832 3,878,050 63,634 2,685,368 Redeemed (3,011,413) (130,637,673) (4,379,711) (179,110,746) Net decrease (2,624,776) $(113,871,807) (3,066,092) $(125,913,455) Value Service Shares Sold 114,021 $ 4,865, ,209 $ 28,336,802 Dividends and/or distributions reinvested 35,098 1,503,957 10, ,818 Redeemed (954,473) (41,201,296) (1,782,789) (72,053,646) Net decrease (805,354) $ (34,831,884) (1,075,871) $ (43,268,026) 4. Purchases and Sales of Securities The aggregate cost of purchases and proceeds from sales of securities, other than short-term obligations and investments in IMMF, for the six months ended June 29, 2012, were as follows: Purchases Sales Investment securities $151,643,318 $296,560, OPPENHEIMER CAPITAL APPRECIATION FUND/VA