Oppenheimer Main Street Small Cap Fund/VA A Series of Oppenheimer Variable Account Funds

Transcription

1 June 30, 2018 Oppenheimer Main Street Small Cap Fund/VA A Series of Oppenheimer Variable Account Funds Semiannual Report SEMIANNUAL REPORT Listing of Top Holdings Fund Performance Discussion Financial Statements

2 PORTFOLIO MANAGERS: Matthew P. Ziehl, CFA, Raymond Anello, CFA, Raman Vardharaj, CFA, Joy Budzinski, Kristin Ketner, Magnus Krantz and Adam Weiner. AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 6/30/18 Inception Date 6-Months 1-Year 5-Year 10-Year Non-Service Shares 5/1/ % 15.29% 12.60% 11.19% Service Shares 7/16/ Russell 2000 Index 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 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 include changes in share price and reinvested distributions but 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. Returns for periods of less than one year are cumulative and not annualized. See Fund prospectuses and summary prospectuses for more information on share classes and sales charges. The Fund s performance is compared to the performance of the Russell 2000 Index, which measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 Index is a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Index is unmanaged and cannot be purchased directly by investors. 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 comprising the Index. Index performance includes reinvestment of income, but does not reflect transaction costs, fees, expenses or taxes. Index performance is shown for illustrative purposes only as a benchmark for the Fund's performance, and does not predict or depict performance of the Fund. The Fund's performance reflects the effects of the Fund's business and operating expenses. TOP HOLDINGS AND ALLOCATIONS TOP TEN COMMON STOCK HOLDINGS SECTOR ALLOCATION Korn/Ferry International 2.5% ASGN, Inc. 2.0 CACI International, Inc., Cl. A 2.0 Visteon Corp. 1.9 Zynga, Inc., Cl. A 1.7 j2 Global, Inc. 1.7 Generac Holdings, Inc. 1.6 Matador Resources Co. 1.6 National Storage Affiliates Trust 1.6 Amedisys, Inc. 1.6 Portfolio holdings and allocations are subject to change. Percentages are as of June 30, 2018, and are based on net assets. For more current Fund holdings, please visit oppenheimerfunds.com. Financials 22.5% Industrials 19.2% Information Technology 18.8% Health Care 14.2% Consumer Discretionary 11.0% Utilities 4.2% Materials 4.1% Energy 3.7% Consumer Staples 2.3% Portfolio holdings and allocations are subject to change. Percentages are as of June 30, 2018, and are based on the total market value of common stocks. 2 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

3 Fund Performance Discussion The Fund s Non-Service shares returned 8.05% during the reporting period. In comparison, the Fund outperformed the Russell 2000 Index (the Index ), which returned 7.66%. The Fund s outperformance relative to the Index stemmed largely from stock selection in the Industrials, Information Technology, and Energy sectors. Stock selection in the Materials and Consumer Discretionary sectors and an underweight in Health Care detracted from performance. MARKET OVERVIEW After a mixed first quarter of 2018, U.S. stock indices had a generally strong second quarter of the year. The market showed resiliency despite increasing concerns related to tariffs and trade wars. Given this backdrop, small-cap stocks experienced particularly strong performance during the reporting period as investors sought companies more exposed to the U.S. economy versus larger-cap multi-nationals more exposed to global trade and whose foreign revenue is negatively impacted by a rising U.S. dollar. For the first half of 2018, small-cap stocks have now outperformed large-cap stocks by almost 500 basis points, as the Russell 2000 Index has produced a total return of 7.66% versus the Russell 1000 Index s 2.85% gain. As noted, this performance has widened as tariff and trade war concerns have intensified since April and the U.S. dollar has moved higher at the same time. As investors, it is important to know what is and what is not within one s circle of competence. As such, we strive to keep the portfolio in an all-weather orientation. Whether rates, commodity prices, currencies or even whole economies go up or down, our goal is to have a portfolio that has the potential to outperform no matter the environment. We also believe we have the skills to identify company management teams that are likely to successfully execute on their plans. Lastly, we believe correctly valuing stocks and seeing what expectations the market is pricing in is also within our skillset. It is not by accident that we weight the portfolio more heavily towards companies that have structural competitive advantages and/or management teams that are executing (e.g. gaining market share, expanding profit margins), with at least reasonable stock valuations. Companies with these qualities generally have more stable earnings. TOP INDIVIDUAL CONTRIBUTORS Top contributors to the Fund s relative performance this period included Korn/Ferry International, Etsy, and Amedisys. During the reporting period, recruiter and talent management consultant Korn/Ferry delivered another strong quarter in a series of strong quarterly results, with accelerating revenue growth and forward guidance that exceeded expectations. The company is effectively leveraging the intellectual property of its Hay Group organizational and leadership consulting business, acquired in 2015, to drive results in its traditional executive headhunter practice and its Futurestep recruitment process outsourcing division. A strengthening economy and tightening job market have been driving demand, and the company s value-added offerings have been helping it take market share. Etsy s stock moved substantially higher after instituting a significant price increase to narrow the take rate discount that was in place relative to other marketplaces. This was interpreted by the market as a sign of confidence that the marketplace has developed enough stickiness with sellers to support pricing power. Along with the pricing move helping top-line revenue growth and margins, the company will reinvest some of the proceeds to support more aggressive marketing to gain new buyers, enhance repeat purchase activity and improve conversion, which offers a lot of runway for continued strong growth for the foreseeable future. In May 2018, Amedisys reported a strong quarter beating expectations driven by strength in margins. Also, the company announced it bought back 2.4 million, or 7% of its shares, from KKR, which will be 6%-7% accretive to earnings. Home health continues to be in a strong situation at period end as people increasingly try to be kept in their homes as long as possible. TOP INDIVIDUAL DETRACTORS Detractors from relative performance this reporting period included Prestige Brands Holdings, Spirit Airlines, and Manitowoc. Prestige Brands markets, sells, and distributes various over-the-counter healthcare and consumer products. Organic sales trends for Prestige have slowed and cost pressures have increased, especially for transportation. Despite an attractive valuation, we exited the stock during the reporting period as we do not see a catalyst for improvement. 3 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

4 Rivalry within the domestic airline industry remains intense, with a combination of ongoing low fares and rising fuel prices stoking fears about current profitability. For Spirit, the long-term fundamental picture actually improved in the reporting period. After operational issues in mid-2017, the company signed a new five-year labor agreement with its pilots. Despite the large bump in pay for the pilots, the company said it expects its relative cost advantage to expand further in the years ahead. Manitowoc is a leading global manufacturer of cranes and lifting solutions with manufacturing, distribution, and service facilities in 20 countries. After strong relative performance in the second half of 2017, the stock declined 34% in the first half of 2018 as investors grappled with the impact of higher raw material costs (i.e. steel) and a trade war possibly negating management s hard fought multi-year restructuring efforts and a nascent cyclical recovery in Manitowoc s core business. With an attractive valuation in our view and management execution on track, we maintained a modest position in the stock at period end. STRATEGY & OUTLOOK In the short term, we expect the U.S. economy to continue to show decent economic growth. We believe this will be driven by favorable consumer confidence, tax benefits and lower regulatory hurdles. Rising home prices and innovation may also help drive the economy higher. Risks we are focused on include trade tariffs, interest rates, disruption of traditional business models and the narrowness of the stock market rally in large-cap stocks. Regarding trade tariffs, we believe the market views it as a negotiating tactic and is implying that all will end well. An escalation could severely hamper global growth and thereby stock prices. We are afraid companies are addicted to low interest rates. If interest rates were to rise materially, some companies historical decisions will look like misallocation of capital and negatively impact their stock prices. Innovation, while a positive for the overall economy over the long term, creates short-term disruptions. Finally, there is risk around the growing disparity between stock prices of companies perceived as having growth characteristics irrespective of valuation versus the rest of the companies. History tells us that sooner or later, such narrow rallies result in investors crowding in a few stocks and ultimately resulting in meaningful declines of those stocks. We continue to maintain our discipline around valuation. Additionally, while innovation is alive and well and helping generate economic growth, fundamental disruptions across market segments have been elevated. We are focused on potential disruption risk to our companies. Volatility in the markets has been unusually low by historical standards but could increase. Traditionally, during periods of heightened market volatility, investors favor stocks of higher quality companies with greater consistency and stability of revenue and earnings leading to relatively better stock performance of those companies. We think focusing on companies with competitive advantages and skilled management teams positions us well, should this environment come to pass. During times of economic volatility such companies frequently widen their lead over weaker competitors. We seek to invest in companies characterized by these qualities at compelling valuations and believe this disciplined approach is essential to generating superior long-term performance. The views in the Fund Performance Discussion represent the opinions of this Fund's portfolio managers and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the close of business on June 30, 2018, and are subject to change based on subsequent developments. The Fund s portfolio and strategies are subject to change. 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 MAIN STREET SMALL CAP 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 30, 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 6 Months Ended June 30, 2018 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, 2018 Ending Account Value June 30, 2018 Expenses Paid During 6 Months Ended June 30, 2018 Actual Non-Service shares $ 1, $ 1, $ 4.13 Service shares 1, , Hypothetical (5% return before expenses) Non-Service shares 1, , Service shares 1, , Expenses are equal to the Fund s annualized expense ratio for that class, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). Those annualized expense ratios, excluding indirect expenses from affiliated funds, based on the 6-month period ended June 30, 2018 are as follows: Class Expense Ratios Non-Service shares 0.80% Service shares 1.05 The expense ratios reflect voluntary and/or contractual 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 MAIN STREET SMALL CAP FUND/VA

6 STATEMENT OF INVESTMENTS June 30, 2018 Unaudited Shares Value Common Stocks 99.4% Consumer Discretionary 10.8% Auto Components 3.1% Dorman Products, Inc ,720 $ 13,028,083 Visteon Corp ,700 21,544,308 34,572,391 Diversified Consumer Services 0.7% Houghton Mifflin Harcourt Co. 1 1,028,020 7,864,353 Hotels, Restaurants & Leisure 3.2% Jack in the Box, Inc. 132,350 11,265,632 Texas Roadhouse, Inc., Cl. A 205,030 13,431,515 Wendy's Co. (The) 617,740 10,612,773 35,309,920 Household Durables 0.6% TopBuild Corp. 1 87,930 6,888,436 Specialty Retail 3.2% Children's Place, Inc. (The) 108,620 13,121,296 Group 1 Automotive, Inc. 270,470 17,039,610 Monro, Inc. 97,630 5,672,303 35,833,209 Consumer Staples 2.2% Household Products 0.5% Energizer Holdings, Inc. 92,210 5,805,542 Personal Products 0.9% Nu Skin Enterprises, Inc., Cl. A 133,150 10,410,998 Tobacco 0.8% Universal Corp. 139,400 9,207,370 Energy 3.7% Oil, Gas & Consumable Fuels 3.7% Matador Resources Co ,713 17,450,425 Noble Midstream Partners LP 2 199,751 10,199,286 Renewable Energy Group, Inc ,329 12,893,573 40,543,284 Financials 22.4% Capital Markets 1.1% Stifel Financial Corp. 221,280 11,561,880 Commercial Banks 9.3% Bank of NT Butterfield & Son Ltd. (The) 190,810 8,723,833 BankUnited, Inc. 398,035 16,259,730 Berkshire Hills Bancorp, Inc. 229,280 9,308,768 Chemical Financial Corp. 204,846 11,403,777 Columbia Banking System, Inc. 187,850 7,683,065 Customers Bancorp, Inc ,650 6,489,087 FCB Financial Holdings, Inc., Cl. A 1 178,339 10,486,333 IBERIABANK Corp. 140,450 10,646,110 Sterling Bancorp 497,960 11,702,060 Webster Financial Corp. 147,700 9,408, ,111,253 Insurance 0.5% James River Group Holdings Ltd. 139,792 5,492,428 Real Estate Investment Trusts (REITs) 7.8% Brandywine Realty Trust 852,140 14,384,123 CYS Investments, Inc. 1,913,000 14,347,500 DiamondRock Hospitality Co. 1,388,450 17,050,166 EPR Properties 106,360 6,891,064 Four Corners Property Trust, Inc. 644,690 15,878,715 National Storage Affiliates Trust 556,216 17,142,577 85,694,145 Real Estate Management & Development 0.8% Realogy Holdings Corp. 398,990 9,096,972 Thrifts & Mortgage Finance 2.9% Beneficial Bancorp, Inc. 429,960 6,965,352 OceanFirst Financial Corp. 331,873 9,942,915 Shares Value Thrifts & Mortgage Finance (Continued) WSFS Financial Corp. 289,010 $ 15,404,233 32,312,500 Health Care 14.1% Biotechnology 4.4% Emergent BioSolutions, Inc ,360 8,651,967 Exact Sciences Corp. 1 82,130 4,910,553 Galapagos NV 1 43,228 3,965,575 Ligand Pharmaceuticals, Inc. 1 56,040 11,609,807 Repligen Corp ,310 9,892,982 Sage Therapeutics, Inc. 1 36,336 5,687,674 uniqure NV 1 94,020 3,553,956 48,272,514 Health Care Equipment & Supplies 4.1% CryoPort, Inc ,960 3,360,509 Inogen, Inc. 1 51,280 9,555,002 NxStage Medical, Inc ,330 5,672,907 Quidel Corp ,880 14,289,520 Senseonics Holdings, Inc ,286 4,037,195 Wright Medical Group NV 1 339,210 8,805,892 45,721,025 Health Care Providers & Services 3.3% Addus HomeCare Corp ,972 6,639,397 Amedisys, Inc ,010 17,092,855 American Renal Associates Holdings, Inc ,430 3,239,631 Molina Healthcare, Inc. 1 94,550 9,260,227 36,232,110 Health Care Technology 1.1% Inspire Medical Systems, Inc. 1 49,871 1,778,400 Teladoc, Inc ,440 10,242,342 12,020,742 Pharmaceuticals 1.2% Intersect ENT, Inc ,210 7,610,215 TherapeuticsMD, Inc ,780 6,057,667 13,667,882 Industrials 19.2% Aerospace & Defense 0.5% Wesco Aircraft Holdings, Inc ,820 5,859,225 Airlines 1.2% Spirit Airlines, Inc ,270 13,059,465 Building Products 1.2% Masonite International Corp ,661 13,052,343 Commercial Services & Supplies 2.4% ACCO Brands Corp. 1,175,807 16,284,927 Advanced Disposal Services, Inc ,487 9,874,508 26,159,435 Construction & Engineering 2.1% Dycom Industries, Inc ,490 11,765,550 KBR, Inc. 617,611 11,067,589 22,833,139 Electrical Equipment 1.6% Generac Holdings, Inc ,990 17,535,953 Machinery 4.3% EnPro Industries, Inc. 100,380 7,021,581 Greenbrier Cos., Inc. (The) 232,120 12,244,330 Manitowoc Co., Inc. (The) 1 239,727 6,199,340 Navistar International Corp ,560 9,388,403 Rexnord Corp ,290 12,620,468 47,474,122 Professional Services 4.5% ASGN, Inc ,840 22,115,259 6 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

7 Shares Value Professional Services (Continued) Korn/Ferry International 443,245 $ 27,450,163 49,565,422 Road & Rail 1.4% Genesee & Wyoming, Inc., Cl. A 1 183,590 14,929,539 Information Technology 18.8% Internet Software & Services 7.1% Envestnet, Inc ,470 8,707,926 Etsy, Inc ,340 15,455,884 j2 Global, Inc. 211,493 18,317,409 Q2 Holdings, Inc ,960 13,290,368 SendGrid, Inc ,469 8,047,998 Yelp, Inc., Cl. A 1 368,120 14,422,942 78,242,527 IT Services 3.7% CACI International, Inc., Cl. A 1 128,419 21,645,022 Perspecta, Inc. 335,876 6,902,252 Teradata Corp ,240 11,894,036 40,441,310 Semiconductors & Semiconductor Equipment 3.6% Brooks Automation, Inc. 356,440 11,627,073 MKS Instruments, Inc. 149,810 14,336,817 Semtech Corp ,250 13,468,062 39,431,952 Software 4.4% Blackline, Inc ,750 8,979,153 Paylocity Holding Corp ,940 9,355,208 Shares Value Software (Continued) Pegasystems, Inc. 211,301 $ 11,579,295 Zynga, Inc., Cl. A 1 4,539,820 18,477,067 48,390,723 Materials 4.1% Construction Materials 1.0% Summit Materials, Inc., Cl. A 1 431,871 11,336,614 Metals & Mining 3.1% Allegheny Technologies, Inc ,188 9,575,443 Compass Minerals International, Inc. 160,780 10,571,285 Kaiser Aluminum Corp. 134,119 13,963,129 34,109,857 Utilities 4.1% Gas Utilities 1.4% Suburban Propane Partners LP 2 644,475 15,138,718 Multi-Utilities 2.7% Black Hills Corp. 281,000 17,200,010 NorthWestern Corp. 226,250 12,952,812 30,152,822 Total Common Stocks (Cost $821,691,037) 1,096,332,120 Investment Company 0.4% Oppenheimer Institutional Government Money Market Fund, Cl. E, 1.85% 3,4 (Cost $4,751,836) 4,751,836 4,751,836 Total Investments, at Value (Cost $826,442,873) 99.8% 1,101,083,956 Net Other Assets (Liabilities) 0.2 2,683,740 Net Assets 100.0% $ 1,103,767,696 Footnotes to Statement of Investments 1. Non-income producing security. 2. Security is a Master Limited Partnership. 3. Rate shown is the 7-day yield at period end. 4. Is or was an affiliate, as defined in the Investment Company Act of 1940, as amended, at or during the reporting period, 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 reporting period in which the issuer was an affiliate are as follows: Shares Gross Gross Shares December 31, 2017 Additions Reductions June 30, 2018 Oppenheimer Institutional Government Money Market Fund, Cl. E 20,455, ,110, ,813,654 4,751,836 Realized Change in Unrealized Value Income Gain (Loss) Gain (Loss) Oppenheimer Institutional Government Money Market Fund, Cl. E $ 4,751,836 $ 107,215 $ $ See accompanying Notes to Financial Statements. 7 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

8 STATEMENT OF ASSETS AND LIABILITIES June 30, 2018 Unaudited Assets Investments, at value see accompanying statement of investments: Unaffiliated companies (cost $821,691,037) $ 1,096,332,120 Affiliated companies (cost $4,751,836) 4,751,836 1,101,083,956 Cash 1,000,000 Receivables and other assets: Investments sold 2,816,569 Dividends 1,000,827 Shares of beneficial interest sold 241,307 Other 77,350 Total assets 1,106,220,009 Liabilities Payables and other liabilities: Investments purchased 1,662,730 Shares of beneficial interest redeemed 453,443 Distribution and service plan fees 198,197 Trustees' compensation 67,881 Shareholder communications 39,474 Other 30,588 Total liabilities 2,452,313 Net Assets $ 1,103,767,696 Composition of Net Assets Par value of shares of beneficial interest $ 45,596 Additional paid-in capital 802,215,025 Accumulated net investment income 238,850 Accumulated net realized gain on investments and foreign currency transactions 26,627,142 Net unrealized appreciation on investments 274,641,083 Net Assets $ 1,103,767,696 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 $153,980,914 and 6,278,206 shares of beneficial interest outstanding) $24.53 Service Shares: Net asset value, redemption price per share and offering price per share (based on net assets of $949,786,782 and 39,317,595 shares of beneficial interest outstanding) $24.16 See accompanying Notes to Financial Statements. 8 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

9 STATEMENT OF OPERATIONS For the Six Months Ended June 30, 2018 Unaudited Investment Income Dividends: Unaffiliated companies $ 6,041,837 Affiliated companies 107,215 Interest 27 Total investment income 6,149,079 Expenses Management fees 3,639,214 Distribution and service plan fees Service shares 1,161,120 Transfer and shareholder servicing agent fees: Non-Service shares 88,901 Service shares 557,338 Shareholder communications: Non-Service shares 5,158 Service shares 32,205 Borrowing fees 19,673 Trustees' compensation 18,424 Custodian fees and expenses 3,347 Other 36,763 Total expenses 5,562,143 Less reduction to custodian expenses (278) Less waivers and reimbursements of expenses (72,813) Net expenses 5,489,052 Net Investment Income 660,027 Realized and Unrealized Gain Net realized gain on: Investment transactions in unaffiliated companies 29,325,457 Foreign currency transactions 28 Net realized gain 29,325,485 Net change in unrealized appreciation/depreciation on investment transactions in unaffiliated companies 52,842,821 Net Increase in Net Assets Resulting from Operations $ 82,828,333 See accompanying Notes to Financial Statements. 9 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

10 hs STATEMENTS OF CHANGES IN NET ASSETS Six Months Ended June 30, 2018 (Unaudited) Year Ended December 31, 2017 Operations Net investment income $ 660,027 $ 700,445 Net realized gain 29,325, ,346,143 Net change in unrealized appreciation/depreciation 52,842,821 (7,293,562) Net increase in net assets resulting from operations 82,828, ,753,026 Dividends and/or Distributions to Shareholders Dividends from net investment income: Non-Service shares (451,758) (1,318,291) Service shares (534,686) (5,916,141) (986,444) (7,234,432) Distributions from net realized gain: Non-Service shares (18,607,843) (8,092,450) Service shares (116,699,432) (49,338,866) (135,307,275) (57,431,316) Beneficial Interest Transactions Net increase (decrease) in net assets resulting from beneficial interest transactions: Non-Service shares 8,842,029 (3,222,317) Service shares 59,980,995 (50,919,555) 68,823,024 (54,141,872) Net Assets Total increase 15,357,638 20,945,406 Beginning of period 1,088,410,058 1,067,464,652 End of period (including accumulated net investment income of $238,850 and $565,267, respectively) $ 1,103,767,696 $ 1,088,410,058 See accompanying Notes to Financial Statements. 10 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

11 FINANCIAL HIGHLIGHTS Six Months Ended June 30, 2018 (Unaudited) Year Ended December 31, 2017 Year Ended December 31, 2016 Year Ended December 31, 2015 Year Ended December 31, 2014 Year Ended December 31, 2013 Non-Service Shares Per Share Operating Data Net asset value, beginning of period $25.79 $24.08 $21.32 $26.56 $27.80 $20.14 Income (loss) from investment operations: Net investment income Net realized and unrealized gain (loss) (1.28) Total from investment operations (1.16) Dividends and/or distributions to shareholders: Dividends from net investment income (0.08) (0.22) (0.11) (0.23) (0.25) (0.22) Distributions from net realized gain (3.35) (1.36) (0.84) (3.85) (3.99) (0.29) Total dividends and/or distributions to shareholders (3.43) (1.58) (0.95) (4.08) (4.24) (0.51) Net asset value, end of period $24.53 $25.79 $24.08 $21.32 $26.56 $27.80 Total Return, at Net Asset Value % 14.15% 18.05% (5.90)% 11.93% 41.01% Ratios/Supplemental Data Net assets, end of period (in thousands) $153,981 $152,617 $145,428 $129,104 $136,402 $134,692 Average net assets (in thousands) $149,408 $150,376 $130,889 $134,932 $133,864 $113,522 Ratios to average net assets: 3 Net investment income 0.34% 0.28% 0.74% 0.49% 0.99% 0.67% Expenses excluding specific expenses listed below 0.81% 0.80% 0.81% 0.80% 0.80% 0.81% Interest and fees from borrowings 0.00% % % % % 0.00% Total expenses % 0.80% 0.81% 0.80% 0.80% 0.81% Expenses after payments, waivers and/or reimbursements and reduction to custodian expenses 0.80% 0.80% % 0.80% % 0.80% Portfolio turnover rate 23% 42% 65% 43% 65% 60% 1. Per share amounts calculated based on the average shares outstanding during the period. 2. 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. 3. Annualized for periods less than one full year. 4. Less than 0.005%. 5. Total expenses including indirect expenses from affiliated fund fees and expenses were as follows: Six Months Ended June 30, % Year Ended December 31, % Year Ended December 31, % Year Ended December 31, % Year Ended December 31, % Year Ended December 31, % 6. Waiver was less than 0.005%. See accompanying Notes to Financial Statements. 11 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

12 FINANCIAL HIGHLIGHTS Continued Six Months Ended June 30, 2018 (Unaudited) Year Ended December 31, 2017 Year Ended December 31, 2016 Year Ended December 31, 2015 Year Ended December 31, 2014 Year Ended December 31, 2013 Service Shares Per Share Operating Data Net asset value, beginning of period $25.42 $23.75 $21.05 $26.26 $27.53 $19.96 Income (loss) from investment operations: Net investment income Net realized and unrealized gain (loss) (1.25) Total from investment operations (1.19) Dividends and/or distributions to shareholders: Dividends from net investment income (0.02) (0.16) (0.05) (0.17) (0.18) (0.17) Distributions from net realized gain (3.35) (1.36) (0.84) (3.85) (3.99) (0.29) Total dividends and/or distributions to shareholders (3.37) (1.52) (0.89) (4.02) (4.17) (0.46) Net asset value, end of period $24.16 $25.42 $23.75 $21.05 $26.26 $27.53 Total Return, at Net Asset Value % 13.91% 17.67% (6.09)% 11.66% 40.62% Ratios/Supplemental Data Net assets, end of period (in thousands) $949,787 $935,793 $922,037 $856,719 $968,637 $990,168 Average net assets (in thousands) $936,856 $919,475 $850,883 $927,514 $957,874 $935,083 Ratios to average net assets: 3 Net investment income 0.09% 0.03% 0.49% 0.24% 0.75% 0.43% Expenses excluding specific expenses listed below 1.06% 1.05% 1.06% 1.05% 1.05% 1.06% Interest and fees from borrowings 0.00% % % % % 0.00% Total expenses % 1.05% 1.06% 1.05% 1.05% 1.06% Expenses after payments, waivers and/or reimbursements and reduction to custodian expenses 1.05% 1.05% % 1.05% % 1.05% Portfolio turnover rate 23% 42% 65% 43% 65% 60% 1. Per share amounts calculated based on the average shares outstanding during the period. 2. 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. 3. Annualized for periods less than one full year. 4. Less than 0.005%. 5. Total expenses including indirect expenses from affiliated fund fees and expenses were as follows: Six Months Ended June 30, % Year Ended December 31, % Year Ended December 31, % Year Ended December 31, % Year Ended December 31, % Year Ended December 31, % 6. Waiver was less than 0.005%. See accompanying Notes to Financial Statements. 12 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

13 NOTES TO FINANCIAL STATEMENTS June 30, 2018 Unaudited 1. Organization Oppenheimer Main Street Small Cap Fund/VA (the Fund ), a separate series of Oppenheimer Variable Account Funds, is a diversified open-end management investment company registered under the Investment Company Act of 1940 ( 1940 Act ), as amended. The Fund s investment objective is to seek capital appreciation. The Fund s investment adviser is OFI Global Asset Management, Inc. ( OFI Global or the Manager ), a wholly-owned subsidiary of OppenheimerFunds, Inc. ( OFI or the Sub-Adviser ). The Manager has entered into a sub-advisory agreement with OFI. Shares of the Fund are sold only to separate accounts of life insurance companies. 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 followed in the Fund's preparation of financial statements in accordance with accounting principles generally accepted in the United States ( U.S. GAAP ). 2. Significant Accounting Policies Security Valuation. All investments in securities are recorded at their estimated fair value, as described in Note 3. Foreign Currency Translation. The books and records of the Fund are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis: (1) Value of investment securities, other assets and liabilities at the exchange rates prevailing at market close as described in Note 3. (2) Purchases and sales of investment securities, income and expenses at the rates of exchange prevailing on the respective dates of such transactions. Although the net assets and the values are presented at the foreign exchange rates at market close, the Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses from investments shown in the Statement of Operations. For securities, which are subject to foreign withholding tax upon disposition, realized and unrealized gains or losses on such securities are recorded net of foreign withholding tax. Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding tax reclaims recorded on the Fund s books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities, resulting from changes in the exchange rate. 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. 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. GAAP, are recorded on the ex-dividend date. Income and capital gain distributions, if any, are declared and paid annually or at other times as determined 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 value of the securities received. Withholding taxes on foreign dividends, if any, and capital gains taxes on foreign investments, if any, have been provided for in accordance with the Fund's understanding of the applicable tax rules and regulations. Interest income, if any, 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. Return of Capital Estimates. Distributions received from the Fund s investments in Master Limited Partnerships (MLPs) and Real Estate Investments Trusts (REITs), generally are comprised of income and return of capital. The Fund records investment income and return of capital based on estimates. Such estimates are based on historical information available from each MLP, REIT and other industry sources. These estimates may subsequently be revised based on information received from MLPs and REITs after their tax reporting periods are concluded. 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 2.00%. The Reduction to custodian 13 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

14 NOTES TO FINANCIAL STATEMENTS Unaudited / Continued 2. Significant Accounting Policies (Continued) 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. 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 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 remains open for the three preceding fiscal reporting period ends. The Fund has analyzed its tax positions for the fiscal year ended December 31, 2017, including open tax years, and does not believe there are any uncertain tax positions requiring recognition in the Fund s financial statements. During the fiscal year ended December 31, 2017, the Fund did not utilize any capital loss carryforwards to offset capital gains realized in that fiscal year. Capital losses will be carried forward to future years if not offset by gains. At period end, it is estimated that the capital loss carryforwards would be zero. 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 reporting period, it is estimated that the Fund will not utilize any 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 are determined in accordance with federal income tax requirements, which may differ from the character of net investment income or net realized gains presented in those financial statements in accordance with U.S. GAAP. 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 at period end 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 $ 827,791,872 Gross unrealized appreciation $ 290,427,062 Gross unrealized depreciation (17,134,978) Net unrealized appreciation $ 273,292,084 Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP 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. 3. Securities Valuation The Fund calculates the net asset value of its shares as of 4:00 P.M. Eastern Time, on each day the New York Stock Exchange (the "Exchange") is open for trading, except in the case of a scheduled early closing of the Exchange, in which case the Fund will calculate net asset value of the shares as of the scheduled early closing time of the Exchange. 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 least quarterly or more frequently, if necessary. Valuation Methods and Inputs Securities are valued primarily using unadjusted quoted market prices, when available, as supplied by third party pricing services or broker-dealers. The following methodologies are used to determine the market value or the fair value of the types of securities described below: Equity securities traded on a securities exchange (including exchange-traded derivatives other than futures and futures options) are valued based on the official closing price on the principal exchange on which the security is traded, as identified by the Manager, prior to the time when the Fund s assets are valued. If the official closing price is unavailable, the security is valued at the last sale price on the principal exchange on which it is traded, or if no sales occurred, the security is valued at the mean between the quoted bid and asked prices. Over-the-counter equity securities are valued at the last published sale price, or if no sales occurred, at the mean between the quoted bid and asked prices. Events occurring after the close of trading on foreign 14 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA

15 3. Securities Valuation (Continued) exchanges may result in adjustments to the valuation of foreign securities to more accurately reflect their fair value as of the time when the Fund s assets are valued. 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. Securities for which market quotations are not readily available, or when a significant event has occurred that would materially affect the value of the security, are 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. Those standardized fair valuation 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. 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 may be 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). The inputs used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. The Fund classifies each of its investments in investment companies which are publicly offered as Level 1. Investment companies that are not publicly offered, if any, are classified as Level 2 in the fair value hierarchy. The table below categorizes amounts that are included in the Fund's Statement of Assets and Liabilities at period end based on valuation input level: Level 1 Unadjusted Quoted Prices Level 2 Other Significant Observable Inputs Level 3 Significant Unobservable Inputs Value Assets Table Investments, at Value: Common Stocks Consumer Discretionary $ 120,468,309 $ $ $ 120,468,309 Consumer Staples 25,423,910 25,423,910 Energy 40,543,284 40,543,284 Financials 246,269, ,269,178 Health Care 151,948,698 3,965, ,914,273 Industrials 210,468, ,468,643 Information Technology 206,506, ,506,512 Materials 45,446,471 45,446,471 Utilities 45,291,540 45,291,540 Investment Company 4,751,836 4,751,836 Total Assets $ 1,097,118,381 $ 3,965,575 $ $ 1,101,083,956 Forward currency exchange contracts and futures contracts, if any, are reported at their unrealized appreciation/depreciation at measurement date, which represents the change in the contract s value from trade date. All additional assets and liabilities included in the above table are reported at their market value at measurement date. For the reporting period, there were no transfers between levels. 4. Investments and Risks Investments in Affiliated Funds. The Fund is permitted to invest in other mutual funds advised by the Manager ( Affiliated Funds ). Affiliated Funds are open-end management investment companies registered under the 1940 Act, as amended. The Manager is the investment adviser of, and the Sub-Adviser provides investment and related advisory services to, the Affiliated Funds. When applicable, the Fund's investments in Affiliated Funds are included in the Statement of Investments. Shares of Affiliated Funds are valued at their net asset value per share. As a shareholder, the Fund is subject to its proportional share of the Affiliated Funds expenses, including their 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 the Affiliated Funds. 15 OPPENHEIMER MAIN STREET SMALL CAP FUND/VA